Document:

Exhibit 10.20

 

LOAN AND SECURITIES
PURCHASE AGREEMENT

 

This Loan and Securities Purchase Agreement
is entered into and dated as of January 23, 2004 (this “Agreement”), by and between Aerogen, Inc.,
a Delaware corporation (the “Borrower”),
and the Lender identified on the signature page hereto (the “Lender”).

 

WHEREAS, subject to the terms and conditions
set forth in this Agreement, the Borrower desires to borrow certain sums from
the Lender (the “Loan”) and sell certain securities to the Lender, and the Lender
desires to loan certain sums to the Borrower and purchase certain securities
from the Borrower, pursuant to the terms set forth herein.

 

NOW, THEREFORE, IN CONSIDERATION of the
mutual covenants contained in this Agreement, and for other good and valuable
consideration the receipt and adequacy of which are hereby acknowledged, the
Borrower and the Lender agree as follows:

 

ARTICLE I.

DEFINITIONS

 

1.1.                               Definitions.    In addition to the terms defined elsewhere
in this Agreement, the following terms shall have the meanings set forth in
this Section 1.1:

 

“Action”
means any action, suit, inquiry, notice of violation, proceeding (including any
partial proceeding such as a deposition) or investigation pending or threatened
in writing against or affecting the Borrower, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or
administrative agency, regulatory authority (federal, state, county, local or
foreign), stock market, stock exchange or trading facility.

 

“Affiliate” means any Person that, directly
or indirectly through one or more intermediaries, controls or is controlled by
or is under common control with a Person, as such terms are used in and
construed under Rule 144 under the Securities Act.

 

“Bankruptcy Event” means any of the
following events: (a) the Borrower or any Subsidiary commences a case or other
proceeding under any bankruptcy, reorganization, arrangement, adjustment of
debt, relief of debtors, dissolution, insolvency or liquidation or similar law
of any jurisdiction relating to the Borrower or any Subsidiary thereof; (b)
there is commenced against the Borrower or any Subsidiary any such case or
proceeding that is not dismissed within 60 days after commencement; (c) the
Borrower or any Subsidiary is adjudicated by a court of competent jurisdiction
insolvent or bankrupt or any order of relief or other order approving any such
case or proceeding is entered; (d) the Borrower or any Subsidiary suffers any
appointment of any custodian or the like for it or any substantial part of its
property that is not discharged or stayed within 60 days; (e) under applicable
bankruptcy law the Borrower or any Subsidiary makes a general assignment for
the benefit of creditors; (f) the Borrower or any Subsidiary fails to pay, or
states that it is unable to pay or is unable to pay, its debts generally as
they become due; (g) the Borrower or any Subsidiary calls a meeting of its
creditors with a view to arranging a composition, adjustment or restructuring
of its debts; or (h) the Borrower or

 

 

any Subsidiary, by any act or failure to act,
expressly indicates its consent to, approval of or acquiescence in any of the
foregoing or takes any corporate or other action for the purpose of effecting
any of the foregoing.

 

“Borrower Counsel” means Cooley Godward LLP,
counsel to the Borrower.

 

“Business
Day” means any day except Saturday, Sunday and any day
which shall be a federal legal holiday or a day on which banking institutions
in the State of California are authorized or required by law or other
governmental action to close.

 

“Capital Lease Obligations” of any Person
shall mean the obligations of such Person to pay rent or other amounts under
any lease of (or other arrangement conveying the right to use) real or personal
property, or a combination thereof, which obligations are required to be
classified and accounted for as capital leases on a balance sheet of such
Person under GAAP and, for the purposes of this Agreement, the amount of such
obligations at any time shall be the capitalized amount thereof at such time
determined in accordance with GAAP.

 

“Closing” means the closing of the loan and
purchase and sale of Securities pursuant to Section 2.1.

 

“Closing Date” means the Business Day
immediately following the date on which all the conditions set forth in
Sections 6.1 and 6.2 hereof are satisfied.

 

“Commission” means the Securities and
Exchange Commission.

 

“Common Stock” means the common stock of the
Borrower, $0.001 par value per share, and any securities into which such common
stock may hereafter be reclassified.

 

“Common
Stock Equivalents” means any securities of the
Borrower or any Subsidiary which entitle the holder thereof to acquire Common
Stock at any time, including without limitation, any debt, preferred stock,
rights, options, warrants or other instrument that is at any time convertible
into or exchangeable for, or otherwise entitles the holder thereof to receive,
Common Stock or other securities that entitle the holder to receive, directly
or indirectly, Common Stock.

 

“Debenture” means the secured convertible
debenture due March 1, 2004, issuable by the Borrower to the Lender pursuant to
Section 2.2, in the form of Exhibit A hereto.

 

“Effective
Date” means the date that a Registration Statement is
first declared effective by the Commission.

 

“Exchange Act” means the Securities Exchange
Act of 1934, as amended.

 

“Indebtedness” of any Person shall mean,
without duplication, (a) all obligations of such Person for borrowed money or
with respect to deposits or advances of any kind,

 

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(b) all obligations of such Person evidenced
by bonds, debentures, notes or similar instruments, (c) all obligations of such
Person upon which interest charges are customarily paid, (d) all obligations of
such Person under conditional sale or other title retention agreements relating
to property or assets purchased by such Person, (e) all obligations of such
Person issued or assumed as the deferred purchase price of property or services,
(f) all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on property owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed, (g) all Guarantees by such
Person of Indebtedness of others, (h) all Capital Lease Obligations of such
Person, (i) all obligations of such Person in respect of interest rate
protection agreements, foreign currency exchange agreements or other interest
or exchange rate hedging arrangements and (j) all obligations of such Person as
an account party in respect of letters of credit and bankers’ acceptances.  The Indebtedness of any Person shall include
the Indebtedness of any partnership in which such Person is a general partner.

 

“Loan
Amount” means
$500,000.

 

“Losses” means any and all losses, claims,
damages, liabilities, settlement costs and expenses, including without
limitation costs of preparation of legal action and reasonable attorneys’ fees.

 

“Person” means an individual or corporation,
partnership, trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.

 

“Proceeding” means an action, claim, suit,
investigation or proceeding (including, without limitation, an investigation or
partial proceeding, such as a deposition), whether commenced or threatened.

 

“Registration
Statement” means one or more registration statements
meeting the requirements of the Registration Rights Agreement and covering the
resale of the applicable Underlying Shares by the Lender who shall be named
“selling stockholder” thereunder.

 

“Registration
Rights Agreement” means the Registration Rights
Agreement, dated as of the date of this Agreement, between the Borrower and the
Lender, in the form of Exhibit B hereto.

 

“Rule 144” means Rule 144 promulgated by the
Commission pursuant to the Securities Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.

 

“Securities” means the Debentures, the
Warrant and the Underlying Shares issuable to the Lender pursuant to the Transaction
Documents.

 

“Securities Act” means the Securities Act of
1933, as amended.

 

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“Security
Agreement” means the Security Agreement, dated as of
the date of this Agreement, between the Borrower and the Lender, in the form of
Exhibit F hereto.

 

“Strategic
Transaction” means a transaction or relationship in which the
Borrower issues shares of Common Stock or other securities of the Borrower to a
Person which is, itself or through its Subsidiaries, an operating company in a
business synergistic with the business of the Borrower and in which the
Borrower receives benefits in addition to the investment of funds, but shall
not include a transaction in which the Borrower is issuing securities primarily
for the purpose of raising capital or to an entity whose primary business is
investing in securities.

 

“Subsidiary” means any subsidiary of the
Borrower that is required to be listed in Disclosure Schedule 3.1(a).

 

“Trading
Day” means (i) a day on which the Common Stock is
traded on a Trading Market, or (ii) if the Common Stock is not listed on a
Trading Market, a day on which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the
Common Stock is not quoted on the OTC Bulletin Board, a day on which the Common
Stock is quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
to its functions of reporting prices); provided, that in the event that the
Common Stock is not listed or quoted as set forth in (i), (ii) and (iii)
hereof, then Trading Day shall mean a Business Day.

 

“Trading Market” means the Nasdaq SmallCap
Market or any other national securities exchange, market or trading or
quotation facility on which the Common Stock is then listed or quoted.

 

“Transaction Documents” means this
Agreement, the Warrant, the Debentures, the Security Agreements, the
Registration Rights Agreement and any other documents or agreements executed or
delivered in connection with the transactions contemplated hereunder.

 

“Underlying Shares” means the shares of
Common Stock issuable upon conversion of the Debentures and payment of interest
thereunder and upon exercise of the Warrant and in satisfaction of any other
obligation of the Borrower to issue shares of Common Stock pursuant to the
Transaction Documents.

 

“Warrant” means the Common Stock purchase
warrant in the form of Exhibit C, issuable pursuant to Section 2.2.

 

“Warrant Purchase Amount” means $5,133,
which represents approximately $0.0625 per share of Common Stock issuable upon
exercise of the Warrant.

 

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ARTICLE II.

PURCHASE AND SALE

 

2.1.                              Closing.    Subject to the terms and conditions set
forth in this Agreement, at the Closing the Borrower shall issue and sell to
the Lender, and the Lender shall purchase from the Borrower, the Debenture and
the Warrant for the Loan Amount. The Closing shall take place at Cooley Godward
LLP, 3175 Hanover Street, Palo Alto, CA 94306 on the Closing Date or at such
other location or time as the parties may agree.

 

2.2.                              Closing Deliveries.

 

(a)                                  At
the Closing, the Borrower shall deliver or cause to be delivered to the Lender
the following:

 

(i)                                     a
Debenture in the aggregate principal amount of the Loan Amount registered in
the name of the Lender;

 

(ii)                                  a
Warrant, registered in the name of the Lender, pursuant to which the Lender
shall have the right to acquire 50% of the number of shares of Common Stock
issuable upon assumed conversion in full of the Debenture issuable to the
Lender in accordance with Section 2.2(a)(i), on the terms set forth therein;

 

(iii)                               the
Registration Rights Agreement, duly executed by the Borrower; and

 

(iv)                              the
Security Agreement, duly executed by the Borrower.

 

(b)                                 At
the Closing, the Lender shall deliver or cause to be delivered to the Borrower
the following:

 

(i)                                     the
Loan Amount and Warrant Purchase Amount in United States dollars and in
immediately available funds, by check or wire transfer to an account designated
in writing by the Borrower for such purpose;

 

(ii)                                  the
Registration Rights Agreement, duly executed by the Lender; and

 

(iii)                               the
Security Agreement, duly executed by the Lender.

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1.                              Representations and
Warranties of the Borrower.    The
Borrower hereby makes the following representations and warranties to the
Lender, which are qualified by the Disclosure Schedule dated as of even date
herewith.

 

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(a)                                  Subsidiaries.    The Borrower does not directly or
indirectly control or own any interest in any other corporation, partnership,
joint venture or other business association or entity (a “Subsidiary”), other than those listed in Disclosure
Schedule 3.1(a). Except as disclosed in Disclosure Schedule 3.1(a),
the Borrower owns, directly or indirectly, all of the capital stock of each
Subsidiary free and clear of any lien, charge, claim, security interest,
encumbrance, right of first refusal or other restriction (collectively, “Liens”), and all the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights.

 

(b)                                 Organization
and Qualification.    Each of the
Borrower and the Subsidiaries is an entity duly incorporated or otherwise
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the
requisite power and authority to own and use its properties and assets and to
carry on its business as currently conducted. Neither the Borrower nor any
Subsidiary is in violation of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents. Each of the Borrower and each Subsidiary is duly qualified
to conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could not,
individually or in the aggregate, have or reasonably be expected to result in
(i) an adverse effect on the legality, validity or enforceability of any
Transaction Document, (ii) a material and adverse effect on the results of
operations, assets, prospects, business or condition (financial or otherwise)
of the Borrower and the Subsidiaries, taken as a whole, or (iii) an adverse
impairment to the Borrower’s ability to perform on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”), except
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors’ rights, (b) general principles of equity that restrict the
availability of equitable remedies, and (c) to the extent that the
enforceability of the indemnification provisions contained herein or in the
Registration Rights Agreement may be limited by applicable laws.

 

(c)                                  Authorization;
Enforcement.    The Borrower has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and otherwise to
carry out its obligations hereunder. The execution and delivery of each of the
Transaction Documents by the Borrower and the consummation by it of the
transactions contemplated hereunder and thereunder have been duly authorized by
all necessary action on the part of the Borrower and no further consent or
action is required by the Borrower, its Board of Directors or its stockholders.
Each of the Transaction Documents has been (or upon delivery will be) duly
executed by the Borrower and, when delivered in accordance with the terms
hereof, will constitute the valid and binding obligation of the Borrower
enforceable against the Borrower in accordance with its terms.

 

(d)                                 No
Conflicts.    The execution,
delivery and performance of the Transaction Documents by the Borrower and the
consummation by the Borrower of the transactions contemplated thereby do not
and will not (i) conflict with or violate any provision of the Borrower’s or
any Subsidiary’s certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute a
default (or an event that

 

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with notice or lapse of time or both would
become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation 
(with or without notice, lapse of time or both) of, any agreement,
credit facility, debt or other instrument (evidencing a Borrower or Subsidiary
debt or otherwise) or other understanding to which the Borrower or any
Subsidiary is a party or by which any property or asset of the Borrower or any
Subsidiary is bound or affected, or (iii) result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Borrower or a Subsidiary is
subject (including federal and state securities laws and regulations) and the
rules and regulations of any self-regulatory organization to which the Borrower
or its securities are subject, or by which any property or asset of the
Borrower or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), such as could not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect.

 

(e)                                  Filings,
Consents and Approvals.  The
Borrower is not required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Borrower of the
Transaction Documents, other than (i) the filing with the Commission of one or
more Registration Statements in accordance with the requirements Registration
Rights Agreement and (ii) the application(s) to the Trading Market on which the
Common Stock is listed for trading for the listing of the Underlying Shares for
trading thereon in the time and manner required thereby which have been made
and obtained prior to the Closing Date.

 

(f)                                    Issuance
of the Securities.    The Securities
have been duly authorized and, when issued and paid for in accordance with the
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens. The Borrower has reserved from its
duly authorized capital stock a number of shares of Common Stock to be issued
to the Lender upon conversion or exercise of the Debentures or Warrant.

 

(g)                                 Capitalization.    The number of shares and type of all
authorized, issued and outstanding capital stock of the Borrower, and all
shares of Common Stock reserved for issuance under the Borrower’s various
option and incentive plans, is set forth in Disclosure Schedule 3.1(g).  Except as set forth in Disclosure
Schedule 3.1(g), no securities of the Borrower are entitled to preemptive
or similar rights, and no Person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents.  Except as a result of the purchase and sale
of the Securities and except as disclosed in Disclosure Schedule 3.1(g),
there are no outstanding options, warrants, scrip rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities, rights
or obligations convertible into or exchangeable for, or giving any Person any
right to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Borrower or any
Subsidiary is or may become bound to issue additional shares of Common Stock,
or securities or rights convertible or exchangeable into shares of Common
Stock.  Except as set forth in Disclosure
Schedule 3.1(g), the issue and sale of the Securities will not, immediately
or with the passage of time, obligate the Borrower to issue shares of Common
Stock or other securities to any Person (other than the Lender) and will not
result in a right of any holder of Borrower securities to adjust the exercise,
conversion, exchange or reset price under such securities.

 

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(h)                                 SEC
Reports; Financial Statements.   
The Borrower has filed all reports required to be filed by it under the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the
twelve months preceding the date hereof (or such shorter period as the Borrower
was required by law to file such material) (the foregoing materials being
collectively referred to herein as the “SEC Reports”
and, together with this Agreement and the Schedules to this Agreement, the “Disclosure Materials”) on a timely basis or has timely filed
a valid extension of such time of filing and has filed any such SEC Reports
prior to the expiration of any such extension. The Borrower has made available
to the Lender a copy of all SEC Reports filed within the 10 days preceding the
date hereof. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the Exchange
Act and the rules and regulations of the Commission promulgated thereunder, and
none of the SEC Reports, when filed, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Borrower included in the SEC Reports comply in all material
respects with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(“GAAP”), except as may be
otherwise specified in such financial statements or the notes thereto or in the
case of unaudited financial statements, as permitted by Form 10-Q of the
Commission, and fairly present in all material respects the financial position
of the Borrower and its consolidated Subsidiaries as of and for the dates
thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments. All material contracts, as such contracts are
defined in §601(a)(10) of Reg. S-K under the Securities Act, to which the
Borrower or any Subsidiary is a party or to which the property or assets of the
Borrower or any Subsidiary are subject are included as part of or specifically
identified in the SEC Reports.

 

(i)                                     Press
Releases.  The press releases
disseminated by the Borrower during the three (3) years preceding the date of
this Agreement taken as a whole do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.

 

(j)                                     Material
Changes.    Since the date of the
latest audited financial statements included within the SEC Reports, except as
specifically disclosed in the SEC Reports, (i) there has been no event,
occurrence or development that has had or that could reasonably be expected to
result in a Material Adverse Effect, (ii) the Borrower has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and accrued
expenses incurred in the ordinary course of business consistent with past
practice and (B) liabilities not required to be reflected in the Borrower’s
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (iii) the Borrower has not altered its method of
accounting or the identity of its auditors, (iv) the Borrower has not declared
or made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock, and (v) the Borrower has not issued any
equity securities to any officer, director or Affiliate, except pursuant to
existing Borrower stock option and stock purchase plans.

 

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(k)                                  Litigation.  There is no Action which (i) adversely
affects or challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect.  Neither the Borrower nor any Subsidiary, nor any director or
officer thereof, is or has been the subject of any Action involving a claim of
violation of or liability under federal or state securities laws or a claim of
breach of fiduciary duty.  There has not
been, and to the knowledge of the Borrower, there is not pending or
contemplated, any investigation by the Commission involving the Borrower or any
current or former director or officer of the Borrower.  The Commission has not issued any stop order
or other order suspending the effectiveness of any registration statement filed
by the Borrower or any Subsidiary under the Exchange Act or the Securities Act.

 

(l)                                     Labor
Relations.  No material labor dispute
exists or, to the knowledge of the Borrower, is imminent with respect to any of
the employees of the Borrower.

 

(m)                               Compliance.    Neither the Borrower nor any Subsidiary
(i) is in default under or in violation of (and no event has occurred that has
not been waived that, with notice or lapse of time or both, would result in a
default by the Borrower or any Subsidiary under), nor has the Borrower or any
Subsidiary received notice of a claim that it is in default under or that it is
in violation of, any indenture, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal,
state and local laws relating to taxes, environmental protection, occupational
health and safety, product quality and safety and employment and labor matters,
except in each case as could not, individually or in the aggregate, have or
could reasonably be expected to result in a Material Adverse Effect. The
Borrower is in compliance with the applicable requirements of the
Sarbanes-Oxley Act of 2002 and the rules and regulations thereunder promulgated
by the Commission, except where such noncompliance could not have or reasonably
be expected to result in a Material Adverse Effect.

 

(n)                                 Regulatory
Permits.    The Borrower and the
Subsidiaries possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities necessary
to conduct their respective businesses as described in the SEC Reports, except
where the failure to possess such permits could not, individually or in the
aggregate, have or could reasonably be expected to result in a Material Adverse
Effect (“Material Permits”), and neither the
Borrower nor any Subsidiary has received any notice of proceedings relating to
the revocation or modification of any Material Permit.

 

(o)                                 Title
to Assets.    The Borrower and the
Subsidiaries have good and marketable title in fee simple to all real property
owned by them that is material to the business of the Borrower and the
Subsidiaries and good and marketable title in all personal property owned by
them that is material to the business of the Borrower and the Subsidiaries, in
each case free and clear of all Liens, except for Liens granted to the Lender
pursuant to the Security Agreements and except for Liens as do not materially
affect the value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Borrower and the
Subsidiaries. Any real property and facilities held under lease by the Borrower

 

9

 

and the Subsidiaries are held by them under
valid, subsisting and enforceable leases of which the Borrower and the Subsidiaries
are in compliance.

 

(p)                                 Patents
and Trademarks.    The Borrower and
the Subsidiaries have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, copyrights,
licenses and other similar rights that are necessary or material for use in
connection with their respective businesses as described in the SEC Reports and
which the failure to so have could, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect (collectively,
the “Intellectual Property Rights”).  Neither the Borrower nor any Subsidiary has
received a written notice that the Intellectual Property Rights used by the
Borrower or any Subsidiary violates or infringes upon the rights of any
Person.  Except as set forth in the SEC
Reports, to the knowledge of the Borrower, all such Intellectual Property
Rights are enforceable and there is no existing infringement by another Person
of any of the Intellectual Property Rights.

 

(q)                                 Insurance.    The Borrower and the Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as are prudent and customary in the businesses in
which the Borrower and the Subsidiaries are engaged. Neither the Borrower nor
any Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its business
without a significant increase in cost.

 

(r)                                    Internal
Accounting Controls.    The Borrower
and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

 

(s)                                  Certain
Fees.  No brokerage or finder’s fees
or commissions are or will be payable by the Borrower to any broker, financial
advisor or consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by this
Agreement.  The Lender shall have no
obligation with respect to any fees or with respect to any claims (other than
such fees or commissions owed by the Lender pursuant to written agreements
executed by the Lender which fees or commissions shall be the sole
responsibility of the Lender) made by or on behalf of other Persons for fees of
a type contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement.

 

(t)                                    Certain
Registration Matters. Assuming the accuracy of the Lender’s representations
and warranties set forth in Section 3.2(b)-(e), no registration under the
Securities Act is required for the offer and sale of the Securities by the
Borrower to the Lender under the Transaction Documents.  The Borrower is eligible to register the
resale of its  Common Stock for resale
by the Lender under Form S-3 promulgated under the Securities Act.  Except as described in Disclosure
Schedule 3.1(v), the Borrower has not granted or agreed to grant to any
Person any

 

10

 

rights (including “piggy-back” registration
rights) to have any securities of the Borrower registered with the Commission
or any other governmental authority that have not been satisfied.

 

(u)                                 Investment
Company.    The Borrower is not, and
is not an Affiliate of, an “investment company” within the meaning of the
Investment Company Act of 1940, as amended.

 

(v)                                 No
Additional Agreements.  The Borrower
does not have any agreement or understanding with the Lender with respect to
the transactions contemplated by the Transaction Documents other than as
specified in this Agreement.

 

(w)                               Acknowledgment
Regarding Lender’s Purchase of Securities. The Borrower acknowledges and
agrees that the Lender is acting solely in the capacity of an arm’s length
lender with respect to the Transaction Documents and the transactions
contemplated hereby. The Borrower further acknowledges that the Lender is not
acting as a financial advisor or fiduciary of the Borrower (or in any similar
capacity) with respect to the Transaction Documents and the transactions
contemplated hereby and any advice given by the Lender or any of its
representatives or agents in connection with the Transaction Documents and the
transactions contemplated hereby is merely incidental to the Lender’s purchase
of the Securities. The Borrower further represents to the Lender that the
Borrower’s decision to enter into this Agreement has been based solely on the
independent evaluation by the Borrower and its representatives.

 

3.2.                              Representations and
Warranties of the Lender.  The
Lender hereby  represents and warrants
to the Borrower as follows:

 

(a)                                  Organization;
Authority.  The Lender is an entity
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, with the requisite power and authority to
enter into and to consummate the transactions contemplated by the applicable
Transaction Documents and otherwise to carry out its obligations thereunder.   This Agreement and the Registration Rights
Agreement have been duly executed by the Lender, and when delivered by the
Lender in accordance with terms hereof, will constitute the valid and legally
binding obligation of the Lender, enforceable against it in accordance with its
terms.

 

(b)                                 Investment
Intent.  The Lender is acquiring the
Securities as principal for its own account for investment purposes only and
not with a view to or for distributing or reselling such Securities or any part
thereof, without prejudice, however, to the Lender’s right at all times to sell
or otherwise dispose of all or any part of such Securities in compliance with
applicable federal and state securities laws. 
Subject to the immediately preceding sentence, nothing contained herein
shall be deemed a representation or warranty by the Lender to hold the
Securities for any period of time.  The
Lender is acquiring the Securities hereunder in the ordinary course of its
business. The Lender does not have any agreement or understanding, directly or
indirectly, with any Person to distribute any of the Securities.

 

(c)                                  Lender
Status.  At the time the Lender was
offered the Securities, Lender was, and at the date hereof and as of the
Closing Date and the Additional Closing Date (if any), Lender is, and on each
date on which it exercises the Warrant Lender will be, an “accredited

 

11

 

investor” as defined in Rule 501(a) under the
Securities Act.  The Lender is not a
registered broker-dealer under Section 15 of the Exchange Act.

 

(d)                                 General
Solicitation.  The Lender is not
purchasing the Securities as a result of any advertisement, article, notice or
other communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at
any seminar or any other general solicitation or general advertisement.

 

(e)                                  Access
to Information.  The Lender
acknowledges that it has been afforded (i) the opportunity to ask such
questions as Lender has deemed necessary of, and to receive answers from,
representatives of the Borrower concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Borrower and the Subsidiaries
and their respective financial condition, results of operations, business,
properties, management and prospects sufficient to enable it to evaluate Lender
investment; and (iii) the opportunity to obtain such additional information
that the Borrower possesses or can acquire without unreasonable effort or
expense that is necessary to make an informed investment decision with respect
to the investment.  Neither such
inquiries nor any other investigation conducted by or on behalf of the Lender
or its representatives or counsel shall modify, amend or affect the Lender’s
right to rely on the truth, accuracy and completeness of the Disclosure
Materials and the Borrower’s representations and warranties contained in the
Transaction Documents.

 

(f)                                    No
Short Positions.  The Lender does
not, as of the Closing Date, have any open short positions (either directly or
through an affiliate) with respect to the Common Stock.  

 

The Borrower
acknowledges and agrees that the Lender does not make or has not made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.

 

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1.                              (a)                                  Securities may only
be disposed of in compliance with state and federal securities laws.  In connection with any transfer of the
Securities other than pursuant to an effective registration statement, to the
Borrower, to an Affiliate of the Lender or in connection with a pledge as
contemplated in Section 4.1(b), the Borrower may require the transferor thereof
to provide to the Borrower an opinion of counsel selected by the transferor,
the form and substance of which opinion shall be reasonably satisfactory to the
Borrower, to the effect that such transfer does not require registration of
such transferred Securities under the Securities Act.

 

(b)                                 Certificates
evidencing the Securities will contain the following legend, so long as is
required by this Section 4.1(b) or Section 4.1(c):

 

12

 

[NEITHER THESE
SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION/EXERCISE OF THESE
SECURITIES HAVE BEEN REGISTERED] [THESE SECURITIES HAVE NOT BEEN
REGISTERED]WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
BORROWER.  [THESE SECURITIES AND THE
SECURITIES ISSUABLE UPON CONVERSION/EXERCISE OF THESE SECURITIES] [THESE
SECURITIES] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
SECURED BY SUCH SECURITIES.

 

4.2.                              Furnishing of
Information.    As long as the
Lender owns the Securities issued or issuable to it, the Borrower covenants to
use its best efforts to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed
by the Borrower after the date hereof pursuant to the Exchange Act. Upon the
request of any such Person, the Borrower shall deliver to such Person a written
certification of a duly authorized officer as to whether it has complied with
the preceding sentence.  As long as the
Lender owns Securities, if the Borrower is not required to file reports
pursuant to such laws, it will prepare and furnish to the Lender and make
publicly available in accordance with Rule 144(c) such information as is
required for the Lender to sell the Underlying Shares under Rule 144. The
Borrower further covenants that it will take such further action as any holder
of Securities may reasonably request, all to the extent required from time to
time to enable such Person to sell such Underlying Shares without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144.

 

4.3.                              Acknowledgment of
Dilution.    The Borrower acknowledges
that the issuance of the Securities (including the Underlying Shares) will
result in dilution of the outstanding shares of Common Stock, which dilution
may be substantial. The Borrower further acknowledges that its obligations
under the Transaction Documents, including without limitation its obligation to
issue the Securities (including the Underlying Shares) pursuant to the
Transaction Documents, are unconditional and absolute and not subject to any
right of set off, counterclaim, delay or reduction, regardless of the effect of
any such dilution or any claim that the Borrower may have against the Lender.

 

4.4.                              Reservation of Shares.  The Borrower shall maintain a reserve from
its duly authorized shares of Common Stock to comply with its conversion and
exercise obligations under the Debentures and Warrant pursuant to the
Transaction Documents.  If on any date
the Borrower would be, if notice of exercise or conversion were to be delivered
on such date, precluded from issuing the number of Underlying Shares, as the
case may be, issuable upon exercise in full of all of the Warrant and issuable
upon conversion in full of the Debentures due

 

13

 

to the unavailability of a sufficient number
of authorized but unissued or reserved shares of Common Stock, then upon
Lender’s request the Board of Directors of the Borrower shall promptly prepare
and mail to the stockholders of the Borrower proxy materials or other
applicable materials requesting authorization to amend the Borrower’s
certificate of incorporation or other organizational document to increase the
number of shares of Common Stock which the Borrower is authorized to issue so
as to provide enough shares for issuance of the Underlying Shares.  In connection therewith, the Board of
Directors shall (a) adopt proper resolutions authorizing such increase, (b)
recommend to and otherwise use its best efforts to promptly and duly obtain
stockholder approval to carry out such resolutions and (c) file an appropriate
amendment to the Borrower’s certificate of incorporation or other
organizational document to evidence such increase.

 

4.5.                              Conversion and
Exercise Procedures.    The form of
Exercise Notice included in the Warrant and the form of Conversion Notice
included in the Debentures set forth the totality of the procedures required by
the Lender in order to exercise the Warrant or convert the Debentures. No
additional legal opinion or other information or instructions shall be
necessary to enable the Lender to exercise its Warrant or convert their
Debenture. The Borrower shall honor exercise of the Warrant and conversion of
the Debenture and shall deliver Underlying Shares in accordance with the terms,
conditions and time periods set forth in the Transaction Documents.

 

4.6.                              Indemnification of
Lender.  In addition to the
indemnity provided in the Registration Rights Agreement, the Borrower will
indemnify and hold the Lender harmless from any and all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses, including all
judgments, amounts paid in settlements, court costs and reasonable attorneys’
fees and costs of investigation (collectively, “Losses”) that the Lender may suffer or incur as a result of
or relating to any misrepresentation, breach or inaccuracy of any
representation, warranty, covenant or agreement made by the Borrower in any
Transaction Document.  In addition to
the indemnity contained herein, the Borrower will reimburse the Lender for Lender’s
reasonable legal and other expenses (including the cost of any investigation,
preparation and travel in connection therewith) incurred in connection
therewith, as such expenses are incurred.

 

4.7.                              Use of Proceeds.  The Borrower shall use the net proceeds from
the sale of the Securities hereunder for working capital purposes and not to
redeem any Common Stock or Common Stock Equivalents.

 

ARTICLE V.

NEGATIVE COVENANTS

 

The Borrower covenants and agrees that from
and after the Closing Date and so long as any there remains any outstanding principal
amount under the Debentures, the Borrower shall not, and shall not permit its
Subsidiaries to, without the prior written consent of the Lender in each
instance:

 

5.1.                              Liens.  Create, incur or assume any Lien on any
property or assets (including, without limitation, the Collateral and including
stock or other securities of any Person, including

 

14

 

any Subsidiary), tangible or intangible, now
owned or hereafter acquired, or agree or become liable to do so,  except Permitted Liens (as defined in the
Security Agreement).

 

5.2.                              Dispositions of Assets
or Subsidiaries.  Except pursuant to
Section 13 of the Security Agreements and Section 11(c) of the Debentures,
sell, convey, assign, lease, abandon or otherwise transfer or dispose of,
voluntarily or involuntarily, any of its properties or assets, tangible or
intangible (including any spin-offs of any divisions, lines of business or
subsidiaries and also including sale, assignment, discount or other disposition
of accounts, contract rights, chattel paper, equipment or general intangibles
with or without recourse or of capital stock, shares of beneficial interest,
partnership interests or limited liability Borrower interests of a Subsidiary
of the Borrower), except:

 

(a)                                  transactions
involving the sale of inventory or upgrade or exchange of machinery, in either
case, in the ordinary course of business and for usual and ordinary prices;

 

(b)                                 any
sale, transfer or lease of assets by any wholly owned Subsidiary to the
Borrower or another Subsidiary;

 

(c)                                  any
sale, transfer or lease of assets in the ordinary course of business which are
replaced by substitute assets acquired or leased;

 

(d)                                 any
Permitted Transfer (as defined in the Debentures); or

 

(e)                                  any
sale, transfer or lease of assets, other than those specifically excepted
pursuant to clauses (a) through (d) above, the fair market value of which does
not exceed $100,000 in the aggregate during the term of this Agreement.

 

5.3.                              Dividends and other
Payments.  Declare or distribute any
dividends or any other payments or distributions of cash or other property to
its stockholders or officers or directors (other than in compliance with
existing Borrower stock option plans and salaries in the ordinary course of
business) with respect to its capital stock.

 

ARTICLE VI.

CONDITIONS

 

6.1.                              Conditions Precedent
to the Obligations of the Lender to Purchase Securities on the Closing Date.    The obligation of the Lender to acquire
Securities at the Closing is subject to the satisfaction or waiver by the
Lender, at or before the Closing, of each of the following conditions:

 

(a)                                  Representations
and Warranties.    The
representations and warranties of the Borrower contained herein shall be true
and correct in all material respects as of the date when made and as of the
Closing as though made on and as of such date;

 

(b)                                 Performance.    The Borrower shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by the

 

15

 

Transaction Documents to be performed,
satisfied or complied with by it at or prior to the Closing; and

 

(c)                                  No
Injunction.    No statute, rule,
regulation, executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction that prohibits the consummation of any of
the transactions contemplated by the Transaction Documents.

 

6.2.                              Conditions Precedent
to the Obligations of the Borrower to sell Securities on the Closing Date.    The obligation of the Borrower to sell
Securities at the Closing is subject to the satisfaction or waiver by the
Borrower, at or before the Closing, of each of the following conditions:

 

(a)                                  Representations
and Warranties.    The
representations and warranties of the Lender contained herein shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made on and as of such date;

 

(b)                                 Performance.    The Lender shall have performed, satisfied
and complied in all material respects with all covenants, agreements and
conditions required by the Transaction Documents to be performed, satisfied or
complied with by the Lender at or prior to the Closing; and

 

(c)                                  No
Injunction.    No statute, rule,
regulation, executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction that prohibits the consummation of any of
the transactions contemplated by the Transaction Documents.

 

ARTICLE VII.

MISCELLANEOUS

 

7.1.                              Termination.    This Agreement may be terminated by the
Borrower or any Lender, by written notice to the other parties, if the Closing
has not been consummated by the 20th Trading Day following the date of this
Agreement; provided that no such termination will affect the right of
any party to sue for any breach by the other party (or parties).

 

7.2.                              Fees and Expenses.    Except as specified in the Registration
Rights Agreement, each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other expenses incurred
by such party incident to the negotiation, preparation, execution, delivery and
performance of the Transaction Documents. 
The Borrower shall pay all stamp and other taxes and duties levied in
connection with the sale of the Securities.

 

7.3.                              Entire Agreement.    The Transaction Documents, together with
the Exhibits and Schedules thereto, contain the entire understanding of the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters,
which the parties acknowledge have been merged into such documents, exhibits
and schedules. At or after the Closing, and without further consideration, the
Borrower will execute and deliver to the Lender such further documents as may
be reasonably requested in order to give practical effect to the intention of the
parties under the Transaction Documents.

 

16

 

7.4.                              Notices.    Any and all notices or other
communications or deliveries required or permitted to be provided hereunder
shall be in writing and shall be deemed given and effective on the earliest of
(a) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section prior to 5:00 p.m.
(California time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Trading Day
or later than 5:00 p.m. (California time) on any Trading Day, (c) the Trading
Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party to whom such
notice is required to be given.  The
address for such notices and communications shall be as follows:

 

	
  If to the
  Borrower:

  	
   

  	
  Aerogen,
  Inc.

  
	
   

  	
   

  	
  2071
  Stierlin Court

  
	
   

  	
   

  	
  Mountain
  View, CA 94043

  
	
   

  	
   

  	
  Facsimile
  No.: (650) 864-7433

  
	
   

  	
   

  	
  Attn: Chief
  Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  With a copy
  to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Cooley
  Godward LLP

  
	
   

  	
   

  	
  Five Palo
  Alto Square

  
	
   

  	
   

  	
  3000 El
  Camino Real

  
	
   

  	
   

  	
  Palo Alto,
  CA 94306

  
	
   

  	
   

  	
  Facsimile
  No.: (650) 849-7400

  
	
   

  	
   

  	
  Attn: Robert
  J. Brigham, Esq.

  
	
   

  	
   

  	
   

  
	
  If to the
  Lender:

  	
   

  	
  To the
  address set forth under the Lender’s name on the signature pages attached
  hereto.

  

 

or such other
address as may be designated in writing hereafter, in the same manner, by such
Person.

 

7.5.                              Amendments; Waivers.    No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by the Borrower and the Lender or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver
of any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.

 

7.6.                              Construction.    The headings herein are for convenience
only, do not constitute a part of this Agreement and shall not be deemed to
limit or affect any of the provisions hereof. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied
against any party.  This Agreement shall
be construed as if drafted jointly by the parties, and no presumption or

 

17

 

burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement or any of the Transaction Documents.

 

7.7.                              Successors and Assigns.    This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Borrower may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Lender. The Lender may
assign its rights under this Agreement to any Person to whom the Lender assigns
or transfers any Securities.

 

7.8.                              No Third-Party
Beneficiaries.    This Agreement is
intended for the benefit of the parties hereto and their respective successors
and permitted assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other Person.

 

7.9.                              Governing Law.  All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
California, without regard to the principles of conflicts of law thereof.  Each party agrees that all Proceedings
concerning the interpretations, enforcement and defense of the transactions
contemplated by this Agreement and any other Transaction Documents (whether
brought against a party hereto or its respective Affiliates, employees or
agents) shall be commenced exclusively in the state and federal courts sitting
in the Northern District of California (the “California Courts”). 
Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the California Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of the any of
the Transaction Documents), and hereby irrevocably waives, and agrees not to
assert in any Proceeding, any claim that it is not personally subject to the
jurisdiction of any such California Court, or that such Proceeding has been
commenced in an improper or inconvenient forum.  Each party hereto hereby irrevocably waives personal service of
process and consents to process being served in any such Proceeding by mailing
a copy thereof via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law.  Each party hereto hereby irrevocably waives,
to the fullest extent permitted by applicable law, any and all right to trial
by jury in any legal proceeding arising out of or relating to this Agreement or
the transactions contemplated hereby. 
If either party shall commence a Proceeding to enforce any provisions of
a Transaction Document, then the prevailing party in such Proceeding shall be
reimbursed by the other party for its attorney’s fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such
Proceeding.

 

7.10.                        Survival.    The representations, warranties,
agreements and covenants contained herein shall survive the Closing and the
Additional Closing (if any) and the delivery, exercise and/or conversion of the
Securities, as applicable.

 

7.11.                        Execution.    This Agreement may be executed in two or
more counterparts, all of which when taken together shall be considered one and
the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party, it

 

18

 

being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile
signature page were an original thereof.

 

7.12.                        Severability.    If any provision of this Agreement is held
to be invalid or unenforceable in any respect, the validity and enforceability
of the remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefore, and upon
so agreeing, shall incorporate such substitute provision in this Agreement.

 

7.13.                        Rescission and Withdrawal
Right.    Notwithstanding anything
to the contrary contained in (and without limiting any similar provisions of)
the Transaction Documents, whenever the Lender exercises a right, election,
demand or option under a Transaction Document and the Borrower does not timely
perform its related obligations within the periods therein provided, then the
Lender may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Borrower, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights.

 

7.14.                        Replacement of Securities.    If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Borrower
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefore, a new
certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Borrower of such loss, theft or destruction and customary
and reasonable indemnity, if requested. The applicants for a new certificate or
instrument under such circumstances shall also pay any reasonable third-party
costs associated with the issuance of such replacement Securities.

 

7.15.                        Remedies.    In addition to being entitled to exercise
all rights provided herein or granted by law, including recovery of damages,
the Lender and the Borrower will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
described in the foregoing sentence and hereby agrees to waive in any action
for specific performance of any such obligation the defense that a remedy at
law would be adequate.

 

7.16.                        Payment Set Aside.   To the extent that the Borrower makes a
payment or payments to the Lender pursuant to any Transaction Document or the
Lender enforces or exercises its rights thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside, recovered from, disgorged by or are required to be refunded, repaid or
otherwise restored to the Borrower, a trustee, receiver or any other person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of
any such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.

 

19

 

7.17.                        Adjustments in Share Numbers
and Prices.    In the event of any
stock split, subdivision, dividend or distribution payable in shares of Common
Stock (or other securities or rights convertible into, or entitling the holder
thereof to receive directly or indirectly shares of Common Stock), combination
or other similar recapitalization or event occurring after the date hereof,
each reference in this Agreement to a number of shares or a price per share
shall be amended to appropriately account for such event.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK 

SIGNATURE PAGES FOLLOW]

 

20

 

IN WITNESS
WHEREOF, the parties hereto have caused this Loan and Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

 

	
  AEROGEN, INC.

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Robert S. Breuil

  	
   

  
	
   

  	
  Name: Robert
  S. Breuil

  
	
   

  	
  Title: Chief
  Financial Officer

  

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE OF LENDER FOLLOW]

 

21

 

	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  Carpenter 1983 Family Trust UA

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jane E. Shaw

  	
   

  
	
   

  	
   

  	
  Name: Jane E. Shaw, Ph.D., Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Peter F. Carpenter

  	
   

  
	
   

  	
   

  	
  Name: Peter F. Carpenter, Trustee

  

 

22

 

Exhibit F

 

SECURITY AGREEMENT

 

SECURITY AGREEMENT (the “Agreement”), dated as of January 23,
2004, among Aerogen, Inc., a Delaware corporation (the “Borrower”), and
the lenders signatory hereto (each lender including their respective
successors, endorsees, transferees and assigns, a “Secured Party”, and
collectively, the “Secured Parties”).

 

W  I  T  N  E  S
S  E  T  H:

 

WHEREAS, pursuant to the Loan and Securities
Purchase Agreement (“Loan Agreement”), dated the date hereof between the
Borrower and the parties thereto, the Secured Parties have agreed to extend
certain loans to the Borrower which shall be evidenced by the issuance on one
or more occasions to such Secured Parties of the Borrower’s Secured Convertible
Debentures, due March 1, 2004 in the aggregate principal amount of up to $500,000
(the “Debentures”).

 

WHEREAS, in order to induce the Secured
Parties to enter into the contemplated transactions, the Borrower has agreed to
execute and deliver to the Secured Parties this Agreement for the benefit of
the Secured Parties and a separate agreement granting to them a first priority
security interest in the Collateral (as defined herein), to secure the prompt
payment, performance and discharge in full of all of the Borrower’s obligations
under this Agreement and the Debentures.

 

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

 

1.                                       Certain Definitions.  As used in this Agreement, the following
terms shall have the meanings set forth in this Section 1.  Terms used but not otherwise defined in this
Agreement that are defined in Article 9 of the UCC (such as “general
intangibles” and “proceeds”) shall have the respective meanings
given such terms in Article 9 of the UCC.

 

(a)                                  “Agent”
means Jane E. Shaw, Ph.D., an individual, as agent for each of the Secured
Parties pursuant to this Agreement, or such other Person as shall have been
subsequently appointed as a successor agent pursuant to this Agreement.

 

(b)                                 “Collateral”
means the collateral in which the Secured Parties are granted a security
interest by this Agreement and which shall include the following, whether
presently owned or existing or hereafter acquired or coming into existence, and
all additions and accessions thereto and all substitutions and replacements
thereof, and all proceeds, products and accounts thereof, including, without
limitation, all proceeds from the sale or transfer of the Collateral and of
insurance covering the same and of any tort claims in connection therewith:

 

(i)                                     All
Goods of the Borrower, including, without limitations, all machinery,
equipment, computers, motor vehicles, trucks, tanks, boats, ships,

 

 

appliances,
furniture, special and general tools, fixtures, test and quality control
devices and other equipment of every kind and nature and wherever situated,
together with all documents of title and documents representing the same, all
additions and accessions thereto, replacements therefor, all parts therefor,
and all substitutes for any of the foregoing and all other items used and
useful in connection with the Borrower’s businesses and all improvements
thereto (collectively, the “Equipment”); and

 

(ii)                                  All
Inventory of the Borrower; and

 

(iii)                               All
of the Borrower’s contract rights and general intangibles, including, without
limitation, all partnership interests, stock or other securities, licenses,
distribution and other agreements, computer software development rights,
leases, franchises, customer lists, quality control procedures, grants and
rights, goodwill, trademarks, service marks, trade styles, trade names,
patents, patent applications, copyrights, deposit accounts, and income tax
refunds (collectively, the “General Intangibles”); and

 

(iv)                              All
Receivables of the Borrower including all insurance proceeds, and rights to
refunds or indemnification whatsoever owing, together with all instruments, all
documents of title representing any of the foregoing, all rights in any
merchandising, goods, equipment, motor vehicles and trucks which any of the
same may represent, and all right, title, security and guaranties with respect
to each Receivable, including any right of stoppage in transit; and

 

(v)                                 All
of the Borrower’s documents, instruments and chattel paper, files, records,
books of account, business papers, computer programs and the products and
proceeds of all of the foregoing Collateral set forth in clauses (i)-(iv)
above.

 

Notwithstanding anything to the contrary in the foregoing, at the time
of closing of the MIA transaction, the term “Collateral” shall no longer
include the Equipment needed to manufacture/assemble the OnQ Aerosol Generator,
as specifically set forth on Schedule B hereto, all of which are to be
conveyed pursuant to Borrower’s agreement with Medical Industries America, Inc.
consistent with the term sheet signed on August 15, 2003 (collectively, the “MIA
Assets”).

 

Notwithstanding anything to the
contrary in the foregoing, the
grant of a security interest as provided herein shall not extend to, and the
term “Collateral” shall not
include: to the extent such exclusion does not result in a Material Adverse
Effect (as defined in the Loan Agreement), any immaterial Contract, Instrument
or Chattel Paper in which the Borrower has any right, title or interest if and
to the extent such Contract, Instrument or Chattel Paper includes a provision
containing a restriction on assignment such that the creation of a security
interest in the right, title or interest of the Borrower therein would be
prohibited and would, in and of itself, cause or result in a default thereunder
enabling another person party to such Contract, Instrument or Chattel Paper to
enforce any remedy with respect thereto.

 

2

 

(c)                                  “Obligations”
means all of the Borrower’s obligations under this Agreement and the
Debentures, in each case, whether now or hereafter existing, voluntary or
involuntary, direct or indirect, absolute or contingent, liquidated or
unliquidated, whether or not jointly owed with others, and whether or not from
time to time decreased or extinguished and later increased, created or
incurred, as such obligations may be amended, supplemented, converted, extended
or modified from time to time pursuant to the terms of this Agreements or the
Debentures, as applicable.

 

(d)                                 “Permitted
Indebtedness” means:

 

(i)                                     Indebtedness
of Borrower in favor of the Secured Parties arising under this Agreement or any
other Transaction Document;

 

(ii)                                  Existing
Indebtedness of the Borrower owing to SF Capital Partners, LTD. (“SF Capital”)
pursuant to that certain Loan and Securities Purchase Agreement, dated as of
September 5, 2003, between the Borrower and SF Capital (“SF Capital Loan
Agreement”), as evidenced by that certain Secured Convertible Debentures, due
December 31, 2003, issued by the Borrower in favor of SF Capital in the
aggregate principal amount of up to $2,000,000, and the other Transaction  Documents (as defined in the SF Capital Loan Agreement);

 

(iii)                               Existing
Indebtedness as set forth in the Borrower’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2002 (including any extensions or renewals
thereof, provided, there is no increase in the principal amount thereof
or other significant change in the terms thereof);

 

(iv)                              Subordinated
debt in an aggregate principal amount which does not exceed $1,000,000, provided,
that it shall be a precondition of the Lenders’ consent to such debt that the
Borrower and the lender thereunder agree to make the repayment of such debt
subject to subordination provisions including, without limitation, stand-still
provisions, acceptable to the Lenders in their sole discretion;

 

(v)                                 Indebtedness
evidenced by Capital Lease Obligations;

 

(vi)                              Incursion
or payment of trade payables, licensing fees and bonds to secure work
contracts, in each case, incurred or paid in the ordinary course of business;
or

 

(vii)                           Indebtedness
of the Borrower with respect to letter of credit issued by Silicon Valley Bank
in favor of the Borrower’s landlord and described on Schedule A hereto.

 

(c)                                  “Permitted
Liens” means the following:

 

(i)                                     Any
liens existing on the date hereof, including but not limited to any liens of SF
Capital, and liens in favor of the Secured Parties;

 

3

 

(ii)                                  liens
for taxes, fees, assessments or other governmental charges or levies, either
not delinquent or being contested in good faith by appropriate proceedings and
for which Borrower maintains adequate reserves;

 

(iii)                               liens
(i) upon or in any Equipment or software acquired or held by Borrower or
any Subsidiary to secure the purchase price of such Equipment or software or
indebtedness incurred solely for the purpose of financing the acquisition of
such Equipment or software, including the financing of the costs of shipping,
taxes and installation, or (ii) existing on such Equipment or software at
the time of its acquisition, provided, in each case, that the lien is confined
solely to the property so acquired and improvements thereon, and the proceeds
of such Equipment or software;

 

(iv)                              liens
to secure payment of workers’ compensation, employment insurance, old age
pensions, social security or other like obligations incurred in the ordinary
course of business;

 

(v)                                 liens
incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by liens of the type described in clauses (i) through
(iii) above, provided that any extension, renewal or replacement lien shall be
limited to the property encumbered by the existing lien and the principal
amount of the indebtedness being extended, renewed or refinanced does not
increase;

 

(vi)                              carriers’,
warehousemen’s, mechanic’s, materialmen’s, repairmen’s or other like liens
arising in the ordinary course of business and securing obligations that are
not due and payable or which are being contested in good faith for which
adequate reserves have been established; or

 

(vii)                           pledges
and deposits made in the ordinary course of business in compliance with
workmen’s compensation, unemployment insurance and other social security laws
or regulations.

 

(f)                                    “Permitted
Transfer” means any conveyance, sale, lease, transfer, license or
disposition by Borrower of:

 

(i)                                     inventory
or upgrade or exchange of machinery, in either case, in the ordinary course of
business and for usual and ordinary prices;

 

(ii)                                  any
assets in the ordinary course of business which are replaced by substitute
assets acquired or leased; or

 

(iii)                               licenses
and similar arrangements for the use of the property of Borrower in the
ordinary course of business;

 

(iv)                              any
assets for fair market value with prior written consent of the Secured Parties,
not to be unreasonably withheld; or

 

(v)                                 the
MIA Assets pursuant to the terms of the MIA term sheet described in Section 6.3(f)
of the Loan Agreement.

 

4

 

(g)                                 “UCC”
means the Uniform Commercial Code and/or any other applicable law of each
jurisdiction in which the Borrower is incorporated or organized (including,
without limitation the State of Delaware and the State of California) and any
jurisdiction as to any Collateral located therein.

 

2.                                       Grant of
Security Interest. 
As an inducement for the Secured Parties to enter into the contemplated
transactions and to secure the complete and timely payment, performance and
discharge in full, as the case may be, of all of the Obligations, the Borrower hereby, unconditionally and irrevocably, pledges, grants and
hypothecates to the Secured Parties, a continuing security interest in, and a
lien upon and a right of
set-off against all of the Borrower’s right, title and
interest of whatsoever kind and nature in and to the Collateral
(the “Security Interest”).

 

3.                                       Representations, Warranties, Covenants and Agreements of the Borrower.  The Borrower represents and
warrants to, and covenants and agrees with, each of the Secured Parties as
follows:

 

(a)                                  The
Borrower has the requisite corporate power and authority to enter into this
Agreement and to otherwise carry out its obligations thereunder.  The execution, delivery and performance by
the Borrower of this Agreement and the filings contemplated therein have been
duly authorized by all necessary action on the part of the Borrower and no
further action is required by the Borrower.

 

(b)                                 Except
for the Security Interest granted hereunder and Permitted Liens, the Borrower
is the sole owner of its rights in the Collateral, free and clear of any liens,
security interests or encumbrances, and is fully authorized to grant the
Security Interest in and to pledge the Collateral.  There is not on file in any governmental or regulatory authority,
agency or recording office an effective financing statement, security agreement
or transfer or any notice of any of the foregoing (other than those that have
been filed in favor of the Secured Parties pursuant to this Agreement or in
connection with Permitted Liens) covering or affecting any of the
Collateral.  So long as this Agreement
shall be in effect, the Borrower shall not execute and shall not authorize the
filing of in any such office or agency any such financing statement or other
document or instrument (except to the extent filed or recorded in favor of the
Secured Parties pursuant to the terms of this Agreement or in connection with
Permitted Liens) without the consent of the Secured Parties.

 

(c)                                  The
Borrower represents and warrants that it has no place of business or offices
where its respective books of account and records are kept (other than
temporarily at the offices of its attorneys or accountants) or places where
Collateral is stored or located, except as set forth on Schedule A
attached hereto.

 

(d)                                 Borrower
has no knowledge of any claim that any of the Collateral or the Borrower’s use
of any Collateral violates the rights of any third party.  There has been no adverse decision of which
the Borrower is aware as to the Borrower’s exclusive (or nonexclusive, as the
case may be) rights to use the Collateral in any jurisdiction, and, to the
knowledge of the Borrower there is no proceeding involving said rights pending
or threatened

 

5

 

before any court, judicial body,
administrative or regulatory agency, arbitrator or other governmental
authority.

 

(e)                                  The
Borrower shall at all times maintain its books of account and records relating
to the Collateral at its principal place of business and its Collateral at the
locations set forth on Schedule A attached hereto and may not relocate
such books of account and records unless it delivers to each of the Secured
Parties at least 30 days prior to such relocation (i) written notice of such
relocation and the new location thereof (which must be within the United
States) and (ii) evidence that appropriate financing statements and other
necessary documents have been filed and recorded and other steps have been
taken to perfect the Security Interest to create in favor of each of the
Secured Parties a valid, perfected and continuing first priority lien in the
Collateral, subject to Permitted Liens.

 

(f)                                    This
Agreement creates in favor of each of the Secured Parties a valid security
interest in the Collateral, securing the payment and satisfaction of the
Obligations, and, upon making the filings described in the immediately
following sentence, a perfected security interest in such Collateral that is
senior to all hereinafter created security interests, other than Permitted
Liens.  Except for the filing of
financing statements on Form UCC-1 under the UCC with the jurisdictions
indicated in Schedule A, attached hereto, and registration of
Security Interest in Copyrights with the Register of Copyrights at the United
States Copyright Office and, as to the Borrower’s foreign intellectual
property, making other filings as may be required under the applicable foreign
jurisdictions, no authorization or approval of or filing with or notice to any
governmental authority or regulatory body is required either: (i) for the grant
by the Borrower of, or the effectiveness of, the Security Interest granted
hereby or for the execution, delivery and performance of this Agreement by the
Borrower or (ii) for the perfection of or exercise by the Secured Parties of
its rights and remedies hereunder.

 

(g)                                 On
the date of execution of this Agreement, the Borrower authorizes each Secured
Party to file one or more financing statements under the UCC with respect to
the Security Interest for filing with the jurisdictions indicated on Schedule A,
attached hereto and in such other jurisdictions as the Secured Parties deem
necessary.

 

(h)                                 The
execution, delivery and performance of this Agreement does not conflict with or
cause a breach or default, or an event that with or without the passage of time
or notice, shall constitute a breach or default, under any agreement to which
the Borrower is a party or by which the Borrower is bound.  No consent (including, without limitation,
from stock holders or creditors of the Borrower) is required for the Borrower
to enter into and perform its obligations hereunder, other than consents already
obtained by the Borrower.

 

(i)                                     The
Borrower shall at all times maintain the liens and Security Interest provided
for hereunder as valid and perfected liens and security interests in the
Collateral (subject to Permitted Liens) in favor of each of the Secured Parties
and insure that such liens and Security Interests are and remain senior to all
not existing and hereafter created security interests and liens, other than
Permitted Liens.  The Borrower shall
safeguard and protect all Collateral. 
The Borrower hereby agrees to defend the same against any and all
persons.  At the request of the Agent
and/or Secured Parties, the Borrower will sign and deliver to the Secured
Parties at any time or from time to time one or more financing statements
pursuant to the UCC in form

 

6

 

reasonably satisfactory to the Secured
Parties and will pay the cost of filing the same in all public offices wherever
filing is, or is deemed by the Secured Parties to be, necessary to effect the
rights and obligations provided for herein. Without limiting the generality of
the foregoing, the Borrower shall pay all fees, taxes and other amounts
necessary to maintain the Security Interest hereunder, and the Borrower shall
obtain and furnish to the Secured Parties from time to time, upon demand, such
releases and/or subordinations of claims and liens which may be required to
maintain the priority of the Security Interest hereunder.

 

(j)                                     The
Borrower will not allow any material Collateral to be abandoned, forfeited or
dedicated to the public without the prior written consent of the Secured
Parties.  Except pursuant to Section 13
hereof and other than Permitted Transfers, the Borrower will not transfer,
pledge, hypothecate, encumber, license, sell or otherwise dispose of any of the
Collateral without the prior written consent of the Secured Parties.

 

(k)                                  The
Borrower shall keep and preserve its Equipment, Inventory and other tangible
Collateral in good condition, repair and order, and shall not knowingly operate
or locate any such Collateral (or cause to be operated or located) in any area
excluded from insurance coverage, unless, in each case, where the failure to
comply with the foregoing provisions does not result in an adverse effect on
the value of the Collateral or on the Secured Parties’ security interest
therein.

 

(l)                                     The
Borrower shall, within ten (10) days of obtaining knowledge thereof, advise the
Agent, in sufficient detail, of any substantial change in the Collateral, and
of the occurrence of any event which would have a material adverse effect on
the value of the Collateral or on the Secured Parties’ security interest
therein.

 

(m)                               The
Borrower shall promptly execute and deliver to the Secured Party such further
deeds, mortgages, assignments, security agreements, financing statements or
other instruments, documents, certificates and assurances and take such further
action as necessary to perfect, protect or enforce its security interest in the
Collateral including, without limitation, at Secured Party’s request, the
execution and delivery of a separate security agreement with respect to the
Borrower’s intellectual property (“Intellectual Property Security Agreement”)
in which the Secured Party has been granted a security interest hereunder,
substantially in a form acceptable to the Secured Party, which Intellectual
Property Security Agreement, other than as stated therein, shall be subject to
all of the terms and conditions hereof.

 

(n)                                 The
Borrower shall permit the Secured Parties and its representatives and agents
upon prior written consent and at the expense of the Secured Parties to inspect
the Collateral at any time during normal business hours, and to make copies of
records pertaining to any material item of Collateral as may be reasonably
requested by the Secured Parties from time to time.

 

(o)                                 The
Borrower will take all steps it considers reasonably necessary to diligently
pursue and seek to preserve, enforce and collect any rights, claims, causes of
action and accounts receivable in respect of the Collateral.

 

7

 

(p)                                 The
Borrower shall promptly notify the Agent in sufficient detail upon becoming
aware of any attachment, garnishment, execution or other legal process levied
against any Collateral and of any other information received by the Borrower
that reasonably would be expected to substantially affect the value of the
Collateral, the Security Interest or the rights and remedies of the Secured
Parties hereunder.

 

(q)                                 The
Borrower shall not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement  or
any applicable statute, regulation or ordinance or any policy of insurance
covering the Collateral where violation is reasonably likely to have a material
adverse effect on the Secured Parties’ rights in the Collateral or Secured
Parties’ ability to foreclose on the Collateral.

 

(r)                                    Other
than Permitted Liens, the Borrower shall not grant to any person or entity any
rights or interest in or to any of the Collateral that are senior to, or pari
passu with, the Secured Parties.

 

(s)                                  The
Borrower shall notify the Agent of any change in the Borrower’s name, identity,
chief place of business, chief executive office or residence within 30 days of
such change.

 

4.                                       Defaults.  The following events shall be
“Events of Default”:

 

(a)                                  The
occurrence of an Event of Default (as defined in the Debentures) under the
Debentures which shall not have been cured within 30 days, to the satisfaction
of the Agent;

 

(b)                                 Any
material representation or warranty of the Borrower in this Agreement or in the
Intellectual Property Security Agreement, shall prove to have been incorrect in
any material respect when made; and

 

(c)                                  The
failure by the Borrower to observe or perform any of its obligations hereunder
or, if applicable, in the Intellectual Property Security Agreement, for ten
(10) Trading Days  (as defined in the Debentures)
after receipt by the Borrower of written notice of such failure from the
Secured Parties.

 

5.                                       Duty To Hold In Trust.  Upon the occurrence and during the
continuation of any Event of Default, the Borrower shall, upon receipt by it of
any revenue, income or other sums subject to the Security Interest, or of any
check, draft, note, trade acceptance or other instrument evidencing an
obligation to pay any such sum, hold the same in trust for the Secured Parties
and shall upon request by the Secured Parties forthwith endorse and transfer
any such sums or instruments, or both, to the Secured Parties for application
to the satisfaction of the Obligations.

 

6.                                       Rights and
Remedies Upon Default. 
Upon the occurrence and during the continuation of any Event of Default,
the Agent (on behalf of, and for the benefit of itself and each Secured Party)
shall have the right to exercise all of the remedies conferred hereunder, under
the Debentures, and the Agent and the Secured Parties shall have all the rights
and 

 

8

 

remedies of a secured party under the
UCC.  Without limitation, the Secured
Parties shall have the following rights and powers upon and during the
continuance of an Event of Default:

 

(a)                                  The
Agent shall have the right to take possession of all tangible manifestations or
embodiments of the Collateral and, for that purpose, without breaching the
peace enter, with the aid and assistance of any person previously identified
to, and approved in writing by, the Borrower, any premises where the
Collateral, or any part thereof, is placed and remove the same, and the
Borrower shall assemble the Collateral and make it available to the Agent at
the Borrower’s premises.

 

(b)                                 The
Agent shall have the right to assign, sell, or otherwise dispose of and deliver
all or any part of the Collateral, at public or private sale or otherwise,
either with or without special conditions or stipulations, for cash or on
credit or for future delivery, in such parcel or parcels and at such time or
times and at such place or places, and upon such terms and conditions as the
Agent may deem commercially reasonable, all without (except as shall be
required by applicable statute and cannot be waived) advertisement or demand
upon or notice to the Borrower or right of redemption of the Borrower, which
are hereby expressly waived.  Upon each
such sale, assignment or other transfer of Collateral, the Agent may, unless
prohibited by applicable law which cannot be waived, purchase all or any part
of the Collateral being sold, free from and discharged of all trusts, claims,
right of redemption and equities of the Borrower, which are hereby waived and released.

 

(c)                                  The
Agent may sublicense or, to the same extent the Borrower is permitted by law
and contract to do so, whether on an exclusive or non-exclusive basis, any of
the Collateral throughout the world for such period, on such conditions and in
such manner as the Agent shall, in its reasonable discretion, determine.

 

(d)                                 The
Agent may (without assuming any obligations or liabilities thereunder), at any
time, enforce (and shall have the exclusive right to enforce) against licensee
or sublicensee all rights and remedies of the Borrower in, to and under any
license agreement with respect to such Collateral, and take or refrain from
taking any action thereunder.

 

(e)                                  The
Agent may, in order to implement the assignment, license, sale or other
disposition of any of the Collateral pursuant to this Section, pursuant to the
authority provided for in Section 11, execute and deliver on behalf of the
Borrower one or more instruments of assignment of the Collateral in form
suitable for filing, recording or registration in any jurisdictions as the
Secured Parties may determine advisable.

 

(f)                                    In
the event that any Secured Party shall recover from the Borrower or the
Collateral more than its pro rata share of the Obligations owed to all Secured
Parties hereunder, whether by agreement, understanding or arrangement with the
Borrower or any other Person, set off or other means, such Secured Party shall
immediately deliver or pay over to the other Secured Parties their pro rata
portion of any such recovery in the form received.

 

(g)           Agent may, at any
time or times that an Event of Default exists or has occurred and is
continuing: (i) notify any or all accounts of the Borrower (“Accounts”)
that such Accounts have been assigned to Secured Parties and that Secured
Parties have a security interest

 

9

 

therein and Agent may direct any or all accounts Borrower to make
payment of accounts directly to Secured Parties, (ii) extend the time of
payment of, compromise, settle or adjust for cash, credit, return of
merchandise or otherwise, and upon any terms or conditions, any and all
Accounts or other obligations included in the Collateral and thereby discharge
or release the account debtor or any other party or parties in any way liable for
payment thereof without affecting any of the Obligations, (iii) demand, collect
or enforce payment of any Accounts or such other obligations, but without any
duty to do so, and Agent shall not be liable for its failure to collect or
enforce the payment thereof nor for the negligence of its agents or attorneys
with respect thereto and (iv) take whatever other action Agent may deem
necessary or desirable for the protection of its interests.  

 

7.                                       Applications of Proceeds; Expenses.   (a)  The proceeds of any such sale,
sublicense or other disposition of the Collateral hereunder shall be applied
first, to the expenses of retaking, holding, storing, processing and preparing
for sale, selling, and the like (including, without limitation, any taxes, fees
and other costs incurred in connection therewith) of the Collateral, to the
reasonable attorneys’ fees and expenses incurred by the Agent and/or Secured
Parties in enforcing its rights hereunder and in connection with collecting,
storing and disposing of the Collateral, and then to satisfaction of the
Obligations, and to the payment of any other amounts required by applicable
law, after which the Secured Parties shall pay to the Borrower any surplus
proceeds.  If, upon the sale, license or
other disposition of the Collateral, the proceeds thereof are insufficient to
pay all amounts to which the Secured Parties are legally entitled, the Borrower
will be liable for the deficiency.  To
the extent permitted by applicable law, the Borrower waives all claims, damages
and demands against the Secured Parties arising out of the repossession,
removal, retention or sale of the Collateral, unless due to the gross
negligence or willful misconduct of the Agent and/or Secured Parties.

 

(b)                                 The
Borrower agree to pay all out-of-pocket fees, costs and expenses reasonably
incurred in connection with any filing required hereunder, including, without
limitation, any financing statements, continuation statements, partial releases
and/or termination statements related thereto or any expenses of any searches
reasonably required by the Agent.  The
Borrower shall also pay all other claims and charges which in the reasonable
opinion of the Agent and/or Secured Parties would reasonably be expected to
prejudice, imperil or otherwise affect the Collateral or the Security Interest
therein.  The Borrower will also, upon
demand, pay to the Agent and/or Secured Parties the amount of any and all
reasonable expenses, including the reasonable fees and expenses of its counsel
and of any experts and agents, which the Agent and/or Secured Parties may incur
in connection with the custody or preservation of, or the sale of, collection
from, or other realization upon, any of the Collateral.

 

8.                                       Responsibility for Collateral.  The Borrower assumes all
liabilities and responsibility in connection with all Collateral, and the
obligations of the Borrower hereunder or under the Debentures shall in no way
be affected or diminished by reason of the loss, destruction, damage or theft
of any of the Collateral or its unenforceability or unavailability for any
reason.

 

9.                                       Security Interest Absolute.  All rights of the Secured Parties and all
Obligations of the Borrower hereunder, shall be absolute and unconditional,
irrespective of: (a) any lack of validity or enforceability of this Agreement,
the Debentures or any agreement entered into in connection with the foregoing,
or any portion hereof or thereof; (b) any change in the time,

 

10

 

manner or place of payment or performance of,
or in any other term of, all or any of the Obligations, or any other amendment
or waiver of or any consent to any departure from the Debentures or any other
agreement entered into in connection with the foregoing; (c) any exchange,
release or nonperfection of any of the Collateral, or any release or amendment
or waiver of or consent to departure from any other collateral for, or any
guaranty, or any other security, for all or any of the Obligations; (d) any
action by the Secured Parties to obtain, adjust, settle and cancel in its sole
discretion any insurance claims or matters made or arising in connection with
the Collateral; or (e) any other circumstance which might otherwise constitute
any legal or equitable defense available to the Borrower, or a discharge of all
or any part of the Security Interest granted hereby.  Until the Obligations shall have been paid and performed in full,
the rights of the Secured Parties shall continue even if the Obligations are
barred for any reason, including, without limitation, the running of the
statute of limitations or bankruptcy. 
The Borrower expressly waives presentment, protest, notice of protest,
demand, notice of nonpayment and demand for performance. In the event that at
any time any transfer of any Collateral or any payment received by the Secured
Parties hereunder shall be deemed by final order of a court of competent
jurisdiction to have been a voidable preference or fraudulent conveyance under
the bankruptcy or insolvency laws of the United States, or shall be deemed to
be otherwise due to any party other than the Secured Parties, then, in any such
event, the Borrower’s obligations hereunder shall survive cancellation of this
Agreement, and shall not be discharged or satisfied by any prior payment
thereof and/or cancellation of this Agreement, but shall remain a valid and
binding obligation enforceable in accordance with the terms and provisions
hereof.  The Borrower waives all right
to require the Secured Parties to proceed against any other person or to apply
any Collateral which the Secured Parties may hold at any time, or to marshal
assets, or to pursue any other remedy. 
The Borrower waives any defense arising by reason of the application of
the statute of limitations to any obligation secured hereby.

 

10.                                 Term of Agreement.  This Agreement and the Security Interest
shall terminate on the date on which all payments under the Debentures have
been made in full or otherwise converted pursuant to the terms thereof and all
other Obligations have been paid or discharged in full.  Upon such termination, the Secured Parties,
at the request and at the expense of the Borrower, will join in executing any
termination statement and other filings with respect to any financing statement
executed and filed pursuant to this Agreement or required for evidencing
termination of the Security Interest or this Agreement.

 

11.                                 Power of Attorney; Further Assurances.  (a)  The Borrower
authorizes the Secured Parties, and does hereby make, constitute and appoint
it, and its respective officers, agents, successors or assigns with full power
of substitution, as the Borrower’s true and lawful attorney-in-fact, with
power, in its own name or in the name of the Borrower, to, after the occurrence
and during the continuance of an Event of Default, (i) endorse any notes,
checks, drafts, money orders, or other instruments of payment (including
payments payable under or in respect of any policy of insurance) in respect of
the Collateral that may come into possession of the Secured Parties; (ii) to
sign and endorse any UCC financing statement or any invoice, freight or express
bill, bill of lading, storage or warehouse receipts, drafts against Borrower,
assignments, verifications and notices in connection with accounts, and other
documents relating to the Collateral; (iii) to pay or discharge taxes, liens,
security interests or other encumbrances at any time levied or placed on or
threatened against the Collateral; (iv) to demand, collect, receipt

 

11

 

for, compromise, settle and sue for monies
due in respect of the Collateral; and (v) generally, to do, at the option of
the Secured Parties, and at the Borrower’s expense, at any time, or from time
to time, all acts and things which the Secured Parties deem necessary to
protect, preserve and realize upon the Collateral and the Security Interest
granted therein, in order to effect the intent of this Agreement and the
Debentures, all as fully and effectually as the Borrower might or could do; and
the Borrower hereby ratifies all that said attorney shall lawfully do or cause
to be done by virtue hereof.  This power
of attorney is coupled with an interest and shall be irrevocable for the term
of this Agreement and thereafter as long as any of the Obligations shall be
outstanding.

 

(b)                                 On
a continuing basis, the Borrower will make, execute, acknowledge, deliver, file
and record, as the case may be, with the proper filing and recording places in
any jurisdiction, including, without limitation, the jurisdictions indicated on
Schedule A, attached hereto, all such instruments, and take all
such action as necessary to perfect the Security Interest granted hereunder and
otherwise to carry out the intent and purposes of this Agreement, or for
assuring and confirming to the Secured Parties the grant or perfection of a
first priority security interest in all the Collateral, subject to Permitted
Liens.

 

(c)                                  The
Borrower hereby irrevocably appoints the Secured Parties as the Borrower’s
attorney-in-fact, with full authority in the place and stead of the Borrower
and in the name of the Borrower, from time to time in the Secured Parties’
discretion, to file, in its sole discretion, one or more financing or
continuation statements and amendments thereto, relative to any of the Collateral.

 

12.                                 Agent.

 

(a)                                  Actions  The Agent shall at all times act upon and in
accordance with written instructions received from a Two-Thirds-in-Interest (as
defined in Section 15) time to time. The Agent shall be deemed to be authorized
on behalf of each Secured Party to act on behalf of such Secured Party under
this Agreement and, in the absence of written instructions from a
Two-Thirds-in-Interest (with respect to which the Agent agrees that it will,
subject to the last two sentences of this Section, comply, except as otherwise
advised by counsel), to exercise such powers hereunder and thereunder as are
specifically delegated to or required of the Agent by the terms hereof and
thereof, together with such powers as may be reasonably incidental thereto.  The Agent shall have no duty to ascertain or
inquire as to the performance or observance of any of the terms of this
Agreement by the Borrower. By accepting their Debentures each Secured Party
shall be deemed to have agreed to indemnify the Agent (which agreement shall
survive any termination of such Secured Party’ percentage), from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may at any time be imposed on, incurred by, or asserted
against the Agent in any way relating to or arising out of this Agreement and
the Debentures, including the reimbursement of the Agent for all out-of-pocket
expenses (including attorneys’ fees) incurred by the Agent hereunder or in
connection herewith or in enforcing the Obligations of the Borrower under this
Agreement or the Debentures, in all cases as to which the Agent is not
reimbursed by the Borrower; provided that no Secured Party shall be
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
determined by a court of competent jurisdiction in a final proceeding to have
resulted solely from the Agent’s gross

 

12

 

negligence or willful misconduct.  The Agent shall not be required to take any
action hereunder or under the Debentures, or to prosecute or defend any suit in
respect of this Agreement or under the Debentures, unless the Agent is
indemnified to its reasonable satisfaction by the Secured Parties against loss,
costs, liability and expense.  If any
indemnity in favor of the Agent shall become impaired, it may call for
additional indemnity and cease to do the acts indemnified against until such
additional indemnity is given.

 

(b)                                 Exculpation.  Neither the Agent nor any of its directors,
officers, partners, members, shareholders, employees or agents shall be liable
to any Secured Party for any action taken or omitted to be taken by it under
this Agreement or the Debentures, or in connection herewith or therewith,
except for its own willful misconduct or gross negligence or be responsible for
the consequences of any error in judgment. Neither the Agent nor any of its
directors, officers, partners, members, shareholders, employees or agents has
any fiduciary relationship with any Secured Party by virtue of this Agreement.
The Agent shall not be responsible to any Secured Party for any recitals, statements,
representations or warranties herein or in any certificate or other document
delivered in connection herewith or for the authorization, execution,
effectiveness, genuineness, validity, enforceability, perfection,
collectibility, or sufficiency this Agreement or the Debentures, the financial
condition of the Borrower or the condition or value of any of the Collateral,
or be required to make any inquiry concerning either the performance or
observance of any of the terms, provisions or conditions of this Agreement or
the Debentures, the financial condition of the Borrower or the existence or
possible existence of any default or event of default.  The Agent shall be entitled to rely upon
advice of counsel concerning legal matters and upon any notice, consent,
certificate, statement or writing which it believes to be genuine and to have
presented by a proper person.

 

(c)                                  Obligations
Held by the Agent.  The Agent shall
have the same rights and powers with respect to any Debentures held by it or
any of its affiliates, as any Secured Party and may exercise the same as if it
were not the Agent.  Each of the
Borrower and each Secured Party hereby waives, and each successor to any
Secured Party shall be deemed to waive, any right to disqualify any Secured
Party from serving as the Agent or any claim against that Secured Party for
serving as Agent.

 

(d)                                 Copies,
etc.  The Agent shall give prompt notice to each
Secured Party of each notice or request required or permitted to be given to
the Agent by the Borrower pursuant to the terms of this Agreement.  The Agent will distribute to each Secured
Party each instrument and other agreement received for its account and copies
of all other communications received by the Agent from a Borrower for
distribution to the Secured Party by the Agent in accordance with the terms of
this Agreement.  Notwithstanding
anything herein contained to the contrary, all notices to and communications
with the Borrower under this Agreement shall be effected by the Secured Party
through the Agent.

 

(e)                                  Resignation
of Agent.  The Agent may resign as such at any time
upon at least thirty (30) days’ prior notice to the Borrower and all the
Secured Parties, such resignation not to be effective until a successor Agent
is in place.  If the Agent at any time
shall resign, a  Two-Thirds-in-Interest
may jointly appoint another Secured Party as a successor Agent which shall
thereupon become the Agent hereunder. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall be entitled to
receive from the

 

13

 

retiring Agent such documents of transfer and
assignment as such successor Agent may reasonably request, and shall thereupon
succeed to and become vested with all rights, powers, privileges, and duties of
the retiring Agent, and the retiring Agent shall be discharged from its duties
and obligations under this Agreement.

 

(f)                                    Replacement
of Agent.  A Two-Thirds-in-Interest
may at any time and for any reason replace the Agent with a successor Agent
jointly selected by them, upon at least five (5) days written notice to the
Borrower and the other Secured Parties. Upon the acceptance of any appointment
as Agent hereunder by a successor Agent, such successor Agent shall be entitled
to receive from the terminated Agent such documents of transfer and assignment
as such successor Agent may reasonably request, and shall thereupon succeed to
and become vested with all rights, powers, privileges, and duties of the
retiring Agent, and the terminated Agent shall be discharged from its duties
and obligations under this Agreement.

 

13.                                 Conditions
for Sale of Collateral by Borrower. 
The Borrower shall be entitled to sell all or a portion of the
Collateral to an unaffiliated purchaser for a net purchase price which is equal
to or greater than the fair market value of such Collateral (the “Purchase Price”) if such purchaser
shall deliver the Purchase Price (or portion thereof, if applicable) to each
Secured Party (on a pro-rata basis) in payment of the Borrower Prepayment Price
(as defined in the Debentures) for the prepayment in full, pursuant to Section
11 of the Debenture, of such portion of the outstanding principal amount of
Debentures held by such Secured Party for which such Borrower Prepayment Price
shall apply.  Upon Secured Parties’
unconditional receipt of the Purchase Price, the Secured Parties’ liens in any
item of Collateral that is subject of the foregoing sale shall automatically
terminate and the Secured Parties shall cooperate with the Borrower in making
all appropriate filings including UCC filings in order to evidence such
termination.  Notwithstanding anything
herein to the contrary, if, as a  result
of a potential sale of Collateral pursuant to the immediately preceding
sentence, there shall remain an outstanding principal amount of Debentures
(including accrued interest thereon) then held by the Secured Parties, then
such sale shall only be permitted if the Borrower shall deliver a Borrower
Prepayment Notice (as defined in the Debentures) to such Secured Parties
pursuant to which it shall pay to such Secured Parties (on a pro-rata basis) a
Borrower Prepayment Price equal to no less than 50% of the Purchase Price.

 

14.                                 Notices.  All notices, requests, demands and other
communications hereunder shall be in writing, with copies to all the other
parties hereto, and shall be deemed to have been duly given when (i) if
delivered by hand, upon receipt, (ii) if sent by facsimile, upon receipt of
proof of sending thereof, (iii) if sent by nationally recognized overnight
delivery service (receipt requested), the next business day or (iv) if mailed
by first-class registered or certified mail, return receipt requested, postage
prepaid, four days after posting in the U.S. mails, in each case if delivered
to the following addresses:

 

If to the
Borrower:

 

Aerogen, Inc.

2071 Stierlin Court

Mountain View, CA 94043

 

14

 

Facsimile No.: (650) 864-7433

Attn: Chief Financial Officer

 

With a copy
to:

 

Cooley Godward LLP

Five Palo Alto Square

3000 El Camino Real

Palo Alto, CA 94306-2155

Facsimile No.: (650) 849-7400

Attn: Robert J. Brigham, Esq.

 

If to Secured Parties:  To the
address set forth under such Secured Parties’ name on the signature pages
hereto.

 

15.                                 Other Security.  To the extent that the Obligations are now
or hereafter secured by property other than the Collateral or by the guarantee,
endorsement or property of any other person, firm, corporation or other entity,
then the Secured Parties shall have the right, in their sole discretion, to
pursue, relinquish, subordinate, modify or take any other action with respect
thereto, without in any way modifying or affecting any of the Secured Parties’
rights and remedies hereunder.

 

16.                                 Actions by Secured Parties.  Any action required or permitted hereunder
to be taken by or on behalf of the Secured Parties shall, for such action to be
valid, require the approval of the Two-Thirds-in-Interest prior to the taking
of such action.  If the consent,
approval or disapproval of the Secured Parties is required or permitted
pursuant to this Agreement, such consent, approval or disapproval shall only be
valid if given by the Two-Thirds-in-Interest. 
“Two-Thirds-in-Interest” means the Secured Party or Secured
Parties (as the case may be) holding in excess of 2/3 of the
outstanding aggregate principal amount under the Debentures, determined on a
cumulative basis.

 

17.                                 Miscellaneous.  (a)  No course of dealing between
the Borrower and the Secured Parties, nor any failure to exercise, nor any
delay in exercising, on the part of the Secured Parties, any right, power or
privilege hereunder, under the Debentures or under this Agreement shall operate
as a waiver thereof; nor shall any single or partial exercise of any right,
power or privilege hereunder or thereunder preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.

 

(b)                                 All
of the rights and remedies of the Secured Parties with respect to the
Collateral, whether established hereby, by the Debentures or by any other
agreements, instruments or documents or by law shall be cumulative and may be
exercised singly or concurrently.

 

(c)                                  This
Agreement constitutes the entire agreement of the parties with respect to the
subject matter hereof and is intended to supersede all prior negotiations,
understandings and agreements with respect thereto.  Except as specifically set forth in this Agreement, no

 

15

 

provision of this Agreement may be modified
or amended except by a written agreement signed by the parties hereto.

 

(d)                                 In
the event that any provision of this Agreement is held to be invalid,
prohibited or unenforceable in any jurisdiction for any reason, unless such
provision is narrowed by judicial construction, this Agreement shall, as to
such jurisdiction, be construed as if such invalid, prohibited or unenforceable
provision had been more narrowly drawn so as not to be invalid, prohibited or
unenforceable.  If, notwithstanding the
foregoing, any provision of this Agreement is held to be invalid, prohibited or
unenforceable in any jurisdiction, such provision, as to such jurisdiction,
shall be ineffective to the extent of such invalidity, prohibition or
unenforceability without invalidating the remaining portion of such provision
or the other provisions of this Agreement and without affecting the validity or
enforceability of such provision or the other provisions of this Agreement in
any other jurisdiction.

 

(e)                                  No
waiver of any breach or default or any right under this Agreement shall be
considered valid unless in writing and signed by the party giving such waiver,
and no such waiver shall be deemed a waiver of any subsequent breach or default
or right, whether of the same or similar nature or otherwise.

 

(f)                                    This
Agreement shall be binding upon and inure to the benefit of each party hereto
and its successors and assigns.

 

(g)                                 Each
party shall take such further action and execute and deliver such further
documents as may be necessary or appropriate in order to carry out the
provisions and purposes of this Agreement.

 

(h)                                 This
Agreement shall be construed in accordance with the laws of the State of
California, except to the extent the validity, perfection or enforcement of a security
interest hereunder in respect of any particular Collateral which are governed
by a jurisdiction other than the State of California in which case such law
shall govern.  Each of the parties
hereto irrevocably submits to the exclusive jurisdiction of any California
State or United States Federal court sitting in Northern District of California
over any action or proceeding arising out of or relating to this Agreement, and
the parties hereto hereby irrevocably agree that all claims in respect of such
action or proceeding may be heard and determined in such California State or
Federal court.  The parties hereto agree
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law.  The parties
hereto further waive any objection to venue in the State of California and any
objection to an action or proceeding in the State of California on the basis of
forum non conveniens.

 

(i)                                     EACH
PARTY HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT.  THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL ENCOMPASSING OF ANY DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE
TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND

 

16

 

STATUTORY CLAIMS.  EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL
INDUCEMENT FOR EACH PARTY TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH
PARTY HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT AND
THAT EACH PARTY WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE
DEALINGS. EACH PARTY FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED
THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND
VOLUNTARILY WAIVES ITS RIGHTS TO A JURY TRIAL FOLLOWING SUCH CONSULTATION.  THIS WAIVER IS IRREVOCABLE, MEANING THAT,
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS AND SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.  IN THE EVENT OF A LITIGATION, THIS AGREEMENT
MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

(j)                                     This
Agreement may be executed in any number of counterparts, each of which when so
executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same Agreement. 
In the event that any signature is delivered by facsimile transmission,
such signature shall create a valid binding obligation of the party executing
(or on whose behalf such signature is executed) the same with the same force
and effect as if such facsimile signature were the original thereof.

 

17

 

IN WITNESS WHEREOF, the parties hereto have
caused this Security Agreement to be duly executed on the day and year first
above written.

 

	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  AEROGEN, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert
  S. Breuil

  
	
   

  	
   

  	
  Robert S.
  Breuil, Chief Financial Officer

  

 

 

IN WITNESS WHEREOF, the parties hereto have
caused this Security Agreement to be duly executed on the day and year first above
written.

 

 

	
   

  	
  SECURED PARTIES:

  
	
   

  	
   

  
	
   

  	
  Jane Elizabeth Carpenter and Peter F Carpenter ttee’s Carpenter 1983
  Family Trust UA dated 9 March 1983

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jane E.
  Shaw

  
	
   

  	
   

  	
  Jane E. Shaw, Ph.D, as Co-Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Peter F. Carpenter

  
	
   

  	
   

  	
  Peter F. Carpenter, as Co-Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
  Address for Notice:

  

 

2Exhibit 10.21

 

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION OF
THESE SECURITIES HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE
TO THE BORROWER.  THESE SECURITIES AND
THE SECURITIES ISSUABLE UPON CONVERSION OF THESE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

 

 

	
  Date: January 23, 2004

  	
   

  	
  $500,000

  

 

AEROGEN, INC.

SECURED CONVERTIBLE DEBENTURE DUE MARCH 1, 2004

 

THIS DEBENTURE is issued by Aerogen, Inc., a Delaware corporation (the
“Borrower”), in the aggregate
principal amount of Five Hundred Thousand Dollars ($500,000) (the “Debenture”).

 

FOR VALUE RECEIVED, the Borrower promises to pay to the order of the
Carpenter 1983 Family Trust UA, or its registered assigns (the “Holder”),
the principal sum of Five Hundred Thousand Dollars ($500,000), on March 1,
2004 (the “Maturity Date”), or such earlier date as this Debenture is
required or permitted to be repaid as provided hereunder, and to pay interest
to the Holder on the aggregate then outstanding principal amount of this
Debenture in accordance with the provisions hereof. This Debenture is subject
to the following additional provisions:

 

1.                                       Definitions.                                  In
addition to the terms defined elsewhere in this Debenture: (a) capitalized
terms that are not otherwise defined herein have the meanings given to such
terms in the Loan and Securities Purchase Agreement, dated as of even date herewith,
among the Borrower and the Lender identified therein (the “Loan Agreement”), and (b) the following
terms have the meanings indicated below:

 

“Closing Price” means, for
any date, the price determined by the first of the following clauses that
applies: (a) if the Common Stock is then listed or quoted on an Eligible
Market, the closing sale price per share of the Common Stock for such date (or
the nearest 

 

 

preceding
date) on the primary Eligible Market or exchange on which the Common Stock is
then listed or quoted; (b) if prices for the Common Stock are then quoted on
the OTC Bulletin Board, the closing sale price per share of the Common Stock
for such date (or the nearest preceding date) so quoted; (c) if prices for the
Common Stock are then reported in the “Pink Sheets” published by the National
Quotation Bureau Incorporated (or a similar organization or agency succeeding
to its functions of reporting prices), the most recent sale price per share of
the Common Stock so reported; or (d) in all other cases, the fair market value
of a share of Common Stock as determined by an independent appraiser selected
in good faith by the Lender.

 

“Common Stock Equivalents”
means any securities of the Borrower or a subsidiary thereof which entitle the
holder thereof to acquire Common Stock at any time, including without
limitation, any debt, preferred stock, rights, options, warrants or other
instrument that is at any time convertible into or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock or other
securities that entitle the holder to receive, directly or indirectly, Common
Stock.

 

“Borrower  Prepayment Price” for any Debentures which
shall be subject to prepayment pursuant to Section 11, shall equal the sum
of: (i) 110% of the principal amount of Debentures to be prepaid, and (ii) all
accrued and unpaid interest on the principal amount of the Debentures to be
prepaid.

 

“Change of Control” means
the occurrence of any of the following in one or a series of related
transactions: (i) an acquisition after the date hereof by an individual or
legal entity or “group” (as described in Rule 13d-5(b)(1) under the Exchange
Act) of more than one-half of the voting rights or equity interests in the
Borrower; (ii) a replacement of more than one-half of the members of the
Borrower’s board of directors in a single election of directors that is not
approved by those individuals who are members of the board of directors on the
date hereof (or other directors previously approved by such individuals); (iii)
a merger or consolidation of the Borrower or any Subsidiary or a sale of all or
substantially all of the assets of the Borrower (other than any sale, transfer,
license or lease of assets relating to Borrower’s insulin inhaler product and
related technology or the MIA Assets pursuant to the MIA Term Sheet indicated
in Section 6.3(f) of the Purchase Agreement) in one or a series of related
transactions, unless following such transaction or series of transactions, the
holders of the Borrower’s securities prior to the first such transaction
continue to hold at least one-half of the voting rights and equity interests in
the surviving entity or acquirer of such assets; (iv) a recapitalization,
reorganization or other transaction involving the Borrower or any Subsidiary
that constitutes or results in a transfer of more than one-half of the voting
rights or equity interests in the Borrower, unless following such transaction
or series of transactions, the holders of the Borrower’s securities prior to
the first such transaction continue to hold at least one-half of the voting
rights and equity interests in the surviving entity or acquirer of such assets;
(v) consummation of a “Rule 13e-3 transaction” as defined in Rule 13e-3 under
the Exchange Act with respect to the Borrower, or (vi) the execution by the
Borrower or its controlling shareholders of an agreement providing for or
reasonably likely to result in any of the foregoing events.

 

“Conversion
Date” means the date a Conversion Notice together with the Conversion
Schedule is delivered to the Borrower in accordance with
Section 5(a).

 

2

 

“Conversion
Notice” means a written notice in the form attached hereto as Exhibit
A.

 

“Conversion
Price” means the Nasdaq five-day average closing bid price of the
Company’s Common Stock for the five days prior to the date of this Debenture,
which is $3.044, subject to adjustment pursuant to Section 12.

 

“Eligible
Market” means any of the New York Stock Exchange, the American Stock
Exchange, the Nasdaq National Market or the Nasdaq Small Cap Market.

 

“Event
of Default” means any one of the following events  (whatever the reason and whether it shall be
voluntary or involuntary or effected by operation of law or pursuant to any
judgment, decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):

 

(i)                             any default in the payment
(free of any claim of subordination) of principal, interest or liquidated
damages in respect of any Debentures, within five (5) Trading Days of the date
when due and payable (whether on a Conversion Date, the Maturity Date or by
acceleration or prepayment or otherwise).

 

(ii)                          the Borrower or any
Subsidiary defaults in any of its obligations under any other debenture or any
mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there has been issued, or by which
there has been secured or evidenced, any indebtedness for borrowed money or
money due under any long term leasing or factoring arrangement of the Borrower
or any Subsidiary in an amount exceeding $150,000, whether such indebtedness
now exists or is hereafter created, and such default results in such
indebtedness becoming or being declared due and payable prior to the date on
which it would otherwise become due and payable.

 

(iii)                       the occurrence of a Change of
Control transaction.

 

(iv)                      the incurrence by the Borrower of
any debt obligation that is senior in right of payment to the Debenture other than
Permitted Indebtedness (as defined in the Security Agreement), or otherwise
secured by any of the assets, income or properties of the Borrower, other than
Permitted Liens.

 

(v)                         the payment by the Borrower of
any dividends or distributions of assets, properties or cash to any Person that
is outside of the ordinary course of the Borrower’s business and not consistent
in amount and type with prior practice as disclosed in SEC Reports.

 

(vi)                      the Borrower defaults in the
timely performance of any obligation under the Transaction Documents and such
default continues uncured for a period of ten Trading Days after the date on
which written notice of such default is first given to the Borrower by the
Holder (it being understood that no prior notice need be given in the case of a
default that cannot reasonably be cured within ten Trading Days).

 

3

 

(vii)                   any of the Borrower’s
representations and warranties set forth in the Loan Agreement shall be
incorrect as of the Original Issue Date and result in a Material Adverse
Effect.

 

(viii)                the occurrence of a Bankruptcy Event
(as defined in the Purchase Agreement).

 

(ix)                        the Common Stock: (i) is not
listed or quoted, or is suspended from trading, on an Eligible Market for a
period of three Trading Days (which need not be consecutive Trading Days), and
(ii) is not traded in the over-the-counter market, as reported by the OTC
Bulletin Board, or quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices).

 

(x)                           the conversion rights of the
Holder pursuant to the terms hereof are otherwise suspended for any reason.

 

(xi)                        the exercise rights of the
Holder pursuant to the terms thereof are otherwise suspended for any reason.

 

(xii)                     the Borrower fails to have
available a sufficient number of authorized but unissued and otherwise
unreserved shares of Common Stock available to issue Underlying Shares upon any
conversion of Debentures hereunder or to issue Warrant Shares upon an exercise
of the Warrants.

 

(xiii)                  the Borrower fails to make any cash
payment required under the Transaction Documents (including, without
limitations, as prepayment hereunder) and such failure is not cured within five
Trading Days after notice of such default is first given to the Borrower by a
Lender.

 

“Original
Issue Date” means the date of the first issuance of the Debenture,
regardless of the number of transfers.

 

“Registration Statement”
shall have the meaning set forth in the Loan Agreement.

 

“Security
Agreements” shall have the meaning set forth in the Loan Agreement.

 

“Trading
Day” means: (a) a day on which the shares of Common Stock are
traded on an Eligible Market, or (b) if the shares of Common Stock are not
listed on an Eligible Market, a day on which the shares of Common Stock are
traded in the over-the-counter market, as reported by the OTC Bulletin Board,
or (c) if the shares of Common Stock are not quoted on the OTC Bulletin
Board, a day on which the shares of Common Stock are quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices); provided, that in the event that the shares of Common
Stock are not listed or quoted as set forth in (a), (b) and (c) hereof, then
Trading Day shall mean a business day.

 

4

 

“Underlying
Shares” means the shares of Common Stock issuable upon conversion of
the Debenture and payment of interest thereunder.

 

2.                                       Interest.  The Borrower shall pay interest to the
Holder in cash on the aggregate unconverted and then outstanding principal
amount of this Debenture (including any interest added to such principal in
accordance with this Section 2) at the rate of 10% per annum, payable on
the Maturity Date or such earlier date as this Debenture is required or
permitted to be repaid as provided hereunder. 
Interest shall be calculated on the basis of a 360-day year and shall
accrue daily commencing on the Original Issue Date.

 

3.                                       Registration
of Debentures.  The Borrower shall
register the Debentures upon records to be maintained by the Borrower for that
purpose (the “Debenture Register”)
in the name of each record Holder thereof from time to time. The Borrower may
deem and treat the registered Holder of this Debenture as the absolute owner
hereof for the purpose of any conversion hereof or any payment of interest
hereon, and for all other purposes, absent actual notice to the contrary.

 

4.                                       Registration
of Transfers and Exchanges.  The
Borrower shall register the transfer of any portion of this Debenture in the
Debenture Register upon surrender of this Debenture to the Borrower at its
address for notice set forth herein. Upon any such registration or transfer, a
new Debenture, in substantially the form of this Debenture (any such new
debenture, a “New Debenture”),
evidencing the portion of this Debenture so transferred shall be issued to the
transferee and a New Debenture evidencing the remaining portion of this
Debenture not so transferred, if any, shall be issued to the transferring
Holder. The acceptance of the New Debenture by the transferee thereof shall be
deemed the acceptance by such transferee of all of the rights and obligations
of a holder of a Debenture. The Borrower agrees that its prior consent is not
required for the transfer of any portion of this Debenture.  This Debenture is exchangeable for an equal
aggregate principal amount of Debentures of different authorized denominations,
as requested by the Holder surrendering the same. No service charge or other
fee will be imposed in connection with any such registration of transfer or
exchange.

 

5.                                       Conversion.

 

(a)                                  At
the Option of the Holder.  All or
any portion of the principal amount of this Debenture then outstanding together
with any accrued and unpaid interest thereunder shall be convertible into
shares of Common Stock at the Conversion Price (subject to limitations set
forth in Section 5(b)), at the option of the Holder, at any time and from
time to time from and after the Original Issue Date. The Holder may effect
conversions under this Section 5(a), by delivering to the Borrower a
Conversion Notice together with a schedule in the form of Schedule 1
attached hereto (the “Conversion Schedule”).
If the Holder is converting less than all of the principal amount represented
by this Debenture, the Borrower shall honor such conversion to the extent
permissible hereunder and shall promptly deliver to the Holder a Conversion
Schedule indicating the principal amount which has not been converted.

 

5

 

6.                                       Mechanics
of Conversion.

 

(a)                                  The
number of Underlying Shares issuable upon any conversion hereunder shall equal
the outstanding principal amount of this Debenture to be converted, divided by
the Conversion Price on the Conversion Date, plus (if indicated in the
applicable Conversion Notice) the amount of any accrued but unpaid interest on
this Debenture through the Conversion Date, divided by the Conversion Price on
the Conversion Date.

 

(b)                                 The
Borrower shall promptly following a Conversion Date (but in no event later than
five Trading Days after such Conversion Date) issue or cause to be issued and
cause to be delivered to or upon the written order of the Holder and in such
name or names as the Holder may designate a certificate for the Underlying
Shares issuable upon such conversion, free of restrictive legends. The Holder,
or any Person so designated by the Holder to receive Underlying Shares, shall
be deemed to have become holder of record of such Underlying Shares as of the
Conversion Date. The Borrower shall, upon request of the Holder, use its best
efforts to deliver Underlying Shares hereunder electronically (via a DWAC)
through the Depository Trust Corporation or another established clearing
corporation performing similar functions.

 

(c)                                  The
Holder shall not be required to deliver the original Debenture in order to
effect a partial conversion hereunder. Execution and delivery of the Conversion
Notice shall have the same effect as cancellation of the Debenture and issuance
of a New Debenture representing the remaining outstanding principal amount.
Upon surrender of this Debenture following one or more partial conversions, the
Borrower shall promptly deliver to the Holder a New Debenture representing the
remaining outstanding principal amount.

 

(d)                                 The
Borrower’s obligations to issue and deliver Underlying Shares upon conversion
of this Debenture in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation to
the Borrower or any violation or alleged violation of law by the Holder or any
other Person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Borrower to the Holder in connection with the
issuance of such Underlying Shares.

 

(e)                                  If
by the fifth Trading Day after a Conversion Date the Borrower fails to deliver
to the Holder such Underlying Shares in such amounts and in the manner required
pursuant to Section 5, then the Holder will have the right to rescind the
Conversion Notice pertaining thereto by giving written notice to the Borrower prior
to such Holder’s receipt of such Underlying Shares.

 

7.                                       Events
of Default.

 

(a)                                  At
any time or times following the occurrence of an Event of Default, the Holder
may elect, by notice to the Borrower (an “Event
Notice”), to require the Borrower to repurchase all or any portion
of the outstanding principal amount of this Debenture and the Warrant held by
such Holder, as indicated in the Event Notice, at a repurchase price

 

6

 

equal to 110% of such outstanding principal amount, plus all accrued
but unpaid interest thereon through the date of payment.

 

(b)                                 Upon
the occurrence and during the continuance of any Bankruptcy Event, all
outstanding unconverted principal and accrued but unpaid interest on this
Debenture shall immediately become due and payable in full in cash (free of any
claim of subordination), without any further action by the Holder, and the
Borrower shall immediately be obligated to repurchase this Debenture pursuant
to the preceding paragraph as if the Holder had delivered an Event Notice
immediately prior to the occurrence of such Bankruptcy Event.

 

(c)                                  In
connection with any Event of Default, the Holder need not provide and the
Borrower hereby waives any presentment, demand, protest or other notice of any
kind, and the Holder may immediately and without expiration of any grace period
enforce any and all of its rights and remedies hereunder and all other remedies
available to it under applicable law. Any such declaration may be rescinded and
annulled by the Holder at any time prior to payment hereunder. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereto.

 

8.                                       Ranking.  This Debenture ranks pari passu with all
debentures issued to SF Capital Partners, Ltd. (“SF Capital”) and is senior to
all other existing and hereafter created Indebtedness of the Borrower. Other
than Permitted Indebtedness, no Indebtedness of the Borrower is senior to this
Debenture in right of payment, whether with respect of interest, damages or
upon liquidation or dissolution or otherwise. The Borrower will not, and will
not permit any Subsidiary to, directly or indirectly, enter into, create,
incur, assume or suffer to exist any indebtedness of any kind, on or with respect
to any of its property or assets now owned or hereafter acquired or any
interest therein or any income or profits therefrom, that is senior in any
respect to the Borrower’s obligations under the Debenture, other than Permitted
Indebtedness.

 

9.                                       Charges,
Taxes and Expenses.  Issuance of
certificates for Underlying Shares upon conversion of (or otherwise in respect
of) this Debenture shall be made without charge to the Holder for any issue or
transfer tax, withholding tax, transfer agent fee or other incidental tax or
expense in respect of the issuance of such certificate, all of which taxes and
expenses shall be paid by the Borrower; provided, however, that the Borrower
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the registration of any certificates for Underlying Shares
or Debentures in a name other than that of the Holder. The Holder shall be
responsible for all other tax liability that may arise as a result of holding
or transferring this Debenture or receiving Underlying Shares in respect
hereof.

 

7

 

10.                                 Reservation
of Underlying Shares.  The Borrower
covenants that it will at all times reserve and keep available out of the
aggregate of its authorized but unissued and otherwise unreserved Common Stock,
solely for the purpose of enabling it to issue Underlying Shares as required
hereunder, the number of Underlying Shares which are then issuable and
deliverable upon the conversion of (and otherwise in respect of) this entire
Debenture (taking into account the adjustments of Section 12), free from
preemptive rights or any other contingent purchase rights of persons other than
the Holder. The Borrower covenants that all Underlying Shares so issuable and deliverable
shall, upon issuance in accordance with the terms hereof, be duly and validly
authorized, issued and fully paid and nonassessable.

 

11.                                 Prepayment
at the Option of the Borrower.

 

(a)                                  At
any time following the Original Issue Date and prior to the Maturity Date, upon
delivery of a written notice to the Holder and to SF Capital (a “Borrower Prepayment Notice” and the date
such notice is delivered by the Borrower, the “Borrower
Notice Date”), the Borrower shall be entitled to prepay all or a
portion of the principal amount of this Debenture (including accrued and unpaid
interest thereunder), for an amount in cash equal to the Borrower Prepayment
Price which shall be due on the 10th Trading Day immediately
following the Borrower Notice Date.  The
Holder may convert any portion of the outstanding principal amount of the
Debentures subject to a Borrower Prepayment Notice prior to the date that the
Borrower Prepayment Price is due and paid in full.  Once delivered, the Borrower shall not be entitled to rescind a
Borrower Prepayment Notice.  Any payment
made hereunder by the Borrower shall be applied first: to any liquidated
damages owed to SF Capital or pursuant to any Transaction Document, second: to
accrued and unpaid interest on a pro rata basis with SF Capital and third: to
the principal amount of Debenture subject to prepayment hereunder on a pro rata
basis with SF Capital.

 

(b)                                 The
Borrower Prepayment Price shall be parri passu with any similar amount to be
paid to SF Capital, and free of any claim of subordination. If any portion of
the Borrower Prepayment Price shall not be timely paid by the Borrower,
interest shall accrue thereon at the rate of 12% per annum (or the maximum rate
permitted by applicable law, whichever is less) until the Borrower Prepayment
Price plus all such interest is paid in full, which payment shall constitute
liquidated damages and not a penalty. 
In addition, if any portion of the Borrower Prepayment Price remains
unpaid after such date, the Holder subject to such prepayment may elect by
written notice to the Borrower to invalidate ab
initio such Borrower Prepayment Notice with respect to the unpaid
amount, notwithstanding anything herein contained to the contrary.  If the Holder makes such an election, this
Debenture shall be reinstated with respect to such unpaid amount and the
Borrower shall no longer have any prepayment rights under this Section 10.

 

(c)                                  Any
election by the Borrower pursuant to Section 13 of the Security Agreements
to sell a portion of the Collateral (as defined in the Security Agreements) at
a price (the “Purchase Price”)
which shall be equal to or greater than the fair market value of such
Collateral (as determined in good faith by the Borrower’s Board of Directors),
shall be preceded by the delivery to the Holder and SF Capital of a Borrower
Prepayment Notice indicating that a portion of the amount owning in respect of
the Debenture (including accrued 

 

8

 

and unpaid interest thereon and unpaid liquidated damages) shall be
subject to prepayment pursuant to the terms and conditions of this
Section at the Borrower Prepayment Price. 
Notwithstanding anything herein to the contrary, if, as a potential
result of a sale of Collateral pursuant to the immediately preceding sentence,
there shall remain an amount owning in respect of the Debenture (including
accrued and unpaid interest thereon and unpaid liquidated damages), then the
Borrower shall deliver a Borrower Prepayment Notice pursuant to which it shall
pay a Borrower Prepayment Price equal to no less than 50% of the Purchase Price
parri passu with any similar obligation to SF Captial.

 

12.                                 Certain
Adjustments.  The Conversion Price
is subject to adjustment from time to time as set forth in this
Section 12.

 

(a)                                  Stock
Dividends and Splits.  If the
Borrower, at any time while this Debenture is outstanding: (i) pays a stock
dividend on its Common Stock or otherwise makes a distribution on any class of
capital stock that is payable in shares of Common Stock, (ii) subdivides
outstanding shares of Common Stock into a larger number of shares, or (iii)
combines outstanding shares of Common Stock into a smaller number of shares,
then in each such case the Conversion Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock
outstanding immediately before such event and of which the denominator shall be
the number of shares of Common Stock outstanding immediately after such
event.  Any adjustment made pursuant to
clause (i) of this paragraph shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution, and any adjustment pursuant to clause (ii) or (iii)
of this paragraph shall become effective immediately after the effective date
of such subdivision or combination.

 

(b)                                 Fundamental
Transactions.  Subject to the
provisions of this paragraph, if, at any time while this Debenture is
outstanding, (i) the Borrower effects any merger or consolidation of the
Borrower with or into another Person, (ii) the Borrower effects any sale of all
or substantially all of its assets in one or a series of related transactions,
(iii) any tender offer or exchange offer (whether by the Borrower or another
Person) is completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property, or (iv)
the Borrower effects any reclassification of the Common Stock or any compulsory
share exchange pursuant to which all of the Common Stock is effectively
converted into or exchanged for other securities, cash or property (other than
as a result of a subdivision or combination of shares of Common Stock covered
by Section 12(a) above) (in any such case, a “Fundamental Transaction”), then upon any subsequent conversion
of this Debenture, the Holder shall have the right to receive, for each
Underlying Share that would have been issuable upon such conversion absent such
Fundamental Transaction, the same kind and amount of securities, cash or
property as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such Fundamental
Transaction, the holder of one share of Common Stock (the “Alternate
Consideration”). For purposes of any such conversion, the Borrower
shall apportion the Conversion Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different components of
the Alternate Consideration. If holders of Common Stock are given any choice as
to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate
Consideration it 

 

9

 

receives upon any conversion of this Debenture following such
Fundamental Transaction. To the extent necessary to effectuate the foregoing
provisions, any successor to the Borrower or surviving entity in such
Fundamental Transaction (or, if different, the ultimate parent of such
successor or entity or the entity issuing the Alternate Consideration) shall
issue to the Holder a new debenture consistent with the foregoing provisions
and evidencing the Holder’s right to convert such debenture into Alternate Consideration.
The terms of any agreement pursuant to which a Fundamental Transaction is
effected shall include terms requiring any such successor or surviving entity
to comply with the provisions of this paragraph (c) and insuring that this
Debenture (or any such replacement security) will be similarly adjusted upon
any subsequent transaction analogous to a Fundamental Transaction.

 

(c)                                  Reclassifications;
Share Exchanges.      In case of any
reclassification of the Common Stock, or any compulsory share exchange pursuant
to which the Common Stock is converted into other securities, cash or property
(other than compulsory share exchanges which constitute Change of Control
transactions), the Holders of the Debentures then outstanding shall have the
right thereafter to convert such shares only into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders
of Common Stock following such reclassification or share exchange, and the
Holders shall be entitled upon such event to receive such amount of securities,
cash or property as a holder of the number of shares of Common Stock of the
Borrower into which such shares of Debentures could have been converted
immediately prior to such reclassification or share exchange would have been
entitled. This provision shall similarly apply to successive reclassifications
or share exchanges.

 

(d)                                 Calculations.      All
calculations under this Section 12 shall be made to the nearest cent or
the nearest share, as applicable. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Borrower, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.

 

(e)                                  Notice
of Adjustments.      Upon the occurrence of
each adjustment pursuant to this Section 12, the Borrower at its expense
will promptly compute such adjustment in accordance with the terms hereof and
prepare a certificate describing in reasonable detail such adjustment and the transactions
giving rise thereto, including all facts upon which such adjustment is based.
Upon written request, the Borrower will promptly deliver a copy of each such
certificate to the Holder.

 

(f)                                    Notice
of Corporate Events.      If the Borrower (i)
declares a dividend or any other distribution of cash, securities or other
property in respect of its Common Stock, including without limitation any
granting of rights or warrants to subscribe for or purchase any capital stock
of the Borrower or any Subsidiary, (ii) authorizes or approves, enters into any
agreement contemplating or solicits stockholder approval for any Fundamental
Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Borrower,
then the Borrower shall deliver to the Holder a notice describing the material
terms and conditions of such transaction, at least 20 calendar days for
transactions described in subsections (i) and (iii) above, and at least 10
calendar days for transactions described in subsection (ii) above, prior
to the applicable record or effective date on which a Person would 

 

10

 

need to hold Common Stock in order to participate in or vote with
respect to such transaction, and the Borrower will take all steps reasonably
necessary in order to insure that the Holder is given the practical opportunity
to convert this Debenture prior to such time so as to participate in or vote
with respect to such transaction; provided, however, that the failure to
deliver such notice or any defect therein shall not affect the validity of the
corporate action required to be described in such notice.

 

13.                                 Fractional
Shares.      The Borrower shall not be
required to issue or cause to be issued fractional Underlying Shares on
conversion of this Debenture. If any fraction of an Underlying Share would,
except for the provisions of this Section, be issuable upon conversion of this
Debenture, the number of Underlying Shares to be issued will be rounded to the
nearest whole share.

 

14.                                 Notices.      Any
and all notices or other communications or deliveries hereunder (including
without limitation any Conversion Notice) shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 5:00 p.m. (California time) on a
Trading Day, (ii) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
specified in this Section on a day that is not a Trading Day or later than
5:00 p.m. (California time) on any Trading Day, (iii) the Trading Day following
the date of mailing, if sent by nationally recognized overnight courier
service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be: (i) if to
the Borrower, to 2071 Stierlin Court, Mountain View, CA 94043, facsimile: (650)
864-7433, attention Chief Financial Officer, or (ii) if to the Holder, to the
address or facsimile number appearing on the Borrower’s stockholder records or
such other address or facsimile number as the Holder may provide to the
Borrower in accordance with this Section.

 

15.                                 Miscellaneous.

 

(a)                                  This
Debenture shall be binding on and inure to the benefit of the parties hereto
and their respective successors and assigns. This Debenture may be amended only in writing signed by the Borrower and the
Holder and their successors and assigns.

 

(b)                                 Subject
to Section 15(a), above, nothing in this Debenture shall be construed to
give to any person or corporation other than the Borrower and the Holder any legal or equitable right, remedy or cause
under this Debenture. This Debenture shall inure to the sole and exclusive
benefit of the Borrower and the Holder.

 

(c)                                  All
questions concerning the construction, validity, enforcement and interpretation
of this Debenture shall be governed by and construed and enforced in accordance
with the internal laws of the State of California, without regard to the
principles of conflicts of law thereof. 
Each party agrees that all proceedings shall be commenced exclusively in
the state and federal courts sitting in the Northern District of California
(the “California Courts”).  Each party hereto hereby irrevocably submits
to the exclusive jurisdiction of the California Courts for any proceeding, and
hereby irrevocably waives, and agrees not to assert in any proceeding, any
claim that it is not personally subject to the jurisdiction of any California

 

11

 

Court or that a California Court is an inconvenient forum for such
proceeding.  Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Debenture and agrees that
such service shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner
permitted by law.  Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding.  The prevailing party in a proceeding shall be reimbursed by the
other party for its attorney’s fees and other costs and expenses incurred with
the investigation, preparation and prosecution of such proceeding.

 

(d)                                 The
headings herein are for convenience only, do not constitute a part of this
Debenture and shall not be deemed to limit or affect any of the provisions hereof.

 

(e)                                  In
case any one or more of the provisions of this Debenture shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Debenture shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Debenture.

 

(f)                                    No
provision of this Debenture may be waived or amended except in a written
instrument signed, in the case of an amendment, by the Borrower and the Holder
or, or, in the case of a waiver, by the Holder. No waiver of any default with
respect to any provision, condition or requirement of this Debenture shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof,
nor shall any delay or omission of either party to exercise any right hereunder
in any manner impair the exercise of any such right.

 

(g)                                 Notwithstanding
any provision to the contrary contained in the Debentures, it is expressly
agreed and provided that the total liability of the Borrower under the
Debentures for payments in the nature of interest shall not exceed the maximum
lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Borrower may
be obligated to pay under the Debentures exceed such Maximum Rate. It is agreed
that if the maximum contract rate of interest allowed by law and applicable to
the Debentures is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract
rate of interest allowed by law will be the Maximum Rate of interest applicable
to the Debentures from the effective date forward, unless such application is
precluded by applicable law. If under any circumstances whatsoever, interest in
excess of the Maximum Rate is paid by the Borrower to any Holder with respect
to indebtedness evidenced by the Debentures, such excess shall be applied by
such Holder to the unpaid principal balance of any such indebtedness or be
refunded to the Borrower, the manner of handling such excess to be at such
Holder’s election.

 

12

 

(h)                                 Except
pursuant to Sections 7 and 11 hereunder, the outstanding principal amount and
interest under this Debenture may not be prepaid by the Borrower without the
prior written consent of the Holder.

 

(i)                                     The
obligations under this Debenture are secured pursuant to the Security Agreements.

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOLLOWS]

 

13

 

IN WITNESS WHEREOF, the Borrower has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.

 

	
  AEROGEN, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Robert S. Breuil

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Robert S. Breuil

  	
   

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  	
   

  
					

 

14

 

EXHIBIT
A

 

CONVERSION NOTICE

 

 (To be Executed by the
Registered Holder in order to convert Debentures)

 

The undersigned hereby elects to convert the
principal amount of Debenture indicated below, into shares of Common Stock of
Aerogen, Inc., as of the date written below. If shares are to be issued in the
name of a Person other than undersigned, the undersigned will pay all transfer
taxes payable with respect thereto and is delivering herewith such certificates
and opinions as reasonably requested by the Borrower in accordance therewith.
No fee will be charged to the Holder for any conversion, except for such
transfer taxes, if any. All terms used in this notice shall have the meanings
set forth in the Debenture.

 

	
  Conversion calculations:

  	
   

  
	
   

  	
  Date to Effect Conversion

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Principal amount of Debenture owned prior to conversion

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Principal amount of Debenture to be Converted

  
	
   

  	
  (including             of
  interest added)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Principal amount of Debenture remaining after Conversion

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Number of shares of Common Stock to be Issued

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Applicable Conversion Price

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name of Holder

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

15

 

Schedule 1

 

CONVERSION SCHEDULE

 

This Conversion Schedule reflects conversions made under the above
referenced Debentures.

 

Dated:

 

	
  Date of Conversion

  	
   

  	
  Amount of

  Conversion

  	
   

  	
  Aggregate

  Principal

  Amount

  Remaining

  Subsequent to

  Conversion

  	
   

  	
  Applicable Conversion

  Price

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

16

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00060-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00060-of-00352.parquet"}]]