Document:

<PAGE>

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                                                  EXHIBIT 10.10

                                 INSULIN INHALER

                                   DEVELOPMENT

                                    AGREEMENT

                                 BY AND BETWEEN

                          BECTON, DICKINSON AND COMPANY

                                       AND

                                  AEROGEN, INC.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

<PAGE>

<TABLE>
<S>                                                                                                            <C>
1.       DEFINITIONS..............................................................................................1

         1.1      "AeroGen Know-How"..............................................................................1

         1.2      "AeroGen Patents"...............................................................................1

         1.3      "AeroGen Technology"............................................................................2

         1.4      "Affiliate".....................................................................................2

         1.5      "BD Cartridge"..................................................................................2

         1.6      "BD Know-How"...................................................................................2

         1.7      "BD Patents"....................................................................................2

         1.8      "BD Percentage".................................................................................2

         1.9      "BD Technology".................................................................................2

         1.10     "Cartridge".....................................................................................2

         1.11     "Confidential Information"......................................................................2

         1.12     "Controlled"....................................................................................2

         1.13     "Critical System Specifications"................................................................2

         1.14     "Development Patents"...........................................................................2

         1.15     "Development Invention".........................................................................2

         1.16     "Development Technology"........................................................................2

         1.17     "Development Term"..............................................................................2

         1.18     "Drug"..........................................................................................3

         1.19     "Field".........................................................................................3

         1.20     "Final Specifications"..........................................................................3

         1.21     "Information"...................................................................................3

         1.22     "Inhaler".......................................................................................3

         1.23     "Initial Phase II Trials".......................................................................3

         1.24     "[*]"...........................................................................................3

         1.25     "[*] Technology"................................................................................3

         1.26     "Interim Technical Specifications"..............................................................3

         1.27     "Joint Development Team" or "JDT"...............................................................3

         1.28     "Joint Know-How"................................................................................3

         1.29     "Joint Patents".................................................................................3

         1.30     "Joint Technology"..............................................................................3

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                       i
<PAGE>

         1.31     "Marketing Partner".............................................................................3

         1.32     "NDA"...........................................................................................3

         1.33     "Net Sales".....................................................................................4

         1.34     "Partnering Agreement"..........................................................................4

         1.35     "Patent"........................................................................................4

         1.36     "Preliminary Final Specifications"..............................................................4

         1.37     "Product".......................................................................................4

         1.38     "Qualified Supplier"............................................................................4

         1.39     "Retail Product"................................................................................4

         1.40     "Royalty" or "Royalties"........................................................................4

         1.41     "Specifications"................................................................................4

         1.42     "Steering Committee"............................................................................4

         1.43     "Stock Purchase Agreement"......................................................................4

         1.44     "Supply Agreement"..............................................................................4

         1.45     "Technical Development Plan"....................................................................4

         1.46     "Technical Development Program".................................................................4

         1.47     "Third Party"...................................................................................5

         1.48     "Valid Claim"...................................................................................5

         1.49     "Validation Studies"............................................................................5

2.       OVERVIEW.................................................................................................5

         2.1      Development of the Product......................................................................5

         2.2      Commercialization...............................................................................5

3.       MANAGEMENT...............................................................................................5

         3.1      Joint Development Team..........................................................................5

         3.2      Steering Committee..............................................................................6

         3.3      Limitation of Powers............................................................................8

         3.4      Liaisons........................................................................................8

4.       TECHNICAL DEVELOPMENT PROGRAM............................................................................8

         4.1      Technical Development Plan......................................................................8

         4.2      AeroGen Development Activities..................................................................8

         4.3      BD Development Activities.......................................................................8

         4.4      Conduct of Technical Development Program........................................................9

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                       ii
<PAGE>

         4.5      Development of Product Specifications...........................................................9

         4.6      Records and Reports.............................................................................9

         4.7      Invention Assignment Agreements................................................................10

5.       CLINICAL DEVELOPMENT....................................................................................10

         5.1      AeroGen Responsibilities.......................................................................10

         5.2      BD Participation...............................................................................11

6.       COMMERCIALIZATION.......................................................................................11

         6.2      BD Right to Secure Marketing Partner...........................................................11

         6.3      Failure to Obtain a Marketing Partner..........................................................11

         6.4      Services by BD.................................................................................12

7.       MANUFACTURING AND SUPPLY................................................................................12

         7.1      Supply of the Drug.............................................................................12

         7.2      Manufacture and Supply of the Cartridge........................................................12

         7.3      Exclusivity....................................................................................13

         7.4      Use of AeroGen Intellectual Property...........................................................14

         7.5      Cost Standards.................................................................................14

8.       LICENSE GRANTS..........................................................................................14

         8.1      To BD..........................................................................................14

         8.2      To AeroGen.....................................................................................15

         8.3      Use of the [*].................................................................................15

         8.4      Reservation of Rights..........................................................................15

9.       ROYALTIES...............................................................................................16

         9.1      Royalties......................................................................................16

         9.2      Pre-Paid Royalties.............................................................................16

         9.3      Calculation of BD Percentage in Certain Circumstances..........................................16

         9.4      Upfront Payments...............................................................................17

         9.5      Payment of the BD Percentage...................................................................17

         9.6      Audits.........................................................................................17

10.      INTELLECTUAL PROPERTY...................................................................................18

         10.1     Ownership......................................................................................18

         10.2     Patent Matters.................................................................................19

         10.3     Defense and Settlement of Third Party Claims...................................................20

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                      iii
<PAGE>

         10.4     Infringement By Third Parties..................................................................20

         10.5     Settlements....................................................................................20

11.      CONFIDENTIALITY.........................................................................................20

         11.1     Treatment of Confidential Information..........................................................21

         11.2     Publications...................................................................................21

         11.3     Publicity......................................................................................21

         11.4     Terms of the Agreement.........................................................................22

         11.5     Required Disclosure............................................................................22

         11.6     Survival of Confidentiality....................................................................22

12.      REPRESENTATIONS AND COVENANTS...........................................................................22

         12.1     Mutual Authority...............................................................................22

         12.2     BD Representations and Warranties..............................................................22

         12.3     AeroGen Representations and Warranties.........................................................23

         12.4     Disclaimer.....................................................................................23

13.      TERM AND TERMINATION....................................................................................23

         13.1     Term...........................................................................................23

         13.2     Termination For Other Than Cause...............................................................23

         13.3     Termination For Breach.........................................................................26

         13.4     Effect of Termination..........................................................................27

         13.5     Bankruptcy Rights..............................................................................27

         13.6     Survival.......................................................................................27

14.      INDEMNIFICATION.........................................................................................27

         14.1     By AeroGen.....................................................................................27

         14.2     By BD..........................................................................................27

         14.3     Apportionment..................................................................................28

         14.4     Notice and Procedures..........................................................................28

15.      MISCELLANEOUS...........................................................................................28

         15.1     Entire Agreement; Amendment....................................................................28

         15.2     Dispute Resolution.............................................................................28

         15.3     Force Majeure..................................................................................29

         15.4     Notices........................................................................................29

         15.5     Limitation of Liability........................................................................30

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                       iv
<PAGE>

         15.6     Consents Not Unreasonably Withheld or Delayed..................................................30

         15.7     Independent Contractors........................................................................30

         15.8     Maintenance of Records.........................................................................30

         15.9     United States Dollars..........................................................................30

         15.10    No Strict Construction.........................................................................30

         15.11    Assignment.....................................................................................30

         15.12    Performance by Affiliates......................................................................30

         15.13    Counterparts...................................................................................31

         15.14    Further Actions................................................................................31

         15.15    Severability...................................................................................31

         15.16    Ambiguities....................................................................................31

         15.17    Headings.......................................................................................31

         15.18    No Waiver......................................................................................31

EXHIBIT 1  CRITICAL SYSTEM SPECIFICATIONS........................................................................33

EXHIBIT 2  TECHNICAL DEVELOPMENT PLAN............................................................................34

EXHIBIT 4  POTENTIAL INVENTORS...................................................................................43

EXHIBIT 5  FORM OF STANDARD EMPLOYMENT AGREEMENT.................................................................44

EXHIBIT 6  [*]...................................................................................................45
</TABLE>

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                       v
<PAGE>

                      INSULIN INHALER DEVELOPMENT AGREEMENT

         THIS INSULIN INHALER DEVELOPMENT AGREEMENT (the "Agreement") is
executed as of May 10, 2000 (the "Signing Date") and effective as of the 1st day
of January, 2000 (the "Effective Date") by and between AEROGEN, INC., a Delaware
corporation having its principal place of business at 1310 Orleans Drive,
Sunnyvale, CA 94089 ("AeroGen"), and BECTON, DICKINSON AND COMPANY, a New Jersey
corporation having its principal place of business at 1 Becton Drive, Franklin
Lakes, New Jersey 07417-1866 ("BD"). AeroGen and BD are sometimes referred to
herein individually as a "Party" and collectively as the "Parties."

                                    RECITALS

WHEREAS, AeroGen has developed and possesses proprietary drug delivery
technology, including without limitation an aerosol generator device useful for
the systemic delivery of insulin as further described herein; and

WHEREAS, BD possesses extensive experience in the development and
commercialization of medical devices and components thereof, including without
limitation devices for the delivery of insulin; and

WHEREAS, AeroGen and BD desire to enter into a collaboration for the development
of a product for the systemic delivery of insulin to humans, pursuant to the
terms and conditions of this Agreement, with the goal of achieving rapid,
effective development and worldwide registration of a pulmonary insulin inhaler
with a [*] that has broad commercial appeal;

NOW, THEREFORE, in consideration of the foregoing and the covenants and promises
contained herein, the Parties hereby agree as follows:

1.       DEFINITIONS

         The following capitalized terms shall have the following meanings as
used in this Agreement:

         1.1      "AEROGEN KNOW-HOW" means all Information Controlled by AeroGen
during the term of this Agreement that is necessary or useful for [*] hereunder.
"AeroGen Know-How" includes the [*], but specifically excludes [*].

         1.2      "AEROGEN PATENTS" means all Patents Controlled by AeroGen
during the term of this Agreement to the extent that such Patents contain one or
more claims covering an invention that is practiced by BD [*]. "AeroGen Patents"
includes [*], but specifically excludes [*].

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                       1.
<PAGE>

         1.3      "AEROGEN TECHNOLOGY" means the AeroGen Know-How and the
AeroGen Patents.

         1.4      "AFFILIATE" means any company or entity controlled by,
controlling or under common control with a Party. As used in this Section 1.4,
"control" means that (a) an entity or company owns, directly or indirectly,
fifty percent (50%) or more of the voting stock of another entity, or (b) an
entity, person or group has the actual ability to control and direct the
management of the entity, whether by contract or otherwise.

         1.5      "BD CARTRIDGE" means [*].

         1.6      "BD KNOW-HOW" means all Information Controlled by BD during
the term of this Agreement that is [*]. "BD Know-How" includes the [*], but
specifically excludes [*].

         1.7      "BD PATENTS" means all Patents Controlled by BD during the
term of this Agreement to the extent that such Patents contain one or more
claims covering an invention that is practiced by AeroGen (or its sublicensees
hereunder) in [*].

         1.8      "BD PERCENTAGE" shall have the meaning ascribed in Section
9.1.

         1.9      "BD TECHNOLOGY" means the BD Patents and the BD Know-How.

         1.10     "CARTRIDGE" means a [*].

         1.11     "CONFIDENTIAL INFORMATION" shall have the meaning ascribed in
Section 11.1.

         1.12     "CONTROLLED" means, with respect to any material, Information
or intellectual property right, possession of the ability by a Party to grant
access, a license, or a sublicense to such material, Information or intellectual
property right as provided for herein without violating an agreement with a
Third Party as of the time such Party would be first required hereunder to grant
the other Party such access, license or sublicense.

         1.13     "CRITICAL SYSTEM SPECIFICATIONS" means the [*] for the Product
set forth in Exhibit 1 hereto.

         1.14     "DEVELOPMENT PATENTS" means any Patents claiming a Development
Invention; provided, however, that such Patents do not include [*].

         1.15     "DEVELOPMENT INVENTION" means an invention in the Development
Technology.

         1.16     "DEVELOPMENT TECHNOLOGY" means all Information created or
developed pursuant to the Technical Development Program or thereafter pursuant
to this Agreement, either solely by a Party or jointly by the Parties, and all
Patents covering such Information.

         1.17     "DEVELOPMENT TERM" means the period beginning on the Effective
Date and ending on the earlier of (a) [*], or (b) [*], unless extended by mutual
written agreement of the Parties.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                       2.
<PAGE>

         1.18     "DRUG" means a [*] of [*] insulin, including without
limitation [*].

         1.19     "FIELD" means the treatment of diabetes mellitus in humans.

         1.20     "FINAL SPECIFICATIONS" mean the final specifications for the
Product that are required for the use of the Product in Phase III clinical
studies in the Field, to be developed by the JDT pursuant to Section 4.5(c).

         1.21     "INFORMATION" means (a) techniques, data, inventions,
practices, methods, knowledge, know-how, skill, experience, test data including
pharmacological, toxicological and clinical test data, analytical and quality
control data, regulatory submissions, correspondence and communications,
marketing, pricing, distribution, cost, sales, manufacturing, patent and legal
data or descriptions, and (b) compositions of matter, assays and biological
materials, and all intellectual property rights in and to any of the foregoing.

         1.22     "INHALER" means AeroGen's proprietary aerosol generator and
related components [*] for the pulmonary delivery of the Drug for use in the
Field.

         1.23     "INITIAL PHASE II TRIALS" means the first clinical study for
the use of the Inhaler in patients in the Field conducted in any location.

         1.24     "[*]" means the [*].

         1.25     "[*] TECHNOLOGY" shall have the meaning ascribed in Section
10.1(a)(iii).

         1.26     "INTERIM TECHNICAL SPECIFICATIONS" means the technical
specifications for the [*] for the Product, to be determined by the JDT pursuant
to Section 4.5(a) based upon [*] and the work conducted pursuant to the
Technical Development Plan.

         1.27     "JOINT DEVELOPMENT TEAM" OR "JDT" means the joint development
team described in Section 3.1 that shall oversee the Parties' activities under
the Technical Development Program.

         1.28     "JOINT KNOW-HOW" means all Information in the Development
Technology jointly owned by the Parties in accordance with Section 10.1(a),
provided that "Joint Know-How" shall specifically exclude the Joint Patents.

         1.29     "JOINT PATENTS" means any Patents claiming a Development
Invention and jointly owned by the Parties in accordance with Section 10.1(a).

         1.30     "JOINT TECHNOLOGY" means the Joint Know-How and the Joint
Patents.

         1.31     "MARKETING PARTNER" means a Third Party with whom AeroGen has
entered into a Partnering Agreement.

         1.32     "NDA" means a New Drug Application filed with the U.S. Food
and Drug Administration.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                       3.
<PAGE>

         1.33     "NET SALES" means, with respect to each Partnering Agreement,
net sales of the Retail Product as defined in such agreement; provided that [*].

         1.34     "PARTNERING AGREEMENT" means a written agreement between
AeroGen and a Third Party for the commercial development, promotion, manufacture
(other than manufacture of [*]), marketing and/or sale and distribution of the
Product in any country of the world.

         1.35     "PATENT" means (a) unexpired letters patent which have not
been held invalid or unenforceable by a court of competent jurisdiction from
which no appeal can be taken or has been taken within the required time period,
including without limitation any substitution, extension, registration,
confirmation, inventor's certificate, reissue, re-examination, renewal or any
like filing thereof; and (b) pending applications for letters patent, including
without limitation any continuation, division or continuation-in-part thereof
and any provisional applications.

         1.36     "PRELIMINARY FINAL SPECIFICATIONS" means the [*] required for
the conduct of the Validation Studies, to be developed by the JDT pursuant to
Section 4.5(b).

         1.37     "PRODUCT" means any product for the pulmonary delivery of the
Drug comprising the Inhaler and the BD Cartridge.

         1.38     "QUALIFIED SUPPLIER" shall have the meaning ascribed in
Section 7.1(a).

         1.39     "RETAIL PRODUCT" means either (a) the Product; (b) the BD
Cartridge filled with the Drug; or (c) the Inhaler, in such case packaged
separately for retail sale.

         1.40     "ROYALTY" OR "ROYALTIES" means a percentage of Net Sales
actually received by AeroGen from a Marketing Partner pursuant to a Partnering
Agreement from sales of the Retail Product in any country covered by such
Partnering Agreement.

         1.41     "SPECIFICATIONS" means the Critical System Specifications, the
Interim Technical Specifications, the Preliminary Final Specifications or the
Final Specifications, as applicable.

         1.42     "STEERING COMMITTEE" means the committee described in Section
3.2 that shall oversee the commercialization activities of the Parties
hereunder.

         1.43     "STOCK PURCHASE AGREEMENT" means that certain stock purchase
agreement entered into as of the Signing Date, whereby BD shall purchase from
AeroGen shares of AeroGen Series E Preferred Stock.

         1.44     "SUPPLY AGREEMENT" means the agreement described in Section
7.2.

         1.45     "TECHNICAL DEVELOPMENT PLAN" shall have the meaning ascribed
in Section 4.1.

         1.46     "TECHNICAL DEVELOPMENT PROGRAM" means the collaborative
activities to be conducted by the Parties to develop the Product under the
direction of the JDT during the Development Term, as further described in
Article 4.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                       4.
<PAGE>

         1.47     "THIRD PARTY" means any entity other than AeroGen or BD or
their respective Affiliates.

         1.48     "VALID CLAIM" shall mean a claim of an issued and unexpired
Patent that (a) is included within the AeroGen Technology, BD Technology or the
Joint Technology, (b) claims the manufacture, use or sale of the Product and (c)
has not been held unenforceable, unpatentable, or invalid by a court or other
governmental agency of competent jurisdiction, and that has not been admitted to
be invalid or unenforceable through reissue, disclaimer or otherwise.

         1.49     "VALIDATION STUDIES" shall have the meaning ascribed in
Section 5.1(b).

2.       OVERVIEW

         2.1      DEVELOPMENT OF THE PRODUCT. Commencing promptly following the
Effective Date and during the Development Term, the Parties shall undertake the
Technical Development Program in accordance with the Technical Development Plan,
pursuant to which AeroGen shall develop the Inhaler and a manufacturing process
therefor, BD shall develop the [*] therefor and the Parties shall jointly
develop [*], all as further described in Article 4. The Parties' efforts under
the Technical Development Program shall be overseen by the JDT, as further
described in Section 3.1.

         2.2      COMMERCIALIZATION. AeroGen shall seek [*] Marketing Partners
for the commercialization of the Product, as further described in Section 6.1.
AeroGen shall be responsible for identifying and qualifying a source of the Drug
for use with the Product. BD shall exclusively supply to AeroGen and its
Marketing Partner(s), and AeroGen and its Marketing Partner(s) shall exclusively
purchase from BD, AeroGen's clinical and commercial requirements for the BD
Cartridge pursuant to the Supply Agreement. AeroGen shall be responsible for
manufacturing or having manufactured the Product for clinical trials and
commercial use. The Steering Committee shall oversee the Parties' activities
with respect to the clinical and commercial supply of the Product, and shall
advise the Parties with respect to the commercialization of the Product
hereunder, as further described in Section 3.2.

3.       MANAGEMENT

         3.1      JOINT DEVELOPMENT TEAM.

                  (a)      FORMATION. Within ten (10) days after the Effective
Date, AeroGen and BD shall establish the Joint Development Team ("JDT").

                  (b)      PURPOSE AND PRINCIPLES. The general purposes of the
JDT shall be (i) to determine the overall technical strategy for the development
of the Product, including without limitation developing an integrated system
design for the Product and establishing appropriate specifications, (ii) to
develop the Technical Development Plan and to modify or amend it as necessary,
(iii) to develop and propose for the Parties' approval the Interim Technical
Specifications, the Preliminary Final Specifications and the Final
Specifications in accordance with Section 4.5 and to modify or amend them as
necessary, and (iv) to coordinate the Parties'

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                       5.
<PAGE>

activities under the Technical Development Program, all based on the principles
of prompt and diligent development of the Product consistent with good
pharmaceutical and medical device practices. The JDT shall perform such other
functions as appropriate to further the purposes of the Technical Development
Program as determined by the Parties, including the periodic evaluation of
performance against goals.

                  (c)      MEMBERSHIP. The JDT shall initially have three (3)
representatives of each Party with the requisite levels of skill and experience
in engineering and such other matters as the Parties may agree. The JDT may
change its size from time to time by written agreement of the Parties; provided
that the JDT at all times shall be composed of an equal number of
representatives appointed by each of AeroGen and BD. Each Party may replace its
JDT representatives at any time upon written notice to the other Party; provided
that each Party's representatives shall at all times be persons possessing the
appropriate level of skill, experience and familiarity with the Product.

                  (d)      MEETINGS. The JDT shall hold meetings at such times
as the JDT elects to do so, but in no event shall such meetings be held less
frequently than once every calendar quarter. The JDT shall meet alternately at
AeroGen's facilities in Sunnyvale, CA and BD's facilities in Franklin Lakes, NJ
or at such locations as the Parties may otherwise agree. With the consent of the
representatives of each Party serving on the JDT, other representatives of each
Party or of Third Parties involved in the development, manufacture or
commercialization of the Product may attend meetings of the JDT as nonvoting
observers. Meetings of the JDT may be held by audio or video teleconference with
the consent of each Party, provided that at least half of the minimum number of
meetings set forth above shall be held in person. Each Party shall be
responsible for all of its own expenses of participating in the JDT. Meetings of
the JDT shall be effective only if a representative of each Party is present or
participating.

                  (e)      CHAIRPERSONS. The JDT shall be chaired first by a
representative of AeroGen from the Effective Date through June 30, 2000, and the
Chairperson position shall rotate thereafter on a semi-annual basis with BD to
appoint the Chairperson for the six month period beginning July 1, 2000. The
Chairperson shall be responsible for calling meetings, preparing and circulating
an agenda in advance of each meeting, and preparing and issuing minutes of each
meeting within thirty (30) days thereafter. From time to time, the JDT may
establish subcommittees or subordinate committees (which may or may not include
members of the JDT itself) to oversee particular projects or activities, and
such subcommittees or subordinate committees shall be constituted and shall
operate as the JDT agrees.

                  (f)      DECISION-MAKING. Each of AeroGen's and BD's
representatives shall have one vote. All decisions of the JDT shall be
unanimous. Any disagreement among the members of the JDT will be resolved in
light of the principles set forth in this Article 3. Should the JDT be unable to
reach a unanimous decision on an issue within thirty (30) days, such issue shall
be referred to the Steering Committee for resolution.

                  (g)      TERM. The JDT shall remain in operation for the
duration of the Development Term unless otherwise agreed by the Parties in
writing.

         3.2      STEERING COMMITTEE.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                       6.
<PAGE>

                  (a)      FORMATION. Within thirty (30) days following the
Effective Date, the Parties shall establish the Steering Committee, which shall
advise the Parties with respect to the commercial development of the Product.

                  (b)      PURPOSE AND PRINCIPLES. The general purposes of the
Steering Committee shall be (i) to play an advisory role with respect to the
Product positioning and the overall commercialization strategy, (ii) to
determine strategies for supply of the Drug for the Product, (iii) to oversee
the JDT, and (iv) to coordinate the Parties' manufacturing and supply activities
hereunder with respect to the initial commercial introduction of the Product,
all based on the principles of prompt and diligent development of the Product
consistent with good pharmaceutical and medical device practices. The Steering
Committee shall perform such other functions as appropriate to further the
purposes of this Agreement as determined by the Parties, including the periodic
evaluation of performance against goals. In addition to its overall
responsibility for the collaboration established by this Agreement, the Steering
Committee shall explore further collaborative opportunities between the Parties,
including [*].

                  (c)      MEMBERSHIP. The Steering Committee shall initially
have three (3) representatives of each Party, provided that neither Party's
Chief Executive Officer may serve as a member of the Steering Committee. The
Steering Committee may change its size from time to time by written agreement of
the Parties; provided that the Steering Committee at all times shall be composed
of an equal number of representatives appointed by each of AeroGen and BD. Each
Party may replace its Steering Committee representatives at any time upon
written notice to the other Party, provided that each Party's representatives
shall at all times be persons possessing the appropriate level of skill,
experience and familiarity with the Product.

                  (d)      MEETINGS. The Steering Committee shall hold meetings
at such times as the Steering Committee elects to do so, but in no event shall
such meetings be held less frequently than once every quarter. The Steering
Committee shall meet alternately at AeroGen's facilities in Sunnyvale, CA and
BD's facilities in Franklin Lakes, NJ or at such locations as the Parties may
otherwise agree. With the consent of the representatives of each Party serving
on the Steering Committee, other representatives of each Party or of Third
Parties involved in the manufacture or commercialization of the Product may
attend meetings of the Steering Committee as nonvoting observers. Meetings of
the Steering Committee may be held by audio or video teleconference with the
consent of each Party, provided that at least half of the minimum number of
meetings set forth above shall be held in person. Each Party shall be
responsible for all of its own expenses of participating in the Steering
Committee. Meetings of the Steering Committee shall be effective only if a
representative of each Party is present or participating.

                  (e)      CHAIRPERSONS. The Steering Committee shall be chaired
by an AeroGen representative. The Chairperson shall be responsible for calling
meetings, preparing and circulating an agenda in advance of each meeting, and
preparing and issuing minutes of each meeting within thirty (30) days
thereafter. From time to time, each Committee may establish subcommittees or
subordinate committees (which may or may not include members of the Committee
itself) to oversee particular projects or activities, and such subcommittees or
subordinate committees shall be constituted and shall operate as the Committee
agrees.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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Notwithstanding the foregoing, BD shall have the right to call a special
meeting of the Steering Committee on two (2) weeks written notice to AeroGen.

                  (f)      DISPUTE RESOLUTION. In the event that the Steering
Committee is unable to reach agreement on an issue within thirty (30) days,
including any dispute referred to it by the JDT, such issue shall be subject to
dispute resolution as set forth in Section 15.2.

                  (g)      TERM. The Steering Committee shall remain in
operation for the period extending from its date of formation under subsection
(a) above until the longer of: [*].

         3.3      LIMITATION OF POWERS. The powers of the JDT and the Steering
Committee are limited to those expressly set forth in this Agreement. Without
limiting the generality of the foregoing, neither the JDT nor the Steering
Committee shall have the right to amend this Agreement. The actions of the JDT
and/or the Steering Committee shall not substitute for either Party's ability to
exercise any right, nor excuse the performance of any obligation, set forth
herein.

         3.4      LIAISONS. Each Party will designate in writing to the other an
individual to serve as the liaison between the Parties to undertake and
coordinate any day-to-day communications as may be required between the Parties
relating to their activities under this Agreement. Each Party may change such
liaison from time to time during the term of this Agreement upon written notice
thereof to the other Party.

4.       TECHNICAL DEVELOPMENT PROGRAM

         4.1      TECHNICAL DEVELOPMENT PLAN. The specific tasks of each Party
under the Technical Development Program and a time-table therefor, i.e., the
"Technical Development Plan," is attached as Exhibit 2 hereto. Any changes or
modifications to the Technical Development Plan shall be agreed upon in writing
by the Parties.

         4.2      AEROGEN DEVELOPMENT ACTIVITIES. AeroGen shall undertake its
assigned activities under the Technical Development Program in accordance with
the Technical Development Plan, at its own expense, and shall use commercially
reasonable, diligent efforts to (a) itself develop the Inhaler and (b) jointly
with BD develop the Interface, all in accordance with the applicable
Specifications and the timetable as set forth in the Technical Development Plan.
AeroGen shall have the overall responsibility for the development of the
Product, except with respect to the BD Cartridge and other development
activities assigned to BD under the Technical Development Plan. AeroGen shall
have the responsibility for final design review for the Product, including
without limitation system engineering and sign-off.

         4.3      BD DEVELOPMENT ACTIVITIES. BD shall undertake its assigned
activities under the Technical Development Program in accordance with the
Technical Development Plan, at its own expense, and shall use commercially
reasonable, diligent efforts to (a) itself develop the BD Cartridge and (b)
jointly with AeroGen develop the Interface, all in accordance with the
applicable Specifications and the timetable as set forth in the Technical
Development Plan.

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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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         4.4      CONDUCT OF TECHNICAL DEVELOPMENT PROGRAM. AeroGen and BD each
shall conduct their activities under the Technical Development Program in good
scientific and engineering manner, and shall use commercially reasonable
diligent efforts to achieve their objectives efficiently and expeditiously in
compliance in all material respects with all requirements of applicable laws,
rules and regulations and all applicable good laboratory practices and design
controls. AeroGen and BD shall each proceed diligently with the work set out in
the Technical Development Plan using their respective good faith efforts.

         4.5      DEVELOPMENT OF PRODUCT SPECIFICATIONS.

                  (a)      INTERIM TECHNICAL SPECIFICATIONS. The JDT shall
develop and recommend to the Parties for their approval the Interim Technical
Specifications, including any necessary and appropriate changes or modifications
to the Technical Development Plan. [*].

                  (b)      PRELIMINARY FINAL SPECIFICATIONS. The JDT shall
develop and recommend to the Parties for their approval the Preliminary Final
Specifications for the Product, including any necessary and appropriate changes
to the Technical Development Plan. [*].

                  (c)      FINAL SPECIFICATIONS. The JDT shall develop and
recommend to the Parties for their approval the Final Specifications for the
Product, including any necessary and appropriate changes or modifications to the
Technical Development Plan. [*].

                  (d)      RESPONSIBILITIES. BD shall be primarily responsible
for the development of such portion of each of such Specifications as relates
specifically to the BD Cartridge. AeroGen shall be primarily responsible for the
development of all other portions of each of such Specifications, including such
as relate specifically to the Inhaler, except as relate specifically to the [*].
The Parties shall be jointly responsible for [*]. Each Party shall use diligent,
commercially reasonable, good faith efforts to expeditiously develop and approve
each of such Specifications pursuant to this Section 4.5 by the relevant target
date.

                  (e)      REVISION OR MODIFICATION. The Parties may revise or
modify the Specifications from time to time as necessary by mutual written
agreement.

                  (f)      FAILURE TO AGREE ON FINAL SPECIFICATIONS. In the
event that the Parties are unable to agree upon the Final Specifications by [*],
and following completion of the Parties' efforts to resolve such dispute
pursuant to Section 15.2, either Party may terminate this Agreement pursuant to
Section 13.2(a).

         4.6      RECORDS AND REPORTS.

                  (a)      RECORD KEEPING. AeroGen and BD each shall maintain
records which shall be complete and accurate and shall fully and properly
reflect all work done and results achieved in the performance of the Technical
Development Program in sufficient detail and in good scientific manner
appropriate for patent and regulatory purposes.

                  (b)      INSPECTION. Each Party shall have the right, during
normal business hours and upon reasonable notice to inspect and copy all of the
records of the other Party described in

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COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                       9.
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subsection (a) above. Such records and the information disclosed therein shall
be deemed Confidential Information and subject to Article 11. Each Party shall
have the right to arrange for a reasonable number of its employees, agents and
outside consultants to visit the other Party at its offices and laboratories
during normal business hours and upon reasonable notice, and to discuss the
Technical Development Program and its results in detail with the technical
personnel and consultants of the other Party. All inspections, copying and
visits hereunder shall be conducted in a manner so as not to disrupt the other
Party's business or cause any disclosure of any other Party's confidential and
proprietary information.

                  (c)      REPORTS. Within thirty (30) days following the end of
each calendar quarter during the Development Term, each Party shall provide to
the other Party a written progress report which shall describe the work
performed by such Party to date on the Technical Development Program, evaluate
the work performed by such Party in relation to the goals of the Technical
Development Program and provide such other information required by the Technical
Development Program or reasonably requested by the other Party relating to the
progress of the goals or performance of the Technical Development Program. Upon
request, each Party shall provide to the other Party copies of the records
described in subsection (a) above.

         4.7      INVENTION ASSIGNMENT AGREEMENTS. Each Party hereby covenants
that each of such Party's employees, consultants and agents performing any work
under the Technical Development Program will have entered into a written
invention assignment agreement requiring that each such individual assign to
such Party all right, title and interest in any Information conceived of or
reduced to practice by such individual pursuant to the Technical Development
Program.

5.       CLINICAL DEVELOPMENT

         5.1      AEROGEN RESPONSIBILITIES.

                  (a)      AeroGen shall be responsible for the preclinical
development and clinical development of the Product and its use with the Drug in
the Field, and for the development of an appropriate formulation of the Drug for
use with the Product, in collaboration with one or more Marketing Partners;
PROVIDED, HOWEVER, that BD acknowledges that it is not AeroGen's intent to
solely fund the clinical development of the Product beyond the [*], and that
AeroGen will have no obligations under this Agreement with respect to such
clinical development of the Product beyond the [*] in the event that AeroGen is
unable to enter into [*].

                  (b)      Notwithstanding subsection (a) above, AeroGen shall
conduct, at its expense, [*] (the "Validation Studies"); provided that the
foregoing obligation shall not apply to such studies that are required due to a
failure of [*] in a prior study and such failure was solely due to BD's
negligence or wrongful act.

                  (c)      All clinical data (including, without limitation,
pharmacological, toxicological and other test data) generated by or on behalf of
AeroGen pursuant to its activities under this Section 5.1 shall be deemed
AeroGen's Confidential Information, and AeroGen shall retain sole ownership
thereof. BD shall not use such clinical data for any purpose other than its

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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                      10.
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activities under the Technical Development Program and the Supply Agreement
without AeroGen's prior written consent.

                  (d)      AeroGen (or its Marketing Partner) shall be
responsible for filing for, and obtaining all applications for regulatory
approval of the Retail Product, as further provided in the Supply Agreement.

         5.2      BD PARTICIPATION. BD will furnish AeroGen with such assistance
and cooperation as AeroGen may reasonably request in connection with the
securing of regulatory approvals required for the conduct of clinical trials and
Product registrations in any country of the world including, to the extent
applicable, rights of reference to all regulatory filings of BD, if any,
regarding the [*]. AeroGen agrees to share the protocol for any clinical trials
with BD, to permit BD to observe such clinical trials and to share results of
each such clinical trials with BD, in each case solely to the extent necessary
for BD's compliance with its regulatory obligations. All Information received by
BD in connection with such clinical trials shall be deemed to be AeroGen's
Confidential Information and subject to Article 11.

6.       COMMERCIALIZATION

         6.1      COLLABORATION WITH MARKETING PARTNER(S) AeroGen shall use
commercially reasonable efforts to identify potential Marketing Partner(s) and
to enter into Partnering Agreements therewith and to keep BD regularly apprised
of its progress on at least a monthly basis. BD will cooperate reasonably with
AeroGen in such efforts consistent with BD's lead responsibilities set forth in
Exhibit 2A. AeroGen may carry out any or all of its development and
commercialization obligations under this Agreement in collaboration with or
solely through its Marketing Partner(s). Notwithstanding the foregoing, BD
acknowledges that AeroGen may not enter into a Partnering Agreement, and that
such failure shall not be deemed to be a breach of this Agreement.

         6.2      BD RIGHT TO SECURE MARKETING PARTNER. In the event that
AeroGen has not [*], BD then shall have the right, but not the obligation, to
secure a Marketing Partner reasonably acceptable to AeroGen on reasonable terms
to be negotiated by such potential Marketing Partner and BD and with AeroGen's
reasonable assistance; PROVIDED THAT AeroGen shall not be obligated to enter
into any Partnering Agreement, except on terms reasonably acceptable to AeroGen.
BD may exercise such right at any time following such [*] period by providing
AeroGen thirty (30) days prior written notice thereof. Notwithstanding the
foregoing, BD may not exercise such right if at such time AeroGen is [*]. BD
shall not have the right to enter into a Partnering Agreement except with
AeroGen's prior written consent.

         6.3      FAILURE TO OBTAIN A MARKETING PARTNER. In the event that
AeroGen has not executed a Partnering Agreement as provided in Section 6.1 and
BD has not secured a Marketing Partner as provided in Section 6.2 [*] following
completion of the Validation Studies, then either Party may terminate this
Agreement as set forth in Section 13.2(b). Notwithstanding the foregoing,
neither Party shall have the right to terminate this Agreement under this
Section 6.3 at any time during which a Party with the right to secure a
Marketing Partner is [*].

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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                      11.
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         6.4      SERVICES BY BD. In the event that a Marketing Partner desires
that BD perform certain services in connection with a Partnering Agreement, BD
shall negotiate in good faith with such Marketing Partner the commercially
reasonable terms under which BD would provide such services, including without
limitation the reasonable compensation to be paid therefor. Upon reaching
agreement on such terms, BD shall enter into a written agreement with such
Marketing Partner for such services on such terms.

7.       MANUFACTURING AND SUPPLY

         7.1      SUPPLY OF THE DRUG.

                  (a)      AeroGen shall be responsible for identifying and
qualifying a supplier of the Drug for use with the Product (a "Qualified
Supplier"), and shall use commercially reasonable, good faith efforts to
identify, qualify and enter into a supply agreement with a Qualified Supplier
for the Drug for use with the Product (a "Drug Supply Agreement").
Notwithstanding the foregoing, BD acknowledges that AeroGen may not be able to
identify or qualify a Qualified Supplier and/or may not enter into a Drug Supply
Agreement with a Qualified Supplier, and that such failure shall not be deemed a
breach of this Agreement.

                  (b)      In the event that AeroGen has not [*], BD then shall
have the right, but not the obligation, to secure a Qualified Supplier
reasonably acceptable to AeroGen on reasonable terms to be negotiated by such
potential Qualified Supplier and BD and with AeroGen's reasonable assistance;
PROVIDED that AeroGen shall not be obligated to enter into any Drug Supply
Agreement, except on terms reasonably acceptable to AeroGen. BD may exercise
such right at any time following such [*] period by providing AeroGen written
notice thereof. Notwithstanding the foregoing, BD may not exercise such right if
at such time AeroGen is [*]. BD shall not enter into a Drug Supply Agreement
with any Qualified Supplier without AeroGen's prior written consent.

                  (c)      In the event that AeroGen has not executed a Drug
Supply Agreement as provided in subsection (a) above, and BD has not secured a
Qualified Supplier as provided in subsection (b) above within [*] following
completion of the Validation Studies, then either Party may terminate this
Agreement as set forth in Section 13.2(b). Notwithstanding the foregoing,
neither Party shall have the right to terminate the Agreement under this
subsection (c) at any time during which a Party with the right to secure a
Qualified Supplier is [*].

         7.2      MANUFACTURE AND SUPPLY OF THE CARTRIDGE.

                  (a)      The Parties agree to negotiate in good faith and
enter into, as soon as is reasonably practicable, a supply agreement under which
BD would agree to exclusively manufacture and supply AeroGen and its Marketing
Partner(s) with their requirements of [*] BD Cartridges, and AeroGen and its
Marketing Partner(s) would agree to exclusively purchase such requirements from
BD, on mutually acceptable terms and conditions (the "Supply Agreement").
Neither Party shall be obligated to enter into such Supply Agreement before
finalization of the Final Specifications under Section 4.5(c).

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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                      12.
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                  (b)      Such Supply Agreement shall include the terms, or
terms in accordance with the principles, set forth in Exhibit 3 attached hereto,
and shall include such other terms and conditions as are appropriate and
customary, including without limitation: (i) minimum purchase and supply
requirements to be agreed upon by the Parties in good faith following
finalization of the Final Specifications under Section 4.5(c); (ii) inventory
requirements, if applicable; and (iii) provisions to ensure continuity of supply
in the event of a catastrophe, BD's default or, if such a provision is agreed
upon by the Parties, BD's termination of the Supply Agreement for convenience.
In addition, AeroGen shall have the right to assign the Supply Agreement to a
Marketing Partner with BD's prior written consent, which consent shall not be
unreasonably withheld or delayed.

                  (c)      Notwithstanding anything to the contrary contained in
either this Agreement or the Supply Agreement, either explicitly or by
implication, BD shall not be required to commit or otherwise expend capital
resources to [*] unless and until, (i) AeroGen has [*], and (ii) AeroGen and/or
its Marketing Partner has [*].

         7.3      EXCLUSIVITY.

                  (a)      BD agrees that, during the Development Term and for
[*] thereafter (the "Exclusivity Period") it shall not:

                           (i)      develop, have developed, manufacture, have
manufactured or sell and/or otherwise transfer to any Third Party, directly or
indirectly, either itself or on behalf of a Third Party, any [*] for use in [*],
except as provided in this Agreement or the Supply Agreement; or

                           (ii)     purchase any [*] from any Third Party
directly or indirectly, for use [* ]; in each case, without the prior written
consent of AeroGen.

                  (b)      AeroGen agrees that, during the Exclusivity Period it
shall not:

                           (i)      develop, have developed, manufacture, or
have manufactured any [*] either itself or with or on behalf of a Third Party
for use [*]; or

                           (ii)     purchase from any Third Party any [*] either
itself or with or on behalf of any Third Party for use [*]; or

                           (iii)    sell and/or otherwise transfer, directly or
indirectly, to any Third Party any [*] for use [*].

                  (c)      Notwithstanding anything to the contrary contained in
either this Agreement or the Supply Agreement, either explicitly or by
implication, BD shall be free to manufacture, have manufactured, import, use,
offer for sale and/or sell, or otherwise transfer to any Third Party, directly
or indirectly, any [*] for the pulmonary delivery of any drug solely for use
outside of the Field, subject to Section 8.3, Section 13.2(e)(i)(B), and Section
7.3(e).

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COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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                  (d)      The negative covenants set forth in this Section
7.3(a) and (b) shall not survive any early termination of this Agreement by
either Party.

                  (e)      BD covenants that it shall not, during the
Exclusivity Period manufacture, have manufactured, sell, offer for sale or
import, directly or indirectly, any [*]. BD further covenants that it shall not,
during the Exclusivity Period manufacture any [*] with the intent that such
Development Patent Cartridge [*], for use [*], nor shall it have manufactured,
use in Phase III clinical trials, sell and/or otherwise transfer to any Third
Party, directly or indirectly, either itself or on behalf of a Third Party, any
such [*].

         7.4      USE OF AEROGEN INTELLECTUAL PROPERTY.

                  (a)      AeroGen shall notify BD in writing, prior to the
adoption of the Final Specifications for the BD Cartridge, to the extent any
AeroGen intellectual property is incorporated into the [*]. Promptly following
BD's receipt of such notice, the JDT shall discuss in good faith whether it is
appropriate and desirable for such intellectual property to be incorporated into
the [*]. If the Parties agree to so incorporate such intellectual property, [*],
the Parties shall also agree in writing on [*] in the event that BD
manufactures, has manufactured, imports, uses, offers for sale or sells the [*]
incorporating such AeroGen intellectual property, for use [*].

                  (b)      If AeroGen fails to notify BD of any AeroGen
intellectual property that is incorporated into the [*] as provided in Section
(a) above, BD's sole and exclusive remedy for such breach shall be the grant of
the following covenant, which covenant shall only apply to the intellectual
property for which AeroGen failed to provide such notice (the "AeroGen [*] IP"):
AeroGen shall covenant that it shall not, and shall not permit its Affiliates
and sublicensees to, [*] solely for use [*].

                  (c)      Except as expressly provided in this Section 7.4, BD
is not granted any license or rights to, or covenant not to sue under, any
intellectual property right of AeroGen covering the manufacture, use,
importation, offer sale, or sale of the [*] for use [*]. AeroGen grants no
license or rights to, or covenant not to sue under, any intellectual property
right of AeroGen covering any [*] to the extent incorporating the AeroGen [*] IP
that was incorporated in the [*].

         7.5      COST STANDARDS. Prior to entering into the Supply Agreement,
BD shall provide to AeroGen such information as AeroGen reasonably requests with
respect to BD's accounting practices as they relate to the calculation of the
cost of goods, including without limitation BD's standard costs and standard
methods of calculating costs.

8.       LICENSE GRANTS

         8.1      TO BD.

                  (a)      DEVELOPMENT LICENSE. Subject to the terms and
conditions of this Agreement, AeroGen hereby grants to BD a non-exclusive,
worldwide, royalty-free license under the AeroGen Technology solely to conduct
its assigned activities under the Technical

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COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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Development Program with respect to the [*]. BD may grant sublicenses under the
foregoing license only with AeroGen's prior written consent.

                  (b)      MANUFACTURING LICENSE. Subject to the terms and
conditions of this Agreement and of the Supply Agreement, AeroGen hereby grants
to BD an exclusive, worldwide, royalty-free license under the AeroGen Technology
and AeroGen's interest in the Joint Technology to manufacture [*] solely for
AeroGen (or its assignee under the Supply Agreement) or its Marketing Partners
pursuant to the Supply Agreement. BD may grant sublicenses under the foregoing
license only with AeroGen's prior written consent.

                  (c)      BD COVENANT. BD hereby covenants that it shall not
use the AeroGen Technology for any purpose other than is expressly permitted
under this Section 8.1 and Section 7.4.

         8.2      TO AEROGEN.

                  (a)      DEVELOPMENT LICENSE. Subject to the terms and
conditions of this Agreement, BD hereby grants to AeroGen a non-exclusive,
worldwide, royalty-free license under the BD Technology solely to conduct its
assigned activities under the Technical Development Program with respect to [*].
AeroGen may grant sublicenses under the foregoing license only with BD's prior
written consent.

                  (b)      AEROGEN COVENANT. AeroGen hereby covenants that it
shall not use the BD Technology for any purpose other than is expressly
permitted under this Section 8.2.

                  (c)      BD COVENANT. BD acknowledges and agrees that it is
not BD's intent that AeroGen be prevented from developing, making, having made,
using, selling, offering for sale or importing the Product for use in the Field
in accordance with the terms of this Agreement, as the Product is envisioned by
the Parties as of the Effective Date, and as the Product may be developed in
accordance with the Specifications to be mutually agreed upon by the Parties
pursuant to this Agreement. Therefore, BD hereby covenants that during the
longer of (i) the [*] or (ii) the [*], it shall not, and shall not permit its
Affiliates and sublicensees to, [*].

         8.3      USE OF THE [*]. At AeroGen's request, the Parties shall
negotiate in good faith the commercially reasonable terms under which [*].

         8.4      RESERVATION OF RIGHTS.

                  (a)      BY AEROGEN. AeroGen reserves all rights under the
AeroGen Technology, except as otherwise expressly stated herein, including
without limitation the right to freely use, assign, transfer, grant licenses
thereunder and otherwise dispose of the AeroGen Technology for any purpose
consistent with the terms of this Agreement.

                  (b)      BY BD. BD reserves all rights under the BD
Technology, except as otherwise expressly stated herein, including without
limitation the right to freely use, assign, transfer, grant licenses thereunder
and otherwise dispose of the BD Technology for any purpose consistent with the
terms of this Agreement.

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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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9.       ROYALTIES

         9.1      ROYALTIES.

                  (a)      In partial consideration for the rights granted
hereunder, AeroGen shall pay BD a percentage of all Royalties received from each
Marketing Partner pursuant to the applicable Partnering Agreement (the "BD
Percentage"), in accordance with this Section 9.1. The BD Percentage with
respect to the Royalty paid by each Marketing Partner shall be calculated as
follows, except as otherwise set forth in Section 9.3 below:

                           (i)      If the Royalty paid by such Marketing
Partner is [*], then the BD Percentage with respect to such Royalty shall be [*]
of such Royalty. Solely for purposes of example, if AeroGen receives a Royalty
of [*], then the amount due to BD with respect to such Royalty under this
subsection (a) would be [*]; and

                           (ii)     If the Royalty paid by such Marketing
Partner is [*] of Net Sales, then the BD Percentage with respect to such Royalty
shall be [*] of the [*]. Solely for purposes of example, if AeroGen receives a
Royalty of [*], then the amount due to BD with respect to such Royalty under
this subsection (a) would be: [*].

                  (b)      Notwithstanding the foregoing, in no event will the
BD Percentage as calculated under this Section 9.1 be [*].

                  (c)      AeroGen's obligations under this Section 9.1 shall
expire concurrently with the last to expire obligation of a Marketing Partner to
pay Royalties to AeroGen.

         9.2      PRE-PAID ROYALTIES. In the event that AeroGen receives any
Pre-Paid Royalties (as defined below), AeroGen shall pay to BD [*]. As used in
this Section 9.2, "Pre-Paid Royalties" means any [*].

         9.3      CALCULATION OF BD PERCENTAGE IN CERTAIN CIRCUMSTANCES.

                  (a)      NO ROYALTY. In the event a Partnering Agreement does
not include payment of a Royalty, the BD Percentage shall be [*].

                  (b)      NO MARKETING PARTNER. In the event AeroGen (or its
successor-in-interest) either alone or in combination with a Third Party (E.G. a
hired sales force), other than a Marketing Partner, commercializes the Product,
the BD Percentage shall be [*].

                  (c)      ADJUSTMENTS TO BD PERCENTAGE. In the event that [*],
and (i) [*], and (ii) [*], then the BD Percentage as calculated under
subsections (a) and (b) above shall be [*] with respect to such sale.

                  (d)      DEFINITION OF "NET SALES." As used in this Section
9.3, "net sales" shall mean the gross sales of the Retail Product sold by
AeroGen and its Affiliates and its sublicensees to Third Party purchasers, less:

                           (i)      sales returns (including for defective
products);

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                      16.
<PAGE>

                           (ii)     discounts given for volume purchases;

                           (iii)    cost of distribution and freight, as billed
on the relevant invoice; and

                           (iv)     sales, turnover applicable or value-added or
excise taxes (but not income taxes).

         Sales between AeroGen, its Affiliates and its sublicensees shall not be
deemed a sale for the purposes of this subsection (d).

                  (e)      TERM OF ROYALTY OBLIGATION. AeroGen's obligations
under subsections (a) and (b) above shall expire, on a country-by-country basis,
on the later of [*] years from the date of the first commercial sale of the
Product in such country, or the date of expiration of the last to expire Patent
in such country containing a Valid Claim.

         9.4      UPFRONT PAYMENTS.

                  (a)      In the event that a Partnering Agreement includes an
Upfront Payment (as defined below) to AeroGen, whether in addition to or in lieu
of a royalty on sales of the Product, AeroGen shall pay to BD [*], within thirty
(30) days of the receipt by AeroGen of such Upfront Payment.

                  (b)      As used in subsection (a) above, "Upfront Payment"
means a cash payment [*].

         9.5      PAYMENT OF THE BD PERCENTAGE.

                  (a)      AeroGen shall provide BD with a copy of a written
report of all Net Sales of the Retail Product as is provided by each Marketing
Partner for each calendar quarter following the first commercial sale of the
Product within fifteen (15) days of its receipt of such report. AeroGen shall
make payment to BD of the BD Percentage due BD on such Net Sales within ten (10)
days of receipt of any payments on sales of the Retail Product under Sections
9.1 and 9.3(a)-(c).

                  (b)      In the event that a Marketing Partner, in breach of
the applicable Partnering Agreement, fails to pay to AeroGen any amount due to
AeroGen under such Partnering Agreement on Net Sales of the Product by such
Marketing Partner (the "Royalties Due"), and following AeroGen's (i) good faith
attempts to collect the Royalties Due, (ii) exhaustion of all applicable
contractual procedures under such Partnering Agreement with respect to such
Marketing Partner's failure to pay the Royalties Due, and (iii) failure to
timely initiate, or cessation of its pursuit of, any legal or equitable remedies
available to AeroGen with respect to such failure to pay the Royalties Due, BD
then shall have the right, but not the obligation, to [*]; BD then shall pay to
AeroGen any remaining amounts less the BD Percentage of such amounts.

         9.6      AUDITS. At the request (and expense) of BD, AeroGen shall
permit an independent certified public accountant appointed by BD and reasonably
acceptable to AeroGen,

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                      17.
<PAGE>

at reasonable times and upon reasonable notice, but not more than once a year,
to examine only those records as may be necessary to determine the correctness
or completeness of any report or payment made under this Agreement, with respect
to any calendar year ending not more than two (2) years prior to BD's request.
Results of any such examination shall be (a) limited to information relating to
the Product, (b) made available to both Parties and (c) deemed Confidential
Information subject to Article 11. Such accountant shall not disclose any of
AeroGen's confidential or proprietary information. BD shall bear the full cost
of the performance of any such audit, unless such audit discloses a variance of
more than ten percent (10%) from the amount of the original report, royalty or
payment calculation. In such case, AeroGen shall bear the full cost of the
performance of such audit, as well as promptly paying any shortfall reported,
provided that BD shall promptly refund any overage to AeroGen. In addition,
AeroGen shall use commercially reasonable efforts to include a similar provision
in any Partnering Agreement so that upon the reasonable request of BD under this
provision, AeroGen will audit such Marketing Partner, at BD's expense.

10.      INTELLECTUAL PROPERTY

         10.1     OWNERSHIP.

                  (a)      GENERAL. Each Party shall disclose to the other Party
all Development Technology. The rights of ownership in such Development
Technology shall be retained by the Party that employs or otherwise engages the
inventor. Inventorship shall be determined in accordance with the U.S. patent
laws. Accordingly, AeroGen shall own Development Technology invented solely by
employees of or persons otherwise engaged by AeroGen, BD shall own Development
Technology invented solely by employees of or persons otherwise engaged by BD,
and BD and AeroGen shall own jointly any Development Technology invented jointly
by employees of or persons otherwise engaged by BD and AeroGen, except as
follows:

                           (i)      [*] TECHNOLOGY. Development Technology
(including without limitation all Patents therein) relating [*], whether the
same is invented jointly by employees of or persons otherwise engaged by AeroGen
and BD or solely by employees of or persons otherwise engaged by AeroGen or BD,
shall be owned [*].

                           (ii)     [*] TECHNOLOGY. Development Technology
(including without limitation all Patents therein) relating [*], whether the
same is invented jointly by employees of or persons otherwise engaged by AeroGen
and BD or solely by employees of or persons otherwise engaged by AeroGen or BD,
shall be owned [*].

                           (iii)    [*] TECHNOLOGY. Development Technology
(including without limitation all Patents therein) relating [*], whether the
same is invented jointly by employees of or persons otherwise engaged by AeroGen
and BD or solely by employees of or persons otherwise engaged by AeroGen or BD
[*], shall be owned [*].

                  (b)      PREVIOUSLY OWNED TECHNOLOGY. AeroGen shall remain the
sole owner of the AeroGen Technology and any other intellectual property that it
owned as of the Effective Date. BD shall remain the sole owner of the BD
Technology and any other intellectual property that it owned as of the Effective
Date.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                      18.
<PAGE>

         10.2     PATENT MATTERS.

                  (a)      BD PATENTS. BD shall have the sole right, but not the
obligation, to file, prosecute and maintain the BD Patents.

                  (b)      AEROGEN PATENTS. AeroGen shall have the sole right,
but not the obligation, to file, prosecute and maintain the AeroGen Patents.

                  (c)      JOINT PATENTS.

                           (i)      Each Party shall be responsible for filing
and prosecuting patent applications covering Development Technology exclusively
owned by it and shall keep the other Party advised of the status of such patent
prosecution. However, with respect to Joint Technology, and except as described
in subsection (ii) below, the Parties shall mutually agree on whether and in
which countries to file and prosecute patent applications covering the Joint
Technology, and to maintain patents granted thereunder; with each Party having
an opportunity to review and comment on any such filings prior to submission and
to discuss the strategy for preparing, filing, prosecuting, maintaining and
defending of any such patent applications or resulting patents, and with the
Parties sharing equally any out-of-pocket costs and expenses incurred with
respect to such actions.

                           (ii)     Notwithstanding subsection (i) above,
AeroGen shall have the first right, but not the obligation, to file and
prosecute patent applications covering the [*], and to maintain patents granted
thereunder. In the event that AeroGen fails to file a patent application
claiming a particular invention in the [*] in a particular country within one
hundred and twenty (120) days of its receipt of BD's written request, then BD
shall have the right, but not the obligation, to file and prosecute such patent
application, and to maintain patents granted thereunder. In any event, the Party
that files and prosecutes a patent application under this subsection (ii) shall
provide the other Party an opportunity to review and comment on any such filings
prior to submission and to discuss the strategy for preparing, filing,
prosecuting, maintaining and defending of any such patent applications or
resulting patents, and with the Parties sharing equally any out-of-pocket costs
and expenses incurred with respect to such actions.

                           (iii)    Neither Party shall use any Confidential
Information solely owned by the other Party in filing and/or prosecution of any
patent application under this subsection (c) without such other Party's prior
written consent. In the event that a Party filing and/or prosecuting a patent
application under this subsection (c) wishes to use Confidential Information
jointly owned by the Parties in such filing and/or prosecution, such Party shall
give the other Party at least ten (10) days prior written notice thereof, and
shall consider any objections of such other Party reasonably and in good faith.

                  (d)      COOPERATION. Upon request, each Party shall execute
and deliver to the other Party all descriptions, applications, assignments and
other documents and instruments necessary or proper to carry out the provisions
of this Agreement without further compensation; and the Parties shall cooperate
with and assist each other or their nominees in all reasonable ways and at all
reasonable times, including, but not limited to, testifying in all legal
proceedings,

                                      19.
<PAGE>

signing all lawful papers and in general performing all lawful acts reasonable,
necessary or proper, to aid the other Party in obtaining, maintaining, defending
and enforcing all lawful patent, copyright, trade secret, know-how and like
rights in the United States and elsewhere.

         10.3     DEFENSE AND SETTLEMENT OF THIRD PARTY CLAIMS. If a Third Party
asserts that a patent or other intellectual property right owned by it is
infringed by a Party's activities under this Agreement, then such Party shall
immediately provide the other Party with notice of such claim and the related
facts in reasonable detail. The Party against whom the claim of infringement is
made shall have the right, but not the obligation, to control such defense, at
its expense. The Party not controlling such defense shall cooperate reasonably
with the Party controlling such defense and shall have the right to be
represented separately by counsel of its own choice. The Party that controls the
defense of a given claim shall also have the right to control settlement of such
claim, subject to Section 10.5.

         10.4     INFRINGEMENT BY THIRD PARTIES. BD and AeroGen shall promptly
notify the other in writing of any alleged or threatened infringement of the
AeroGen Patents, BD Patents or Joint Patents relating to the manufacture, use or
sale or the Product of which they become aware. The Parties shall then proceed
as follows:

                  (a)      AeroGen, or its Marketing Partner, shall have the
right, but not the obligation, to control the prosecution of any infringement
described in this Section 10.4 with respect to the AeroGen Patents.

                  (b)      BD shall have the right, but not the obligation, to
control the prosecution of any infringement described in this Section 10.4 with
respect to the BD Patents.

                  (c)      AeroGen shall have the right, but not the obligation,
to control the prosecution of any infringement described in this Section 10.4
with respect to Joint Patents, either itself or through its Marketing Partner.
In the event AeroGen decides not to control such prosecution, either itself or
through its Marketing Partner, BD then shall have the right, but not the
obligation, to control such prosecution. AeroGen may assign its rights under
this subsection (c) to a Marketing Partner with BD's prior written consent,
which consent shall not be unreasonably withheld or delayed.

                  (d)      Each Party shall cooperate fully in any action
brought under this Section 10.4 by the other Party, including, if required to
bring such action, naming the other Party only if a court of competent
jurisdiction determines that the other Party is a necessary party to such suit,
in which event the Party shall hold the other Party free, clear and harmless
from any and all liability of such litigation, including costs, expenses and
attorneys' fees. In addition, each Party at all times shall have the right to be
represented separately in such action by counsel of its own choice. [*].

         10.5     SETTLEMENTS. Neither Party may enter into any settlement or
consent judgment or other voluntary final disposition of a suit under this
Article 10 that would adversely affect the rights of the other Party without the
prior written consent of such Party.

11.      CONFIDENTIALITY

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                      20.
<PAGE>

         11.1     TREATMENT OF CONFIDENTIAL INFORMATION. A Party receiving or
gaining access to Confidential Information, as defined below, (the "Receiving
Party") of the other Party (the "Disclosing Party") will (i) maintain in
confidence such Confidential Information to the same extent the Receiving Party
maintains its own proprietary information (but at a minimum the Receiving Party
shall use commercially reasonable efforts), (ii) not disclose such Confidential
Information to any Third Party without prior written consent of the Disclosing
Party, except for disclosures made in confidence to any Third Party pursuant to
a plan approved by the JDT or the Steering Committee, and (iii) not use such
Confidential Information for any purpose except as expressly permitted by this
Agreement. As used herein, "Confidential Information" shall mean all
Information, and any other information and materials, received by the Receiving
Party from the Disclosing Party pursuant to this Agreement. Without limiting the
generality of the foregoing, the AeroGen Technology shall be deemed Confidential
Information of AeroGen, the BD Technology shall be deemed Confidential
Information of BD, and the Joint Technology shall be deemed Confidential
Information of both Parties. Notwithstanding the foregoing, "Confidential
Information" shall not include any Information that:

                  (a)      is at the time of receipt by the Receiving Party, or
later becomes, generally available to the public without restriction through no
breach of this Article 11; or

                  (b)      was known to the Receiving Party, without obligation
to keep it confidential, prior to its receipt from the Disclosing Party; or

                  (c)      is subsequently disclosed to the Receiving Party by a
Third Party lawfully in possession thereof without obligation to keep it
confidential; or

                  (d)      has been independently developed by the Receiving
Party without the aid, application or use of the Disclosing Party's Confidential
Information.

         11.2     PUBLICATIONS. Neither Party shall publish or present the
results of studies carried out under this Agreement without the opportunity for
prior review by the other Party. Each Party agrees to provide the other Party
the opportunity to review any proposed abstracts, manuscripts or presentations
(including verbal presentations) which relate to any Product at least thirty
(30) days prior to their intended submission for publication and agrees, upon
request, not to submit any such abstract or manuscript for publication until the
other Party is given a reasonable period of time to secure patent protection for
any material in such publication which it believes to be patentable. The Parties
agree to review and consider delay of publication and filing of patent
applications as appropriate. The Steering Committee will review such requests
and recommend subsequent action. Neither Party shall have the right to publish
or present Confidential Information of the other Party.

         11.3     PUBLICITY. The Parties agree that the public announcement of
the execution of this Agreement shall be in the form of a press release mutually
agreed upon. Any other publication, news release or other public announcement
relating to this Agreement or to the performance hereunder, shall first be
reviewed and approved by both Parties, which approval shall not be unreasonably
withheld or delayed; provided, however, that any disclosure which is required by
law as advised by the disclosing Party's counsel may be made without the prior
consent of the other Party, although the other Party shall be given prompt
notice of any such

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                      21.
<PAGE>

legally required disclosure and to the extent practicable shall provide the
other Party an opportunity to comment on the proposed disclosure.

         11.4     TERMS OF THE AGREEMENT. The Parties agree that the material
terms of this Agreement will be considered Confidential Information of both
Parties. Notwithstanding the foregoing, each Party shall have the right to
disclose the material terms of this Agreement in confidence to any bona fide
potential investor, investment banker, acquirer, merger partner or other
potential financial partner (including without limitation a potential Marketing
Partner), and where reasonably practicable, shall obtain an adequate binder of
confidentiality consistent with the terms of this Agreement.

         11.5     REQUIRED DISCLOSURE. If the Receiving Party is required by any
governmental agency, court or other quasi-judicial or regulatory body to provide
Confidential Information received under this Agreement, the Receiving Party
shall not be liable for such disclosure PROVIDED THAT the Receiving Party, as
promptly as reasonably possible, gives notice to the Disclosing Party of the
requirement in order that the Disclosing Party may contest the requirement to
provide such information and cooperates reasonably with the Disclosing Party in
such efforts. In the event that this Agreement is required to be filed with the
U.S. Securities Exchange Commission, the Party making such filing shall use
commercially reasonable, diligent efforts to avoid the public disclosure of as
much Confidential Information as possible, and to consult in good faith with the
other Party prior to making such filing.

         11.6     SURVIVAL OF CONFIDENTIALITY. All obligations of
confidentiality and non-use imposed upon the Parties under this Agreement shall
continue indefinitely until such time as the information that is subject to such
obligations no longer comprises Confidential Information under one of the
exceptions set forth in Section 11.1.

12.      REPRESENTATIONS AND COVENANTS

         12.1     MUTUAL AUTHORITY. AeroGen and BD each represents and warrants
to the other that (a) it has the authority and right to enter into and perform
this Agreement, and (b) its execution, delivery and performance of this
Agreement will not conflict in any material fashion with the terms of any other
agreement to which it is or becomes a party or by which it is or becomes bound.

         12.2     BD REPRESENTATIONS AND WARRANTIES. BD represents and warrants
to AeroGen that as of the Signing Date:

                  (a)      To the best of BD's knowledge and belief, [*];

                  (b)      To the best of BD's knowledge and belief, [*]; and

                  (c)      To the best of BD's knowledge and belief, the
individuals listed on Exhibit 4 have signed BD's standard employment agreement,
a form of which is attached as Exhibit 5.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                      22.
<PAGE>

         12.3     AEROGEN REPRESENTATIONS AND WARRANTIES. AeroGen represents and
warrants to BD that as of the Signing Date:

                  (a)      To the best of AeroGen's knowledge and belief, [*];

                  (b)      To the best of AeroGen's knowledge and belief, [*];

                  (c)      To the best of AeroGen's knowledge and belief, [*];
and

                  (d)      To the best of AeroGen's knowledge and belief, [*].

         12.4     DISCLAIMER. EXCEPT AS SPECIFICALLY SET FORTH IN SECTION 4.7,
THIS ARTICLE 12, EXHIBIT 3, AND THE STOCK PURCHASE AGREEMENT, NEITHER PARTY
MAKES ANY WARRANTY CONCERNING ITS PATENT RIGHTS OR INFORMATION LICENSED UNDER
THIS AGREEMENT, INCLUDING WITHOUT LIMITATION THE VALIDITY OR SCOPE OF ITS PATENT
RIGHTS OR THAT PRODUCTS WILL BE FREE FROM INFRINGEMENT OF THE PATENT RIGHTS OF
THIRD PARTIES. EACH PARTY SPECIFICALLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO BOTH ITS TECHNOLOGY AND THE
PRODUCT.

13.      TERM AND TERMINATION

         13.1     TERM. This Agreement shall become effective on the Effective
Date and shall remain in effect until the later of (a) expiration of the last to
expire Valid Claim, or (b) expiration of all of AeroGen's payment obligations
under this Agreement unless terminated as earlier provided in Section 13.2 or
13.3 below. In addition, this Agreement may be extended by mutual written
consent of the Parties.

         13.2     TERMINATION FOR OTHER THAN CAUSE.

                  (a)      FOR FAILURE TO AGREE ON FINAL SPECIFICATIONS. Either
Party may terminate this Agreement upon thirty (30) days written notice to the
other Party in the event the Parties fail to agree upon the Final
Specifications, as set forth in Section 4.5(f).

                  (b)      FAILURE TO SECURE A MARKETING PARTNER OR A QUALIFIED
SUPPLIER. Either Party may terminate this Agreement on thirty (30) days written
notice in the event that (a) neither Party secures a Marketing Partner, as set
forth in Section 6.3, or (b) neither Party secures a Qualified Supplier, as set
forth in Section 7.1.

                  (c)      THIRD PARTY PATENTS. Either Party may terminate this
Agreement at any time in the event that such Party determines, in its sole,
reasonable, good faith judgment, that the BD Cartridge, Inhaler or Product
cannot be developed or commercialized under this Agreement or the Supply
Agreement because of a Third Party Patent that covers the manufacture, having
manufactured, use, importation, offering for sale or sale of the BD Cartridge,
Inhaler or Product in the United States, subject to the following:

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                      23.
<PAGE>

                           (i)      Prior to providing such notice, such Party
shall refer the issue to the JDT for its analysis of whether the development,
manufacture, use, importation, offer for sale or sale of the [*] by a Party
pursuant to this Agreement would infringe such Patent, and if so, whether a
license under such Patent can be obtained on commercially reasonable terms (as
determined in the sole discretion of the Party required to obtain such license)
and/or whether it is commercially feasible to redesign the BD Cartridge, Inhaler
and/or the Product so that such Patent would not be so infringed, and shall
recommend a course of action to the Parties; and

                           (ii)     Such Party shall take the JDT's
recommendation under good faith consideration, and if such Party still desires
to terminate this Agreement despite such recommendation and the other Party does
not desire such termination, then the Parties shall attempt to resolve such
dispute first through referral to the Steering Committee and then, if necessary,
pursuant to Section 15.2.

         If the Parties are unable to resolve such issue as set forth in
subsections (i) and (ii) above, then such Party may terminate this Agreement
upon thirty (30) days written notice to the other Party.

                  (d)      INABILITY TO DEVELOP A SAFE AND EFFECTIVE PRODUCT. In
the event that AeroGen and/or its Marketing Partner is unable to file an NDA for
the Product for use in the Field because the data from the Phase III clinical
trial for the Product will not support such an NDA, then either Party may
terminate this Agreement upon thirty (30) days written notice to the other
Party; PROVIDED THAT if the Parties disagree as to whether such data will
support such an NDA, such termination shall not be effective until such issue is
resolved by the Steering Committee, and, if necessary, through the dispute
resolution procedures set forth in Section 15.2.

                  (e)      TERMINATION FOR CONVENIENCE. BD may terminate this
Agreement without cause and without explanation upon ninety (90) days written
notice to AeroGen; PROVIDED THAT in no event will such termination become
effective prior to the expiration of the Development Term.

                           (i)      BD OBLIGATIONS. In the event of termination
by BD under this subsection (e), BD's only obligations and liabilities to
AeroGen with respect to such termination shall be to:

                                    (A)      Grant AeroGen a royalty-free,
fully paid-up, non-exclusive, sublicenseable, irrevocable license under the
BD Technology, [*] in the event BD has any rights thereto, and BD's interest
in the Joint Technology, limited to develop, use, make, have made, import,
offer for sale and sell the BD Cartridge for use with the Drug in the Field
world-wide to the extent legally permissible by BD and subject to any rights
or obligations placed upon BD; and

                                    (B)      Covenant (1) not to make, have
made, import, offer for sale and sell [*]; (2) not to make have made, import,
offer for sale or sell any [*] for the pulmonary delivery of [*]; and (3) not to
manufacture any Royalty-Bearing Cartridge (as defined below in subsection
(i)(F)) [*], for use within or outside the Field, nor to have manufactured, use
in

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                      24.
<PAGE>

Phase III clinical trials, sell and/or otherwise transfer to any Third Party,
directly or indirectly, either itself or on behalf of a Third Party, any such
Royalty-Bearing Cartridge;

                                    (C)      Promptly disclose to AeroGen all BD
Know-How necessary for the manufacture of the BD Cartridge, and upon AeroGen's
written request, BD shall provide diligent, commercially reasonable, good-faith
assistance and cooperation to enable a Third Party manufacturer to manufacture
and supply the BD Cartridge to AeroGen and its Marketing Partner(s) as rapidly
as possible;

                                    (D)      provide AeroGen with any dedicated
tooling developed directly as a result of the Technical Development Program [*],
for a period of [*] months after the effective date of each termination, at a
price equal to [*]; and

                                    (E)      Pay to AeroGen [*] within ten (10)
business days of AeroGen's receipt of such termination notice; and

                                    (F)      Pay to AeroGen a running royalty
equal to [*] of the net sales (as defined below) of any Drug-filled Cartridge
used in connection with the pulmonary delivery of the Drug in the Field sold
after the effective date of such termination by either BD or any licensee or any
other third party with which BD contracts and covered by a claim of an issued
and unexpired Patent as provided in subsection (ii)(B) below ("Royalty-Bearing
Cartridge"). As used herein, "net sales" shall have the meaning set forth in
Section 9.3(d), except that references to "AeroGen" therein shall be changed to
"BD".

                           (ii)     TERM OF NON-COMPETE OBLIGATION & ROYALTY
OBLIGATION.

                                    (A)      BD's obligation under subsection
(i)(B) above not to [*] shall commence with the effective date of such
termination and expire, on a country-by-country basis, on the later of [*] from
the effective date of such termination or the date of expiration of the last to
expire Patent in such country containing a claim of an issued and unexpired
Patent that [*]; and

                                    (B)      BD's obligation under subsection
(i)(F) above to pay a royalty to AeroGen in connection with [*] shall commence
with and continue, on a country-by-country basis, with the date of issuance of
the first to issue until the date of expiration of the last to expire Patent in
such country containing a claim of an issued and unexpired Patent that (1) is
included within the Development Patents, (2) claims the manufacture, use or sale
of the BD Cartridge and the Royalty-Bearing Cartridge, and (3) has not been held
unenforceable, unpatentable, or invalid by a court or other governmental agency
of competent jurisdiction, and that has not been admitted to be invalid or
unenforceable through reissue, disclaimer or otherwise.

                           (iii)    AEROGEN'S RIGHTS OUTSIDE THE FIELD. In the
event of termination by BD under this Subsection (e), and notwithstanding
Section 8.3, AeroGen shall be granted the right and license by BD, to make, have
made, use, sell, offer for sale or import the BD Cartridge for the pulmonary
delivery of certain drugs (other than the Drug) as provided herein. Within
thirty (30) days following the effective date of termination of this Agreement
under this Section

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                      25.
<PAGE>

13.2(e), AeroGen shall select no more than [*] with respect to which it desires
a license under this Subsection 13.2(e)(iii) and identify such drugs in writing
to BD (the "Initial Licensed Drugs"). Upon receipt of such notice of the Initial
Licensed Drugs by AeroGen, BD shall promptly inform AeroGen in writing as to
whether such drugs have not been exclusively licensed, exclusively optioned or
otherwise subject to any prior commitments to a Third Party and thus are
available for non-exclusive license grant to AeroGen (each, an "Available
Drug"). In the event any such identified drugs are not Available Drugs, AeroGen
shall have an additional thirty days in which to select a replacement for each
prior selected drug which was not an Available Drug. Such election and
notification period shall continue until AeroGen has identified [*] Available
Drugs, whereupon BD shall grant to AeroGen a royalty-bearing, non-exclusive,
worldwide license (with the right to sublicense to licensees of the AeroGen
technology only with respect to AeroGen's right to use, sell and offer for sale
the BD Cartridge), to make, have made, use, sell, offer for sale or import the
BD Cartridge for the pulmonary delivery of such Available Drugs, including the
right to modify the BD Cartridge to the extent necessary to use it in connection
with the pulmonary delivery of such Available Drugs. In exchange for such
license, AeroGen shall pay to BD a royalty of [*] of the net sales of all BD
Cartridges filled with Available Drug. Notwithstanding the foregoing, such
license shall expire and the rights revert to BD, on an Available Drug by
Available Drug basis, in the event AeroGen or its sublicensee fails to both (i)
[*] and (ii) [*]. BD further agrees that, in the event AeroGen desires to obtain
a license under the above described terms with respect to any other Available
Drug other than the initial [*] Available Drugs, AeroGen shall notify BD within
such thirty (30) day period described above, and each such license shall be
granted subject to the payment by AeroGen to BD of [*] at the time of grant of
such license, such fee to be creditable against royalties at the rate provided
above. As used in this Subsection (iii), "Net sales" shall be defined as
provided in Section 9.3(d). The royalty hereunder shall commence with, and
continue, on a country by country basis, with the date of issuance of the first
to issue until the date of expiration of the last to Expire Patent in such
country containing a claim of an issued and unexpired Patent owned or controlled
by BD and covering the manufacture, use, sale, offer for sale or importation of
the BD Cartridge.

         13.3     TERMINATION FOR BREACH.

                  (a)      If either Party believes that the other is in
material breach of this Agreement, then the non-breaching Party may deliver
notice of such breach to the other Party. In such notice the non-breaching Party
shall identify the actions or conduct that such Party would consider to be an
acceptable cure of such breach. The allegedly breaching Party shall have sixty
(60) days to either cure such breach or, if cure cannot be reasonably effected
within such 60-day period, to deliver to the other Party a reasonably acceptable
plan for curing such breach. Such a plan shall set forth a program for achieving
cure as rapidly as practicable. Following delivery of such plan, the breaching
Party shall use commercially reasonable diligent efforts to carry out the plan
and cure the breach, subject to the non-breaching Party's acceptance of such
plan.

                  (b)      If the Party receiving notice of material breach
fails to cure such breach within the 60-day period, or the Party providing the
notice reasonably determines that the proposed corrective plan or the actions
being taken to carry it out is not commercially

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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practicable, the Party originally delivering the notice may terminate this
Agreement upon thirty (30) days advance written notice.

         13.4     EFFECT OF TERMINATION. Except as provided in Section 13.2(e),
upon termination of this Agreement:

                  (a)      All licenses granted by each Party to the other
pursuant to Article 8 shall terminate.

                  (b)      Each Party shall, within sixty (60) days of such
termination, return all Confidential Information of the other Party in its
possession; PROVIDED, HOWEVER, that each Party may retain an archival copy of
such Confidential Information solely for determining the scope of its
confidentiality obligations hereunder.

         13.5     BANKRUPTCY RIGHTS. In the event that this Agreement is
terminated or rejected by a Party or its receiver or trustee under applicable
bankruptcy laws due to such Party's bankruptcy, then all rights and licenses
granted under or pursuant to this Agreement by such Party to the other Party
are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the
Bankruptcy Code and any similar law or regulation in any other country, licenses
of rights to "intellectual property" as defined under Section 101(52) of the
Bankruptcy Code. The Parties agree that all intellectual property rights
licensed hereunder, including without limitation any patents or patent
applications of a Party in any country covered by the license grants under this
Agreement, are part of the "intellectual property" as defined under Section
101(52) of the Bankruptcy Code subject to the protections afforded the
non-terminating Party under Section 365(n) of the Bankruptcy Code, and any
similar law or regulation in any other country.

         13.6     SURVIVAL. The following provisions shall survive termination
of this Agreement: Sections 7.3(c), 9.6, 12.4, 13.2(e), 13.4 and 13.6, and
Articles 10, 11, 14 and 15. Termination of this Agreement shall not relieve
either Party of any liability which accrued hereunder prior to the effective
date of such termination, nor preclude either Party from pursuing all rights and
remedies it may have hereunder or at law or in equity with respect to any breach
of this Agreement, nor prejudice either Party's right to obtain performance of
any obligation. The remedies provided under this Agreement are cumulative, and
are not exclusive of other remedies available to a Party in law or equity.

14.      INDEMNIFICATION

         14.1     BY AEROGEN. AeroGen hereby agrees to indemnify, defend and
hold harmless BD and its officers, directors, agents and employees from and
against any and all Losses from any Third Party claim resulting directly or
indirectly from (a) AeroGen's breach of any of its covenants or representations
and warranties hereunder, or (b) the negligence or wrongdoing of AeroGen, but
only to the extent such Losses do not result from the negligence or wrongdoing
of BD.

         14.2     BY BD. BD hereby agrees to indemnify, defend and hold harmless
AeroGen and its officers, directors, agents and employees from and against any
and all Losses from any Third Party claim resulting directly or indirectly from
(a) BD's breach of any of its covenants or

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                      27.
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representations and warranties hereunder, or (b) the negligence or wrongdoing of
BD, but only to the extent such Losses do not result from the negligence or
wrongdoing of AeroGen. Additional indemnification obligations of BD with respect
to its manufacture and supply of the BD Cartridge shall be set forth in the
Supply Agreement.

         14.3     APPORTIONMENT. Consistent with the foregoing, in the event any
Losses from any Third Party relate specifically to the Interface, each Party
hereby agrees to indemnify, defend and hold harmless the other Party and its
officers, directors, agents and employees with respect to that portion of any
such Losses apportioned between the Parties based upon each Party's percentage
of all Royalties received from each Marketing Partner; provided, however, that
this Section 14.3 shall not apply to any such Losses arising from the
indemnifying Party's breach of any of its covenants or representations and
warranties hereunder.

         14.4     NOTICE AND PROCEDURES. In all cases where one Party seeks
indemnification by the other under this Article 14, the Party seeking
indemnification shall promptly notify the indemnifying Party of receipt of any
claim or lawsuit covered by such indemnification obligation and shall cooperate
fully with the indemnifying Party in connection with the investigation and
defense of such claim or lawsuit. The indemnifying Party shall have the right to
control the defense, with counsel of its choice, provided that the
non-indemnifying Party shall have the right to be represented by advisory
counsel at its own expense. The indemnifying Party shall not settle or dispose
of the matter in any manner which could negatively and materially affect the
rights or liability of the non-indemnifying Party without the non-indemnifying
Party's prior written consent, which shall not be unreasonably withheld or
delayed.

15.      MISCELLANEOUS

         15.1     ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Supply
Agreement and the Stock Purchase Agreement sets forth the complete, final and
exclusive agreement between the Parties with respect to the subject matter
hereof, and all of the covenants, promises, agreements, warranties,
representations, conditions and understandings between the Parties hereto with
respect to such subject matter, and supersedes and terminates all prior
agreements and understandings between the Parties with respect to such subject
matter. There are no covenants, promises, agreements, warranties,
representations, conditions or understandings, either oral or written, between
the Parties with respect to such subject matter other than as are set forth
herein and therein. No subsequent alteration, amendment, change or addition to
this Agreement shall be binding upon the Parties unless reduced to writing and
signed by an authorized officer of each Party.

         15.2     DISPUTE RESOLUTION. In the event of any controversy or claim
arising out of, relating to or in connection with any provision of this
Agreement, or the rights or obligations of the Parties hereunder, the Parties
shall try to settle their differences amicably between themselves by referring
the disputed matter to the Chief Executive Officer of AeroGen and the Vice
President and General Manager of BD Consumer Healthcare for discussion and
resolution. Either Party may initiate such informal dispute resolution by
sending written notice of the dispute to the other Party, and within ten (10)
days of such notice the Chief Executive Officer of AeroGen and the Vice
President and General Manager of BD Consumer Healthcare shall meet for attempted
resolution by good faith negotiations. If such personnel are unable to resolve
such

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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dispute within thirty (30) days of initiating such negotiations, each Party may
thereafter pursue any and all rights and remedies it may have at law or equity.
If mutually agreeable, the Parties may explore alternative forms of dispute
resolution, such as mediation and/or arbitration. Notwithstanding any other
provision of this Section 15.2, either Party may seek a temporary restraining
order or injunction against the other Party in the event of a breach of any
confidentiality obligation hereunder, or to prevent a Party's wrongful use of
any intellectual property hereunder.

         15.3     FORCE MAJEURE. Both Parties shall be excused from the
performance of their obligations under this Agreement to the extent that such
performance is prevented by force majeure and the non-performing Party promptly
provides notice of the prevention to the other Party. Such excuse shall be
continued so long as the condition constituting force majeure continues and the
non-performing Party takes reasonable efforts to remove the condition. For
purposes of this Agreement, "force majeure" shall include conditions beyond the
control of the Parties, including without limitation, an act of God, voluntary
or involuntary compliance with any regulation, law or order of any government,
war, civil commotion, labor strike or lock-out, epidemic, failure or default of
public utilities or common carriers, destruction of production facilities or
materials by fire, earthquake, storm or like catastrophe; provided, however, the
payment of invoices due and owing hereunder shall not be delayed by the payor
because of a force majeure affecting the payor.

         15.4     NOTICES. Any notice required or permitted to be given under
this Agreement shall be in writing, shall specifically refer to this Agreement
and shall be deemed to have been sufficiently given for all purposes if mailed
by first class certified or registered mail, postage prepaid, express delivery
service or personally delivered. Unless otherwise specified in writing, the
mailing addresses of the Parties shall be as described below.

                  For AeroGen:    AeroGen, Inc.
                                  1310 Orleans Drive
                                  Sunnyvale, CA 94089
                                  Attention: Chief Executive Officer

                  With a copy to: Cooley Godward LLP
                                  Five Palo Alto Square
                                  3000 El Camino Real
                                  Palo Alto, CA  94306
                                  Attention:  Barbara A. Kosacz, Esq.

                  For BD:         Becton, Dickinson and Company
                                  1 Becton Drive
                                  Franklin Lakes, NJ 07417-1866
                  Attention:      VP and General Manager, BD Consumer Healthcare

                  With a copy to: Becton, Dickinson and Company
                                  1 Becton Drive
                                  Franklin Lakes, NJ 07417-1866
                                  Attention: VP and General Counsel

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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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         15.5     LIMITATION OF LIABILITY. IN NO EVENT WILL EITHER PARTY BE
LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, COLLATERAL, CONSEQUENTIAL, SPECIAL
OR PUNITIVE DAMAGES ARISING IN CONNECTION WITH THIS AGREEMENT.

         15.6     CONSENTS NOT UNREASONABLY WITHHELD OR DELAYED. Whenever
provision is made in this Agreement for either Party to secure the consent or
approval of the other, that consent or approval shall not unreasonably be
withheld or delayed, and whenever in this Agreement provisions are made for one
Party to object to or disapprove a matter, such objection or disapproval shall
not unreasonably be exercised, unless expressly stated that such consent is to
be given in such Party's sole discretion.

         15.7     INDEPENDENT CONTRACTORS. The status of the Parties under this
Agreement shall be that of independent contractors. Neither Party shall have the
right to enter into any agreements on behalf of the other Party, nor shall it
represent to any person that it has any such right or authority. Nothing in this
Agreement shall be construed as establishing a partnership or joint venture
relationship between the Parties.

         15.8     MAINTENANCE OF RECORDS. Each Party shall keep and maintain all
records required by law or regulation with respect to the Product and shall make
copies of such records available to the other Party upon request.

         15.9     UNITED STATES DOLLARS. References in this Agreement to
"Dollars" or "$" shall mean the legal tender of the United States of America.

         15.10    NO STRICT CONSTRUCTION. This Agreement has been prepared
jointly and shall not be strictly construed against either Party.

         15.11    ASSIGNMENT. Neither Party may assign or transfer this
Agreement or any rights or obligations hereunder without the prior written
consent of the other, except a Party may make such an assignment without the
other Party's consent to a successor-in-interest to substantially all of the
business assets of such Party to which this Agreement relates, whether in a
merger, sale of stock, sale of assets or other transaction. Any permitted
successor or assignee of rights and/or obligations hereunder shall, in a writing
to the other Party, expressly assume performance of such rights and/or
obligations. Any permitted assignment shall be binding on the successors of the
assigning Party. Any assignment or attempted assignment by either Party in
violation of the terms of this Section 15.11 shall be null and void and of no
legal effect. This Agreement shall be binding upon and shall inure to the
benefit of each Party's successors-in-interest and permitted assigns.

         15.12    PERFORMANCE BY AFFILIATES. The Parties recognize that each
Party may perform some or all of its obligations under this Agreement through
one or more of its Affiliates, provided, however, that each Party shall remain
responsible for and shall guarantee such performance by its Affiliates and shall
cause its Affiliates to comply with the provisions of this Agreement in
connection with such performance. Each Party hereby expressly waives any
requirement that the other Party exhaust any right, power or remedy, or proceed
against an

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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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Affiliate, for any obligation or performance hereunder prior to proceeding
directly against such Party.

         15.13    COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

         15.14    FURTHER ACTIONS. Each Party agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts, as may be
necessary or appropriate in order to carry out the purposes and intent of this
Agreement.

         15.15    SEVERABILITY. If any one or more of the provisions of this
Agreement is held to be invalid or unenforceable, the provision shall be
considered severed from this Agreement and shall not serve to invalidate any
remaining provisions hereof. The Parties shall make a good faith effort to
replace any invalid or unenforceable provision with a valid and enforceable one
such that the objectives contemplated by the Parties when entering this
Agreement may be realized.

         15.16    AMBIGUITIES. Ambiguities, if any, in this Agreement shall not
be construed against any Party, irrespective of which Party may be deemed to
have authored the ambiguous provision.

         15.17    HEADINGS. The headings for each article and section in this
Agreement have been inserted for convenience of reference only and are not
intended to limit or expand on the meaning of the language contained in the
particular article or section.

         15.18    NO WAIVER. Any delay in enforcing a Party's rights under this
Agreement or any waiver as to a particular default or other matter shall not
constitute a waiver of such Party's rights to the future enforcement of its
rights under this Agreement, excepting only as to an express written and signed
waiver as to a particular matter for a particular period of time.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                      31.
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         IN WITNESS WHEREOF, the Parties have executed this Agreement in by
their proper officers as of the date and year first above written.

BECTON, DICKINSON AND COMPANY                   AEROGEN, INC.

By:/s/ Gary M. Cohen                            By: /s/ Jane E. Shaw
   -----------------------------------------       --------------------

Name:  Gary M. Cohen                            Name:  Jane E. Shaw
     ---------------------------------------         ------------------

Title: President - Worldwide Medical Systems    Title:  Chairman / Ceo
      --------------------------------------          -----------------

EXHIBIT 1  CRITICAL SYSTEM SPECIFICATIONS

EXHIBIT 2  TECHNICAL DEVELOPMENT PLAN

EXHIBIT 3  SUPPLY AGREEMENT TERMS

EXHIBIT 4  POTENTIAL INVENTORS

EXHIBIT 5  FORM OF EMPLOYMENT AGREEMENT

EXHIBIT 6  DIAGRAM OF [*]

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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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                                    EXHIBIT 1

                         CRITICAL SYSTEM SPECIFICATIONS

                                      [*]

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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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                                    EXHIBIT 2

                           TECHNICAL DEVELOPMENT PLAN

                                      [*]
                                          [*]

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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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                                    EXHIBIT 3

                             SUPPLY AGREEMENT TERMS

1.       PURCHASE AND SUPPLY OBLIGATIONS. AeroGen shall purchase its and its
         Marketing Partners' requirements of BD Cartridges from BD, except as
         provided herein in the event of a supply default. BD shall manufacture
         and supply to AeroGen and its Marketing Partners their requirements for
         the BD Cartridge in accordance with binding purchase orders provided by
         AeroGen as described below.

2.       EXCLUSIVITY.

         During the term of the Supply Agreement, BD agrees that it shall not:

                           (i)      manufacture, have manufactured, use in Phase
         III clinical trials or sell and/or otherwise transfer to any Third
         Party, directly or indirectly, either itself or on behalf of a Third
         Party, the [*];

                           (ii)     manufacture, have manufactured, use in Phase
         III clinical trials or sell and/or otherwise transfer to any Third
         Party, directly or indirectly, either itself or on behalf of a Third
         Party, [*]; and

                           (iii)    manufacture, have manufactured, use in Phase
         III clinical trials or sell and/or otherwise transfer to any Third
         Party, directly or indirectly, either itself or on behalf of a Third
         Party, any [*].

3.       TRANSFER PRICE.

         BD will manufacture the BD Cartridge [*] and transfer the same to
         AeroGen for a [*] during the first year of commercial sale; and for a
         [*] during the second year of commercial sale.

         Following the second full year following commercial sale of the Retail
         Product and each subsequent year, provided that AeroGen orders at least
         [*] BD Cartridges during such year, the Transfer Price of the [*] BD
         Cartridge shall be equal to [*], but in no event greater than [*]. Any
         reduction in Cost of Goods of the [*] BD Cartridge below [*] shall be
         [*]. For example, should the Cost of Goods be reduced to [*], then BD
         would receive a Transfer Price [*]. In the event the [*] or any
         subsequent year production volume is less than [*] units, then the
         steady state transfer price shall be the [*] per [*] BD Cartridge. In
         the event BD sells or otherwise transfers to a Third Party any [*] for
         use in the Field, such [*] unit threshold shall be reduced
         proportionately.

         In the event the [*] of the BD Cartridge includes a [*] shall be
         transferred to AeroGen as follows: [*] For example, should the Cost
         of Goods equal [*], the transfer price of [*] mechanism shall be [*].

         "COST OF GOODS" means the cost of manufacturing, supplying and shipping
         the BD

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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         Cartridge, and shall consist of (i) in the case of products and/or
         services acquired from Third Parties, payments to such Third Parties
         (including, for example, charges by such Third Parties for an
         allocation of overhead for production of components of the BD
         Cartridge), and (ii) in the case of manufacturing services performed by
         BD, including manufacturing services in support of Third Party
         manufacturing, the actual unit costs of the manufacture, plus the
         variances and other costs specifically provided for herein. Actual unit
         costs shall consist of direct material and direct labor costs plus
         manufacturing overhead attributable directly to the BD Cartridge, all
         calculated in accordance with BD Financial Policies and Generally
         Accepted Accounting Principles ("GAAP").

                           (a)      As used herein, "direct material costs"
         shall include the costs of materials (including waste), including
         applicable taxes imposed thereon, shipping costs and customs duty and
         charges levied by government authorities, and the costs of packaging
         components.

                           (b)      As used herein, "direct labor" shall include
         the cost of employees engaged in direct manufacturing activities and
         direct or indirect quality control and quality assurance activities who
         are directly employed in the manufacture, testing and/or packaging of
         the BD Cartridge.

                           (c)      "Overhead attributable directly to the BD
         Cartridge" shall include a reasonable and customary allocation of
         indirect labor (not previously included in direct labor), a reasonable
         allocation of administrative costs, and a reasonable allocation of
         facilities costs (including but not limited to, electricity, water,
         sewer, waste disposal, property taxes, and depreciation over the
         expected life of buildings and equipment), unless otherwise agreed upon
         by the Steering Committee. Such allocations shall be in accordance with
         BD's general business practice, and GAAP. Attributable overhead shall
         not include corporate overhead or plant start-up costs not otherwise
         allocable to the manufacture of the BD Cartridge, nor shall
         attributable overhead include costs associated with capacity not used
         in the manufacture of the BD Cartridge. Actual costs shall exclude
         costs associated with excess capacity not directly related to the BD
         Cartridge.

                           (d)      Cost of Goods shall also include
         manufacturing variances and other attributable non-standard costs.

4.       FORECASTS. In order to assist BD in its production planning, AeroGen
         would submit to BD at least six (6) months prior to the commencement of
         the market launch of the Product a non-binding forecast of its best
         estimate of its purchase requirements of the BD Cartridge for the first
         twelve (12) months of marketing of the BD Cartridge by month.
         Thereafter, AeroGen would provide BD with an updated non-binding
         rolling estimate of its purchase requirements for the BD Cartridge on a
         monthly basis for the subsequent twelve (12) month period. Forecasts in
         excess of BD's capacity would need to be mutually agreed upon between
         BD and AeroGen.

5.       ORDERS.  Within thirty (30) days of signing a Supply Agreement,
         AeroGen would submit to BD a binding purchase order for its
         requirements for the BD Cartridge for the first [*] months of
         marketing. Thereafter, AeroGen would provide BD with an updated binding

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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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         purchase order of its requirements for the BD Cartridge, each month, at
         least [*] months before requested delivery ("Purchase Order"), and BD
         would confirm all Purchase Orders within at least twenty (20) days of
         receipt. In each Purchase Order for any month, AeroGen would state,
         after consultation with BD, a reasonable delivery schedule for the BD
         Cartridge to be delivered. BD would make a reasonable business effort
         to comply with unplanned changes in Purchase Orders but would not be
         required to accept orders for the BD Cartridge that are not within [*]
         of the quantity forecasted subject to BD's capacity. Orders for the BD
         Cartridge in excess of such amounts would be subject to acceptance by
         BD in its reasonable discretion. However, BD would exercise reasonable
         business efforts to meet any changes, including schedule and quantity
         changes.

6.       SHIPMENT AND DELIVERY. The BD Cartridge would be packed and shipped in
         accordance with a shipping specifications to be mutually agreed to in
         writing between the Parties. Each such shipment shall contain any
         documents and/or information mutually agreed upon by the Parties in
         connection with the manufacture and shipment of the BD Cartridge
         (collectively, "Documentation"). The BD Cartridge would be shipped
         F.O.B. point of origin, unless otherwise mutually agreed. Risk of loss
         or damage would pass to AeroGen upon delivery to the common carrier.
         AeroGen would specify in the applicable purchase order the destination
         for each shipment. The quantity shipped may vary within [*] of the
         confirmed order; provided that AeroGen shall only be required to pay
         for those quantities actually shipped. No provision on AeroGen's
         purchase order forms which may purport to impose different conditions
         upon a Party, nor any other modifications of the Supply Agreement,
         would be of any force or effect, unless in writing and signed by the
         Parties claimed to be bound thereby. All Documentation required in
         connection with a shipment would be forwarded to the attention of
         AeroGen, unless otherwise specified in writing by AeroGen.

7.       INSPECTION, REJECTION AND ACCEPTANCE.

                  (a)      Within thirty (30) days of receipt of each shipment
         of BD Cartridges, in addition to any usual and customary incoming
         inspection including examination of the external appearance and
         integrity of the packaging, and before any use of the BD Cartridge,
         AeroGen or its designee, shall inspect each shipment of the BD
         Cartridges, in accordance with a mutually agreed upon inspection
         procedure. If AeroGen finds that the BD Cartridges do not conform to
         the Final Specifications, AeroGen shall within ten (10) days after the
         discovery of the non-conforming BD Cartridges, give BD written notice
         of any claim setting forth the details of such non-conformity, or
         otherwise shall be deemed to have accepted the BD Cartridges. BD in its
         discretion shall either repair or replace any non-conforming the BD
         Cartridge at BD's expense and at no cost to AeroGen. In accordance with
         BD's request, any the BD Cartridge which does not conform to the
         Specifications shall either be returned to BD or destroyed at BD's
         expense.

                  (b)      In the event the Parties disagree as to whether a
         shipment of the BD Cartridges or a portion thereof conforms to the
         Final Specifications, the rejected BD Cartridges would be submitted to
         a mutually acceptable third party testing laboratory, which would
         determine whether such BD Cartridges meet the Final Specifications. The
         Parties agree that such testing laboratory's determination would be
         final and

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
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COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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         determinative. The Party against whom the testing laboratory rules
         would bear the reasonable costs of the testing laboratory. If the
         testing laboratory rules that the BD Cartridges meet the Final
         Specifications, AeroGen would purchase the BD Cartridges at the
         agreed-upon price, irrespective of whether BD has already replaced
         same. If the testing laboratory rules that the BD Cartridges do not
         meet the Final Specifications and the BD Cartridges were not replaced,
         BD would credit AeroGen's account in an amount equal to the purchase
         price of the rejected BD Cartridges, or refund that sum to AeroGen, as
         appropriate.

8.       TITLE. Title to the BD Cartridges shipped by BD for a given purchase
         order would pass to AeroGen upon delivery to the common carrier. BD
         shall warrant that upon such delivery, BD shall convey good title
         thereto, free and clear from any lawful security interest or lien or
         encumbrance.

9.       INVOICES. BD would invoice AeroGen upon each shipment of the BD
         Cartridge, and AeroGen would pay the full balance of each invoice in
         U.S. Dollars, less any applicable credits for rejected goods or if
         volumes rise so as to meet the next qualified price levels or charge
         backs if volumes fall below quoted levels, including those within
         thirty (30) days of delivery by BD to the common carrier. All such
         invoices would be forwarded as specified by AeroGen.

10.      INTELLECTUAL PROPERTY REPRESENTATIONS AND WARRANTIES.

                  (a)      AeroGen represents and warrants that to the best of
         its knowledge and belief the manufacture, use, sale, offer for sale or
         importation of the Product will not infringe any valid and enforceable
         claim of any third party patent.

                  (b)      BD represents and warrants that to the best of its
         knowledge and belief, the manufacture, use, sale, offer for sale or
         importation of the BD Cartridge will not infringe any valid and
         enforceable claim of any third party patent.

11.      PRODUCT WARRANTIES AND DISCLAIMER.

                  (a)      BD shall warrant to AeroGen that (a) all BD
         Cartridges manufactured and supplied under the Supply Agreement (i)
         will meet the Final Specifications, (ii) will be manufactured and
         supplied in accordance with quality systems regulations and other
         mutually agreeable standards, and (iii) will be free from defects in
         materials and workmanship. Claims on account of quality, loss or damage
         to the BD Cartridge will need to be made by AeroGen in writing within
         thirty (30) days following delivery to BD, unless otherwise mutually
         agreed to in writing between the Parties. AeroGen's sole and exclusive
         remedy, and BD's sole obligation under the warranty (except with
         respect to Latent Defects as defined in Sub-Section 15(c)) will be the
         repair or replacement, at BD's sole option, of any defective BD
         Cartridges. The warranty will not apply to (a) any BD Cartridge that
         had been misused, neglected, altered, abused or used by a party other
         than BD for any purpose other than the one for which it was
         manufactured or (b) any damages or defects caused by unauthorized
         repair or use of unauthorized parts or components. If no claim is made
         by AeroGen within the thirty (30) day period of time, the BD Cartridge

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                      38.
<PAGE>

         will be deemed acceptable to AeroGen, and BD will no longer have any
         liability with respect thereto.

                  (b)      ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
         WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, ARE
         HEREBY DISCLAIMED. IN ADDITION, BD EXPRESSLY DISCLAIMS ANY
         REPRESENTATIONS AND WARRANTIES REGARDING THE PERFORMANCE, SAFETY AND
         EFFICACY OF [*] IN COMBINATION WITH THE [*] COMPONENTS.

12.      CHANGES TO THE BD CARTRIDGE.

                  BD shall not make any material or process changes that would
         affect any regulatory approvals obtained with respect to the BD
         Cartridge. Notwithstanding the foregoing, BD may make such changes if
         they would not have any material effect on the BD Cartridge or the
         Product, solely to the extent permitted by QSR and other applicable
         laws and regulations.

13.      PRODUCT DISCONTINUANCE AND SUPPLY DEFAULT.

                  In the event BD wishes to discontinue the manufacture and
         supply of the BD Cartridge, BD shall provide AeroGen with at least [*]
         months prior, written notice of discontinuation. In addition, BD agrees
         to continue to supply AeroGen with the BD Cartridge for at least [*]
         months from the date of such notice, during which period of time, BD
         shall provide AeroGen with diligent, commercially reasonable,
         good-faith assistance and cooperation to enable a Third Party
         manufacturer to manufacture and supply the BD Cartridge to AeroGen and
         its Marketing Partner(s) as rapidly as possible.

14.      REGULATORY MATTERS.

                  (a)      AeroGen shall be responsible, at its expense, for
         diligently filing and prosecuting any authorizations or approvals for
         the commercial manufacture and sale of the Product, including the BD
         Cartridge, and shall diligently respond to any comments or concerns
         raised by such regulatory authorities. AeroGen shall provide BD with
         any registration dossier or materials, and any amendment thereof, that
         are in its possession or control in respect of the Product, including
         the BD Cartridge. In addition, AeroGen shall promptly notify BD of an
         inquires from or comments or concerns raised by any regulatory
         authorities with respect to the Product or the BD Cartridge.

                  (b)      BD shall have full access and the right of reference
         to the other AeroGen's regulatory filings and approvals, but only to
         the extent necessary and appropriate for the filing of any necessary
         regulatory submissions.

15.      INSPECTIONS AND AUDITS.

                  (a)      Upon written request to BD, AeroGen shall have the
         right to have representatives visit BD's manufacturing facilities
         during normal business hours to

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                      39.
<PAGE>

         review BD's manufacturing operations and assess its compliance with QSR
         and quality assurance standards and to discuss any related issues with
         BD's manufacturing and management personnel.

                  (b)      BD shall notify AeroGen within two (2) business days
         of any planned inspection by any regulatory agency which may have an
         impact on the manufacturing of the BD Cartridge. BD shall forward to
         AeroGen copies of all regulatory communications with respect to the BD
         Cartridge within two (2) business days of receipt of such
         communications by BD.

16.      ADVERSE EVENT REPORTING AND RECALLS.

                  (a)      The Parties shall, throughout the duration of the
         Supply Agreement, notify one-another within two (2) business days after
         receiving any information concerning any complaint, injury, or
         sensitivity reaction associated with the use of the Product or the BD
         Cartridge, whether or not considered related to the Product or the BD
         Cartridge. The information shall be collected by the recipient of such
         information in accordance with a Standard Operating Procedure to be
         agreed to by the Parties and provided to the other in the form of a
         report. The report shall indicate if the performance of the Product or
         the BD Cartridge contributed to the event. The Parties shall require
         any third party under contract with either of the Parties to provide
         such information to both Parties on an expedited basis, the receipt of
         which information shall trigger the notification requirements set forth
         in this Section. If the adverse event is serious (including an adverse
         event that is fatal or life-threatening, is permanently or
         significantly disabling, or requires or prolongs in-patient
         hospitalization), then the recipient of such information shall use its
         best efforts to notify the other Party within one (1) business day
         after receipt of such information. In addition, moderately severe
         adverse events requiring medical intervention such as significant
         unexplained hypoglycemia, allergic bronchospasms requiring emergency
         room treatment, new abnormal liver function tests or abnormal CBC shall
         be reported to the other Party within three (3) business days. All
         notifications pursuant to this Section shall be by facsimile with
         confirmation copy by Certified or Registered mail and shall be written
         out on designated adverse event forms to be agreed to by the Parties.

                  (b)      If customer complaints other than those described
         above are received by either Party regarding the performance of the
         Product or the BD Cartridge, the Parties will exchange this information
         within five (5) business days after receipt of such information.
         Monthly reports summarizing any complaints or defects relating to the
         performance of the Product or the BD Cartridge shall be exchanged by
         the Parties. Efforts will be made to retrieve defective Product or the
         BD Cartridge and return them in the case of the Inhaler to AeroGen and
         in the case of the BD Cartridge to BD. All such reports and information
         obtained by either Party or exchanged under this Section shall be
         treated as Confidential Information in accordance with the terms of the
         Insulin Inhaler Development Agreement.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                      40.
<PAGE>

                  (c)      AeroGen shall notify BD promptly if any Product or
         any BD Cartridge manufactured by BD hereunder is the subject of a
         recall or correction, and AeroGen and/or its designee shall have the
         sole responsibility for the handling and disposition of such recall or
         correction. In the event that a recall is required during the
         shelf-life of the BD Cartridge as a result of any non-compliance of the
         BD Cartridge with the Final Specification and if such non-compliance
         was not reasonably discoverable by AeroGen with the inspection
         performed pursuant to Section 6 in accordance with the mutually agreed
         inspection procedure (hereinafter referred to as "Latent Defect"), and
         AeroGen recalls either the Product or the BD Cartridge primarily due to
         such Latent Defect of the BD Cartridge, then, in addition to repair or
         replacement, BD shall reimburse AeroGen for the reasonable costs and
         expenses associated with such recall or correction, but only to the
         extent that the foregoing costs and expenses are directly attributable
         to BD's breach of its warranties under Sub-Section 10(a)(i). In all
         other events of a recall, all costs and expenses incurred in connection
         with such recall or correction shall be borne by AeroGen. AeroGen
         and/or its designee shall serve as the sole point of contact with the
         FDA or other applicable regulatory authority concerning any recall or
         correction with respect to the Product and the BD Cartridge.

17.      INDEMNITIES.

                  (a)      INDEMNIFICATION BY AEROGEN. AeroGen shall indemnify,
         defend (subject to Sub-Section (e) below) and hold BD harmless from and
         against any and all claims, demands, actions, suits, causes of action,
         damages and expenses (including but not limited to expenses of
         investigation, settlement, litigation and reasonable attorneys' fees
         incurred in connection therewith) which are hereafter made, sustained
         or brought against BD by any third party (i) for the recovery of
         damages to personal property or bodily injury, illness or death of any
         third party caused or alleged to be caused by the use, distribution, or
         sale of the Retail Product, or the BD Cartridge by AeroGen or its
         sublicensees, or (ii) arising out of or resulting from allegations
         against BD that the manufacture, use, offer for sale, sale or
         importation of the Inhaler infringes a third party patent or trademark
         to which BD has no ownership or license rights thereunder, unless in
         each such case, such claims, demands, actions, suits, causes of action,
         damages or expenses allegedly occurred as a result of BD's negligence,
         willful misconduct, or breach of its representations and warranties
         contained herein.

                  (b)      INDEMNIFICATION BY BD. BD shall indemnify, defend
         (subject to Sub-Section (e) below) and hold AeroGen harmless from and
         against any and all claims, demands, actions, suits, causes of action,
         damages and expenses (including, but not limited to expenses of
         investigation, settlement, litigation and reasonable attorneys' fees
         incurred in connection therewith) which are hereafter made, sustained
         or brought against AeroGen by any third party (i) to the extent arising
         out of or resulting from BD's negligence, willful misconduct or breach
         of its representations and warranties contained herein, or (ii) arising
         out of or resulting from allegations against AeroGen that the
         manufacture, use, sale, offer for sale or importation of the BD
         Cartridge infringes a third party patent or trademark to which AeroGen
         has no ownership or license rights thereunder; provided, unless such
         claims, demands, actions, suits, causes of action,

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                      41.
<PAGE>

         damages or expenses allegedly occurred as a result of AeroGen's
         negligence, willful misconduct, or breach of its representations and
         warranties contained herein.

                  (c)      LIMITATION OF LIABILITY. Under no circumstances shall
         either Party be liable to the other Party for any special, indirect,
         consequential or incidental damages, including, but not limited to,
         loss of profits or revenues or damage to or loss of other products,
         property and/or equipment incurred by such Party or AeroGen's Marketing
         Partner or Qualified Supplier, or any other party seeking
         indemnification hereunder. In addition, BD shall not be liable for any
         damages arising or resulting from any failure of BD or AeroGen to warn,
         or to adequately warn, against [*].

                  (d)      APPORTIONMENT. Consistent with the foregoing, in the
         event any and all such claims, demands, actions, suits, causes of
         action, damages and expenses (including, but not limited to expenses of
         investigation, settlement, litigation and reasonable attorneys' fees
         incurred in connection therewith) relate to the Interface, each Party
         hereby agrees to indemnify, defend and hold harmless the other Party
         and its officers, directors, agents and employees with respect to that
         portion of any such claims, demands, actions, suits, causes of action,
         damages and expenses (including, but not limited to expenses of
         investigation, settlement, litigation and reasonable attorneys' fees
         apportioned between the Parties based upon each Party's percentage of
         all Royalties received from each Marketing Partner.

                  (e)      PROCEDURES. SHOULD A PARTY (THE "INDEMNIFIED PARTY")
         INTEND TO CLAIM INDEMNIFICATION HEREUNDER, IT SHALL PROMPTLY NOTIFY
         THE OTHER PARTY ("INDEMNIFYING PARTY") IN WRITING OF ANY LOSS, CLAIM,
         DAMAGE, LIABILITY OR ACTION IN RESPECT OF WHICH SUCH INDEMNIFIED PARTY
         INTENDS TO CLAIM SUCH INDEMNIFICATION, AND THE INDEMNIFYING PARTY SHALL
         BE ENTITLED, BUT NOT OBLIGATED, TO ASSUME THE DEFENSE THEREOF WITH
         COUNSEL SELECTED BY THE INDEMNIFYING PARTY, AND THE INDEMNIFIED PARTY,
         INCLUDING ITS EMPLOYEES AND AGENTS, SHALL COOPERATE FULLY WITH
         INDEMNIFYING PARTY AND ITS LEGAL REPRESENTATIVES IN THE INVESTIGATION
         AND DEFENSE OF ANY ACTION, CLAIM OR LIABILITY COVERED BY THIS SECTION.

                  (f)      EXCEPT AS PROVIDED HEREIN, BD MAKES NO OTHER
         WARRANTIES AND ASSUMES NO OTHER OBLIGATIONS, EXPRESS OR IMPLIED, WITH
         RESPECT TO THE BD CARTRIDGE OR THE PRODUCT. ALL OTHERS ARE HEREBY
         DISCLAIMED BY BD.

18.      TERM. The term of the Supply Agreement would be for an initial period
         of five (5) years. The Supply Agreement would be automatically renewed
         for additional two (2) year periods unless either Party provides the
         other Party with written notice of its desire not to renew the Supply
         Agreement at least eighteen (18) months before the expiration of the
         term of such Supply Agreement or any renewal thereof.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                      42.
<PAGE>

                                    EXHIBIT 4

                               POTENTIAL INVENTORS

                                      [*]

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                      43.
<PAGE>

                                    EXHIBIT 5

                      FORM OF STANDARD EMPLOYMENT AGREEMENT

                               EMPLOYEE AGREEMENT

                                      [*]

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                      44.
<PAGE>

                                    EXHIBIT 6

                                      [*]

                                      [*]

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                      45.<PAGE>

                                                                   EXHIBIT 10.11

                              SETTLEMENT AGREEMENT

                                     BETWEEN

                                   BESPAK PLC

                                       AND

                                  AEROGEN, INC.

                                       AND

                                TENAX CORPORATION

<PAGE>

                              SETTLEMENT AGREEMENT

SECTION A.        BACKGROUND AND STATUS INFORMATION

         A.1      BESPAK plc (BESPAK) is a corporation of the United Kingdom,
having a principal place of business at 4, Stanhope Gate. London WlY 5LA,
England.

         A.2      TENAX Corporation (TENAX), which does business as Bespak, Inc.
and is a subsidiary of BESPAK, has a principal place of business at 2450 Laura
Duncan Road, Apex, North Carolina 27502.

         A.3      AeroGen, Inc. (AEROGEN) is a corporation of Delaware having a
principal place of business at 1310 Orleans Drive, Sunnyvale, California 94089.

         A.4      BESPAK is the owner, by assignment, of the patent and patent
applications identified in the right column of TABLE I under the heading
"BESPAK" of Attachment I to this Settlement Agreement (SETTLEMENT AGREEMENT)
which patents and patent applications, including all reissues, reexaminations,
divisions and continuations thereof, are hereinafter referred to as "BESPAK
Intellectual Property."

         A.5      AEROGEN is the owner, by assignment, of the patents and patent
applications identified in the left column of TABLE I under the heading
"AEROGEN" in Attachment I which patents and patent applications, including all
reissues, reexaminations, divisions and continuations thereof, are hereinafter
referred to as "AEROGEN Intellectual Property."

         A.6      Interference No. 103,704 (Interference) was declared in the
United States Patent and Trademark Office ("USPTO") between U.S. Patent
Application Serial No. 08/163,850 (`850 application) presently assigned to
AEROGEN and U.S. Patent No. 5,261,601 (`601 patent) assigned to BESPAK,
following the filing of a request for interference by a predecessor in interest
to AEROGEN. This Interference is currently pending before the USPTO. The `850
application and `601 patent are listed in the aforementioned TABLE I of
Attachment 1.

         A.7      An opposition proceeding was commenced, and is presently
pending in the European Patent Office, with respect to European Patent No.
0 542 723 (EP `723) assigned to BESPAK, following the filing of a request by a
predecessor in interest to AEROGEN. The EP `723 patent is listed in TABLE I of
Attachment I.

         A.8      AEROGEN and TENAX have worked together in the development of a
SUPPLY CONTRACT therebetween. A copy of this SUPPLY CONTRACT is attached as
Attachment II to this SETTLEMENT AGREEMENT.

SECTION B.        GRANT PROVISIONS AND PROVISIONS RELATED TO THE GRANT
                  PROVISIONS.

                                       i
<PAGE>

         In consideration of the following provisions, representations and
warranties, and in order to settle any existing controversies between BESPAK,
TENAX and AEROGEN (THE PARTIES), THE PARTIES agree as follows:

         B.1      SUPPLY CONTRACT EXECUTION.

                  TENAX and AEROGEN will, concurrently with the execution of
                  this SETTLEMENT AGREEMENT, execute the SUPPLY CONTRACT
                  provided in Attachment II.

         B.2      PATENT AND PATENT APPLICATION RIGHTS.

                  B.2.1    BESPAK grants to AEROGEN a worldwide, nonexclusive
royalty-free license under BESPAK Intellectual Property, to practice the methods
and to make, use, sell, offer to sell, and import products covered under any
claims of said BESPAK Intellectual Property, which claim reads on subject matter
disclosed in or supported by U.S. Patent Application Serial No. 08/163,850.

                  B.2.2    AEROGEN grants to BESPAK and TENAX a worldwide,
nonexclusive royalty-free license under AEROGEN Intellectual Property to
practice the methods and to make, use, sell, offer to sell, and import products
covered under any claim of said AEROGEN Intellectual Property or any other
present or future AEROGEN patent which claim reads on subject matter disclosed
in or supported by U.S. Patent No. 5,261,601. Examples of claims which are
licensed and not licensed hereunder are set forth in Attachment III.

                  B.2.3    The grant clauses in B2.1 and B2.2 above apply to
subsidiaries and controlled companies of the respective parties (i.e., AEROGEN,
BESPAK and TENAX) as defined immediately below in Sections (i) and (ii):

                            (i)    A SUBSIDIARY of a party means any corporation
or company or other similar entity over 50% of the voting stock of which is
directly or indirectly owned by such party; and

                            (ii)   A CONTROLLED COMPANY of a party means (1) any
SUBSIDIARY and (2) any corporation, company, or other entity, not a SUBSIDIARY,
at least 40% of the voting stock of which is directly or indirectly owned or
controlled by such party provided such party also has in case (2) either -

                                    (a)      the irrevocable right to name a
majority of the members of the governing board of such entity, or

                                    (b)      effective managerial control by
virtue of a management agreement entered into with such entity.

                  B.2.4    Each of the parties to this Agreement may, at its
election and in its sole discretion, sub-license the rights granted to it under
Sections B2.1 or B2.2. Each party will notify the other parties as soon as
possible as to the identity of any proposed sub-licensee, the nature of the
rights being sub-licensed, and the reasoning behind the desire to sub-license.

                                       ii
<PAGE>

         B.3      NONASSERTION CLAUSES.

                  B.3.1    BESPAK and AEROGEN each agree that with respect to
any patent (US or non-US) which, on the execution date of this SETTLEMENT
AGREEMENT, it or a subsidiary or controlled company thereof owns or under which
it has the right to grant licenses of the scope of the licenses granted in this
SETTLEMENT AGREEMENT, or any patent which may later issue thereto or which it
later owns or under which it later has the right to grant licenses of the scope
of the license granted in this SETTLEMENT AGREEMENT, it will not assert against
another of said PARTIES, or a subsidiary, or controlled company thereof, any
claims for infringement based on the manufacture, use, or sale, offer to sell or
importation of any product made or sold by another of said PARTIES, or a
subsidiary, or controlled company thereof, under license granted in this
SETTLEMENT AGREEMENT.

SECTION C.        SETTLEMENT OF INTERFERENCE NO. 103,704.

         C.1      BESPAK and AEROGEN agree to settle Interference No. 103,704.
In this regard, BESPAK and AEROGEN (The Interference Parties) agree as set forth
below:

         C.2      DETERMINATION OF PRIORITY. The following provisions, C2.1 to
C2.5, relate to the determination of priority in the Interference No. 103,704
proceeding.

                  C.2.1    DETERMINATION OF PRIORITY BY AGREEMENT BY THE
INTERFERENCE PARTIES. The Interference Parties shall endeavor in good faith
promptly after the date of this SETTLEMENT AGREEMENT to determine all questions
of priority involved in Interference No. 103,704 on the basis of the evidence
(i) presented in the Preliminary Motions heretofore filed, (ii) the Preliminary
Statements filed (i.e., a free exchange of the entire contents of the previously
sealed Preliminary Statement packages filed in accordance with 37 C.F.R.
Section 1.622 and any documents referenced therein), and (iii) any other
proofs of relevance establishing priority including, but not limited to,
affidavits under 37 C.F.R. Section 1.131 and any evidence and explanation
filed under 37 C.F.R. Section 1.608 in any application set out in the notice
declaring the Interference.

              To ensure that the priority issue is dealt with promptly, the
following time frames apply:

                  A)       The Parties shall exchange, by Federal Express, the
documents of (ii) and (iii) immediately above within fourteen (14) business days
of the last signature date of this Agreement; and

                  B)       The Parties shall consider the exchanged documents
and determine the issue of priority within six weeks after the period in C2.1(A)
expires or, if unable to so determine priority, proceed in accordance with C2.2
below. This six week timeframe may be shortened if an unextendible earlier due
date is set forth by the Administrative Patent Judge (APJ) or may be extended
with the mutual consent of the APJ and the PARTIES.

         Both Interference Parties will study the evidence and will make a
conscientious effort to reach agreement as to the proper determination of
priority as between the parties. Both Interference Parties recognize the
importance of determining the correct priority as to the finally

                                      iii
<PAGE>

determined count(s), so as to avoid any future validity and patentability
ramifications under Title 35 of the US Patent Laws, such as 35 U.S.C.
Section 102(g), that could be raised by third parties, and thus all pertinent
information or issues concerning priority will be presented. In view of this,
if further information is deemed necessary by a receiving party to facilitate
a proper understanding of the arguments presented by another Party, a request
for that information will be made and reasonably responded to by the
recipient of the request. In the event The Interference Parties are able to
determine priority with respect to the finally determined count(s), the party
determined not entitled to priority shall file a Request for Entry of Adverse
Judgment under 37 C.F.R. Section 1.662(a) as to the priority issue.

                  C.2.2    DETERMINATION OF PRIORITY BY THE PATENT AND TRADEMARK
OFFICE IF INTERFERENCE PARTIES UNABLE TO AGREE.
                           In the event The Interference Parties are unable to
                           agree upon the issue of priority, the Patent and
                           Trademark Office proceedings will continue pursuant
                           to the Rules of Practice to the end that priority of
                           invention may be determined by the Patent and
                           Trademark Office. All testimony shall be by written
                           declarations or affidavits and not by oral testimony.
                           The Administrative Patent Judge will be consulted as
                           to any Briefs that shall be filed. Appeal from the
                           Patent and Trademark Office's decision on priority
                           will be made only if mutually agreed to by both
                           Interference Parties.

                  C.2.3    EXTENSIONS OF TIME.
                           While The interference Parties are attempting to
                           determine priority, each Interference Party will
                           execute such stipulations for extensions of time as
                           may be appropriate to stay the Patent and Trademark
                           Office proceedings so that neither party will suffer
                           less of any procedural or substantive rights as to
                           the issues in the Interference.

                  C.2.4    FILING OF PROOFS.
                           All documents exchanged between The Interference
                           Parties to determine the issue of priority and which
                           are not already of record in the Interference, shall
                           be filed in the US Patent and Trademark Office by the
                           Party who originally forwarded the documents whether
                           or not a determination of priority is made between
                           the Interference Parties. Photocopies of the
                           documentary evidence employed in determining priority
                           may be submitted as alternatives to originals.

                  C.2.5    NO EFFECT ON LICENSES GRANTED.
                           The failure of the Interference Parties to agree upon
                           the issue of priority or any other Interference issue
                           shall in no way affect the licenses granted herein.

         C.3      FILING OF SETTLEMENT AGREEMENT. A copy of this SETTLEMENT
AGREEMENT (including any Appendices, Attachments, Schedules, etc.) shall be
filed in the United States Patent and Trademark Office in compliance with
35 U.S.C. Section 135(c) and 37 C.F.R. Section 1.666(a)

                                       iv
<PAGE>

with the request that the copies be kept separate from the file in Interference
No. 103,704 and be made available only as provided by 37 C.F.R.
Section 1,666(b). While either Interference Party shall be entitled to file this
SETTLEMENT AGREEMENT to comply with the requirements of 35 U.S.C.
Section 135(c), the Party who is last to sign the Agreement shall have the
responsibility of timely filing this SETTLEMENT AGREEMENT with the USPTO in
accordance with 37 C.F.R. Section 1.666(a) and (b).

         C.4      OTHER INTERFERENCE ISSUES. The Interference Parties also agree
to cooperate and work together in an effort to obtain a prompt and inexpensive
resolution, consistent with the facts and the applicable laws, of whatever
issues of fact and/or law may stem from or relate to the Interference. For
example, both Interference Parties will cooperate and work together, consistent
with the applicable facts and applicable laws, to remove as many issues as
possible from the Interference while recognizing that some Interference issues
may not be resolved by the Interference Parties alone, in which case the
Interference Parties will work together with the Administrative Patent Judge of
the USPTO assigned to this Interference, in an effort to resolve those remaining
issues expeditiously and in an economical manner. In this regard, a large number
Preliminary Motions under 37 C.F.R. Section 1.633(a)-(h) have been filed by the
Interference Parties; however, no Oppositions, Preliminary Motions under
37 C.F.R. Section 1.633(i)-(j) or Replies have been filed. The Interference
Parties recognize that some of these Motions may have to be decided by the
Administrative Patent Judge and that it may be necessary to file Motions under
37 C.F.R. Section 1.633(i)-(j), Oppositions and Replies thereto to properly
present issues to the Administrative Patent Judge. Such papers, if any, shall be
filed in accordance with a schedule set by the Administrative Patent Judge
following consultation with the Administrative Patent Judge.

SECTION D. TERMINATION OF EUROPEAN PATENT OFFICE OPPOSITION.

         AEROGEN will withdraw the opposition to European Patent 0 547 723
(EP `723) within two weeks of the date of this SETTLEMENT AGREEMENT and will not
file, refile or assist any other party in an opposition before the European
Patent Office against EP `723 or any other EP patent in the BESPAK Intellectual
Property or any continuing application thereof.

SECTION E. WARRANTIES, REPRESENTATION AND MISCELLANEOUS PROVISIONS.

         The following provisions shall apply to this SETTLEMENT AGREEMENT.

         E.1      POWER. Each PARTY (BESPAK, TENAX and AEROGEN) has the
necessary right and power to enter into and perform its obligations under this
SETTLEMENT AGREEMENT and has taken all necessary action to authorize the
execution and consummation of this SETTLEMENT AGREEMENT.

         E.2      OWNERSHIP. BESPAK either legally or beneficially owns the
entire right, title and interest in and to the BESPAK Intellectual Property.

         E.3      OWNERSHIP. AEROGEN either legally or beneficially owns the
entire right, title and interest in and to the AEROGEN Intellectual Property.

                                       v
<PAGE>

         E.4      NO-DEFAULT. To the best of the knowledge of each respective
PARTY, each respective PARTY is not aware of anything that will preclude the
performance of its obligations under this SETTLEMENT AGREEMENT.

         E.5      NO MATERIAL CONTRACTS. No PARTY is subject to any contract or
agreement which will preclude the performance of its obligations under this
SETTLEMENT AGREEMENT.

         E.6      NO CONFLICTS. To the best of the knowledge of each respective
PARTY, neither the execution nor delivery of this SETTLEMENT AGREEMENT, nor the
consummation of the transactions herein contemplated, nor the fulfillment of or
compliance with the terms and provisions hereof will (a) violate any provisions
of law, administrative regulation or court decree applicable to the PARTIES; or
(b) conflict with or result in a breach of any of the terms, conditions or
provisions of or constitute a default of any agreement or instrument to which a
PARTY is a party to or by which a PARTY is bound or is obligated to be bound as
of the execution date of this SETTLEMENT AGREEMENT.

         E.7      Except under the conditions stated in this immediate
paragraph, each PARTY in this SETTLEMENT AGREEMENT shall take reasonable steps
to prosecute to issuance and maintain in force, for their full life, the patent
applications and patents covered under B2.1 and B2.2. If, however, a PARTY
desires to allow a granted patent to lapse or to abandon any actual or potential
application rights before a national or regional patent office, such as by
non-payment of annuity fees, that PARTY (The NOTIFYING PARTY) shall serve Notice
of that fact at least three months prior to the lapse or loss of rights date,
and the PARTY or PARTIES receiving that Notice (The RECEIVING PARTY/PARTIES)
shall have the right to maintain in force or preserve rights in the patent or
application at the RECEIVING PARTY's/PARTIES' own expense. Ownership in any
application or preexisting or subsequent patent covered under B2.1 and B2.2
shall remain in the PARTY which originally filed the application with it being
understood that the rights granted in B2.1 and B2.2 will remain in effect.

         E.8      Each PARTY in this SETTLEMENT AGREEMENT shall, upon request by
one of the other PARTIES in the SETTLEMENT AGREEMENT, provide a copy of the
prosecution documentation for any of the involved patents and applications at
the expense of the requesting PARTY.

         E.9      NONASSIGNABILTIY. Except as set out below, neither this
SETTLEMENT AGREEMENT nor any interest hereunder shall be assignable by any PARTY
without the written consent of the other PARTIES, but consent will not be
unreasonably withheld or delayed. This SETTLEMENT AGREEMENT may be assigned to
an entity acquiring a controlling interest in the entire business of a PARTY,
and said purchasing entity would be subject to the provisions set forth in this
SETTLEMENT AGREEMENT.

         E.10     EFFECTIVE DATE. The effective date of this SETTLEMENT
AGREEMENT shall be the most recent date appearing in the fully executed
signature page(s) of this SETTLEMENT AGREEMENT.

                                       vi
<PAGE>

         E.11     TERMS. This SETTLEMENT AGREEMENT shall continue in force until
the expiration of the last-to-expire of any patent that has issued or later
issues from the Intellectual Property of the Parties.

         E.12     COUNTERPARTS. Four original versions of this SETTLEMENT
AGREEMENT shall be executed, each of which shall be deemed to be an original,
and all of which together shall constitute one and the same SETTLEMENT
AGREEMENT.

         E.13     ENTIRE UNDERSTANDING. This SETTLEMENT AGREEMENT together with
Attachments I and II constitutes the entire understanding between the PARTIES
with respect to the subject matter set forth herein. No modifications,
extensions, or waiver of any provisions or any release of any right hereunder
shall be valid, unless such modification, extension or waiver is in writing,
references this SETTLEMENT AGREEMENT, sets forth the plan or intention to modify
same, and is consented to by all PARTIES to the SETTLEMENT AGREEMENT.

         E.14     HEADINGS. The headings of this SETTLEMENT AGREEMENT are
intended solely for convenience or reference and shall have no effect in the
construction or interpretation of this SETTLEMENT AGREEMENT.

         E.15     NO WARRANTY OR REPRESENTATIONS. BESPAK and TENAX make no
representations, extend no warranties of any kind, either expressed or implied,
and assume no responsibility with respect to the use, sale, or other disposition
by AEROGEN or entities under its control of products incorporating or made by
use of (i) inventions licensed under this SETTLEMENT AGREEMENT, or (ii)
information, if any, furnished under the SETTLEMENT AGREEMENT. This provision is
subordinate to any other more specific warranty provision that might be
contained in a contract between any two of the PARTIES such as the SUPPLY
CONTRACT in Attachment II.

         E.16     NO WARRANTY OR REPRESENTATIONS. AEROGEN makes no
representations, extends no warranties of any kind, either express or implied,
and assumes no responsibility with respect to the use, sale, or other
disposition by BESPAK or TENAX or entities under their control of products
incorporating or made by use of (i) inventions licensed under this SETTLEMENT
AGREEMENT, or (ii) information, if any, furnished under the SETTLEMENT
AGREEMENT. This provision is subordinate to any more specific warranty provision
that may be contained in a contract between any two of the PARTIES such as the
SUPPLY CONTRACT in Attachment II.

         E.17     GOVERNING LAW AND FORUM. This SETTLEMENT AGREEMENT and the
relationships between THE PARTIES pertaining to the settlement agreement shall
be governed in all respects by the law of the State of North Carolina, United
States of America, except that questions affecting the construction and effect
of any patent shall be determined by the law of the country in which the patent
has been granted. In the event that a conflict arises as to an issue which
relates to both the SETTLEMENT AGREEMENT and the SUPPLY CONTRACT with
incorporated LICENSE AGREEMENT, the choice of North Carolina is controlling over
the choice of California indicated in the Supply Contract.

                                      vii
<PAGE>

         E.18     UNITED STATES. In the context of patent rights, the term
"United States" means the United States, its territories and possessions.

         E.19     CORRESPONDENCE AND NOTICES. The following provisions relate to
communications (i.e., documentation, reports, correspondence and notices) to the
PARTIES. AEROGEN shall simultaneously send such communications to both TENAX and
BESPAK. TENAX shall send such communications to AEROGEN. BESPAK shall send such
communications to AEROGEN.

                  E.19.1   BESPAK. Until otherwise notified in writing by
BESPAK, all communications by AEROGEN shall be effective upon receipt when
addressed to:

                  BESPAK plc
                  Company Secretary
                  4, Stanhope Gate
                  London W1Y 5LA, ENGLAND

                  E.19.2   AEROGEN. Until otherwise notified in writing by
AEROGEN, all communications by BESPAK and TENAX to AEROGEN shall be effective
upon receipt when addressed to:

                  AEROGEN, INC.
                  Jane Shaw
                  Chairman and CEO
                  1310 Orleans Drive
                  Sunnyvale, California 94089

                  E.19.3   TENAX. Until otherwise notified, in writing by TENAX,
all communications by AEROGEN to TENAX shall be effective upon receipt when
addressed to:

                  TENAX Corporation
                  President
                  2450 Laura Duncan Road
                  Apex, North Carolina 27502

         E.20     None of the parties to this Agreement may, as a result of the
termination of the SUPPLY CONTRACT, whether by reason of an Event of Default (as
defined in the SUPPLY CONTRACT) by a party thereto or otherwise, terminate any
other agreement entered into concurrently with the SUPPLY CONTRACT, including
without limitation, this Agreement.

                                      viii
<PAGE>

         IN WITNESS WHEREOF, BESPAK, AEROGEN and TENAX have executed this
SETTLEMENT AGREEMENT in quadruplicate by their duly authorized representatives:

Bespak Plc
                           By:   /s/ Peter Chambre
                                 ------------------------------------------
                                 acting in official capacity as
                                 Chief Executive
                                 ------------------------------------------
                                 of BESPAK plc

                           Signed at:   4 Stanhope Gate, London W1 England
                                        ----------------------------------
                                        On the 4 day of March, 1999

AeroGen, Inc.
                           By:   /s/ Jane E. Shaw
                                 ------------------------------------------
                                 acting in official capacity as
                                 Chairman, CEO
                                 ------------------------------------------
                                 of AEROGEN, INC.

                           Signed at:   1310 Orleans Drive, Sunnyvale, CA
                                        -----------------------------------
                                        On the 1st day of March, 1999

Tenax Corporation
                           By:   /s/ Peter Chambre
                                 ------------------------------------------
                                 acting in official capacity as
                                 President
                                 ------------------------------------------
                                 of TENAX Corporation

                           Signed At:   4 Stanhope Gate, London W1 England
                                        -----------------------------------
                                        On the 4 day of March, 1999

                                       ix
<PAGE>

                                  ATTACHMENT I

                                       x
<PAGE>

                               ATTACHMENT I

                                 ATTACHMENT I

                                     TABLE 1

<TABLE>
<CAPTION>
            AEROGEN                                                   BESPAK
<S>                                                         <C>
  US Patent No. 5,164,740                                   US Patent No. 5,261,601
  CA Patent No. 2,066,838                                   US Reissue Appl. No. 08/854,686
  BR Patent Appl. No. 9201487                               EP Patent No. 542723
  JP Patent Appl. No. 63/40070                              Austrian Patent No. 143295
               --                                           EP(FR) Patent No. 542723
  US Patent Appl. No. 08/163,850                            German Patent No. P 69028718.6
               --                                           EP(IT) Patent No. 542723
  US Patent Appl. No. 08/417,311                            Spain Patent No. 2092146
  PCT/US96/04646                                            EP(SE) Patent No. 542723
  EP Patent Appl. No. 822865                                EP(GB) Patent No. 542723
  AU Patent Appl. No. 9654421                               EP(DK) Patent No. 542723
               --                                           GB Patent No. 2,263,076
               --                                           Finland Patent Appl. No. 93.1780
</TABLE>

                                       xi
<PAGE>

                                  ATTACHMENT II

                                      xii
<PAGE>

                                 SUPPLY CONTRACT

                                     BETWEEN

                                 AEROGEN, INC.,

                                       AND

                               TENAX CORPORATION,

                                    AS SELLER

                           DATED AS OF MARCH 1ST 1999

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                    PAGE

<S>                                                                                                 <C>
RECITALS...............................................................................................1
1.   Term
         1.1      Effective Date.......................................................................1
         1.2      Initial Term.........................................................................1
         1.3      Renewal Terms........................................................................1

2.       Relationship of Parties.......................................................................2
         2.1      Minimum Amounts......................................................................2
         2.2      Purchase of Products from Others.....................................................2
         2.3      Supply of Products to Others.........................................................2
         2.4      Seller and Buyer.....................................................................2
         2.5      Intellectual Property................................................................3
         2.6      Equipment............................................................................3

3.       Purchases and Sales...........................................................................4
         3.1      Specifications.......................................................................4
         3.2      Forecasts............................................................................4
         3.3      Purchase Orders......................................................................5
         3.4      Packing..............................................................................6
         3.5      Freight..............................................................................6
         3.6      Acceptance...........................................................................6
         3.7      Delays...............................................................................7

4.       Warranties....................................................................................8
         4.1      Warranties...........................................................................8
         4.2      Disclaimer of Warranties.............................................................8
         4.3      Documentation........................................................................9

5.       Price and Payment.............................................................................9
         5.1      Price................................................................................9
         5.2      Taxes...............................................................................10
         5.3      Payment.............................................................................10
         5.4      Late Charges........................................................................10

6.       Defaults and Remedies........................................................................11
         6.1      Defaults............................................................................11
         6.2      Suspension of Performance...........................................................11

7.       Termination..................................................................................12
         7.1      Grounds for Termination.............................................................12

                                       i
<PAGE>

         7.2      Consequences of Termination.........................................................13
         7.3      Consequences of Suspension..........................................................14

8.       Indemnification and Limits on Liability......................................................14
         8.1      Indemnification.....................................................................14
         8.2      Exclusion of Damages................................................................14
         8.3      Notification; Participation.........................................................15
         8.4      Limitation of Seller's Liability....................................................15

9.       Review and Dispute Resolution................................................................15
         9.1      Performance Review..................................................................15
         9.2      Audit Rights........................................................................16
         9.3      Dispute Resolution..................................................................16

10.      Miscellaneous................................................................................17
         10.1     Parties in Interest.  Limitation on Rights of Others; Assignment....................17
         10.2     Notices.............................................................................17
         10.3     Confidentiality.....................................................................19
         10.4     Survival of Certain Terms...........................................................19
         10.5     Attorneys' Fees.....................................................................20
         10.6     Costs and Expenses..................................................................20
         10.7     Entire Agreement....................................................................20
         10.8     Nonwaiver...........................................................................20
         10.9     Amendment...........................................................................20
         10.10    Severability........................................................................21
         10.11    Interpretation......................................................................21
         10.12    Choice of Law; Arbitration..........................................................22
         10.13    Counterparts........................................................................22

Exhibit A         Product Specifications..............................................................24

Exhibit B         Modification Order..................................................................26

Exhibit C         Purchase Order......................................................................28

Exhibit D         Price...............................................................................30

Exhibit E         Custody and Use Agreement...........................................................31
</TABLE>

                                       ii
<PAGE>

                                 SUPPLY CONTRACT

         THIS SUPPLY CONTRACT (this "Contract") is dated as of the 1st day of
March, 1999, by and between AEROGEN, INC., a Delaware corporation ("Buyer"), and
TENAX CORPORATION, a Connecticut corporation doing business as Bespak, Inc.
("Seller").

                                    RECITALS

     A.  Seller and Buyer will concurrently with the execution and delivery of
         this Contract, execute a Settlement Agreement to which this Contract
         will be attached as Attachment II, wherein Buyer grants to Seller a
         nonexclusive license with respect to certain Aerogen Intellectual
         Property (as defined in the Settlement Agreement):

     B.  Buyer desires to assure itself of a continued supply of its
         requirements of the products described in Exhibit A (collectively, the
         "Products"), and is willing to commit to purchase a portion of all of
         its requirements from Seller on the terms and subject to the conditions
         set forth in this Contract:

         NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:

1.       TERM.

         1.1      EFFECTIVE DATE.

         This Contract shall be effective as of the date first above written
(the "Effective Date").

         1.2      INITIAL TERM.

         This Contract shall continue for a term ("Initial Term") of four (4)
years beginning on the date on which Buyer notifies Seller of the determination
referenced in Section 3.2(a)(i), unless terminated earlier according to the
terms hereof.

         1.3      RENEWAL TERMS.

         After the initial four-year term described in Section 1.2, this
Contract:

                  (a)      shall, subject to subsections (b) and (c) below,
continue automatically for successive two (2)-year terms;

                  (b)      may be terminated by Buyer or Seller upon at least
one hundred eighty (180) days' prior notice, such notice period to expire on the
date on which the Initial Term or such a two-year renewal term would expire; and

                                       1
<PAGE>

                  (c)      may be terminated as otherwise provided in Section
7.1.

2.       RELATIONSHIP OF PARTIES.

         2.1      MINIMUM AMOUNTS.

         Buyer and Seller agree that during each year or portion thereof of the
Initial Term, Seller shall supply Buyer with, and Buyer shall purchase from
Seller, not leas than seventy-five (75%) of the Buyer's total requirement of the
Products as defined on Exhibit A (collectively, the "Products") during such
year, provided that Buyer shall satisfy, and shall be deemed to have satisfied,
this obligation by having purchased from Seller in the preceding year at least
75% of its total requirements during that year. Buyer agrees to purchase
Products from Seller under the conditions described herein. The quantity of
Products which Seller is so required to supply, and Buyer is required to
purchase, during a calendar year is referred to as the "Minimum Amount."

         2.2      PURCHASE OF PRODUCTS FROM OTHERS.

         Subject to Section 2.1 and Section 5.1(a), Buyer may purchase Products
from persons other than Seller.

         2.3      SUPPLY OF PRODUCT TO OTHERS.

         Seller may not manufacture, distribute, sell or supply Products to any
person other than Buyer.

         2.4      SELLER AND BUYER.

                  (a)      Seller, in supplying Products to Buyer pursuant to
this Contract, is acting only as an independent contractor and has the sole
rights and obligation to supervise, manage, direct and perform the procurement
of components for and the manufacture of the Products.

                  (b)      Nothing in this Contract shall be construed to:

                           (i)      give either party power to direct or control
the day-to-day activities of the other party;

                           (ii)     constitute the parties as partners, joint
ventures or co-owners; or

                           (iii)    allow either Party to create or assume any
obligation on behalf of the other party for any purpose whatsoever.

         2.5      INTELLECTUAL PROPERTY.

                  (a)      Nothing in this Contract shall effect any transfer of
ownership of existing Intellectual Property Rights whether in relation to the
Products, the specifications for the Products set forth in Exhibit A, as they
may be modified from time to time (the "Product Specifications"), or otherwise.

                                       2
<PAGE>

                  (b)      Solely for the purposes of enabling the parties to
perform their respective obligations hereunder, each party will, to the extent
that it is able, grant the other a nonexclusive royalty-free license for the
duration of this Contract in respect of its Intellectual Property Rights
relating to the relevant Product, as the same may be modified from time to time.

                  (c)      Buyer shall have all right, title and interest in all
Intellectual Property Rights derived from the Product design, the Product
Specifications, and the Proposed Modifications and Buyer shall be responsible at
its own expense for registering, maintaining and enforcing such Intellectual
Property Rights with the reasonable co-operation of Seller, if required.

                  (d)      Seller shall have all right, title and interest in
all Intellectual Property Rights that are derived from Seller's independent
activities and the processes for the manufacture of the Products, as the same
may be modified from time to time and not from any of the Products, the Product
Specifications, or any Proposed Modifications.

                  (e)      Nothing herein shall impose an obligation on either
party to defend any action or proceedings in which a claim or counterclaim is
made for the revocation of any Intellectual Property Rights held by the other
party, though in any such proceedings, each party will at the request (and
expense) of the other provide such reasonable assistance as it is able.

                  (f)      Each party shall forthwith give notice in writing to
the other of any infringement or threatened infringement (of which it becomes
aware) of any of the Intellectual Property Rights held by the other.

                  (g)      For purposes of this Section 2.5, the term
"Intellectual Property Rights" shall mean all right, title and interest in all
writings, inventions, discoveries, trade secrets, trademarks, registrations and
applications for trademarks and copyrights, know-how, methods and practices,
procedures, engineering information, designs, devices, investigations,
manufacturing information, improvements and other technology, whether or not
patentable or copyrightable, and any patent applications, patents or copyrights
based thereon that are discovered, made or conceived by either party, or by the
parties or their employees jointly in the course of supplying the Products or
carrying out the parties' respective duties hereunder.

         2.6      EQUIPMENT.

         Buyer may provide Seller with the possession and use of certain
equipment which Seller requires to manufacture the Products. In the event Buyer
agrees to provide such use and possession of equipment, Seller shall execute and
deliver a Custody and Use Agreement, substantially in the form attached hereto
as Exhibit E.

3.       PURCHASES AND SALES.

         3.1      SPECIFICATIONS.

                  (a)      From time to time, Buyer may deliver to Seller a
notice that Buyer desires to modify the Product Specifications (as defined in
Section 3.4). Such notice shall describe the modifications to the Products which
Buyer desires to have Seller make (collectively, the

                                       3
<PAGE>

"Proposed Modifications") and the date or dates by which Buyer desires to have
Seller effect such modifications. The Buyer agrees that the Buyer shall request
only such modifications as shall be commercially reasonable under the
circumstances then prevailing in the parties' compliance with their respective
obligations under this Contract.

                  (b)      Within sixty (60) days of Buyer's delivery of any
Proposed Modifications, Seller shall (i) state whether it is able to supply the
Products in accordance with the Proposed Modifications by the date specified in
Buyer's notice thereof to Seller, and (ii) describe the increase in its costs of
and, as provided in Section 5.1, any change in the price to Buyer for supplying
the Products in accordance with the Proposed Modifications. If Seller cannot
confirm that it is able to supply the Products in accordance with the Proposed
Specifications or to do so by the date specified in Buyer's notice, Seller shall
explain in reasonable detail its reasons for its inability to so supply the
Products or to do so by such date. If Seller states in such notice that Seller
is unable to supply the Products in accordance with the Proposed Modifications,
Seller shall indicate the extent to which Seller would be able to supply the
Products in accordance therewith.

                  (c)      If Buyer and Seller mutually agree to the Proposed
Modifications, Buyer and Seller shall execute a supplement in the form of
Exhibit B, attached hereto and incorporated herein by reference (a "Modification
Order"), setting forth the Proposed Modifications, the date on which the
Proposed Modifications shall be effective and the change in the price of the
Products, in each case as provided in this Section 3.1 or as otherwise agreed to
by Buyer and Seller.

                  (d)      In the event that Seller is not able to supply the
Products in accordance with the Proposed Modifications. Buyer may terminate this
Contract by giving Seller thirty (30) days' notice of intention to terminate;
provided, however, that Buyer shall be required to comply with the purchase
obligation described in Section 7.2(b) at the time of such termination.

         3.2      FORECASTS.

                  (a)      When Buyer has determined that it has developed the
goods into which it will incorporate the Products and has obtained all
approvals, consents, licenses and permits, made all filings and given all notice
to governmental authorities which are necessary or desirable for the
manufacture, packaging, transportation, distribution and sale of such goods,
Buyer shall:

                           (i)      notify Seller of such determination; and

                           (ii)     deliver to Seller a good faith estimate of
its requirements for each remaining month of the calendar year in which such
notice is given.

                  (b)      During the Initial Term, Buyer shall issue to Seller
a forecast of its expected requirements of the Products with respect to the
ensuing calendar year on a quarterly rolling basis and on a three (3) month firm
rolling basis within a twenty percent (20%) range as follows: No later than
October 1 of each calendar year, Buyer shall deliver to Seller an estimate of
its requirements of the Products for the following calendar year, provided that
if the estimate delivered to Seller pursuant to Section 3.2(a) is delivered
after October 1 of that year, Buyer will

                                       4
<PAGE>

satisfy this Section 3.2(b) for the following year by delivering with such
estimate for the remaining year an estimate of its requirements of Products for
the following calendar year.

                  (c)      From time to time, Buyer may revise an estimate of
its requirements for any month by delivering to Seller revised estimates,
provided that Seller shall not be bound by any revisions to the estimates for a
month where the revised estimates are delivered fewer than sixty (60) days
before the first day of that month.

                  (d)      An estimate of Buyer's requirements of the Products
delivered pursuant to Sections 3.2(a) or (b), as revised from time to time, is
referred to as a "Forecast."

                  (e)      Buyer and Seller will work together to ensure that
there is sufficient capacity to produce the quantities forecast in Section
3.2(c) and Seller will make a certification as to sufficient capacity within
fifteen (15) days of receipt of Buyer's forecast of needs.

         3.3      PURCHASE ORDERS.

                  (a)      From time to time, Buyer may deliver to Seller a
purchase order in the form of Exhibit C (a "Purchase Order") specifying (i) the
quantity of Products which Buyer desires to purchase from Seller (each an
"Estimated Purchase" and collectively, the "Estimated Purchases") and (ii) the
date on which such Products shall be delivered, which shall not be less than
thirty (30) days after the date on which Seller receives such Purchase Order.

                  (b)      Seller shall deliver to Buyer all Products which
Buyer orders, provided that the quantity of Products so ordered does not, when
added to the quantities of Products previously ordered for delivery during that
month exceed one hundred twenty percent (120%) of the Estimated Purchases for
that month. If the quantity of Products ordered in a Purchase Order for delivery
during a month exceeds one hundred twenty percent (120%) of the Estimated
Purchases for that month, Seller will use its good faith efforts to attempt to
supply any amounts ordered in excess of such amounts.

                  (c)      Prior to Buyer's delivery of the first revised
Forecast to Seller, Buyer may issue Purchase Orders from time to time for
Products which Buyer requires for manufacturing samples of its goods for human
clinical tests.

                  (d)      If Seller is unable to supply Products in accordance
with a Purchase Order:

                           (i)      Seller shall promptly, upon learning of the
same, notify Buyer of the extent to which Seller will be unable to supply
Products in accordance with such Purchase Order, and

                           (ii)     Buyer may purchase Products from another
supplier to the extent that Seller is unable to comply with such Purchase Order.

                  (e)      Governing Nature of this Agreement. All Purchase
Orders issued under this Contract shall be subject to the terms and conditions
set forth in this Contract. If the general or special terms and conditions of
any Purchase Order are in conflict with or modify in any

                                       5
<PAGE>

manner the terms and conditions of this Contract without the written consent of
both parties hereto, the terms and conditions of this Contract shall govern.

         3.4      PACKING.

         The Products shall be packed strictly in accordance with the
specifications set forth in Exhibit A and all applicable laws. Buyer may amend
the specifications for packing Product on the terms and subject to the
conditions set forth in Section 3.1 for modifying specifications for the
Products. Product Specifications so modified shall apply MUTATIS MUTANDIS to the
specifications set forth in Exhibit A.

         3.5      FREIGHT.

         All Products shall be sold FOB Seller's shipping point. Seller shall
cause Products to be shipped in accordance with all applicable laws. Title to
the Products and risk of loss or damage shall pass upon delivery by Seller to
the possession of the carrier. Any claims for loss or damage after risk of loss
has passed shall be filed by Buyer with the carrier.

         3.6      ACCEPTANCE.

                  (a)      Unless otherwise agreed by the parties, if a shipment
of Products, or any portion thereof:

                           (i)      is not delivered by the date specified in
the Purchase Order and in accordance with the delivery terms included in the
specifications set forth in Exhibit A, or such shipment does not include
ninety-five percent (95%) of the quantity of Products specified in the Purchase
Order; or

                           (ii)     includes Products which are not packed,
shipped or otherwise in conformity with the provisions of this Contract,

         then, Buyer:

     (y) may, within fourteen (14) days of receipt of each batch of Product,
         elect to reject such shipment; and

     (z) shall, if it elects to reject any shipment, (A) notify Seller
         immediately of such rejection and (B) afford Seller a reasonable
         opportunity (1) to inspect such Products and (2) to make arrangements
         for the Products' return if they are found to be nonconforming to the
         Product Specifications.

                  (b)      If Buyer does not notify Seller of Buyer's rejection
of Products within fourteen (14) days of their receipt, then such Products shall
be deemed to have been accepted by Buyer.

                  (c)      If Buyer rejects any Products, Buyer shall hold such
rejected Products for sixty (60) days (or such longer time as may be mutually
agreed) after which, unless during that

                                       6
<PAGE>

sixty (60) day period Seller gives Buyer directions to return or otherwise
dispose of such rejected Products, Buyer may, at is election, return or dispose
of such rejected Products. Seller shall credit Buyer for the cost to return any
such rejected Products.

         3.7      DELAYS.

                  (a)      Seller shall not be liable for any failure or delay
in delivery due in whole or in part to any unforeseeable event beyond the
control of Seller and not caused by Seller's own fault, including (but not
limited to) the following: flood; earthquake; storm; lightning; fire; explosion;
declared or undeclared war; riot; blockade; insurrection; epidemic; landslide;
washout; civil disturbance; strike or labor disturbance; embargo; delay in
transportation; sabotage; and any other unforeseeable circumstance which would
in the reasonable opinion of Seller endanger persons or property. Under any such
circumstances Seller shall have such additional time within which to deliver
Products as may be reasonably necessary, subject to (d) below.

                  (b)      Seller shall use reasonable care to minimize delays
and damage resulting from an uncontrollable event described in Section 3.7(a).

                  (c)      Seller shall notify Buyer:

                           (i)      promptly upon the occurrence of an event
described in Section 3.7(a), setting forth in reasonable detail the effect of
such event upon Seller's performance hereunder; and

                           (ii)     from time to time, upon request from Buyer,
of the continued effects upon Seller's performance hereunder and the actions
taken by Seller to mitigate the effects of such event upon Seller's performance.

                  (d)      If Seller is unable to deliver Products to Buyer for
more than ninety (90) days as a result of an event described in Section 3.7(a),
Buyer may, upon notice to Seller, suspend purchases of Products from Seller and
purchase Products from another source for a period of at least one year. The
term of this Contract shall not be extended as a result of any suspension of
Buyer's purchases pursuant to this Section 3.7(d).

4.       WARRANTIES.

         4.1      WARRANTIES.

         Seller warrants that Products delivered to Buyer:

                  (a)      conform with the Product Specifications;

                  (b)      have been packed in accordance with the
specifications for packing, as the same may have been modified pursuant to
Section 3.4;

                  (c)      have been manufactured in accordance with (i) current
Good Manufacturing Practices ("GMP") promulgated by the Food and Drug
Administration in the United States, and their equivalent promulgated by the
governing health authority of any other

                                       7
<PAGE>

country in which the Product manufactured by Seller under this Contract are sold
and (ii) applicable laws; and

                  (d)      have been delivered with all right, title and
interest thereto, free and clear of all mortgages, hypothecations, chattel
mortgages, pledges, liens, encumbrances, security interests and claims.

         The above warranty is given by Seller subject to the condition that
Seller shall not be liable to the extent that any failure to correspond with the
Product Specifications at the time of receipt is aggravated by subsequent
willful damage, negligence, misuse or alteration (other than alterations
required by normal processing in preparation for supply to its customers and
within Seller's reasonable contemplation) of the Products without Seller's
approval.

         4.2      DISCLAIMER OF WARRANTIES.

         The foregoing is in lieu of all express and implied warranties. Buyer
agrees that Buyer shall rely solely upon its own judgment as to the fitness of
the Products for its purposes. Except as so provided, there is no implied
warranty of merchantability or fitness for a particular purpose. Seller is
charged solely with manufacturing the Products in accordance with the Product
Specifications.

         4.3      DOCUMENTATION.

         Seller shall from time to time, upon Buyer's request, deliver to Buyer
copies of all documentation necessary and desirable for Buyer to make any
necessary filings or recordation with, or to obtain any licenses, approvals or
other authorizations from, any governmental agencies having jurisdiction over
Buyer.

5.       PRICE AND PAYMENT.

         5.1      PRICE.

                  (a)      Buyer shall purchase and Seller shall sell each unit
of the preservative free dispensing pump and canister described on Exhibit A at
the price set forth on Exhibit D. To the extent that Buyer requests that Seller
manufacture any product(s) described on Exhibit A other than the preservative
free dispensing pump and canister, the price to be paid by the Buyer for each
unit of such other product(s) shall be mutually agreeable to Buyer and Seller
and shall be commensurate with Seller's customary pricing criteria (which may
include Seller's direct cost of materials, Seller's direct cost of labor and
Seller's manufacturing overhead and profit); provided, however, that Seller's
price for each unit of such other product(s) shall be no more than fifteen
percent (15%) higher than the price any Other Seller (as hereinafter defined) of
such product(s) proposes to charge to Buyer for equivalent product(s). Buyer
shall supply Seller with written evidence on such Other Seller's letterhead of
any price proposed by an Other Seller which is lower than the price which Seller
proposes to charge for the same product(s). For purposes of this Section 5.1(a),
"Other Seller" shall mean a manufacturer of products registered with the federal
Food and Drug Administration and ISO certified, who manufactures such products
in accordance with current GMP and their equivalent promulgated by the governing
health authority of any other country in which such products are sold.

                                       8
<PAGE>

                  (b)      Seller may increase or decrease the price of Products
as set forth in a Modification Order.

                  (c)      No later than October 1 of each year, Seller shall
notify Buyer of (i) any increases and decreases in the costs of the commodities
and services used to produce the Products and included in the price pursuant to
Section 5.1(a) and (ii) the proposed increase or decrease in the price of any
Product which Seller anticipates will be require to compensate Seller or Buyer
for the net effect of such increases and decreases in its costs of production.
Provided that the proposed increase does not exceed the corresponding percentage
increase in the Consumer Price Index for the United States (All Items - All
Urban Consumers) as published by the United States Department of Labor, Bureau
of Labor Statistics (the "Index") for the most recent year for which the Index
is published, such increase or decrease in the price shall be effective on
January 1 of the following year.

         5.2       TAXES.

         Prices do not include sales, excise, use or other taxes specifically
and directly applicable to the Products and such taxes shall be paid by Buyer
unless Buyer provides Seller with a tax exemption certificate acceptable to the
relevant governmental authorities.

         5.3      PAYMENT.

                  (a)      Payment is due net 30 days from the date of Seller's
invoice for all Products not rejected hereunder.

                  (b)      If Buyer (x) disputes any amount on an invoice or (y)
has a claim against Seller under this Contract, Buyer shall:

                           (i)      pay the undisputed portion of the invoice
less the amount of any claims against Seller; and

                           (ii)     promptly notify Seller of its dispute and
claims, setting forth in reasonable detail the nature of such dispute or claims.

                  (c)      If Seller disputes any item disputed or claimed by
Buyer in a notice given by Buyer pursuant to Section 5.3(b), Seller and Buyer
shall resolve their differences pursuant to Sections 9.3 and 9.4.

                  (d)      Buyer shall pay Seller by check or wire transfer of
immediately available funds to a bank account designated by Seller, as Buyer
shall elect.

         5.4      LATE CHARGES.

                  (a)      Buyer shall pay a late charge per month of two
percent (2%) above the current prime or reference rate as announced by Bank of
America National Trust and Savings Association, at its San Francisco office, or
any successor thereto or the maximum rate permitted by law, whichever is less,
on all amounts not paid when due. The late charge shall be paid on the next date
on which payment is due after such late charge has accrued.

                                       9
<PAGE>

                  (b)      If (x) Buyer disputes any item on an invoice or
asserts any claim against Seller (and as a result reduces the amount of its
payment in respect of such invoice), and (y) such dispute or claim is resolved
in favor of Seller, then Buyer shall promptly pay the amount so resolved in
favor of Seller plus interest thereon at the rate specified in Section 5.4(a)
from the date payment on the invoice was due until the date payment of such
amount is made in full.

6.       DEFAULTS AND REMEDIES.

         6.1      DEFAULTS.

         Each or any of the following shall constitute an event of default under
this Contract (each an "Event of Default"):

                  (a)      Buyer fails to pay Seller any moneys within
forty-five (45) days when due hereunder;

                  (b)      Seller fails to deliver:

                           (i)      at least ninety-five percent (95%) of the
Products properly ordered by Buyer pursuant to Purchase Orders during any
three-month period; or

                           (ii)     on the date when due, three or more
shipments during any three-month period; or

                           (iii)    shipments of Products, ninety-five percent
(95%) of which strictly conform to all requirements of this Contract, on three
or more occasions during any three-month period;

                  (c)      a party hereto fails to perform any covenant or
agreement hereunder when the same is required hereunder to be performed and such
failure shall not have been cured within thirty (30) days of notice from the
other party hereto; or

                  (d)      a party hereto voluntarily files a petition in
bankruptcy or make a general assignment for the benefit of creditors, or a
receiver is appointed for a party hereto or a petition in bankruptcy is filed
against a party hereto and such petition is not dismissed within one hundred
twenty (120) days of such filing, or if a party hereto becomes insolvent or
fails to pay indebtedness when due.

         6.2      SUSPENSION OF PERFORMANCE.

         Upon the occurrence of an Event of Default or an event which with the
passing of time or giving of notice, or both, would constitute an Event of
Default under Section 6.1 (an "Incipient Default") in respect of a party hereto
(the "Defaulting Party"), the other party hereto (the "Non-Defaulting Party")
may immediately suspend the performance of all or part its obligations
hereunder, without prior notice to the Defaulting Party provided that the
Non-Defaulting Party immediately gives the Defaulting Party notice that:

                                       10
<PAGE>

                  (a)      an Event of Default or an Incipient Default exists in
respect of the Defaulting Party, providing reasonable details of such Incipient
Default;

                  (b)      the Non-Defaulting Party has suspended performance of
all or part of its obligations hereunder, providing details of the obligations
so suspended if only a part of its obligations are suspended; and

                  (c)      the Non-Defaulting Party will require the Defaulting
Party to provide reasonable assurances that:

                           (i)      in the case of an Incipient Default, such
Incipient Default will not become an Event of Default; and

                           (ii)     in the case of an Event of Default, such
Event of Default will be cured within thirty (30) days of such notice to the
Defaulting Party.

7.       TERMINATION.

         7.1      GROUNDS FOR TERMINATION.

         This Contract may be termination by notice by:

                  (a)      either party to the other party as provided in
Section 1.3(b);

                  (b)      the Non-Defaulting Party to the Defaulting Party upon
the occurrence of an uncured Event of Default;

                  (c)      the expiration or termination of any license(s)
bearing significantly and substantially upon the manufacture of the Products in
accordance with the Product Specifications;

                  (d)      Buyer:

                           (i)      pursuant to Section 3.1(d); or

                           (ii)     if as a result of a change in law after the
date of this Contract, Buyer's use of the Products or the production of the
goods into which Buyer incorporates the Products becomes illegal, impractical
or, in Buyer's judgment, financially imprudent; or

                           (iii)    if Buyer causes production of the goods into
which Products are incorporated; or

                  (e)      Seller not later than January 30 of each year if the
total quantity of Products ordered by the Buyer during the preceding twelve
months was less than the Minimum Amount minus the total quantity of Products
which Buyer demonstrates it would have ordered but for delays, disruptions,
non-deliveries and suspensions of other orders.

         7.2      CONSEQUENCES OF TERMINATION.

                                       11
<PAGE>

         Upon termination of this Contract pursuant to:

                  (a)      Section 7.1(a), 7.1(c), 7.1(d)(ii), 7.1(d)(iii) or
7.1(e),

                           (i)      Seller shall sell to Buyer, and Buyer shall
purchase from Seller (a) at Seller's cost, all raw materials, (b) at Seller's
cost plus fifteen percent (15%), all work-in-process purchased or processed
solely for Products to be delivered to Buyer during the ninety (90) days
following the date of termination, and (c) at the price shown on Exhibit D, all
finished Products in Seller's possession as of the date of termination. The
warranties set forth in Section 4.1 shall apply to such raw materials,
work-in-process and finished Products; and

                           (ii)     Seller shall deliver an invoice for amounts
unpaid to Seller hereunder; and

                           (iii)    Buyer shall pay Seller within thirty (30)
days of its receipt of such invoice. The provisions of Sections 5.3 and 5.4
shall apply to the amounts evidenced by such invoice.

                  (b)      Section 7.1(b) and 7.1 (d)(i),

                           (i)      Seller shall sell to Buyer, and Buyer shall
purchase from Seller, at Seller's cost, all raw materials, all work-in-process
purchased or processed solely for Products to be delivered to Buyer during the
ninety (90) days following the date of termination, and all finished Products in
Seller's possession as of the date of termination. The warranties set forth in
Section 4.1 shall apply to all such raw materials and work-in-process; and

                           (ii)     Seller shall deliver an invoice for amounts
unpaid to Seller hereunder; and

                           (iii)    Buyer shall pay Seller within thirty (30)
days of its receipt of such invoice. The provisions of Sections 5.3 and 5.4
shall apply to the amounts evidenced by such invoice.

                  (c)      Neither Seller nor Buyer may, as a result of its
termination of this Contract, whether by reason of an Event of Default by the
other party or otherwise, and, whether Buyer or Seller shall have terminated
this Contract Seller shall cause Bespak plc not to, terminate any other
agreement entered into concurrently with this Contract between the parties,
including, without limitation, the Settlement Agreement of even date with this
Contract between Buyer, Seller and Bespak plc.

         7.3      CONSEQUENCES OF SUSPENSION.

         Upon suspension of this Contract by Buyer pursuant to Section 3.7(d):

                  (a)      Seller shall sel1 to Buyer, and Buyer shall purchase
from Seller, at Seller's cost, (i) all raw materials and all work-in-process
purchased or processed solely for Product to be delivered to Buyer during the
ninety (90) days following the date of suspension, and (ii) at the price shown
on Exhibit D, all finished Product in Seller's possession as of the date of
suspension.

                                       12
<PAGE>

The warranties set forth in Section 4.1 shall apply to all such raw
materials and work-in-process; and

                  (b)      Seller shall deliver an invoice for amounts unpaid to
Seller hereunder; and

                  (c)      Buyer shall pay Seller within thirty (30) days of its
receipt of such invoice. The provisions of Sections 5.3 and 5.4 shall apply to
the amounts evidenced by such invoice.

8.       INDEMNIFICATION AND LIMITS ON LIABILITY.

         8.1      INDEMNIFICATION.

                  (a)      Buyer shall indemnify and hold harmless Seller, its
directors and officers and their respective assignees and successors, from and
against any and all claims, actions, suits and proceedings, and all reasonable
costs, expenses, damages, obligations, penalties, injuries and liabilities
incurred in connection therewith ("Claims"), asserted by any third party against
Seller, including liability for any infringement upon any patent, copyright,
trade secret or other proprietary right of any third party and Seller's strict
liability in tort, arising out of, connected with, or resulting from the
Products' conformity to the Product Specifications, as modified by any
Modification Order, or any breach by Buyer of any provision of this Contract,
excepting only Claims that arise solely out of the gross negligence or willful
misconduct of Seller, the non-compliance of the Products with the Product
Specifications as modified by any Modification Order or any Breach by Seller of
any provision of this Contract. Buyer agrees to hold harmless and to indemnify
Seller for any claims, damages, expenses and losses relating to third party
suits with respect to death or personal injury relating to or arising from the
sale or use of the drug dispensed by the Product.

                  (b)      Seller shall indemnify and hold harmless Buyer, its
directors and officers and their respective assignees and successors, from and
against any and all Claims asserted by any third party against Buyer arising out
of, connected with, or resulting from the non-compliance of the Products with
the Product Specifications as modified by any Modification Order, the gross
negligence or willful misconduct of Seller, or any breach by Seller of any
provision of this Contract

         8.2      EXCLUSION OF DAMAGES.

         Neither party shall be liable for indirect, incidental, punitive,
special or consequential damages or loss of profit or any costs or expenses
incurred in connection with the other party's obtaining the benefits it
anticipated from the transactions contemplated hereunder except as provided in
Section 8.1.

         8.3      NOTIFICATION; PARTICIPATION.

         A party seeking indemnification hereunder (the "Indemnitee") shall give
the other party (the "Indemnitor") prompt written notice in reasonable detail of
any circumstances giving rise to potential liability under this Section 8 and
shall allow Indemnitee full participation in the defense of any third party
claim and the conduct of any proceeding relating thereto. Indemnitor shall not

                                       13
<PAGE>

make any compromise or settlement in relation to any such third party claim
without Indemnitee's prior written consent.

         8.4      LIMITATION OF SELLER'S LIABILITY.

         Seller's liability for all damages arising under this Contract, except
for liability arising under Sections 7.2(c) and 8.1(b), during any calendar year
shall be limited to the sum of $250,000.00.

9.       REVIEW AND DISPUTE RESOLUTION.

         9.1      PERFORMANCE REVIEW.

                  (a)      Each party shall assign an employee of it who will:

                           (i)      act as its representative (the
"Representative") in connection with this Contract; and

                           (ii)     be responsible for directing all its
activities affecting the exercise of its rights and performance of its
obligations hereunder.

                  (b)      The Representatives shall:

                           (i)      meet from time to time upon request of one
of the Representatives to review the performance of the Seller under this
Contract; and

                           (ii)     use the performance review to:

                                    (1)      improve the performance of Seller
hereunder; and

                                    (2)      address and resolve problems and
complaints of either party, as well as any disputes, pertaining to either
party's performance hereunder.

         9.2      AUDIT RIGHTS.

                  (a)      Buyer shall have the right to visit Seller's
facilities during regular business hours upon ten (10) business days' prior
notice to review files (not including financial statements, books or other
financial data as identified by Seller) directly related to (i) any price change
proposed to be made by Seller; (ii) procedures directly related to the
manufacture of the Products; (iii) the manufacturing conducted by Seller for the
sole purpose of ensuring compliance with GMP and other regulatory compliance; or
(iv) Seller's allocation of the costs and overhead included in the price of the
Products. Buyer shall have the right to engage an accounting firm mutually
agreeable to Buyer and Seller to conduct a financial audit of Seller's books,
the cost of such audit to borne solely by Buyer. The foregoing notwithstanding,
nothing in this Contract shall obligate Seller to disclose to Buyer any
documents or materials containing subject matter which Seller is required to
retain as confidential under any arrangement with any other customer of Seller,
except to the extent required by applicable law.

                                       14
<PAGE>

                  (b)      Subject to the second sentence of Section 9.2(a),
Section 10.3 and Seller's security regulations generally applicable at its
facilities where the Products are manufactured, Seller will provide Buyer and
its representatives with unrestricted access to:

                           (i)      any facility at which Seller stores raw
materials for or manufactures, packages and ships any Products; and

                           (ii)     existing documentation reasonably related to
any data and work product concerning the Products.

                  (c)      Seller will cooperate fully with Buyer or its
designee in connection with Buyer's audits and inspections or with regard to any
examination by government authorities.

                  (d)      The audits shall be conducted in a manner which does
not disrupt, delay or interfere with Seller's supply of Products in any material
respect.

         9.3      DISPUTE RESOLUTION.

         The following procedure will be adhered to in all disputes that arise
under this Contract:

                  (a)      The party which asserts that a dispute has arisen
under this Contract shall notify the other party in writing of the nature of the
dispute with as much detail as possible about the deficient performance of the
other party.

                  (b)      The Representatives shall:

                           (i)      meet within seven (7) days after the date of
the written notification to reach an agreement about the nature of the
deficiency and the corrective action to be taken by the respective parties; and

                           (ii)     produce a detailed written report of the
nature of the dispute to the respective management of Buyer and Seller.

                  (c)      If the Representatives are unable to agree on
corrective action, the respective managers to whom the Representatives report
("Management") shall meet to facilitate an agreement within fourteen (14) days
after the date of the written notification.

                  (d)      If Management cannot resolve the dispute with a
written plan or corrective action with seven (7) days after their initial
meeting, or the agreed-upon completion dates in the written plan of corrective
action are exceeded, either party may request arbitration provided for in this
Contract.

10.      MISCELLANEOUS.

         10.1     PARTIES IN INTEREST, LIMITATION ON RIGHTS OF OTHERS;
ASSIGNMENT.

                  (a)      The terms of this Contract shall be binding upon, and
inure to the benefit of, the parties hereto and their successors and assigns.

                                       15
<PAGE>

                  (b)      Neither party hereto may assign its rights hereunder
in whole or in part without the prior written consent of the other party hereto,
which consent may be reasonably withheld, and any such assignment without such
consent shall be void. If such consent is given, unless expressly agreed by the
parties hereto, it shall not relieve the assignor from any of the obligations of
this Contract, and any assignee shall be considered the agent of the assignor,
and as between the parties hereto, the assignor shall be and remain liable as if
no such assignment has been made.

                  (c)      Notwithstanding Section l0.1(b), either party may
assign this Contract without the consent of the other party to any person (i)
into whom either party is merged or (ii) who acquires all or substantially all
of the asses of either party.

                  (d)      Nothing in this Contract, whether express or implied,
shall be construed to give any person other than the parties hereto and their
respective successors and assigns any legal or equitable right, remedy or claim
under or in respect of this Contract or any covenants, conditions or provisions
contained herein.

         10.2     NOTICES.

                  (a)      Wherever under this Contract one party is required or
permitted to give notice to the other, such notice shall be in writing to the
other party and shall be addressed to such party at the address set forth below:

                                    (1)     In the case of Seller:

                  Bespak, Inc.
                  2450 Laura Duncan Road
                  Apex, NC 27502
                                    Attention:       President
                                    Telephone:       (919) 303-4145
                                    Facsimile:       (919) 387-2049

                  With a copy to:

                  Moore & Van Allen, PLLC
                  One Hannover Square, Suite 1700
                  Raleigh, NC 27601
                                    Attention:       Martin H. Brinkley, Esq.
                                    Telephone:       (919) 821-6274
                                    Facsimile        (919) 828-4254

                                    (2)     In the case of Buyer:

                  AeroGen, Inc.
                  1310 Orleans Drive

                                       16
<PAGE>

                  Sunnyvale, CA 94089
                                    Attention:       Mr. Yehuda Ivri
                                    Telephone:       (408) 543-2400
                                    Facsimile:       (408) 543-2450

                  (b)      Either party hereto may from time to time change its
address for notification purposes by giving the other prior written notice of
the new address and the date upon which it will become effective.

                  (c)      A notice or communication will be deemed effective:

                           (i)      if delivered by hand or sent by federal
express or equivalent courier service, on the day it is delivered unless:

                                    (A) that day is not a day on which
                                        commercial banks are open for business
                                        in the city specified in the address for
                                        notice provided by the recipient (a day
                                        on which banks are open for such
                                        business in the city in which a party is
                                        located is referred to as a "Local
                                        Business Day" for that party) or

                                    (B) if delivered after the close of business
                                        on a Local Business Day, then on the
                                        next succeeding Local Business Day; and

                           (ii)     if sent by facsimile transmission, on the
date transmitted, provided oral or written confirmation of receipt is obtained
by the sender, unless the transmission and confirmation date is not a Local
Business Day, in which case on the next succeeding Local Business Day.

         10.3     CONFIDENTIALITY.

                  (a)      Except as provided later in this Section 10.3, each
party hereto shall:

                           (i)      treat all information obtained by it, its
employees, contractors, subcontractors, agents and any other representatives
from the other party hereto concerning the other party hereto's business or
operations as confidential;

                           (ii)     not divulge such information without prior
written approval from the disclosing party hereto; and

                           (iii)    return all material supplied by the
disclosing party hereto when the material has served its purposes.

                  (b)      Without limiting the generality of the foregoing,
Seller shall keep confidential and shall not divulge without prior written
approval from Buyer, and shall return to Buyer upon termination of this
Contract, all information concerning the Products and the specifications,
testing, manufacture, storage, shipment, distribution, and the audits performed
by Buyer hereunder; provided, however, that Seller may retain copies of all such
information for its files.

                                       17
<PAGE>

                  (c)      The restrictions set forth in Sections 10.3(a) and
(b) shall not apply if:

                           (i)      the party hereto receives said information,
other than the information described in Section l0.3(b), from a source other
than the other party hereto and the source, to the best of that party's
knowledge, is not subject to the restrictions specified above or restrictions
similar thereto;

                           (ii)     the information constitutes public
information or becomes public information; or

                           (iii)    the party hereto receiving the information
possessed the information free of the restrictions specified above prior to its
receipt from the other party hereto. In addition, either party hereto may
disclose information if required by legal means after any request for protective
order concerning said information has been refused.

         10.4     SURVIVAL OF CERTAIN TERMS.

         The terms set forth in Sections 7.2, 8, 9.3, and 10 shall survive the
termination of this Contract for any reason whatsoever.

         10.5     ATTORNEYS' FEES.

         If any arbitration, lawsuit or other action or proceeding relating to
this Contract is brought by either party hereto against the other party hereto,
the prevailing party shall be entitled to recover reasonable attorney's fees,
costs and disbursements in addition to any other relief to which the prevailing
party may be entitled

         10.6     COSTS AND EXPENSES.

         In any case where any party hereto is entitled hereunder to
reimbursement of costs and expenses, "costs" shall include interest on any
judgment and court costs, and "expenses" shall include reasonable legal fees and
expenses including allocated fees of in-house counsel.

         10.7     ENTIRE AGREEMENT.

         There are no oral agreements between the parties hereto affecting this
Contract, and this Contract, together with the Settlement Agreement, supersedes
and cancels any and all previous negotiations, arrangements, brochures, offers,
agreements and understandings, oral or written, if any, between the parties
hereto or displayed by either party hereto to the other party hereto with
respect to the subject matter of this Contract, the Settlement Agreement. There
are no representations or warranties between the parties hereto other than those
expressly set forth in this Contract and all reliance with respect to any
representations is solely upon representations or warranties expressly set forth
in this Contract.

         10.8     NONWAIVER.

         Except as may be expressly provided in this Contract or in a writing
signed by the party hereto, the failure of either party hereto to insist any
instance on strict performance of any

                                       18
<PAGE>

provision of this Contract shall not be construed as a waiver of any such
provision or the relinquishment of any rights thereunder in the future, but the
same shall continue and remain in full and force and effect.

         10.9     AMENDMENT.

         Neither this Contract nor any of the terms hereof nor any covenant or
condition contained herein may be terminated, amended, supplemented, waived or
modified orally, but only by an instrument, in writing signed by the party
hereto against which the enforcement of the termination, amendment, supplement,
waiver or modification shall be sought. Any written amendment duly executed by
the parties hereto shall be binding notwithstanding the absence of any
consideration therefor.

         10.10    SEVERABILITY.

         Any provision of this Contract which is prohibited or unenforceable in
any jurisdiction shall be, only as to such jurisdiction, ineffective to the
extent of such prohibition or unenforceability, but all the remaining provisions
of this Contract shall remain valid. To the extent permitted by applicable law,
the parties hereto hereby waive any provision of law that renders any provision
hereof prohibited or unenforceable in any respect. Notwithstanding that any term
or condition of this Contract, or this Contract as a whole, may be invalid, the
Settlement Agreement shall remain in full force and effect as if no term or
condition herein were invalid. In the event that this Contract is adjudged or
rendered invalid as a whole, the parties agree to use good faith efforts to
negotiate a commercially reasonable supply contract in replacement of and
substitution for this Contract.

         10.11    INTERPRETATION.

                  (a)      In this Contract, unless the contrary intention
appears, a reference to:

                           (i)      this "Contract" is to this Contract as
amended, modified or supplemented in writing from time to time as provided in
this Contract;

                           (ii)     a "Section" or an "Exhibit" is a reference
to an article or a section of, or an exhibit to, this Contract;

                           (iii)    "hereof," "herein," "hereunder" and
comparable terms refer to this entire Contract and not to any particular section
or other subdivision hereof or exhibit hereto;

                           (iv)     "include" and "including" mean includes,
without limitation, and including, without limitation, respectively, unless the
use thereof expressly or impliedly means otherwise;

                           (v)      a "law" includes common or customary law or
any constitution, decree, judgment legislation, order, ordinance, regulation,
statute, treaty or other legislative measure, in each case of any jurisdiction
whatever (and "lawful" and "unlawful" shall be construed accordingly) as such
law is amended or reenacted;

                                       19
<PAGE>

                           (vi)     a "person" includes any individual, company,
corporation, firm, partnership, joint venture, association, organization, trust,
state or agency of a state (in each case, whether or not having separate legal
personality), and its successors and assigns; and

                           (vii)    references to any gender include, unless the
context otherwise requires, references to all genders, and references to the
singular include, unless the context otherwise requires, references to the
plural and vice versa.

                  (b)      The index to and the headings in this Contract are
for convenience only and are to be ignored in construing this Contract.

                  (c)      The terms defined above have the meanings set forth
above for all purposes, and such meanings are equally applicable to both the
singular and plural forms of the terms defined.

                  (d)      For convenient reference, the capitalized words
listed in the first column are defined in the section listed opposite it in the
second column:

<TABLE>
<CAPTION>
                Definition                          Section
                ---------------------------------   --------------------------
                <S>                                 <C>
                Claims                              8.1(a)
                Defaulting Party                    6.2(a)
                Effective Date                      1.1
                Estimated Purchases                 3.3(a)
                Forecast                            3.2(d)
                Event of Default                    6.1
                GMP                                 4.1(c)(ii)
                Incipient Default                   6.2(a)
                Indemnitee                          8.3
                Indemnitor                          8.3
                Initial Term                        1.2
                Intellectual Property Rights        2.5(g)
                Management                          9.3(c)
                Minimum Amount                      2.1
                Modification Order                  3.1(c)
                Non-Defaulting party                6.2(a)
                Product Specifications              2.5(a)
                Products                            Recital B, Exhibit A
                Proposed Modifications              3.1(a)
                Purchase Order                      3.3(a)
                Representative                      9.1(a)
</TABLE>

         10.12    CHOICE OF LAW; ARBITRATION.

         This Contract shall be interpreted and enforced pursuant to the laws of
the State of California, excluding, however, the choice of law principles
thereof. Any claim or dispute under

                                       20

<PAGE>

or relating to this Contract shall be submitted to binding arbitration in
Chicago, Illinois pursuant to the commercial rules of the American Arbitration
Association.

         10.13    COUNTERPARTS.

         This Contract may be executed in multiple copies and copies made
thereof, all of which taken together will constitute one single agreement
between the parties hereto.

         IN WITNESS WHEREOF, the parties hereto have caused this Supply Contract
to be executed in duplicate by their respective representatives thereunto duly
authorized.

                                             Seller:

                                             Tenax Corporation

                                             By /s/ Peter Chambre
                                                -----------------------
                                             Its President
                                                 ----------------------

                                             Buyer:
                                             Aerogen, Inc.

                                             BY /s/ Jane E. Shaw
                                                -----------------------
                                             Its Chairman, CEO
                                                 ----------------------

                                       21
<PAGE>

                                    EXHIBIT A

                             PRODUCT SPECIFICATIONS

Definition of "Products"

         The "Products" are defined as any of the following alternatives, among
which Buyer may select in Buyer's sole discretion (subject to Section 2.1 and
the other provisions of this Agreement):

(1)      a preservative free dispensing canister, as described in the product
         specifications set forth below; and/or
(2)      the molding and assembly of the Inhaler casing (the specifications for
         which may be attached to this Exhibit A following the date of this
         Agreement); and/or
(3)      other products as mutually agreed upon by Buyer and Seller (the
         specifications for which may be attached to this Exhibit A following
         the date of this Agreement).

Product Specifications for Preservative Free Dispensing Pump and Canister

         GENERAL DESCRIPTION: A dispensing pump, integrally connected to a
canister that contains liquid medicament for dispensing a fixed volume upon each
actuation. The pump has a unidirectional valve that allows outflow of liquid
from the canister, but prevents inflow of bacteria into the canister so that the
liquid medicament in the canister requires no preservatives.

Dispensing Pump

Actuation force:  20 Newton Max.
Actuation travel:  10 mm Max.
Dispensed volume per actuation:  To Be Determined
Dispensing accuracy per actuation:  10%
Dispensing form:  Slow outflow that forms a single drop
Operation Orientation:  Upside down (relative to gravity)
Nozzle Geometry:  See Fig-1
Partial dosing:  To Be Determined

Top Seal (Valve)

         Normally-closed pressure differential valve will be positioned at the
dispensing orifice to prevent inflow of bacteria.

         Dead volume at the external surfaces of the valve:  1 [micron]l or less

                                       22
<PAGE>

Canister

Holding volume:  3cc
Residual volume in the canister:  To Be Determined
Air venting:  filtered air or no air venting
External Dimensions Body and Valve:  See Fig-1
Weight: To Be Determined
         Materials:        All molded plastic type:  To Be Determined
                  No metal in contact with liquid
                  No disinfectant releasing materials

Storage cup:  To Be Determined
Packaging:  To Be Determined

[GRAPHIC]

                                       23
<PAGE>

                                    Exhibit B

                               Modification Order

Please see attached.

                                       24
<PAGE>

ADDENDUM B
--------------------------------------------------------------------------------
                                TENAX CORPORATION                   No._________
                           ENGINEERING CHANGE APPROVAL
--------------------------------------------------------------------------------
DRAWING IDENTIFICATION, INCLUDING SHEET # AND          ORIGINATOR
REVISION LEVEL:                                        -------------------------
                                                       DATE
--------------------------------------------------------------------------------
DETAILS OF CHANGE

--------------------------------------------------------------------------------
DEPARTMENT    APPROVALS   COMMENTS -COSTS - PROBLEMS     SIGNATURE    DATE
              YES    NO
------------- ----- ----- ------------------------------ ------------ ----------
DEV.

------------- ----- ----- ------------------------------ ------------ ----------
MANF. ENG.

------------- ----- ----- ------------------------------ ------------ ----------
QUALITY

------------- ----- ----- ------------------------------ ------------ ----------
TOOLING

------------- ----- ----- ------------------------------ ------------ ----------
MOLDING

------------- ----- ----- ------------------------------ ------------ ----------
MATERIAL
  MGT.

------------- ----- ----- ------------------------------ ------------ ----------
FINANCE

------------- ----- ----- ------------------------------ ------------ ----------
R.A.

------------- ----- ----- ------------------------------ ------------ ----------
SALES

------------- ----- ----- ------------------------------ ------------ ----------
CUSTOMER/
SUPPLIER

--------------------------------------------------------------------------------
         PD-95C-I1000.00/B   3/3/95                        Controlled    Issue

                                       25
<PAGE>

                                    Exhibit C

                                 Purchase Order

Please see attached.

                                       26
<PAGE>

                  AEROGEN INC.                                    Purchase Order
                                                              Purchase Order No.
         1310 Orleans Drive
         Sunnyvale, CA  94089
         USA                                                         Date Issued

--------------------------------------------------------------------------------
      To: Ship To: AeroGen, Inc. 1310 Orleans Drive Sunnyvale, CA 94089 USA
--------------------------------------------------------------------------------
         Phone:                                Phone:   408-543-2400
         Fax:                                  Fax:     408-543-2450

--------------------------------------------------------------------------------
Delivery Date           Ship Via            Taxable?          Payment Terms
----------------- ------------------- ------------------- ----------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
  AeroGen P/N    Description    Quantity      U/M      Unit Price    Extension
--------------- ------------- ------------ ---------- ------------ -------------

--------------------------------------------------------------------------------
                                                          TOTAL
                                                      ------------ -------------

---------------------------------------------------
ORDER ACKNOWLEDGEMENT (To be completed by supplier)

I have reviewed and acknowledged the capability to
meet the specified requirements. I shall notify
AeroGen of any changes in the material, process
and/or service that may affect the quality of the     Authorized Signature(s)
product prior to the production of this order.

 _________________________________________________    __________________________
 Name and Title

 _________________________________________________    __________________________
 Signature and Date

---------------------------------------------------

Form 80F 45001-F3, Rev NEW
--------------------------------------------------------------------------------

                                       27
<PAGE>

                                    EXHIBIT D

                                      PRICE

         The price to be paid by the Buyer for each unit of the Product shall be
mutually agreeable to Buyer and Seller, shall be commensurate with Seller's
customary pricing criteria, and shall include the following components:

         1.       Seller's direct cost of materials;
         2.       Seller's direct cost of labor;
         3.       Seller's manufacturing overhead allocable to this Contract
                  and profit; and

         Seller shall allocate the costs of materials, labor and the portion of
its manufacturing overhead to the Product following the practices it uses for
allocating such costs and overhead to other products manufactured by it.

                                       28
<PAGE>

                                    Exhibit E

                            Custody and Use Agreement

Please see attached.

                                       29
<PAGE>

                            CUSTODY AND USE AGREEMENT

         This CUSTODY AND USE AGREEMENT (this "Agreement") dated as of March
1st, 1999, is made between AEROGEN, INC., a Delaware corporation ("Owner"), on
one hand, and TENAX CORPORATION, a Connecticut corporation doing business as
Bespak, Inc. ("Custodian").

                                    RECITALS

         1.       Owner and Custodian are parties to a certain Supply Contract
dated March 1, 1999 (the "Supply Contract") whereby Custodian has agreed to
supply Owner with certain products.

         2.       Owner desires to make available, and Custodian desires to
possess and use, certain equipment owned by Owner for Custodian's manufacture of
the goods supplied by Custodian pursuant to the Supply Contract, on the terms
and subject to the conditions set forth herein.

                                    AGREEMENT

         NOW, THEREFORE, in consideration of the premises and mutual agreements
hereto contained, the parties hereto agree as follows:

         1.       MANUFACTURING EQUIPMENT.

         (a)            Owner hereby grants to Custodian and Custodian accepts
from Owner possession and use of the equipment (the "Equipment") described on
the Schedules executed hereunder, and substantially in the form of Exhibit A
hereto (each a "Schedule").

         (b)            The first Schedule will be part of, and each Schedule
thereafter shall constitute an amendment to, this Agreement.

         (c)            Custodian's possession and use of the Equipment shall
commence on the date on which it is delivered to Custodian and continue until
Owner requests the return of the same or any portion thereof or until Custodian
notifies Owner that it intends to tender possession of the same to Owner, in
either of which events Custodian's possession and use shall terminate as to the
portion returned.

         2.       DELIVERY AND INSTALLATION.

         (a)            Custodian shall install and use the Equipment only at
the address for installation described in the relevant Schedule (the "Equipment
Location").

                                       30
<PAGE>

         (b)            At Custodian's expense, Custodian shall prepare a
suitable Equipment Location, substantially conforming with reasonable
instructions given by Owner, on or before the scheduled delivery date for the
installation of the Equipment.

         3.       TITLE.

         (a)           Each item of the Equipment (each a "Unit") shall remain
personal property, and the title thereto shall remain exclusively in Owner,
notwithstanding the manner in which any Unit may be attached to realty.
Custodian shall, upon the request of Owner at any time during the term of this
Agreement, affix or permit Owner to affix, in a permanent place on any Unit,
labels supplied by Owner identifying the Equipment as the property of Owner, and
shall not alter or remove any such label from any Unit.

         (b)           From time to time, Custodian shall, upon reasonable
request from Owner, execute and deliver to Owner Uniform Commercial Code
Financing Statements which reflect Owner's interest in the Equipment.

         (c)            Custodian shall not, without the prior written consent
of Owner, and then only as directed by Owner:

                  (i)               permit or cause any Unit to be moved from
the Equipment Location specified on the relevant Schedule;

                  (ii)              modify or alter the Equipment or any Unit;
or

                  (iii)            copy, reproduce, remanufacture, disassemble,
or incorporate the Equipment, in whole or part, with any other equipment except
in accordance with specifications provided by Owner.

         (d)           Custodian shall:

                  (i)               promptly notify Owner should Custodian
become aware of any infringement or any suspected infringement by any third
party of Owner' s proprietary rights in the Equipment;

                  (ii)              keep the Equipment free from any and all
liens, pledges, encumbrances, chattel mortgages, hypothecations, security
interests, charges and other claims (each a "Lien"), except those created by
Owner; and

                  (iii)             give Owner prompt notice of any judicial
process or Lien affecting the Equipment.

         (e)           If Custodian uses any Unit to produce any tangible or
intangible property, legal and beneficial title to such property shall vest in
Owner upon the creation thereof. To the extent Custodian receives any proceeds
as a result of any sale or use of any such property, Custodian shall hold such
proceeds in trust for Owner, and remit the same to Owner.

         4.       USE.  Custodian shall:

                                       31
<PAGE>

         (a)           use the Equipment in accordance with the guidelines set
forth in the technical documentation provided by Owner pursuant to Section 3
above;

         (b)           use the Equipment only in Custodian's business and
solely for manufacturing goods supplied to Owner pursuant to the Supply
Contract; and

         (c)           not allow the Equipment to be used by persons other than
its employees or agents.

         5.       TESTING OF EQUIPMENT; CHARGES THEREFOR. Owner recognizes that,
following installation of the Equipment and prior to Custodian's use of the
Equipment for the purposes described in Section 4(b), Custodian will conduct
certain tests of the Equipment to ensure that the Equipment will function
properly in Custodian' s manufacturing process for the goods described in the
Supply Contract. Payment for such testing charges shall be due 30 days from the
date of Custodian's invoice.

         6.       MAINTENANCE.

         (a)           Throughout the term of this Agreement, Custodian shall:

                  (i)               at Owner's expense (after giving effect to
the benefits of any manufacturer's warranty pursuant to Section 7 hereof),
maintain the Equipment in the condition in which Custodian received it from
Owner, normal wear and tear excepted;

                  (ii)              at Owner's expense, make repairs and
replacements reasonably required to maintain the Equipment in good working
condition according to Custodian's customary practices and procedures; and

                  (iii)             keep maintenance logs evidencing such
maintenance of the Equipment according to Custodian's customary practices and
procedures.

         (b)           All replacement parts and additions incorporated into the
Equipment shall become the property of Owner immediately upon incorporation.

         (c)           In the event that any of the Equipment is damaged as a
result of the misconduct or negligent act or omission on the part of Owner or
its agents, then, Owner shall, at Custodian's option and at Owner's expense,
repair or replace such Equipment.

         7.       BENEFIT OF WARRANTY. To the extent that Owner is the
beneficiary of any warranty extended by the manufacturer of the Equipment, Owner
hereby appoints Custodian as Owner's attorney-in-fact to enforce such warranty
in the course of carrying out Custodian's obligations under this Agreement.

         8.       RIGHT OF INSPECTION. Owner shall have the right, upon ten (10)
days' notice and during normal business hours, to send a reasonable number of
Owner's employees or agents to inspect and photograph the Equipment, and in
review all maintenance records related to the Equipment; provided, however, that
such inspections shall be related strictly to the transactions

                                       32
<PAGE>

contemplated herein and shall not, in any event, unreasonably disturb or
interfere with, operations at Custodian's facilities.

         9.       TERM.

         (a)           This Agreement is effective upon execution hereof by the
parties hereto and shall continue during the Initial Term of the Supply Contract
and any renewal term thereof.

         (b)           Following the termination date of this Agreement,
Custodian shall have an additional thirty (30) days to complete the removal of
the Equipment. Owner shall assist and cooperate with Custodian in the packaging
and removal of the Equipment at Owner's expense.

         10.      CASUALTY AND INSURANCE.

         (a)           From the date any Unit of the Equipment is delivered to
Custodian until it is returned to Owner, Custodian shall bear all risk of loss,
damage, theft and destruction to or of the Equipment from any and every cause
whatsoever, whether or not insured, except loss or damage occasioned solely by
the negligent action or omission or misconduct of Owner, its agents or
employees. Custodian, at its own expense, shall maintain all-risk, public
liability, theft and property damage insurance on the Equipment in the amounts
reasonably satisfactory to Owner. All policies of liability insurance shall name
the Owner as an additional insured, and all property damage and casualty
insurance shall name the Owner as loss payee. Custodian shall deliver to Owner
certificates evidencing such insurance.

         (b)           Custodian shall notify Owner of any casualty or partial
destruction to any Unit by the close of business on the next business day
following its occurrence. In the event any Unit is lost, destroyed, stolen,
taken or seized by government authority, or, in Owner's opinion, damaged beyond
repair ("Casualty"), Custodian shall be liable to Owner and shall pay Owner an
amount determined by Owner to equal the cost of replacing such Unit (the
"Casualty Value"). Custodian shall pay Owner such Casualty Value within thirty
(30) days of the date of the Casualty. Upon receipt by Owner of the Casualty
Value for any Unit, the Custodian shall return the Unit salvage to Owner.

         (c)           Seller's liability for all damages arising under this
Agreement during a calendar year shall be limited to the sum $250,000.00.

         11.      INDEMNITY.

         (a)           Custodian shall indemnify and hold Owner, and Owner's
officers, directors, shareholders, partners, affiliates, agents, servants,
successors and assignees, harmless against any and all liabilities, losses,
damages, actions, claims and expenses of any kind and nature, including court
costs and reasonable attorneys' fees and expenses (each, a "Claim"), directly or
indirectly related to or arising in connection with any breach by Custodian of
this Agreement and the maintenance, storage, relocation, return or condition of
any Unit (regardless of whether such Unit is at the time in the possession or
control of the Custodian), except to the extent any such claims, actions,
liabilities and expenses result from the misconduct or negligent act or omission
of Owner.

                                       33
<PAGE>

         (b)           Custodian shall notify Owner by the close of business on
the next business day after receipt of notice or knowledge of any event which
may give rise to a third-party liability claim arising in connection with the
Equipment. To the extent (but only to the extent) that such third-party
liability claim arises from the misconduct or negligent act of Custodian, upon
Owner's written demand, Custodian shall assume and diligently conduct, at its
sole cost and expense, the entire defense of Owner and its agents, employees,
successors and assigns against any indemnified Claim described in this Section
11. Custodian shall not settle or compromise any Claim against or involving
Owner without first obtaining Owner's written consent thereto, which consent
shall not be unreasonably withheld. The foregoing indemnity shall continue in
force and effect notwithstanding the termination or cancellation of this
Agreement, whether by expiration of time, operation of law or otherwise.

         12.      WARRANTIES. CUSTODIAN ACKNOWLEDGES THAT OWNER HAS MADE NO
REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT TO THE
EQUIPMENT, INCLUDING, WITHOUT LIMITATION, THE EQUIPMENT'S CONDITION,
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE.

         13.      FURTHER ASSURANCES. At any time, upon the reasonable written
request of Owner, and at the sole expense of Custodian, Custodian shall take
such action as Owner may reasonably deem desirable to obtain the full benefits
of this Agreement and of the rights and powers herein granted, including,
without limitation, using its best efforts to secure all consents and approvals
necessary or appropriate for Owner to enter Custodian's property for purposes of
carrying out the terms of this Agreement, including installation, maintenance,
inspection, and removal of the Equipment.

         14.      ASSIGNMENT. CUSTODIAN SHALL NOT ASSIGN OR GRANT A SECURITY
INTEREST IN, IN WHOLE OR IN PART, ITS RIGHTS UNDER THIS AGREEMENT OR ITS RIGHTS
TO THE EQUIPMENT, NOR SHALL CUSTODIAN LEASE OR SUBLEASE ANY EQUIPMENT WITHOUT
THE PRIOR WRITTEN CONSENT OF OWNER. ANY ACTION IN CONTRADICTION HERETO SHALL BE
NULL AND VOID AND WITHOUT FORCE OR EFFECT.

         15.      WAIVER. Owner's failure at any time to require strict
performance by Custodian of any of the provisions hereof shall not waive or
diminish Owner's right thereafter to demand strict compliance therewith.

         16.      SEVERABILITY. If any provision of this Agreement shall be
deemed unenforceable under applicable law, it shall be deemed stricken, but the
remainder of this Agreement shall remain in full force and effect and shall be
construed to give effect to the intent of the parties.

         17.      CONSTRUCTION.

         (a)           In this Agreement, unless the contrary intention
appears, a reference to:

                                       34
<PAGE>

                  (i)               "hereof," "herein," "hereunder" and
comparable terms refer to the entire agreement or instrument in which such terms
are used and not to any particular article, section or other subdivision thereof
or attachment thereto;

                  (ii)              "include" and "including" mean include,
without limitation, and including, without limitation, respectively, unless the
use thereof expressly or impliedly means otherwise; and

                  (iii)             any gender includes, unless the context
otherwise requires, references to all genders, and a reference to the singular
includes, unless the context otherwise requires, references to the plural and
vice versa.

         (b)           The headings in this Agreement are for convenience only
and shall not affect the construction of this Agreement.

         18.      NOTICES.

         (a)           Wherever under this Agreement one party is required or
permitted to give notice to the other, such notice shall be in writing to the
other party and shall be addressed to such party at:

                  (i)      In the case of Custodian:

                                  Bespak, Inc.
                             2450 Laura Duncan Road
                                 Apex, NC 27502
                              Attention: President
                            Telephone: (919) 303-4145
                            Facsimile: (919) 387-2049

                  with a copy to:

                             Moore & Van Allen, PLLC
                         One Hannover Square, Suite 1700
                                Raleigh, NC 27601
                       Attention: Martin H. Brinkley, Esq.
                            Telephone: (919) 828-4481
                            Facsimile: (919) 387-2049

                  (ii)     In the case of Owner:

                                  AeroGen, Inc.
                               1310 Orleans Drive
                               Sunnyvale, CA 94089
                           Attention: Mr. Yehuda Ivri
                            Telephone: (408) 543-2400
                            Facsimile: (408) 543-2450

                                       35
<PAGE>

         (b)           Either party hereto may from time to time change its
address for notification purpose by giving the other party prior written notice
of the new address and the date upon which it will become effective.

         (c)           A notice or communication will be deemed effective:

                  (i)               if delivered by hand or sent by overnight
courier, on the day it is delivered unless (a) that day is not a day on which
commercial banks are open for business in the city specified in the address for
notice provided by the recipient (a day on which banks are open for such
business, a "Local Business Day") or (b) if delivered after the close of
business on a Local Business Day, then on the next succeeding Local Business
Day; and

                  (ii)              if sent by facsimile transmission, on the
date transmitted, provided oral or written confirmation of receipt is obtained
by the sender, unless the transmission and confirmation date is not a Local
Business Day, in which case on the next succeeding Local Business Day.

         19.      COUNTERPARTS. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument.

         20.      CHOICE OF LAW. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN
MADE AND ACCEPTED AND PERFORMED IN THE COUNTY OF SANTA CLARA, IN THE STATE OF
CALIFORNIA, WHERE OWNER'S PRINCIPAL PLACE OF BUSINESS IS LOCATED. THIS AGREEMENT
AND ALL TRANSACTIONS HEREUNDER AND ALL RIGHTS AND LIABILITIES OF THE PARTIES
HERETO, SHALL BE DETERMINED AND GOVERNED AS TO THE VALIDITY, INTERPRETATION,
ENFORCEMENT AND EFFECT BY THE LAWS OF THE STATE OF CALIFORNIA. ANY CLAIM OR
DISPUTE ARISING UNDER OR RELATING TO THIS AGREEMENT SHALL BE SUBMITTED TO
BINDING ARBITRATION IN CHICAGO, ILLINOIS PURSUANT TO THE COMMERCIAL RULES OF THE
AMERICAN ARBITRATION ASSOCIATION.

         21.      ENTIRE AGREEMENT. This instrument constitutes the entire
agreement between the parties as to the subject matter herein and may not be
modified except in writing executed by Owner and Custodian. No supplier or agent
of Owner is authorized to bind Owner or Custodian or to waive or modify any term
this Agreement.

         Custodian's Initials:      PC      Owner's Initials: JES
                                ------                       ----

                                       36
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.

                                    Owner:
                                    Aerogen, Inc.

                                    By: /s/ Jane E. Shaw
                                       -----------------------
                                    Name:    Jane E. Shaw
                                    Title:   Chairman, CEO

                                    Custodian:

                                    Tenax Corporation

                                    By: /s/ Peter Chambre
                                       -----------------------
                                    Name:    Peter Chambre
                                    Title:   President

                                       37
<PAGE>

                                    Exhibit A

                       CUSTODY AND USE AGREEMENT SCHEDULE

                                 Schedule No.___
                    to Custody Agreement dated March 1, 1999
                        between AeroGen, Inc., as Owner,
                       and Tenax Corporation, as Custodian

         This is a "Schedule" to the above-referenced Custody and Use Agreement
(the "Agreement"). This Schedule shall become effective on the date executed by
Owner Capitalized terms used in this Schedule and not otherwise defined herein
shall have the respective meanings set forth in the Agreement.

I.   Equipment
     Unit
     Description
     Quantity
     Estimated Date of Delivery and Installation
     Equipment Location

{II.     Software}

         Unit

         Description

         Quantity

         Estimated Date of Delivery and Installation

         Equipment Location

         Location

         Computer Configuration

                                       38
<PAGE>

                                 ATTACHMENT III

                                       39
<PAGE>

                                 ATTACHMENT III

         Claim A below would be licensed to BESPAK and TENAX under B2.2, because
Claim A reads on subject matter disclosed in or supported by U.S Patent No.
5,261,601. Claim B would not be licensed to BESPAK and TENAX under B2.2, because
Claim B does not read on subject matter disclosed in or supported by U.S. Patent
No. 5,261, 601.

CLAIM A

         Dispensing apparatus for use in dispensing liquid as an atomized spray
comprising a vibratable perforate membrane having at least one hole and having a
front surface and rear surface, liquid supply means for supplying the liquid to
the rear surface, and vibrating means operable to vibrate the membrane relative
to the liquid supply means such that droplets of the liquid are dispensed
through the hole as an atomized spray, wherein the hole is flared such that the
cross-section of the hole narrows in a direction from the rear surface towards
the front surface.

CLAIM B

         Dispensing apparatus for use in dispensing liquid as an atomized spray
comprising a vibratable perforate membrane having at least one hole and having a
front surface and rear surface, liquid supply means for supplying the liquid to
the rear surface, and vibrating means operable to vibrate the membrane relative
to the liquid supply means such that droplets of the liquid are dispensed
through the hole as an atomized spray, wherein the hole is flared such that the
cross-section of the hole narrows in a direction from the rear surface toward
the front surface; said liquid being a film of liquid which, during an inward or
rearward oscillation cycle, is held to said membrane and said one or more
openings exclusively by the cohesive attraction of surface tension.

                                       40

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00014-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00014-of-00352.parquet"}]]