<SUBMISSION>
<ACCESSION-NUMBER>0000912057-00-039061
<TYPE>S-1
<PUBLIC-DOCUMENT-COUNT>27
<FILING-DATE>20000825
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>AEROGEN INC
<CIK>0001039160
<ASSIGNED-SIC>
<IRS-NUMBER>330488580
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>S-1
<ACT>33
<FILE-NUMBER>333-44470
<FILM-NUMBER>709410
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>1310 CORONADO DR
<CITY>SANTA CLARA
<STATE>CA
<ZIP>95054
<PHONE>4085432400
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>1310 ORLEANS DRIVE
<CITY>SUNNYVALE
<STATE>CA
<ZIP>94089
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>S-1
<SEQUENCE>1
<FILENAME>s-1.txt
<DESCRIPTION>S-1
<TEXT>

<PAGE>
    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 25, 2000
                                                     REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM S-1

                             REGISTRATION STATEMENT

                                     UNDER

                           THE SECURITIES ACT OF 1933

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

                                 AEROGEN, INC.

             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                  <C>                                  <C>
              DELAWARE                               3845                              33-0488580
  (State or other jurisdiction of        (Primary Standard Industrial               (I.R.S. Employer
   incorporation or organization)        Classification Code Number)             Identification Number)
</TABLE>

                               1310 ORLEANS DRIVE
                          SUNNYVALE, CALIFORNIA 94089
                                 (408) 543-2400

  (Address, including zip code, and telephone number, including area code, of
                   registrant's principal executive offices)

                              JANE E. SHAW, PH.D.
                      CHAIRMAN AND CHIEF EXECUTIVE OFFICER
                                 AEROGEN, INC.
                               1310 ORLEANS DRIVE
                          SUNNYVALE, CALIFORNIA 94089
                                 (408) 543-2400
 (Name, address, including zip code, and telephone number, including area code,
                             of agent for service)

                                   COPIES TO:

<TABLE>
<S>                                                          <C>
                  ROBERT J. BRIGHAM, ESQ.                                      JAMES R. TANENBAUM, ESQ.
                   KEITH D. PISANI, ESQ.                                         ANNA T. PINEDO, ESQ.
                     Cooley Godward LLP                                     Stroock & Stroock & Lavan LLP
                   Five Palo Alto Square                                           180 Maiden Lane
                    3000 El Camino Real                                        New York, NY 10038-4982
                Palo Alto, California 94306                                     Phone: (212) 806-5400
                   Phone: (650) 843-5000                                      Facsimile: (212) 806-6006
                 Facsimile: (650) 849-7400
</TABLE>

                  APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.

    If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

    If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

    If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

    If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

    If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

                        CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
                                                                 PROPOSED MAXIMUM
            TITLE OF SHARES TO BE REGISTERED               AGGREGATE OFFERING PRICE (1)      AMOUNT OF REGISTRATION FEE
<S>                                                       <C>                              <C>
Common Stock, $0.001 par value..........................            $57,500,000                        $15,180
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee
    pursuant to Rule 457 under the Securities Act of 1933, as amended.

    THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                  SUBJECT TO COMPLETION, DATED AUGUST 25, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS

                                          SHARES

                                 [AEROGEN LOGO]

                                  COMMON STOCK

    This is an initial public offering of common stock by AeroGen, Inc. AeroGen
is selling      shares of common stock. The estimated initial public offering
price is between $        and $        per share.

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

    Prior to this offering, there has been no public market for our common
stock. We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol AEGN.

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

<TABLE>
<CAPTION>
                                                                   PER SHARE             TOTAL
                                                                   ---------          -----------
<S>                                                                <C>                <C>
Initial public offering price.............................         $                  $
Underwriting discounts and commissions....................         $                  $
Proceeds to AeroGen before expenses.......................         $                  $
</TABLE>

    AeroGen has granted the underwriters an option for a period of 30 days to
purchase up to      additional shares of common stock to cover over-allotments.

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

           INVESTING IN OUR COMMON SHARES INVOLVES A HIGH DEGREE OF RISK.
                    SEE "RISK FACTORS" BEGINNING ON PAGE 5.

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

    NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

CHASE H&Q
                               CIBC WORLD MARKETS
                                                                        SG COWEN

         , 2000
<PAGE>
                               INSIDE FRONT COVER

Creating Innovative Drug Delivery Products (header, left)

    -  AeroGen Logo image (upper right)

    -  Aerosol generator image (center)

    -  Respiratory Products for Marketing by AeroGen (upper left)

    -  Systemic Drug Delivery Products for Partners (center right)

    -  Respiratory Products for Partners (center left)

    -  Aerosol Generator Our Core Technology (lower right)

    -  Broad Range of Drug Formulations Solution or Suspension of Drug (bottom
       center)

                          INSIDE FOLDOUT PANEL 1 AND 2

Product (header, upper left)

    -  Image of man using nebulizer (upper left), annotated with the following:

       --  AeroNeb Portable Nebulizer--Cleared by FDA for delivery of
           commercially available nebulizer solutions

    -  Image of patient using AeroNeb Inline Nebulizer (upper center), annotated
       with the following:

       --  AeroNeb Inline Nebulizer--In development to deliver commercially
           available nebulizer solutions and humidification

    -  Image of man using AeroDose Inhaler (upper right), annotated with the
       following:

       --  AeroDose Inhaler--In development--Respiratory Products,
           Bronchodilators, Anti-infective, Anti-inflammatory--Systemic Drug
           Delivery Products--Insulin

Platforms (header, middle left)

    -  Schematic drawing of nebulizer (middle left), annotated with the
       following:

       --  Our Home Nebulizer--Quiet, small, lightweight, portable

    -  Schematic drawing of ventilator nebulizer (middle center), annotated with
       the following:

       --  Our Ventilator Nebulizer--Efficient drug delivery

    -  Schematic drawing of Inhaler (middle right), annotated with the
       following:

       --  Our Inhaler--Breath activated, small, lightweight, hand-held,
           efficient

Core Technology (header, lower left)

    -  Image of Aerosol Generator (lower middle)--Aerosol Generator

AeroGen logo (lower left)

                               INSIDE BACK COVER

Efficiency of AeroDose Inhaler in Depositing Albuterol in the Lungs (header,
left)

    -  Six person imaging study conducted by AeroGen using radio-labelled
       albuterol

    -  Image of Throat, Lungs, Stomach (upper right)--Throat, Lungs, Stomach

    -  AeroDose (middle, right), annotated with the following:

       --  Average Lung Deposition 70%

    -  MDI (middle, left), annotated with the following:

       --  Average Lung Deposition 18%

    -  Image of Throat, Lungs, Stomach (lower left)--Throat, Lungs, Stomach

    -  AeroGen logo (lower right)
<PAGE>
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                PAGE
                                                              --------
<S>                                                           <C>
Prospectus Summary..........................................      1

Risk Factors................................................      5

Forward-Looking Statements..................................     14

Use of Proceeds.............................................     14

Dividend Policy.............................................     14

Capitalization..............................................     15

Dilution....................................................     16

Selected Consolidated Financial Data........................     17

Management's Discussion and Analysis of Financial Condition
  and Results of Operations.................................     19

Business....................................................     23

Management..................................................     42

Principal Stockholders......................................     53

Related Party Transactions..................................     56

Description of Capital Stock................................     58

Shares Eligible for Future Sale.............................     61

Underwriting................................................     63

Legal Matters...............................................     66

Experts.....................................................     66

Where You Can Find More Information.........................     66

Index to Consolidated Financial Statements..................    F-1
</TABLE>

    "AeroGen," "AeroDose," "AeroNeb," "AeroNeb InLine" and the AeroGen logo are
our trademarks. "TOBI" is a registered trademark of PathoGenesis Corporation.
This prospectus also includes references to registered service marks and
trademarks of other companies.
<PAGE>
                               PROSPECTUS SUMMARY

    THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION YOU SHOULD CONSIDER
BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS
CAREFULLY, INCLUDING "RISK FACTORS" BEGINNING ON PAGE 5 AND OUR CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES BEGINNING ON PAGE F-1, BEFORE MAKING AN
INVESTMENT DECISION. EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS
PROSPECTUS ASSUMES THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED
AND ASSUMES THE CONVERSION OF ALL OF OUR PREFERRED STOCK INTO COMMON STOCK UPON
COMPLETION OF THIS OFFERING.

                                  OUR BUSINESS

    AeroGen specializes in the development, manufacture and commercialization of
products for the controlled delivery of drugs to the lungs, which is called
pulmonary drug delivery. Drugs can be delivered via a fine mist, or aerosol, to
the lungs to treat breathing-related (respiratory) conditions such as asthma, or
through the lungs to the bloodstream (systemically) to treat diseases or
conditions outside of the lungs such as diabetes. Our core technology consists
of a proprietary aerosol generator. When incorporated in our inhaler or
nebulizer platforms, our aerosol generator delivers drugs in an aerosol of a
predetermined particle size. We believe our delivery platforms will allow us to
develop products delivering drugs formulated as liquids in solutions,
suspensions or liposomes, from single-dose, multi-dose or patient-adjustable
dosage forms. Products in development provide drug delivery from our hand-held
breath-activated inhalers, nebulizers for home use and nebulizers for patients
on mechanical ventilators.

    We intend to create and market a respiratory disease product portfolio. Our
initial products will focus on treating three respiratory diseases--asthma,
chronic obstructive pulmonary disease (COPD) and cystic fibrosis (CF)--and will
improve treatment for patients currently using nebulizers and those receiving
therapy via ventilators. These products will deliver commercially available
respiratory drugs and compounds licensed from third parties. In 1999 the U.S.
institutional and pharmacy expenditures for inhaled respiratory medications were
approximately $3.3 billion.

    We also are developing respiratory products in collaboration with partner
companies who will commercialize those products. For example, in March 2000, we
signed an agreement with PathoGenesis Corporation to develop a small, hand-held
AeroDose inhaler to deliver TOBI, an inhaled tobramycin treatment for CF. Under
the agreement, PathoGenesis received exclusive worldwide rights to commercialize
our AeroDose inhaler for use in combination with TOBI. In August 2000,
PathoGenesis announced that it had entered into an agreement to be acquired by
Chiron Corporation, a leading biotechnology company.

    In addition to our respiratory therapy activities, we intend to develop
novel pulmonary drug delivery products for systemic drug delivery. These
products will be developed in collaboration with pharmaceutical and
biotechnology companies. Our first product in development for delivery of drugs
through the lungs to the bloodstream is an AeroDose inhaler delivering insulin
to treat diabetes. We completed our first clinical trial for this product, and
are proceeding with additional trials in the United States and Europe. In May of
this year, we entered into an agreement with Becton, Dickinson and Company (BD)
under which BD will develop and supply a patient-adjustable container for use in
our AeroDose insulin product. We plan to partner this product for further
development, clinical testing and commercialization. We estimate that the
worldwide insulin market will grow from $3.2 billion in 2000 to $6.5 billion by
2005.

    The worldwide market for therapeutic proteins is estimated to be
$19.2 billion in 2001. We believe that systemic drug delivery of these molecules
via the lungs provides significant additional market opportunities for us.

                                       1
<PAGE>
    We believe that our products will address many of the limitations presented
by traditional and competing new methods of pulmonary drug delivery and will
provide the following benefits:

    -  OPTIMIZATION AND CUSTOMIZATION OF AEROSOL PARTICLE SIZE. Our aerosol
       generator delivers a low-velocity aerosol of precisely defined particle
       size, facilitating delivery of drug to the appropriate part of the
       respiratory system.

    -  EASE OF FORMULATION. Drugs can be stored in liquid or dry powder form and
       can be aerosolized in solution or suspension.

    -  FLEXIBILITY OF DOSING. Our AeroDose inhaler technology can be used to
       administer drugs as a single dose, as a unit dose from a multi-dose
       container or as a patient-adjustable dose.

    -  BREATH-ACTIVATION. We have developed a breath-activation feature which
       triggers aerosol formation and is designed to enable patients to obtain
       consistent dosing over one or more breaths.

    -  DOSAGE GUIDANCE. We can incorporate electronic features to provide
       information to the patient.

    -  CONVENIENCE. Our products are designed to be portable, lightweight and
       easy to use.

                                  OUR STRATEGY

    Our goal is to become the leading provider of aerosol-based pulmonary drug
delivery products. Key elements of our strategy include:

    -  Incorporating our core technology into adaptable delivery platforms;

    -  Developing our platforms for multiple product applications;

    -  Developing and commercializing respiratory products ourselves and with
       partner companies;

    -  Partnering with pharmaceutical and biotechnology companies for systemic
       delivery products; and

    -  Out-licensing our aerosol generator technology for use outside of the
       field of pulmonary drug delivery.
                                 --------------

    We were incorporated in the state of California in November 1991 under the
name Fluid Propulsion Technologies, Inc. In April 1997, we changed our name to
AeroGen, Inc. In March 1998, we changed our domicile to the state of Delaware.
Our principal executive offices are located at 1310 Orleans Drive, Sunnyvale,
California 94089, and our telephone number is (408) 543-2400. Our web site is
www.aerogen.com. Information on our web site is not part of this prospectus.

                                       2
<PAGE>
                                  THE OFFERING

<TABLE>
<S>                                            <C>
Common stock we are offering.................  shares

Common stock to be outstanding after this      shares
  offering...................................

Use of proceeds..............................  We intend to use the net proceeds of this
                                               offering primarily for research, development
                                               and clinical activities, manufacturing and
                                               commercialization of existing and future
                                               products, capital expenditures and general
                                               corporate purposes.

Proposed Nasdaq National Market symbol.......  AEGN
</TABLE>

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

    The share amounts in this table are based on shares outstanding as of
June 30, 2000, as adjusted for the issuance in July 2000 of preferred stock
convertible into 7,498,223 shares of common stock. This table excludes, as of
August 24, 2000:

    -  97,051 shares of common stock issuable upon exercise of warrants
       outstanding at a weighted average exercise price of $0.93 per share;

    -  3,737,192 shares of common stock issuable upon exercise of options
       outstanding at a weighted average exercise price of $0.85 per share;

    -  6,239,030 shares of common stock reserved for future grants under our
       stock option plans; and

    -  750,000 shares of common stock reserved for issuance under our employee
       stock purchase plan.

                                       3
<PAGE>
                   SUMMARY CONSOLIDATED FINANCIAL INFORMATION

    The following table sets forth summary consolidated financial data for the
periods indicated. The data has been derived from the consolidated financial
statements for the three years ended December 31, 1999 and the six month periods
ended June 30, 1999 and 2000 included elsewhere in this prospectus. It is
important that you read this information together with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" beginning on
page 19 and our consolidated financial statements and related notes beginning on
page F-1.

<TABLE>
<CAPTION>
                                                                                             SIX MONTHS        CUMULATIVE PERIOD
                                                                                                ENDED            FROM 11/18/91
                                                                 YEARS ENDED                  JUNE 30,               (DATE
                                                                 DECEMBER 31,                (UNAUDITED)         OF INCEPTION)
                                                        ------------------------------   -------------------    THROUGH 6/30/00
                                                          1997       1998       1999       1999       2000        (UNAUDITED)
                                                        --------   --------   --------   --------   --------   -----------------
                                                                         (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                     <C>        <C>        <C>        <C>        <C>        <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
  Research and development revenues...................  $   328    $    86    $   468    $    --    $ 3,568        $  5,166
  Operating expenses:
    Research and development..........................    3,961      4,393      7,837      3,305      7,374          26,354
    General and administrative........................    1,509      1,600      2,039      1,023      1,745           8,285
    Stock-based compensation..........................       --         --        110         43        205             315
    Purchased in-process research and development.....       --         --         --         --      3,500           3,500
                                                        -------    -------    -------    -------    -------        --------
    Total operating expenses..........................    5,470      5,993      9,986      4,371     12,824          38,454
                                                        -------    -------    -------    -------    -------        --------
  Loss from operations................................   (5,142)    (5,907)    (9,518)    (4,371)    (9,256)        (33,288)
  Interest income, net................................       87        345        550        303        184           1,346
                                                        -------    -------    -------    -------    -------        --------
  Net loss............................................   (5,055)    (5,562)    (8,968)    (4,068)    (9,072)        (31,942)
  Dividend related to beneficial conversion feature of
    preferred stock...................................       --         --         --         --       (353)           (353)
                                                        -------    -------    -------    -------    -------        --------
  Net loss available to common stockholders...........  $(5,055)   $(5,562)   $(8,968)   $(4,068)   $(9,425)       $(32,295)
                                                        =======    =======    =======    =======    =======        ========
  Net loss per common share, basic and diluted........  $ (1.14)   $ (1.16)   $ (1.65)   $ (0.78)   $ (1.46)
                                                        =======    =======    =======    =======    =======
  Shares used in computing net loss per common share,
    basic and diluted.................................    4,429      4,810      5,433      5,197      6,462
                                                        =======    =======    =======    =======    =======
  Pro forma net loss per common share, basic and
    diluted (unaudited)...............................                        $ (0.27)              $ (0.25)
                                                                              =======               =======
  Shares used in computing pro forma net loss per
    common share, basic and diluted (unaudited).......                         33,428                35,701
                                                                              =======               =======
</TABLE>

    The actual column in the following table presents the actual summary
consolidated balance sheet at June 30, 2000.

    The pro forma consolidated balance sheet data summarized below reflects the
sale of 7,498,223 shares of Series F preferred stock in July 2000 for net
proceeds of approximately $16.3 million as well as the conversion of all of our
preferred stock into common stock at the closing of this offering.

    The pro forma as adjusted consolidated balance sheet data summarized below
reflects the sale of      shares of common stock in this offering at an initial
public offering price of $     per share, after deducting underwriting discounts
and commissions and estimated offering expenses.

<TABLE>
<CAPTION>
                                                                  JUNE 30, 2000 (UNAUDITED)
                                                              ---------------------------------
                                                                                     PRO FORMA
                                                                                         AS
                                                               ACTUAL    PRO FORMA    ADJUSTED
                                                              --------   ---------   ----------
                                                                       (IN THOUSANDS)
<S>                                                           <C>        <C>         <C>
CONSOLIDATED BALANCE SHEET DATA:
  Cash, cash equivalents and available-for-sale
    securities..............................................  $  7,245   $ 23,545
  Total assets..............................................    12,227     28,527
  Long-term obligations, less current position..............       286        286
  Deficit accumulated during the development stage..........   (32,295)   (32,295)
  Deferred stock-based compensation, net....................    (4,431)    (4,431)
  Total stockholders' equity (deficit)......................   (32,073)    26,111
</TABLE>

                                       4
<PAGE>
                                  RISK FACTORS

    YOU SHOULD CONSIDER CAREFULLY THE RISKS DESCRIBED BELOW TOGETHER WITH ALL OF
THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS BEFORE MAKING AN INVESTMENT
DECISION. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS COULD BE HARMED. IN SUCH AN EVENT, THE
TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE PART OR ALL OF
YOUR INVESTMENT.

                         RISKS RELATED TO OUR BUSINESS

WE ARE A DEVELOPMENT STAGE COMPANY AND ALMOST ALL OF OUR PRODUCTS ARE IN AN
EARLY STAGE OF RESEARCH AND DEVELOPMENT, WHICH MAKES IT DIFFICULT FOR YOU TO
EVALUATE OUR BUSINESS AND PROSPECTS.

    You must evaluate us in light of the uncertainties and complexities present
in a development stage company. Almost all of our products are in an early stage
of research or development. Before we can begin to sell our products
commercially, we will need to invest in substantial additional development and
conduct clinical trials. To further develop our products, we will need to
address engineering and design issues, including ensuring that our products
deliver a consistent and predictable amount of drug to the lung and can be
manufactured successfully. We cannot assure you that:

    -  our research and development efforts will be successful;

    -  any of our products will prove safe and effective;

    -  we will obtain regulatory clearance or approval to sell any of our
       products; or

    -  any of our products can be manufactured in commercial quantities or at an
       acceptable cost or marketed successfully.

WE HAVE A HISTORY OF LOSSES, ANTICIPATE FUTURE LOSSES AND MAY NEVER ACHIEVE OR
MAINTAIN PROFITABILITY.

    We have never been profitable. Through June 30, 2000, we have incurred a
cumulative deficit of approximately $32.3 million. We expect to continue to
incur substantial losses over at least the next several years as we:

    -  expand our research and development efforts;

    -  expand our preclinical and clinical testing activities;

    -  expand our manufacturing efforts, including our commercial production
       capability; and

    -  build our sales and marketing capabilities and launch our products.

    To achieve and sustain profitability, we must, alone or with others,
develop, obtain regulatory approval for, manufacture, market and sell products.
We cannot assure investors that we will generate sufficient product, royalty or
research and development revenue to become profitable or to sustain
profitability.

WE MAY NEED ADDITIONAL CAPITAL. IF WE CANNOT SECURE ADDITIONAL FUNDING ON
ACCEPTABLE TERMS, WE MAY BE REQUIRED TO SLOW OUR PROGRESS, CURTAIL OUR
OPERATIONS OR GIVE UP RIGHTS TO SOME OF OUR TECHNOLOGIES OR PRODUCTS.

    Depending on the timing and nature of our marketing efforts and whether and
when we enter into additional collaborations, we may need to raise additional
funds to finance our operations. Our cash requirements may increase because of
our research and development efforts, including clinical trials, capital
expenditures, and the manufacture and marketing of our products. We may need to
seek additional funding through collaborations or through public or private
equity financings. We cannot assure investors that additional financing will be
available on acceptable terms or at all. If adequate funds are not available, we
may be required to delay, reduce the scope of, or eliminate one or more of our
research or

                                       5
<PAGE>
development programs. Arrangements with collaborative partners may require us to
relinquish rights to some of our technologies or products.

OUR TECHNOLOGY IS UNPROVEN, SO PRODUCTS USING OUR TECHNOLOGY MAY NOT WORK
EFFECTIVELY.

    Our pulmonary drug delivery technology is new and unproven. Most of our
products are currently in the research, development or clinical stages.
Extensive additional testing will need to be performed to demonstrate that:

    -  drugs may be safely and effectively delivered using our technology;

    -  our nebulizers and inhalers are safe across a range of drugs and
       formulations;

    -  our products consistently deliver accurate and predictable amounts of
       drug over time; and

    -  drug formulations are stable in our products.

    If our products do not prove to be safe and effective, we may be required to
abandon some or all of them. If we cannot develop new products, our business
will suffer.

IF CLINICAL TRIALS OF OUR PRODUCTS ARE NOT SUCCESSFUL, PRODUCTS USING OUR
AERODOSE INHALERS MAY NOT BE COMMERCIALIZED.

    Before either we or our partners can file for regulatory approval for the
commercial sale of products using our AeroDose inhalers, the Food and Drug
Administration (FDA) will require extensive clinical trials to demonstrate their
safety and efficacy. We are developing other drug and inhaler combinations, each
of which will require clinical testing. To date, we have completed limited
clinical trials using prototype patient-operated AeroDose inhalers. If we do not
successfully complete appropriate clinical trials, we will not be able to
commercialize our products.

    The results of initial clinical trials do not necessarily predict the
results of more extensive clinical trials. Furthermore, we cannot be certain
that clinical trials of our products will demonstrate that they are safe and
effective to the extent necessary to obtain regulatory approvals. Many companies
in the pharmaceutical and biotechnology industries have suffered significant
setbacks in advanced clinical trials, even after achieving promising results in
earlier trials.

WE HAVE LIMITED MANUFACTURING EXPERIENCE AND MAY NOT BE ABLE TO MANUFACTURE OUR
PRODUCTS IN COMMERCIAL QUANTITIES. WE WILL DEPEND ON KEY SUPPLIERS AND CONTRACT
MANUFACTURERS, AND THEIR FAILURE TO SUPPLY US MAY DELAY OR PREVENT
COMMERCIALIZATION OF OUR PRODUCTS.

    We are building our own manufacturing capabilities to produce key components
of our products. We currently plan to produce our aerosol generators. We plan to
use contract manufacturers to produce certain other key components and
subassemblies of our products. We may assemble some or all of our products
ourselves, or we may use contract manufacturers for the final assembly of some
or all of our products. We do not have contracts with any of our key suppliers
or contract manufacturers. In addition, most of them currently are our sole
source of supply. We may not be able to enter into or maintain satisfactory
contracts or arrangements. In addition, manufacturing our products could be
delayed by supply problems at our suppliers or contract manufacturers. There can
be no assurance that we or our contract manufacturers can successfully
manufacture in high volumes in a timely manner, at an acceptable cost or at all.
We cannot assure investors that:

    -  the design of our products will permit their manufacture on a commercial
       scale;

    -  manufacturing and quality control problems will not arise as we attempt
       to scale-up production; or

    -  any scale-up of production can be achieved in a timely manner or at a
       commercially reasonable cost.

                                       6
<PAGE>
    Failure to address these issues adequately could delay or prevent clinical
testing and commercialization of our products.

IF OUR COLLABORATION WITH PATHOGENESIS IS NOT SUCCESSFUL, THE AERODOSE TOBI
PRODUCT WILL NOT BE COMMERCIALIZED.

    The successful development and commercialization of the AeroDose TOBI
product depends on our development collaboration with PathoGenesis. PathoGenesis
has agreed to:

    -  fund our AeroDose TOBI development activities;

    -  design and conduct advanced clinical trials and obtain regulatory
       approval;

    -  purchase the AeroDose TOBI inhaler from us at a defined premium over our
       manufacturing cost; and

    -  pay us royalties if and when the AeroDose TOBI product is commercialized.

    The development and commercialization of the AeroDose TOBI product will not
occur if PathoGenesis fails to conduct these activities. PathoGenesis may
terminate the agreement at any time. We cannot assure investors that we will
receive further development funding, that PathoGenesis will commercialize the
product, or that we will receive any manufacturing or royalty payments. If
PathoGenesis terminates the agreement, our business will be impaired. In
August 2000, PathoGenesis announced that it had entered into an agreement to be
acquired by Chiron Corporation, a leading biotechnology company. There is no
assurance that Chiron will elect to continue this collaboration.

OUR INSULIN PRODUCT CURRENTLY IS OUR ONLY PRODUCT IN DEVELOPMENT FOR SYSTEMIC
DELIVERY, AND THERE ARE MANY UNCERTAINTIES WHICH COULD CAUSE THE PRODUCT TO BE
DELAYED OR NOT TO REACH THE MARKET AT ALL.

    Our insulin product faces many uncertainties. We have only completed one
Phase I clinical trial and cannot be sure that the results of additional
clinical trials will prove the safety and effectiveness of our product. Ensuring
a steady supply of insulin from a qualified supplier is critical to the success
of the product. We do not have a contract for the supply of insulin, and there
are only a limited number of suppliers of commercial quantities of insulin. If
our agreement with BD terminates or if BD's efforts to develop a
patient-adjustable container are unsuccessful, we will need to develop or obtain
a different patient-adjustable container to use with our insulin product, and
clinical trials and regulatory approval would be delayed. In addition, we have
not yet identified a marketing partner to fund the additional development and
clinical trials necessary to obtain regulatory approval and to commercialize the
product. We cannot assure you that we will be able to enter into a satisfactory
agreement with a marketing partner.

WE MAY NOT BE ABLE TO DEVELOP CERTAIN PRODUCTS IF WE DO NOT ENTER INTO
ADDITIONAL COLLABORATIVE RELATIONSHIPS OR GAIN ACCESS TO COMPOUNDS FROM THIRD
PARTIES.

    Our strategy depends partially on our ability to enter into collaborative
relationships with additional partners to conduct the clinical trials,
manufacturing, marketing and sales activities necessary to commercialize
products. To develop products to be marketed by us, we will need to purchase or
license, possibly reformulate and package drugs for use with our AeroDose
inhalers and nebulizers. We cannot assure you that we will be able to establish
these kinds of arrangements on favorable terms or at all, or that our existing
or future collaborative arrangements will be successful.

                                       7
<PAGE>
IF OUR PRODUCTS DO NOT GAIN COMMERCIAL ACCEPTANCE, WE WILL NOT GENERATE
SIGNIFICANT REVENUE.

    Our success in commercializing our products depends on many factors,
including acceptance by healthcare professionals and patients. Their acceptance
of our products will depend largely on our ability to demonstrate that our
products can compete with alternative delivery systems with respect to:

    -  safety;

    -  efficacy;

    -  the benefits associated with pulmonary delivery;

    -  ease of use; and

    -  price.

    We cannot assure investors that our products will compete effectively or
that we or our partners will be able to successfully market any products in a
timely manner.

IF WE ARE UNABLE TO DEVELOP A SUCCESSFUL SALES AND MARKETING PROGRAM, WE WILL
NOT BE ABLE TO COMMERCIALIZE OUR PRODUCTS.

    We currently have a very limited sales and marketing staff, and many of our
competitors have substantial sales and marketing programs. Our success in
commercializing our respiratory products in the United States will depend on our
ability to develop a successful sales and marketing program. Successful
worldwide commercialization will depend upon finding strong marketing partners
for our products in other countries.

OUR CORPORATE PARTNERS MAY NOT COMMERCIALIZE OUR PRODUCTS OR MAY DEVELOP
PRODUCTS THAT COMPETE AGAINST OUR PRODUCTS.

    We will depend on our corporate partners to commercialize products developed
in collaboration with us. If any of our existing or future corporate partners do
not complete the development of or commercialize products to which they have
obtained rights from us, our business could be impaired. In the drug delivery
area, it is common for corporate partners to conduct feasibility studies with
multiple partners. There can be no assurance that our existing or future
corporate partners will choose our technology over their own technology or that
of our competitors.

IF WE ARE UNABLE TO ATTRACT AND RETAIN THE HIGHLY SKILLED PERSONNEL NECESSARY
FOR OUR BUSINESS, WE MAY NOT BE ABLE TO DEVELOP OUR PRODUCTS SUCCESSFULLY.

    Because of the specialized nature of our business, we depend upon qualified
scientific, engineering, technical and managerial personnel. In particular, our
business and prospects depend upon the continued employment of Dr. Jane E. Shaw,
our Chairman and Chief Executive Officer. We do not have an employment agreement
with Dr. Shaw. There is intense competition for qualified personnel in our
business, especially for engineering personnel. In addition, our location in
northern California makes recruiting qualified personnel more difficult.
Therefore, we may not be able to attract and retain the qualified personnel
necessary to grow our business. The loss of the services of existing personnel,
as well as the failure to recruit additional key scientific, technical,
engineering and managerial personnel in a timely manner, would harm our research
and development programs and our business.

OUR ABILITY TO MARKET AND SELL OUR PRODUCTS DEPENDS UPON RECEIVING REGULATORY
APPROVALS, WHICH WE MAY NOT OBTAIN.

    Our products are subject to extensive regulation in the United States by the
FDA, and state and local government agencies, and abroad by international
regulatory authorities. These agencies regulate the

                                       8
<PAGE>
development, testing, manufacture, labeling, storage, approval, advertising,
promotion, sale and distribution of medical devices, drugs and biologics. If we
or our partners fail to obtain regulatory clearances to market our products, our
business will be harmed and we, or our collaborative partners, will not be able
to market and sell our products. Even if granted, regulatory approvals may
include significant limitations on the uses for which products may be marketed.
Once obtained, required approvals may be withdrawn, or we may not remain in
compliance with regulatory requirements. The process for obtaining necessary
regulatory approvals for drugs and biologics is generally lengthy, expensive and
uncertain. Obtaining and maintaining foreign regulatory approvals is expensive,
and we cannot be certain that we will receive approvals in any foreign country
in which we or our partners plan to market our products. If we or our partners
fail to obtain regulatory approval in the United States or in any foreign
country in which we plan to market our products, our revenues will be lower.

    The regulatory approval process for many of our products is unclear because
our products may be classified as medical devices, drugs or biologics. As a
result, we may experience greater regulatory uncertainty and longer approval
timelines.

IF OUR MANUFACTURING FACILITIES DO NOT MEET FEDERAL, STATE OR INTERNATIONAL
MANUFACTURING STANDARDS, WE MAY NOT BE ABLE TO SELL OUR PRODUCTS IN THE UNITED
STATES OR INTERNATIONALLY.

    Our manufacturing facilities are subject to periodic inspection by
regulatory authorities and our operations will continue to be regulated by the
FDA for compliance with current Good Manufacturing Practices (GMP). We also are
required to comply with ISO 9000 series standards in order to produce products
for sale in the European Union, or EU. We only recently received ISO 9001
certification for our California facility. Maintaining such certification is
difficult and costly. If we fail to comply with GMP requirements, ISO 9000
series or other international regulatory requirements, we may be required to
cease all or part of our operations until we comply with these regulations. We
cannot be certain that our facilities will be found to comply on an ongoing
basis with GMP, ISO 9000 series or other international regulatory requirements.

    The state of California requires that we maintain a license to manufacture
medical devices, and our facilities and manufacturing processes may be inspected
from time to time to monitor compliance with the applicable regulations. We will
be subject to licensing requirements and periodic inspections by the California
Department of Health Services, the county of Santa Clara and various
environmental agencies. If we are unable to maintain a license following any
future inspections, we will be unable to manufacture or ship any products.

    Currently, we lease our California facility under a lease expiring at the
end of 2001. We intend to use this facility to manufacture our products, which
requires us to qualify the facility with the FDA. If we are unable to renew our
lease on terms satisfactory to us, we may be required to move to a new facility
and dedicate substantial resources to building and qualifying new manufacturing
operations.

OUR PRODUCTS MAY NOT BE COMMERCIALLY VIABLE IF GOVERNMENT HEALTH ADMINISTRATION
AUTHORITIES, PRIVATE HEALTH INSURERS AND OTHER THIRD-PARTY PAYORS DO NOT PROVIDE
ADEQUATE REIMBURSEMENT FOR THE COST OF OUR PRODUCTS.

    In both domestic and foreign markets, sales of our potential products will
depend in part on the availability of reimbursement from third-party payors such
as government health administration authorities, private health insurers and
other organizations. Third-party payors often challenge the price and
cost-effectiveness of medical products and services. There is significant
uncertainty about the reimbursement status of newly approved healthcare
products. We cannot assure investors that any of our products will be reimbursed
by third-party payors. In addition, we cannot assure investors that our products
will be considered cost-effective or that adequate third-party reimbursement
will be available to enable us to maintain price levels sufficient to realize a
profit. Legislation and regulations affecting the

                                       9
<PAGE>
pricing of health care products may change before our products are approved for
marketing, and any such changes could further limit reimbursement.

OUR COMPETITORS MAY BE MORE SUCCESSFUL IN DEVELOPING COMPETING TECHNOLOGIES AND
GAINING MARKET ACCEPTANCE.

    We compete with pharmaceutical, biotechnology and drug delivery companies,
research organizations, individual scientists and nonprofit organizations
engaged in the development and commercialization of drug delivery systems and
new drug research and testing. We are aware of a number of companies currently
seeking to develop pulmonary delivery devices and other non-invasive
alternatives to injectable drug delivery, including oral delivery systems,
intranasal delivery systems, transdermal systems, buccal absorption and infusion
systems. Many of these companies and entities have greater research and
development capabilities, experience, manufacturing, marketing, financial and
managerial resources than we do. Accordingly, our competitors may succeed in
developing competing technologies and products, obtaining regulatory approval
for products or gaining market acceptance more rapidly than we can. If
competitors bring effective products to market before we do, there is a risk
that we may not be able to gain significant market share because our competitors
may have firmly established their products in the market. It is also possible
that a competitor may develop a technology or product that renders our
technology or products obsolete.

WE MAY BE UNABLE TO EFFECTIVELY PROTECT OUR INTELLECTUAL PROPERTY, WHICH COULD
ENABLE THIRD PARTIES TO USE OUR TECHNOLOGY AND IMPAIR OUR ABILITY TO COMPETE
EFFECTIVELY.

    Our ability to compete effectively depends in part on developing and
maintaining the proprietary aspects of our aerosolization technology. We cannot
assure you that the patents we have obtained, or any patents we may obtain as a
result of our pending U.S. or international patent applications, will provide
any competitive advantages for our products. We also cannot assure you that
those patents will not be successfully challenged, invalidated or circumvented
in the future. In addition, we cannot assure you that competitors, many of which
have substantial resources and have made substantial investments in competing
technologies, have not already applied for or obtained, or will not seek to
apply for and obtain, patents that will prevent, limit or interfere with our
ability to make, use and sell our products either in the United States or in
international markets. Patent applications are maintained in secrecy for a
period after filing. We may not be aware of all of the patents and patent
applications potentially adverse to our interests.

    A number of pharmaceutical, medical device and other companies, as well as
universities and research institutions, have filed patent applications or have
issued patents relating to methods and apparatuses for aerosolization and
pulmonary drug delivery. We have become aware of, and may become aware of in the
future, patent applications and issued patents that relate to certain aspects of
the technology employed in our products. We do not believe that our products
currently infringe any valid and enforceable claims of the issued patents that
we have reviewed. However, if third-party patents or patent applications contain
claims infringed by our technology and such claims are ultimately determined to
be valid, we may not be able to obtain licenses to those patents at a reasonable
cost, if at all, or be able to develop or obtain alternative technology. Our
inability to do either would have a material adverse effect on our business,
financial condition, results of operations and prospects. We cannot assure you
that we will not have to defend ourselves in court against allegations of
infringement of third-party patents, or that such defense would be successful.

    In addition to patents, we rely on trade secrets and proprietary know-how,
which we seek to protect, in part, through confidentiality and proprietary
information agreements. We require our employees and key consultants to execute
confidentiality agreements upon the commencement of employment or a consulting
relationship with us. We cannot assure you that employees or consultants will
not breach these

                                       10
<PAGE>
agreements, that we would have adequate remedies for any breach or that our
trade secrets will not otherwise become known to or be independently developed
by competitors.

WE MAY BECOME SUBJECT TO PATENT LITIGATION, WHICH WOULD BE COSTLY TO DEFEND AND
COULD INVALIDATE OUR PATENTS.

    The pharmaceutical and medical device industries have been characterized by
extensive litigation regarding patents and other intellectual property rights,
and companies in these industries have used intellectual property litigation to
gain a competitive advantage. We cannot assure you that we will not become
subject to patent infringement claims or litigation or interference proceedings
declared by the U.S. Patent and Trademark Office, the USPTO, to determine the
priority of inventions. In 1999 we settled a patent interference with U.S.
Patent No. 5,261,601, assigned to Bespak plc. The settlement provided for a
cross-license between us and Bespak, as a result of which Bespak has a license
to certain of our technology, including the right to sublicense. The scope of
the granted license was limited to products employing technology which was
disclosed by Bespak in U.S. Patent No. 5,261,601.

    Our patent position involves complex legal and factual questions and is
generally uncertain. The field of aerosolized drug delivery is crowded, and a
substantial number of patents have been issued to others. We are aware of
several issued U.S. and international patents that cover certain aspects of
vibratory aerosolization technology. Legal standards relating to the validity
and scope of patent claims in the biotechnology and pharmaceutical field are
evolving. Therefore, the degree of protection our patents will afford is
uncertain. Patents, if issued, may be challenged, invalidated or designed
around. Thus, any patents that we own or license may not provide any, or
significant, protection against competitors. Our pending patent applications or
those we may file in the future may not result in patents being issued. Also,
patent rights may not provide us with proprietary protection or competitive
advantages against competitors with similar technology. Furthermore, others may
independently develop similar technologies or duplicate any technology that we
have developed.

    Defending and prosecuting intellectual property suits, USPTO interference
proceedings and related legal and administrative proceedings are costly and
time-consuming. Further litigation may be necessary to enforce our patents, to
protect our trade secrets or know-how or to determine the enforceability, scope
and validity of the proprietary rights of others. Any litigation or interference
proceedings will be costly and will result in significant diversion of effort by
technical and management personnel. An adverse determination in any of the
litigation or interference proceedings to which we may become a party could
subject us to significant liabilities to third parties, require us to license
disputed rights from third parties or require us to cease using such technology,
which would have a material adverse effect on our business, financial condition,
results of operations and future growth prospects. Patent and intellectual
property disputes in the medical device area have often been settled through
licensing or similar arrangements, and could include ongoing royalties. We
cannot assure you that we can obtain the necessary licenses on satisfactory
terms, if at all.

IF WE WERE SUCCESSFULLY SUED FOR PRODUCT LIABILITY, WE COULD FACE SUBSTANTIAL
LIABILITIES THAT EXCEED OUR RESOURCES.

    Researching, developing and commercializing medical devices and
pharmaceutical products entails significant product liability risks. The use of
our products in clinical trials and the commercial sale of our products may
expose us to liability claims. These claims might be made directly by consumers
or by our partner companies or others selling such products. Companies often
address the exposure of this risk by obtaining product liability insurance.
Although we currently have product liability insurance, we cannot assure
investors that we can maintain such insurance or obtain additional insurance on
acceptable terms in amounts sufficient to protect our business or at all. A
successful claim brought against us in excess of our insurance coverage would
have a material adverse effect on our business.

                                       11
<PAGE>
WE USE HAZARDOUS AND TOXIC MATERIALS AND MUST COMPLY WITH ENVIRONMENTAL LAWS AND
REGULATIONS, WHICH CAN BE EXPENSIVE AND RESTRICT HOW WE DO BUSINESS.

    Our operations involve use of hazardous and toxic materials and generate
hazardous, toxic and other wastes. In particular, we use a special metal alloy
to build our aerosol generators that is regulated as a hazardous material. The
risk of accidental contamination or injury from hazardous and toxic materials
cannot be completely eliminated. In the event of such an accident, we could be
held liable for any damages that result, and this liability could exceed our
resources. Our operations could be shut down by government officials if we were
not in compliance with environmental laws.

WE WILL NEED TO INTEGRATE EFFECTIVELY THE ACTIVITIES OF OUR NEW IRISH SUBSIDIARY
WITH OUR CALIFORNIA ACTIVITIES IN ORDER TO OPERATE OUR COMPANY EFFICIENTLY.

    In May 2000 we acquired Cerus Limited, an Irish company with approximately
ten employees. Cerus was renamed AeroGen (Ireland) Limited and has primary
responsibility for developing and obtaining regulatory approval for our AeroNeb
InLine nebulizer. If the California and Irish locations of our businesses do not
integrate quickly and efficiently, the development and commercialization of our
products could be delayed. Currency fluctuations involving our Irish operations
may cause foreign currency translation gains and losses. We cannot predict the
effect of such exchange rate fluctuations on our combined operations.

                         RISKS RELATED TO THIS OFFERING

OUR MANAGEMENT WILL HAVE BROAD DISCRETION AS TO THE USE OF PROCEEDS FROM THIS
OFFERING AND MAY SPEND THE PROCEEDS IN WAYS WITH WHICH YOU MAY NOT AGREE.

    Our management will have broad discretion over the use of proceeds from this
offering. We currently intend to use the proceeds of this offering for increased
research, development and clinical activities, manufacturing and
commercialization of existing and future products, capital expenditures and
general corporate purposes. Our management may allocate the net proceeds among
these purposes as it determines necessary. In addition, market factors may
require our management to allocate all or portions of the net proceeds for other
purposes. Management may not use the proceeds in a manner in which you agree.
Accordingly, you will be relying on the judgment of our management with regard
to the use of proceeds from this offering.

YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION AS A RESULT OF THIS OFFERING.

    The initial public offering price of our common stock is substantially
higher than the net tangible book value per share of our common stock. As a
result, investors purchasing common stock in this offering will incur immediate
and substantial dilution in net tangible book value per share of our common
stock. The dilution will be $     per share in the net tangible book value of
the common stock from the initial public offering price (or $     per share if
the underwriters' option to purchase additional shares is exercised in full). In
addition, investors will incur additional dilution upon the exercise of
outstanding stock options and warrants.

OUR STOCK PRICE MAY BE VOLATILE, AND YOU MAY LOSE ALL OR A PART OF YOUR
INVESTMENT.

    The market prices for securities of many companies in the life sciences
industry have historically been highly volatile, and the market from time to
time has experienced significant price and volume fluctuations unrelated to the
operating performance of particular companies. As a result, you may be unable to
sell your shares of common stock at or above the offering price. Prices for our
common stock may be influenced by many factors, including:

    -  market conditions relating to the life sciences industry;

                                       12
<PAGE>
    -  investor perception of our company;

    -  securities analysts' recommendations;

    -  delays in the development or regulatory approval of our products;

    -  announcements of technological innovations or new commercial products by
       us, our partners or competitors;

    -  failure to establish new collaborative relationships or termination of
       existing collaborative relationships;

    -  developments or disputes concerning patent or intellectual property
       rights;

    -  regulatory and pricing developments in both the United States and foreign
       countries;

    -  public concern as to the safety of drugs and drug delivery technologies;

    -  period-to-period fluctuations in financial results; or

    -  economic and other external factors.

THE SUBSTANTIAL NUMBER OF OUR SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE NEAR
FUTURE MAY CAUSE THE MARKET PRICE FOR OUR COMMON STOCK TO DECLINE.

    Sales of a substantial number of shares of our common stock in the public
market following this offering could cause the market price of our common stock
to decline. The number of shares of common stock available for sale in the
public market is limited by restrictions under federal securities laws and under
agreements into which some of our stockholders have entered with the
underwriters or with us. Those lock-up agreements restrict our stockholders from
selling, pledging or otherwise disposing of their shares for a period of
180 days after the date of this prospectus without the prior written consent of
Chase Securities Inc. However, Chase Securities Inc. may, in its sole
discretion, release all or any portion of the common stock from the restrictions
of the lock-up agreements. Additionally, of the 3,737,192 shares issuable upon
exercise of options to purchase our common stock outstanding as of August 24,
2000, approximately            shares will be vested and eligible for sale
180 days after the date of this prospectus.

WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS WHICH COULD DISCOURAGE OR PREVENT A
TAKEOVER, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.

    Provisions of our amended and restated certificate of incorporation and
bylaws, as well as provisions of Delaware law, could make it more difficult for
a third party to acquire us, even if doing so would be beneficial to our
stockholders. These provisions also may discourage bids at a premium over the
market price of our common stock and may adversely affect both the market price
of our common stock and the voting rights of our stockholders.

CONCENTRATION OF OWNERSHIP AMONG OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND
PRINCIPAL STOCKHOLDERS MAY PREVENT NEW INVESTORS FROM INFLUENCING SIGNIFICANT
CORPORATE DECISIONS.

    Upon completion of this offering, our executive officers, directors and
principal stockholders will beneficially own, in the aggregate, approximately  %
of our outstanding common stock. As a result, these stockholders will be able to
exercise control over all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. This
could have the effect of delaying or preventing a change of control of AeroGen
and will make some transactions difficult or impossible without the support of
these stockholders.

                                       13
<PAGE>
                           FORWARD-LOOKING STATEMENTS

    This prospectus contains forward-looking statements. These forward-looking
statements are not historical facts but rather are based on current
expectations, estimates and projections about our industry, our beliefs and our
assumptions. Words such as "anticipates", "expects", "intends", "plans",
"believes", "seeks" and "estimates", and variations of these words and similar
expressions, are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to risks,
uncertainties and other factors, some of which are beyond our control, are
difficult to predict and could cause actual results to differ materially from
those expressed, implied or forecasted in the forward-looking statements. In
addition, the forward-looking events discussed in this prospectus might not
occur. These risks and uncertainties include, among others, those described in
"Risk Factors" beginning on page 5 and elsewhere in this prospectus. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect our management's view only as of the date of this prospectus. Except as
required by law, we undertake no obligation to update any forward-looking
statement, whether as a result of new information, future events or otherwise.

                                USE OF PROCEEDS

    We estimate that the net proceeds to us from the sale of            shares
of our common stock to be approximately $           million, approximately
$           million if the underwriters' over-allotment option is exercised in
full, at an assumed initial public offering price of $           per share,
after deducting the underwriting discounts and commissions and estimated
offering expenses.

    We currently intend to use the net proceeds of this offering primarily for
research, development and clinical activities, manufacturing and
commercialization of existing and future products, capital expenditures and
general corporate purposes. The amounts and timing of these expenditures will
vary depending on a number of factors, including the amount of cash generated by
our operations, competitive and technological developments and the rate of
growth, if any, of our business. We also may use a portion of the net proceeds
to acquire additional businesses, products and technologies, to lease or build
additional facilities, or to establish joint ventures or other collaborative
arrangements that we believe will complement our current or future business.
However, we have no specific plans, agreements or commitments to do so and are
not currently engaged in any negotiations for any acquisition or joint venture.

    We will retain broad discretion in the allocation of the net proceeds of
this offering. Pending the uses described above, we will invest the net proceeds
of this offering in short-term interest-bearing, investment-grade securities. We
cannot predict whether the proceeds will be invested to yield a favorable
return. Based upon our current plans, we believe that our available cash, cash
equivalents and available-for-sale securities, together with the estimated net
proceeds of this offering, will be sufficient to meet our capital requirements
for at least the next 24 months.

                                DIVIDEND POLICY

    We have never paid or declared any cash dividends. We currently expect to
retain earnings to support our operations and expand our business, and therefore
we do not anticipate paying any cash dividends for the foreseeable future.

                                       14
<PAGE>
                                 CAPITALIZATION

    The following table sets forth our capitalization as of June 30, 2000:

    -  on an actual basis derived from our unaudited consolidated financial
       statements;

    -  on a pro forma basis, reflecting the sale of 7,498,223 shares of our
       Series F preferred stock in July 2000 for net proceeds of approximately
       $16.3 million, and the automatic conversion of all of our preferred stock
       into an aggregate of 39,010,653 shares of common stock, which will occur
       upon the closing of the offering; and

    -  on a pro forma as adjusted basis to reflect our receipt of the net
       proceeds from the sale of            shares of common stock in this
       public offering at an assumed initial public offering price of $     per
       share, after deducting the estimated underwriting discounts and
       commissions and estimated offering expenses.

<TABLE>
<CAPTION>
                                                                        JUNE 30, 2000
                                                            --------------------------------------
                                                                                       PRO FORMA
                                                             ACTUAL      PRO FORMA    AS ADJUSTED
                                                            ---------   -----------   ------------
                                                             (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S>                                                         <C>         <C>           <C>
Cash, cash equivalents and available-for-sale
  securities..............................................  $  7,245     $ 23,545       $
                                                            ========     ========       ========
Long-term obligations, less current portion...............       286          286
                                                            --------     --------       --------
    Convertible preferred stock, $0.001 par value,
      40,642,430 shares authorized, 31,512,430 shares
      issued and outstanding, actual; 5,000,000 shares
      authorized, and none issued pro forma or pro forma
      as adjusted.........................................    41,884           --             --
    Stockholders' equity (deficit):
    Common stock, $0.001 par value; 62,000,000 shares
      authorized; 8,153,158 shares issued and outstanding,
      actual; 47,163,811 shares issued and outstanding,
      pro forma; 100,000,000 shares authorized and
           shares issued and outstanding, pro forma as
      adjusted............................................         8           47
    Additional paid-in capital............................     5,248       63,393
    Notes receivable from stockholders....................      (626)        (626)
    Deferred stock-based compensation, net................    (4,431)      (4,431)
    Accumulated other comprehensive income................        23           23
    Deficit accumulated during the development stage......   (32,295)     (32,295)
                                                            --------     --------       --------
        Total stockholders' equity (deficit)..............   (32,073)      26,111
                                                            --------     --------       --------
          Total capitalization............................  $  9,811     $ 26,111       $
                                                            ========     ========       ========
</TABLE>

    The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of June 30, 2000, and excludes
as of August 24, 2000:

    -  97,051 shares of common stock issuable upon the exercise of warrants
       outstanding at a weighted average exercise price of $0.93 per share;

    -  3,737,192 shares of common stock issuable upon the exercise of options
       outstanding at a weighted average exercise price of $0.85 per share;

    -  6,239,030 shares available for issuance or future grant under our stock
       option plans; and

    -  750,000 shares available for issuance under our employee stock purchase
       plan.

    The above information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and the notes to those consolidated
financial statements included elsewhere in this prospectus.

                                       15
<PAGE>
                                    DILUTION

    Our historical net tangible book value as of June 30, 2000 was approximately
$8.6 million, or $0.22 per share, as of June 30, 2000. Historical net tangible
book value per share is equal to the amount of our total tangible assets less
total liabilities, divided by the number of shares of common stock outstanding
assuming the conversion of all shares of convertible stock outstanding as of
June 30, 2000.

    Our pro forma net tangible book value as of June 30, 2000 (as adjusted for
the Series F preferred stock issued in July 2000) was approximately
$24.9 million, or $0.53 per share, based on the pro forma number of shares of
common stock outstanding as of June 30, 2000, calculated after giving effect to
the conversion of all outstanding shares of preferred stock upon the closing of
this offering (as adjusted for the Series F preferred stock issued in
July 2000). Pro forma net tangible book value per share represents the amount of
our total tangible assets less total liabilities divided by the number of shares
of common stock outstanding.

    Dilution in pro forma net tangible book value per share, as adjusted,
represents the difference between the amount per share paid by purchasers for
shares of common stock in this offering and the pro forma net tangible book
value per share of our common stock immediately afterwards, after giving effect
to the sale of            shares in this offering and after deducting
underwriting discounts and commissions and estimated offering expenses. This
represents an immediate increase in pro forma net tangible book value of $
per share to existing stockholders and an immediate dilution in pro forma net
tangible book value of $     per share to new investors. The following table
illustrates this dilution:

<TABLE>
<S>                                                           <C>        <C>
Assumed initial public offering price per share.............             $
    Pro forma net tangible book value per share at June 30,
      2000 (as adjusted for the Series F preferred stock
      issued in July 2000)..................................     0.53
                                                              -------
    Increase per share attributable to new investors........
                                                              -------
Pro forma net tangible book value per share, as adjusted,
  after this offering.......................................
                                                                         -------
Dilution per share to new investors.........................             $
                                                                         =======
</TABLE>

    If the underwriters' over-allotment option were exercised in full, the pro
forma net tangible book value per share after this offering would be $ per
share, the increase in net tangible book value per share to existing
stockholders would be $ per share and the dilution in net tangible book value to
new investors would be $     per share.

    The following table summarizes, on a pro forma basis, as of June 30, 2000
(as adjusted for the Series F preferred stock issued in July 2000), the
differences between the total consideration paid and the average price per share
paid by the existing stockholders and the new investors with respect to the
number of shares of common stock purchased from us based on an assumed initial
public offering price of $ per share. We have not deducted the underwriting
discounts and commissions and estimated offering expenses in our calculations.

<TABLE>
<CAPTION>
                                                                    TOTAL
                                        SHARES PURCHASED        CONSIDERATION       AVERAGE
                                       -------------------   -------------------   PRICE PER
                                        NUMBER    PERCENT     AMOUNT    PERCENT      SHARE
                                       --------   --------   --------   --------   ---------
<S>                                    <C>        <C>        <C>        <C>        <C>
Existing stockholders................                   %    $                %     $
New investors........................
                                        ------      ----     -------      ----
        Total........................                   %    $                %     $
                                        ======      ====     =======      ====
</TABLE>

    The discussion and tables do not assume the exercise of any stock options or
warrants. As of August 24, 2000, there were 3,737,192 shares of common stock
issuable upon exercise of outstanding stock options at a weighted average
exercise price of $0.85 per share. The exercise of options outstanding under our
stock option plans having an exercise price less than the initial public
offering price would increase the dilutive effect to new investors.

                                       16
<PAGE>
                      SELECTED CONSOLIDATED FINANCIAL DATA

    The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and notes to those
consolidated financial statements on page F-1 and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on page 19. The
consolidated statements of operations data for the years ended December 31,
1997, 1998, and 1999, and the six month periods ended June 30, 1999 and 2000 and
the consolidated balance sheet data as of December 31, 1998 and 1999, are
derived from our audited consolidated financial statements, which are included
elsewhere in this prospectus. Our balance sheet data as of June 30, 2000 is
derived from our consolidated unaudited financial statements included elsewhere
in this prospectus.

    Unaudited pro forma basic and diluted net loss per share have been
calculated assuming the conversion of all the outstanding shares of preferred
stock into an equal number of shares of common stock, as if the shares had been
converted immediately upon their issuance.

<TABLE>
<CAPTION>
                                                                                            SIX MONTHS         CUMULATIVE PERIOD
                                                                                          ENDED JUNE 30,      FROM 11/18/91 (DATE
                                               YEARS ENDED DECEMBER 31,                     (UNAUDITED)          OF INCEPTION)
                                 ----------------------------------------------------   -------------------     THROUGH 6/30/00
                                   1995       1996       1997       1998       1999       1999       2000         (UNAUDITED)
                                 --------   --------   --------   --------   --------   --------   --------   -------------------
                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                              <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
CONSOLIDATED STATEMENTS OF
  OPERATIONS DATA:
    Research and development
      revenues.................  $   281    $   149    $   328    $    86    $   468    $    --    $ 3,568         $  5,166
    Operating expenses:
        Research and
          development..........      716      1,725      3,961      4,393      7,837      3,305      7,374           26,354
        General and
          administrative.......      376        706      1,509      1,600      2,039      1,023      1,745            8,285
        Stock-based
          compensation.........       --         --         --         --        110         43        205              315
        Purchased in-process
          research and
          development..........       --         --         --         --         --         --      3,500            3,500
                                 -------    -------    -------    -------    -------    -------    -------         --------
            Total operating
              expenses.........    1,092      2,431      5,470      5,993      9,986      4,371     12,824           38,454
                                 -------    -------    -------    -------    -------    -------    -------         --------
        Loss from operations...     (811)    (2,282)    (5,142)    (5,907)    (9,518)    (4,371)    (9,256)         (33,288)
        Interest income, net...       57        108         87        345        550        303        184            1,346
                                 -------    -------    -------    -------    -------    -------    -------         --------
        Net loss...............     (754)    (2,174)    (5,055)    (5,562)    (8,968)    (4,068)    (9,072)         (31,942)
    Dividend related to
      beneficial conversion
      feature of preferred
      stock....................       --         --         --         --         --         --       (353)            (353)
                                 -------    -------    -------    -------    -------    -------    -------         --------
    Net loss available to
      common stockholders......  $  (754)   $(2,174)   $(5,055)   $(5,562)   $(8,968)   $(4,068)   $(9,425)        $ 32,295
                                 =======    =======    =======    =======    =======    =======    =======         ========
    Net loss per common share,
      basic and diluted........  $ (0.09)   $ (0.26)   $ (1.14)   $ (1.16)   $ (1.65)   $ (0.78)   $ (1.46)
                                 =======    =======    =======    =======    =======    =======    =======
    Shares used in computing
      net loss per common
      share, basic and
      diluted..................    8,478      8,239      4,429      4,810      5,433      5,197      6,462
                                 =======    =======    =======    =======    =======    =======    =======
    Pro forma net loss per
      common share, basic and
      diluted (unaudited)......                                              $ (0.27)              $ (0.25)
                                                                             =======               =======
    Shares used in computing
      pro forma net loss per
      common share, basic and
      diluted (unaudited)......                                               33,428                35,701
                                                                             =======               =======
</TABLE>

                                       17
<PAGE>
    The following table contains a summary of our consolidated balance sheets on
an actual basis at December 31, 1995, 1996, 1997, 1998, 1999 and June 30, 2000.

<TABLE>
<CAPTION>
                                                                                                JUNE 30, 2000
                                                        DECEMBER 31,                             (UNAUDITED)
                                    ----------------------------------------------------   -----------------------
                                      1995       1996       1997       1998       1999      ACTUAL    PRO FORMA(1)
                                    --------   --------   --------   --------   --------   --------   ------------
                                                                    (IN THOUSANDS)
<S>                                 <C>        <C>        <C>        <C>        <C>        <C>        <C>
CONSOLIDATED BALANCE SHEET DATA:
  Cash, cash equivalents, and
    available-for-sale
    securities....................  $ 3,373    $ 1,433    $  5,904   $ 17,500   $  7,809   $  7,245     $ 23,545
  Working capital.................    3,210      1,196       5,383     16,825      7,407      7,069       23,369
  Total assets....................    3,547      1,726       7,108     18,608      9,674     12,227       28,527
  Long-term obligations, less
    current portion...............      104         66         778        480        100        286          286
  Convertible preferred stock.....    4,727      5,743      15,819     31,476     31,476     41,884           --
  Deficit accumulated during the
    development stage.............   (1,387)    (4,077)    (10,027)   (13,901)   (22,869)   (32,295)     (32,295)
  Total stockholders' equity
    (deficit).....................   (1,452)    (4,344)    (10,285)   (14,140)   (23,014)   (32,073)      26,111
</TABLE>

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

(1) Reflecting the sale of 7,498,223 shares of Series F preferred stock in
    July 2000 for net proceeds of approximately $16.3 million as well as the
    conversion of all of our preferred stock into common stock.

                                       18
<PAGE>
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

    You should read the following discussion of our financial condition and
results of operations in conjunction with the consolidated financial statements
and the related notes. This discussion may contain forward-looking statements
that involve risks and uncertainty. As a result of many factors, such as those
set forth under "Risk Factors" and elsewhere in this prospectus, our actual
results may differ materially from those anticipated in these forward-looking
statements.

OVERVIEW

    We were incorporated in November 1991. We specialize in the controlled
delivery of drugs to the lungs. Our core technology consists of a proprietary
aerosol generator. We are using our technology to develop respiratory products
for marketing by AeroGen, and we are developing products in collaboration with
pharmaceutical and biotechnology companies for both respiratory therapy and for
the delivery of drugs to the bloodstream via the lungs.

    We are in the development stage and since inception have devoted
substantially all of our efforts to develop products. We have an accumulated
deficit of approximately $32.3 million as of June 30, 2000. We expect to incur
significant additional operating losses over the next several years and expect
cumulative losses to increase primarily due to the expansion of our research and
development activities, an increase in the number and size of clinical trials,
the costs associated with manufacturing and marketing of our products, and the
general expansion of our business activities. To date, we have not had product
sales and do not anticipate receiving revenue from product sales in 2000. We
anticipate that our quarterly results will fluctuate for the foreseeable future.
Therefore, period to period comparisons should not be relied upon as predictive
of the results in future periods. Our sources of working capital have been
equity financings, research and development revenues, equipment lease financings
and interest earned on investments.

    We perform feasibility and initial development work to customize our
AeroDose inhalers to deliver specific drugs, and we have been compensated for
expenses incurred by us in performing this work in several cases. Once
feasibility is demonstrated with respect to a potential product, we seek to
enter into an agreement with the corporate partner owning the rights to the
compound that will be used in the product. We currently have such an agreement
with PathoGenesis to develop an AeroDose inhaler to deliver TOBI for the
treatment of CF.

    Our collaborative agreement with PathoGenesis provides for reimbursement of
research and development expenses incurred under an approved workplan. If the
product continues to commercialization, we expect to receive royalties from
PathoGenesis. We expect to receive similar payments from other partners for the
development of products under other collaborations and royalties based on
partner sales of products. We also expect to receive revenue from the
manufacturing of these products. We recognize revenues as reimbursable research
and development expenses are incurred.

    In May 2000, we acquired all the voting stock of Cerus Limited, now AeroGen
(Ireland) Limited for a total purchase price of approximately $5.2 million (for
a total of 1,725,000 shares of Series E convertible preferred stock and
transaction costs of approximately $0.1 million). Cerus was a development stage
company developing products under a license from us using our core aerosol
generator technology.

    The acquisition was accounted for using the purchase method of accounting.
The purchase price, which for financial accounting purposes was valued at
$5.2 million, was allocated to the assets acquired and the liabilities assumed
based on their estimated fair values at the date of acquisition, as determined
by management. As a result of this transaction, we recorded expense associated
with the purchase of in-process research and development of $3.5 million, net
tangible assets of $0.4 million, and intangible assets (including goodwill) of
$1.3 million, the majority of which will be amortized over six years. Financial
statements of Cerus are included elsewhere in this prospectus.

                                       19
<PAGE>
    We may incur additional stock-based compensation expense in the future as a
result of both additional options or other securities issued to employees and
consultants at below deemed fair market value and fluctuations in the market
value of our stock which have a direct impact on the value of these securities
held by nonemployees.

    We had federal and state net operating loss carryforwards as of
December 31, 1999 of approximately $21.8 million and $13.9 million, and
$13.3 million, and $10.2 million for 1998, respectively. We also had federal and
state research and development tax credit carryforwards as of December 31, 1999
and 1998 of approximately $0.4 million and $0.2 million, respectively. The net
operating loss and credit carryforwards will expire at various dates through the
year 2014, if not utilized. Due to the uncertainty regarding the ultimate
utilization of the net operating loss and credit carryforwards, we have not
recorded any benefit for losses, and a valuation allowance has been recorded for
the entire amount of the net deferred asset. Utilization of net operating losses
and credits may be substantially limited due to the change in ownership
provisions of the Internal Revenue Code of 1986 and similar state provisions.
The annual limitation may result in the expiration of net operating losses and
credits before they can be used.

RESULTS OF OPERATIONS

COMPARISON OF SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999

    RESEARCH AND DEVELOPMENT REVENUES.  Revenues increased to approximately
$3.6 million for the six months ended June 30, 2000 from none for the six months
ended June 30, 2000. This revenue increase resulted from development activities
performed for PathoGenesis and a biotechnology company.

    RESEARCH AND DEVELOPMENT EXPENSES.  Research and development expenses
increased to $7.4 million for the six months ended June 30, 2000 from
$3.3 million for the six months ended June 30, 1999. This increase is
attributable to increases in research and development personnel and other costs
associated with research and development revenues, as well as expenses
associated with our clinical trials of our AeroDose insulin product.

    Research and development expenses represent expenses related to our own
research and development projects, as well as the costs related to research and
development activities for our partners. Research and development expenses
include salaries and benefits for scientific and development personnel,
laboratory supplies, consulting services, clinical expenses and the expenses
associated with the development of manufacturing processes, including related
overhead. We expect research and development spending to increase significantly
over the next several years as we increase clinical trials, expand our research
and development activities to support our products and those we develop in our
collaborations, and initiate commercial manufacturing. The increase in research
and development expenditures cannot be predicted reliably, as it depends in part
upon our success in continuing existing development collaborations, as well as
entering into new partnering agreements.

    GENERAL AND ADMINISTRATIVE EXPENSES.  General and administrative expenses
increased to $1.7 million for the six months ended June 30, 2000 from
$1.0 million for the six months ended June 30, 1999. The increase is associated
with increased personnel, higher legal expenses and increased facility rent for
additional space. We expect general and administrative expenses to increase as
we expand our research and development efforts, commercialize our products and
operate as a public company.

    STOCK-BASED COMPENSATION EXPENSES.  Stock-based compensation expenses were
$0.2 million for the six months ended June 30, 2000 and $43,248 for the six
months ended June 30, 1999.

    PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT.  In conjunction with the
acquisition of Cerus, we recorded a $3.5 million expense during the six months
ended June 30, 2000, which was associated with the purchase of in-process
research and development. The purchased research and development represents the
value of new technologies that were in various stages of development where no
alternative future use was

                                       20
<PAGE>
identified. The purchased research and development was appraised by independent
valuation which utilized various methods, including the income approach.

    DIVIDEND RELATED TO BENEFICIAL CONVERSION FEATURE OF PREFERRED STOCK.  A
dividend relating to a beneficial conversion feature of our preferred stock of
$0.4 million was recorded in the six months ended June 30, 2000. This arose due
to the issuance of 961,539 shares of Series E convertible preferred stock in
May 2000 for net proceeds of $2.5 million.

COMPARISON OF YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

    RESEARCH AND DEVELOPMENT REVENUES.  Research and development revenues were
$0.5 million in 1999, $0.1 million in 1998 and $0.3 million in 1997. Revenue
increases in 1999 from 1998 resulted primarily from development activities
performed for and funded by a biotechnology company. Revenue decreases in 1998
as compared to 1997 resulted from decreased emphasis on obtaining revenues in
connection with the performance of feasibility studies.

    RESEARCH AND DEVELOPMENT EXPENSES.  Research and development expenses were
$7.8 million in 1999, $4.4 million in 1998 and $4.0 million in 1997. Research
and development expenses in 1999 increased over 1998 due to the hiring of
additional scientific and technical personnel and to increased product research
and development costs. Research and development expenses in 1998 increased over
1997 due to the expansion of our research and development efforts.

    GENERAL AND ADMINISTRATIVE EXPENSES.  General and administrative expenses
were $2.0 million in 1999, $1.6 million in 1998 and $1.5 million in 1997.
General and administrative expenses increased in 1999 principally due to
staffing, travel and professional services expenses.

    STOCK-BASED COMPENSATION EXPENSES.  Stock-based compensation expenses were
$109,855 in 1999, none in 1998 and none in 1997.

    INTEREST INCOME.  Interest income was $0.6 million in 1999, $0.5 million in
1998 and $0.1 million in 1997. The increase in interest income was primarily due
to higher average cash and investment balances, resulting from the completion of
private placements of our convertible preferred stock in April and November 1997
and in August 1998.

    INTEREST EXPENSE.  Interest expense was $0.1 million in 1999 and 1998, and
there was minimal interest expense in 1997. The increases from 1997 were due to
borrowings under an equipment lease financing agreement.

LIQUIDITY AND CAPITAL RESOURCES

    Since inception, we have financed our operations primarily through the
private placement of preferred stock and the interest earned on related
proceeds. We have received approximately $52.8 million aggregate net proceeds
from sales of our preferred stock through July 31, 2000. As of July 31, 2000, we
had cash, cash equivalents and short-term investments of approximately
$21.5 million.

    From inception through June 30, 2000, expenditures for operating activities
and capital acquisitions were approximately $30.4 million. The development of
our technology and proposed products will require a commitment of substantial
funds to conduct the costly and time-consuming research and clinical trials
required to develop and refine our technology and proposed products and to bring
any such products to market. Our future capital requirements and operating
expenses will depend on many factors including, but not limited to, research and
development activities, the timing, cost, extent and results of clinical trials,
our success in licensing drugs for use in our products, regulatory approvals,
the status of competitive products, manufacturing and marketing costs associated
with commercialization of products, costs involved in obtaining and maintaining
patents, as well as our ability to enter into collaborative agreements.

                                       21
<PAGE>
    Based upon our current plans, we believe that our cash, cash equivalents and
investments, together with the estimated net proceeds from this offering, will
enable us to sustain operations for at least the next 24 months. Our forecast of
the period of time through which our financial resources will be adequate to
support our operations is a forward-looking statement that involves risks and
uncertainties, and actual results could vary materially. The factors described
above will impact our future capital requirements and the adequacy of our
available funds. We may be required to raise additional funds through public or
private financings, collaborative relationships or other arrangements. We cannot
be certain that such additional funding, if required, will be available on terms
attractive to us, or at all. Furthermore, any additional equity financing may be
dilutive to existing stockholders and debt financing, if available, may involve
restrictive covenants. Collaborative arrangements, if necessary to raise
additional funds, may require us to relinquish rights to certain of our products
or technologies, or marketing territories. Our failure to raise capital when
needed could have a material adverse effect on our business. See "Risk Factors."

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    Our exposure to market risk is principally limited to our cash equivalents
and investments which are comprised primarily of short-term fixed rate
instruments. Accordingly, we are not subject to interest rate risk to any
material degree.

    Due to our Irish operations, we have some market risk exposure to adverse
changes in foreign exchange rates. As a policy, we do not engage in speculative
or leveraged transactions, nor do we hold financial instruments for trading
purposes.

RECENT ACCOUNTING PRONOUNCEMENTS

    In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB No. 101"), "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements filed with the SEC. SAB No. 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. We have
complied with the guidance in SAB No. 101 for all periods presented.

    In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities. SFAS No. 133 requires that all derivatives be recognized at fair
value in the statement of financial position, and that the corresponding gains
or losses be reported either in the statement of operations or as a component of
comprehensive income, depending on the type of relationship that exists. As
amended, SFAS No. 133 will be effective for fiscal years beginning after
June 15, 2000. We do not currently hold derivative instruments or engage in
hedging activities and we do not believe that the implementation of SFAS
No. 133 will have any significant impact on our financial position or results of
operations.

    In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN No. 44") "Accounting for Certain Transactions
Involving Stock Compensation," an interpretation of the Accounting Principles
Board Opinion No. 25 ("APB No. 25"). This interpretation clarifies the
definition of employee for purposes of applying APB No. 25, "Accounting for
Stock Issued to Employees," the criteria for determining whether a plan
qualifies as a noncompensatory plan, the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and the
accounting for an exchange of stock compensation awards in a business
combination. FIN No. 44 is effective July 1, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998, or January 12, 2000.
The adoption of FIN No. 44 did not and will not have any material impact on our
financial statements.

                                       22
<PAGE>
                                    BUSINESS

                                    OVERVIEW

    AeroGen specializes in the development, manufacture and commercialization of
products for the controlled delivery of drugs to the lungs, which is called
pulmonary drug delivery. Drugs can be delivered via a fine mist, or aerosol, to
the lungs to treat breathing-related (respiratory) conditions such as asthma, or
through the lungs to the bloodstream (systemically) to treat diseases or
conditions located outside of the lungs such as diabetes. Our core technology
consists of a proprietary aerosol generator. When incorporated in our nebulizer
or inhaler platforms, our aerosol generator delivers drugs in an aerosol of a
predetermined particle size. We believe our delivery platforms will allow us to
deliver drugs formulated as liquids in solutions, suspensions or liposomes, in
single-dose, multi-dose and patient-adjustable dosage forms. Products in
development provide drug delivery from our hand-held breath-activated inhalers,
nebulizers for home use and nebulizers to treat patients on mechanical
ventilators.

    We believe our technology has the potential to improve therapy by providing
a cost-effective, convenient and patient friendly alternative to existing
respiratory dosage forms, injections and other forms of drug delivery. Our
strategy includes using our core aerosol generator technology to develop
respiratory products for marketing by us as well as collaborating with
pharmaceutical and biotechnology companies to develop products for improved
respiratory therapy and delivery of drugs to the bloodstream. We also
out-license our technology for uses outside the field of pulmonary drug
delivery.

    The respiratory products under development for marketing by us are targeted
to treat pediatric asthma, COPD, CF and mechanically ventilated patients. These
products will deliver available respiratory drugs and compounds licensed from
third parties. We also are developing respiratory products in collaboration with
partner companies who will market those products. For example, in March 2000, we
signed an agreement with PathoGenesis to develop a small, hand-held AeroDose
inhaler to deliver TOBI, an inhaled tobramycin treatment for CF.

    Our first product in development to deliver a drug through the lungs to the
bloodstream is an AeroDose inhaler delivering insulin to treat diabetes. We
completed our first clinical trial for the product, and are proceeding with
additional trials. In May of this year we entered into an agreement with BD
under which BD will develop and supply a patient-adjustable container for use in
our AeroDose insulin product.

                              INDUSTRY BACKGROUND

PULMONARY DRUG DELIVERY

    Pulmonary drug delivery is widely used to treat respiratory diseases and is
believed to be a viable means to deliver drugs to the bloodstream via the lungs.
The drugs must be transformed into an aerosol for inhalation by the patient.
This aerosol must be delivered at a low-velocity to deposit drugs in the lungs
effectively. The size of the aerosol particles generally determines where the
drug will be deposited in the lungs. Aerosols containing large particles,
greater than three microns in diameter, typically get deposited in the upper
airways of the lung, where they may be useful in treating diseases such as
asthma, COPD and CF. Aerosols containing small particles, less than three
microns in diameter, are more likely to pass through the upper airways into the
deep lung, where they may be absorbed into the bloodstream to treat diseases
such as diabetes.

THE RESPIRATORY DISEASE MARKET

    The worldwide prevalence of respiratory diseases is estimated to exceed one
billion patients. The most prevalent respiratory diseases are obstructive
airways diseases such as asthma and COPD. Respiratory diseases are associated
with impaired quality of life, reduced life expectancy and significant treatment

                                       23
<PAGE>
costs. We estimate that worldwide pharmaceutical expenditures for the treatment
of obstructive airways diseases will be approximately $9.9 billion in 2000.

    In 1999 U.S. institutional and pharmacy expenditures for inhaled respiratory
medications was approximately $3.3 billion. In addition to an increased
prevalence of disease, recent research has indicated growth in medication
expenditures per patient, largely driven by an increased number of prescriptions
per patient filled each year and a shift to newer, costlier therapies. We
currently are focusing on treating three respiratory diseases--asthma, COPD and
CF--as well as improving treatments for patients using nebulizers and those
receiving therapy via ventilators.

    Asthma is a chronic inflammatory disorder involving constriction of the
muscles lining the bronchial airways due to external stimuli, such as exercise
or allergens. The World Health Organization estimates that 100 to 150 million
people worldwide suffer from asthma. According to the Center for Disease
Control, the number of people in the United States diagnosed with asthma has
more than doubled from 6.7 million in 1980 to 17.3 million in 1998, including an
estimated 4.8 million children.

    COPD is a general term used to characterize the presence of chronic
bronchitis and emphysema. Chronic bronchitis is characterized by a persistent,
productive cough caused by excessive airway mucous secretion. As the disease
progresses, there is a chronic reduction in lung function, with at least partial
reversibility following administration of bronchodilators. Emphysema is a
chronic disease caused by irreversible destruction of elastin, a protein in the
lungs critical to maintaining integrity of the alveolar walls, or air sacs.
Emphysema is irreversible and treatment is oriented towards reducing irritation
and making the patient more comfortable. The major cause of chronic bronchitis
and emphysema is cigarette smoking, followed by environmental pollution, genetic
makeup, and chronic occupational exposure to high concentrations of irritating
gases.

    Worldwide, COPD is the only leading cause of death that still has a rising
mortality. It is estimated that by 2020, COPD will be fifth among the medical
conditions that will be the most costly to society. The National Center for
Health Statistics estimates that in 1994 there were 16 million people in the
United States diagnosed with COPD. We estimate that the number of people in the
United States diagnosed with COPD currently exceeds 30 million and will continue
to rise based on the aging of the population and improved diagnosis.

    CF is a genetic disorder associated with dysfunction of the pancreas and
liver. CF primarily affects digestion and nutrition. Secondary effects seen in
the lungs include thick mucous secretions formed and retained in the airways.
Eighty-five percent of CF patients experience deterioration in lung function,
increased incidence of lung infection and respiratory failure over time. CF is
the most common life-shortening inherited disease in the United States,
affecting about 30,000 people, or one in every 3,300 newborns. Outside the
United States, CF affects about 40,000 people, mainly in countries with large
Caucasian populations. In the 1950s, the typical life expectancy was four years
after diagnosis. Today, however, many CF patients live well into their 30s.
Earlier diagnosis and more aggressive and effective treatment have been credited
with the dramatic increase in longevity.

    In 1999 the U.S. institutional and pharmacy expenditures for nebulized
solutions were approximately $570 million. We estimate that U.S. sales of
nebulizer devices will exceed $150 million in 2000, with approximately half of
the sales for home use. The majority of sales are captured by compressor
nebulizers, typically sold to patients at approximately $125 per device.

    Ventilated patients require a breathing device because they are not able to
breathe on their own. We estimate that in the United States there are
approximately one million patients admitted to hospitals annually who require
ventilation; on average each patient spends five days on a ventilator. We
estimate that in the United States there currently are 90,000 ventilators
installed in hospitals and approximately 8,000 ventilators purchased annually.
We believe that this growth is based on the high prevalence of chronic lung
diseases and an aging population. Aerosol therapy is frequently prescribed for
patients

                                       24
<PAGE>
receiving mechanical ventilation to deliver drugs and to humidify the air
reaching the lungs. The United States hospital and alternate care market for
nebulizers and humidifiers currently exceeds $300 million annually. We estimate
that annual sales of nebulized solutions to ventilated patients exceeds
$50 million.

THE SYSTEMIC DRUG DELIVERY MARKET

    The physiology of the lungs makes pulmonary delivery an attractive method of
delivering drugs to the bloodstream. The absorptive surface area of the lung is
as high as 70 square meters, and is only one to two cells thick. This large
surface area is available for the free exchange of oxygen, carbon dioxide and
other molecules between the air and the bloodstream. This permits drugs
deposited in the lungs through aerosols to be transported rapidly into the
bloodstream.

    Pulmonary drug delivery is being evaluated for non-invasive delivery of
drugs to the bloodstream to treat non-respiratory diseases. There is increasing
interest in pulmonary drug delivery as a result of the inability of currently
available dosage forms to deliver molecules such as proteins and peptides to the
bloodstream effectively. It is estimated that the protein and peptides market
will approximate $19.2 billion in 2001. For these large molecules, oral delivery
is not feasible due to rapid breakdown of the molecules following ingestion.
Dosage forms such as intravenous or intramuscular injections and implants, while
effective for delivering proteins, have many drawbacks, including pain,
inconvenience, expense, risk of infection and poor compliance. Alternatives like
transdermal and nasal dosage forms do not allow reproducible delivery of large
molecules.

    In addition, pulmonary delivery is being evaluated to deliver drugs such as
insulin, which require rapid input to the bloodstream for optimal therapy. We
estimate that the worldwide insulin market will grow from $3.2 billion in 2000
to $6.5 billion by 2005.

TRADITIONAL METHODS OF PULMONARY DRUG DELIVERY AND THEIR LIMITATIONS

    Three basic classifications of devices currently are being used for
pulmonary drug delivery: metered dose inhalers (MDIs), dry powder inhalers
(DPIs) and nebulizers. These devices were developed originally for local
treatment of respiratory diseases, including asthma and COPD, and have inherent
limitations in delivering drugs directly to the bloodstream.

        METERED DOSE INHALERS.  MDIs have been in existence for over 40 years
    and are the most widely used device for pulmonary drug delivery. They
    consist of a portable canister containing the drug as a suspension or
    solution mixed with a volatile propellant, most often a chlorofluorocarbon.
    MDIs require a patient to inhale the drug in a single breath. In order to
    administer the drug, the patient must activate the inhaler by pressing down
    on the canister while simultaneously inhaling slowly and evenly. Even with
    repeat training, up to 50% of patients using MDIs have difficulty
    coordinating activation of the device with their breathing. Once the inhaler
    is activated, particles are released at an initial velocity of at least
    30 miles per hour. Research has shown that MDIs only deliver 10% to 20% of
    the drug to the lungs. Most of the remainder of the drug is deposited at the
    back of the throat and swallowed. To overcome these limitations, patients
    are sometimes prescribed holding chambers, or spacers, to use with their
    MDIs. These spacers increase the complexity of use and reduce the
    portability of MDIs.

        DRY POWDER INHALERS.  Traditional DPIs were introduced to overcome the
    problems inherent with the use of MDIs. DPIs are inhalers that deliver dry
    powdered aerosols without using a propellant. DPIs are breath activated and
    thus eliminate the need for the press and breath coordination associated
    with MDIs. We believe that traditional DPIs have meaningful limitations that
    may prevent their broad use in pulmonary drug delivery. DPIs usually require
    a single strong, deep inhalation to create the aerosol and deliver the drug.
    Children, the elderly and patients with breathing difficulties often cannot
    achieve the deep inhalation necessary to receive the required dose. In
    addition, these devices do not allow the patient to inhale the desired drug
    in multiple breaths and

                                       25
<PAGE>
    moisture entering into the DPI from the environment or a patient's own
    breath can result in dose-to-dose variation.

        NEBULIZERS.  Traditional nebulizers create a continuous aerosol that can
    be inhaled by patients through a mask or mouthpiece. Nebulizers allow
    patients to breathe regularly, thereby requiring less patient coordination
    and cooperation than MDIs and DPIs. Nebulizers typically require an external
    power source and therefore are bulky and generally noisy. Nebulizer
    treatments are time-consuming, with each treatment typically taking up to 15
    minutes, and inefficient, with less than 20% of the drug reaching the lungs.
    The remainder of the drug either is aerosolized during the patient's
    exhalation and released into the surrounding air or remains in the
    nebulizer. Because of these limitations, nebulizers are only appropriate for
    relatively inexpensive, small-molecule drugs that can be formulated and
    stored as liquids.

        Aerosol delivery to mechanically ventilated patients currently uses
    either an MDI or a nebulizer. Drugs are administered by opening the tubing
    connecting the patient to the ventilator, which may result in infection. In
    addition, it requires significant time and the associated expense of an
    attendant respiratory therapist, and is inefficient with only a very small
    amount of the administered drug reaching the lungs. Ventilator performance
    may be impaired due to the introduction of additional air into the
    ventilator tubing when drug is administered. This can affect adversely the
    ability to monitor the patient's pulmonary function.

NEW METHODS OF PULMONARY DRUG DELIVERY

    Several companies are developing technology to improve the efficiency and
accuracy of pulmonary drug delivery. Because systemic drug delivery requires the
ability to create and deliver small particles to the deep lung, research has
centered around developing devices capable of consistently delivering fine
particle aerosols. One technique involves the processing of drugs into
sophisticated dry powders. Another uses mechanical pressure to aerosolize custom
formulations of existing liquid drugs. Both of these technologies will require
extensive investment in new formulations, new packaging, new materials, and
customized manufacturing, as well as an extensive validation effort for Good
Manufacturing Practices. The dry powder technology also will face the challenge
of consistently creating a cloud of uniform fine particles in varying
environmental conditions that can include high humidity and electrostatic
charge.

                                  OUR SOLUTION

    We have developed a proprietary aerosol generator to facilitate the
consistent and accurate formation of an aerosol to deliver drugs to the lungs.
Our core technology is being incorporated into each of our delivery platforms.
We believe that our platforms overcome many of the limitations presented by
traditional and new methods of pulmonary drug delivery, and may be used to treat
respiratory diseases as well as to deliver drugs to the bloodstream for systemic
therapy. Our AeroDose inhaler is designed to safely and effectively deliver
drugs of various molecular sizes while eliminating many of the limitations
associated with MDIs, DPIs and current commercial nebulizers. Our AeroNeb
nebulizer uses our aerosol generator technology to provide end users with a
small, portable nebulizer that quietly and efficiently administers currently
approved nebulizer solutions. Our AeroNeb InLine nebulizer also uses our aerosol
generator technology and is designed to improve the delivery of medications to
patients on ventilators. We believe our products will provide the following
benefits:

        OPTIMIZATION AND CUSTOMIZATION OF AEROSOL PARTICLE SIZE.  Our aerosol
    generator delivers a low-velocity aerosol of precisely defined particle
    size. Our aerosol generator enables us to provide either an aerosol with
    particles averaging three to four microns in diameter for respiratory
    therapy, or an aerosol with particles averaging one to two microns in
    diameter for deposition in the deep lung for systemic drug delivery.

        EASE OF FORMULATION.  Drugs can be stored in liquid or dry powder form
    and can be aerosolized in solution or suspension. Our aerosol generator uses
    no propellants or pressure, and generates no

                                       26
<PAGE>
    heat, so it is not likely to degrade drug molecules. In many cases, we can
    use existing drug formulations, eliminating the need to demonstrate the
    stability of new formulations.

        FLEXIBILITY OF DOSING.  Our AeroDose inhaler technology can be used to
    administer drugs as a single dose, or as a unit dose from a multi-dose
    container. Under collaboration with BD, we are developing an AeroDose
    inhaler that will use a patient-adjustable container to deliver the required
    dose of insulin.

        BREATH-ACTIVATION.  We have developed a breath-activation feature which
    triggers aerosol formation and is designed to enable patients to obtain
    consistent dosing over one or more breaths. This feature is designed so that
    drug will be aerosolized only when the patient's inhalation rate has reached
    a predetermined threshold, which can be adjusted for a particular target
    patient population. If a patient exhales or coughs, the aerosolization will
    stop and only resume when the patient begins inhaling again at the
    predetermined rate. Our electronic controls are designed to allow us to
    customize inhalers for both relaxed and controlled breathing, facilitating
    delivery of drug to the desired portion of the lung.

        DOSAGE GUIDANCE.  We can incorporate electronic features to provide
    information to the patient. Lights can indicate when a dose is ready for
    inhalation and when the total dose has been inhaled. Additional features may
    include indicators of patient compliance with the prescribed regimen and
    lock-out features to prevent abuse or overdose.

        CONVENIENCE.  Our products are designed to be lightweight and easy to
    use for patients and care-providers. AeroDose inhalers fit in the palm of
    the hand and can be carried in a shirt pocket or small purse. The AeroNeb
    nebulizer is portable, quieter and more compact than currently
    commercialized nebulizers. The AeroNeb InLine nebulizer is lightweight,
    allowing it to be placed close to the ventilated patient's windpipe,
    providing efficient generation of aerosol close to the lung. We believe our
    products will require minimal patient training, will be easy to use for the
    very young and the elderly and have the potential to increase compliance
    with prescribed treatment regimens.

                                  OUR STRATEGY

    Our goal is to become the leading provider of aerosol-based pulmonary drug
delivery products. Key elements of our strategy include:

        INCORPORATING OUR CORE TECHNOLOGY INTO ADAPTABLE DELIVERY
    PLATFORMS.  Our core aerosol generator technology is being incorporated into
    our inhaler and nebulizer platforms.

        DEVELOPING OUR PLATFORMS FOR MULTIPLE PRODUCT APPLICATIONS.  Our
    platforms are being customized to develop a wide range of products, from the
    pocket-size AeroDose inhalers to the AeroNeb InLine nebulizers for use in
    intensive care units.

        DEVELOPING AND COMMERCIALIZING RESPIRATORY PRODUCTS OURSELVES AND WITH
    PARTNER COMPANIES.  We are developing a line of AeroDose inhaler and
    nebulizer products which we will market ourselves. Our initial products will
    deliver available respiratory drugs. We also are actively working to license
    proprietary drugs from third parties that will be combined with our
    platforms to develop respiratory products for our portfolio. We intend to
    retain U.S. marketing rights to our AeroDose inhaler products, and license
    marketing rights to partners outside the United States. We plan to market
    our nebulizer products, the AeroNeb and the AeroNeb InLine, ourselves in the
    United States and through distributors in other countries. Our products
    developed with partner companies, such as the AeroDose TOBI product, will be
    marketed by our partners.

        PARTNERING WITH PHARMACEUTICAL AND BIOTECHNOLOGY COMPANIES FOR SYSTEMIC
    DELIVERY PRODUCTS.  We are pursuing collaborative arrangements with
    pharmaceutical and biotechnology companies to develop products to deliver
    drugs systemically via the lungs. We are developing an AeroDose inhaler for
    an inhaled insulin product to treat diabetes. Under an agreement with BD,
    this

                                       27
<PAGE>
    product will incorporate BD's patient-adjustable container. We intend to
    enter into a collaboration with a marketing partner to further develop and
    commercialize this product.

        OUT-LICENSING OUR AEROSOL GENERATOR TECHNOLOGY FOR USE OUTSIDE OF THE
    FIELD OF PULMONARY DRUG DELIVERY.  Our aerosol generator technology has
    proven to be of interest to industries focusing outside the field of
    pulmonary drug delivery. We have an agreement with a multinational consumer
    products company covering the use of our technology in the fields of air
    fresheners and insect repellants. Under the terms of this agreement, we are
    to receive royalties based on net sales of units and refill cartridges. We
    will continue to seek out-licensing opportunities outside the pulmonary drug
    delivery field where our technology can provide significant value.

           OUR CORE TECHNOLOGY AND PULMONARY DRUG DELIVERY PLATFORMS

AEROSOL GENERATOR

    Our aerosol generator contains a domed, or curved, plate which contains
multiple apertures, or holes, of a discrete shape and size. The aperture plate
is produced through an electroforming, or plating, process using a metal alloy
which is strong, corrosion resistant and durable. The plate is placed within a
vibrational element and when energy is applied to this element the plate
vibrates. This creates a micro-pumping action that draws solutions in contact
with the concave surface of the plate through the apertures to form a fine
particle aerosol. The aerosol particle size formed is proportional to the size
and shape of the holes in the aperture plate. The same manufacturing process is
used to produce aperture plates with holes of various sizes. We are able to
optimize the flow rate and produce a low velocity aerosol by controlling the
voltage and frequency applied to the vibrational element. Thus, when the aerosol
generator is incorporated into a delivery platform, it is capable of producing
aerosols of consistent particle size.

    [Picture of a cross-section of our aerosol generator, annotated with the
following:

              --Vibrational Element
               --Drop of Liquid
               --Aperture Plate
               --Fine Particle Aerosol]

We have demonstrated the ability to aerosolize drugs in solutions or suspensions
and drugs formulated in liposomes. We believe that our core technology will be
applicable to aerosolization of both small- and large-molecule drugs being
developed by the biotechnology industry. Results to date indicate that the
aerosol generator does not affect the stability of proteins and peptides.

AERODOSE INHALERS

    Each inhaler consists of our proprietary aerosol generator, electronic
circuitry, batteries, an inhalation sensor and a drug container. These
components are incorporated into a small, compact inhaler that is easy to use
and can be carried in a shirt pocket or small purse.

    We are incorporating several dosing options into our AeroDose inhalers. We
believe that this versatility enables us to explore multiple applications of our
platforms to deliver a variety of drugs. Our proprietary valves permit accurate
dosing in the range of 15 to 3,000 microliters. Currently, we are developing
four distinct dosing options for our inhalers:

    SINGLE-DOSE CANISTER.  The single-dose canister can contain dosing volumes
from 100 to 3,000 microliters. When the patient places the canister in the
inhaler, a proprietary adapter punctures the canister and initiates the release
of drug to the aerosol generator. Drug flow is automatically coordinated with a
patient's breathing until all of the prescribed dose is inhaled. We use standard
nebulizer form-fill-seal technology for the single-dose canister. For drugs such
as TOBI, which are already packaged using form-fill-seal technology, we are able
to use currently available high capacity manufacturing systems

                                       28
<PAGE>
to produce the single-dose canister without having to design and manufacture new
drug packaging materials.

    MULTI-DOSE CANISTER.  Our multi-dose canister is designed to deliver
multiple small doses of drugs. Our metering valve is designed to maintain
sterility over multiple activations of the canister. The valve is designed to
provide accurate dispensing of small volumes of solutions as well as the
homogeneous suspensions required for the delivery of certain respiratory
steroids. The disposable canister holds up to 6,000 microliters of solution and
reproducibly dispenses a fixed dose which can be set between 15 and 150
microliters. When activated by the patient, the valve dispenses a precise unit
dose of drug-containing solution to the aerosol generator. Each fixed dose
remains on the aperture plate until the patient activates the aerosol generator
by inhaling at a predetermined rate.

    DUAL CHAMBER CANISTER.  The dual chamber canister is intended to accommodate
drugs that are not stable in solution during storage. While most injected drugs
exist in liquid formulations, some proteins may require storage as a dry powder
to extend shelf life or minimize the need for refrigeration. In a dual chamber
canister, drug is stored as a powder in one chamber and a solvent is stored in
the second chamber. The patient depresses the barrel to mix the solvent with the
drug powder, thereby creating a solution. The dual chamber canister can then
function with the ease of our standard single-dose canister or multi-dose
canister.

    PATIENT-ADJUSTABLE CONTAINER.  In our collaboration, BD is developing a
patient-adjustable container to enable variable dosing of insulin by means of
our AeroDose inhaler. This container is designed to allow patients to adjust
their insulin dose before each meal based on their anticipated caloric intake.

    We are incorporating electronic controls into our inhalers to provide
flexibility, control and reproducibility of drug delivery that is consistent
across our inhalers. A patient can receive a visual signal that a dose of drug
has been dispensed to the aperture plate and is ready for inhalation. Once the
patient's inhalation rate exceeds a predetermined rate, the aerosol generator is
activated and the drug is aerosolized and inhaled. The patient's inhalation rate
can be monitored throughout the inhalation cycle, allowing drug aerosolization
to occur only while the patient's inhalation rate is above a minimum flow rate
for optimal deposition of drug in the lung. A patient can also stop inhalation
mid-dose and take multiple breaths to inhale a single dose. Our electronic
controls can inform a patient when the complete dose has been aerosolized.
Additional electronic features to customize an inhaler for a specific drug
application or dosing regimen can include a dose counter, lock-out features and
patient identification to prevent misuse.

AERONEB PORTABLE NEBULIZER

    Our first commercial product, the AeroNeb portable nebulizer, offers many
improved features compared to standard nebulizers used by patients and care
providers in the home setting. This portable nebulizer weighs less than 12
ounces and can operate on four standard "AA" batteries, a car cigarette lighter
or AC current. The AeroNeb nebulizer operates silently, in any position and with
less wasted medication and faster medication delivery rates than standard
compressor nebulizers. It incorporates a liquid feed design and generates
negligible heat, minimizing drug degradation. The AeroNeb nebulizer was designed
and approved for use with commercially available nebulizer solutions of
respiratory drugs and is expected to be introduced into the U.S. market in the
first half of 2001.

AERONEB INLINE NEBULIZER

    We are developing an application of our aerosol generator technology to
deliver drugs to patients during mechanical ventilation. The AeroNeb InLine
nebulizer is small and lightweight allowing it to be positioned close to the
patient's windpipe, thereby optimizing drug delivery and humidification of the
inhaled air. The AeroNeb InLine nebulizer is designed to allow the addition of
medication to a nebulizer cup without opening the ventilator tubing, thereby
potentially reducing a major source of infections. The drug is aerosolized
without the use of a compressor and avoids the introduction of additional air
into the

                                       29
<PAGE>
ventilator tubing when the drug is administered. The AeroNeb InLine nebulizer
can be designed to synchronize with the patient's breathing cycle, thereby
optimizing drug delivery.

                                    PRODUCTS

    We intend to incorporate our versatile and flexible core aerosol generator
technology into a portfolio of products, some developed for commercialization by
us and some developed with partners for marketing by them. We also intend to
out-license our technology for applications outside of the field of pulmonary
drug delivery.

OUR PRODUCTS FOR RESPIRATORY DISEASES

    We intend to create and market a respiratory disease product portfolio
consisting of our nebulizers and our AeroDose inhalers combined with available
drugs. We have developed an improved, portable and lightweight quiet nebulizer
which we will introduce into the U.S. market in the first half of 2001. We are
also developing nebulizers customized for delivery of drugs to patients on
mechanical ventilators. We are developing our AeroDose inhalers for delivery of
drugs which are currently administered by nebulizers to the lungs of the young
and the elderly. Our initial target diseases are pediatric asthma, COPD and CF.
The types of drugs currently used to treat these diseases include
anti-inflammatories, bronchodilators, immuno-modulators, leukotriene modifiers
and mucolytics.

    In 1999 the U.S. institutional and pharmacy expenditures for inhaled
respiratory medications were approximately $3.3 billion. Market growth in this
area has resulted from increased incidence of disease, diagnosis, medication
expenditures, improved compliance and a shift to newer, costlier therapies. U.S.
sales of inhaled respiratory drugs by dosage form in 1999 are listed in the
following table.

<TABLE>
                 1999 UNITED STATES SALES OF INHALED RESPIRATORY DRUGS
                                                           (IN MILLIONS)
DRUG                                         NEBULIZER     MDI       DPI        TOTAL
<S>                                          <C>         <C>        <C>        <C>
Beta agonists (e.g., albuterol)                $189       $  811      $ 50      $1,050
Anticholinergics (ipratropium)                  165          275        --         440
Combinations (albuterol and ipratropium)         --          192        --         192
Steroids (e.g., budesonide)                      --        1,016        93       1,109
Pulmozyme-Registered Trademark-                  92           --        --          92
TOBI                                             60           --        --          60
Other (e.g., acetylcysteine, cromolyn)           60           96        --         156
    TOTAL                                      $566       $2,390      $143      $3,099
</TABLE>

        Excludes approximately $200 million in sales through home
        healthcare and other miscellaneous sources. Source: IMS Health,
        except for information relating to TOBI, which was published by
        PathoGenesis in its Annual Report on Form 10-K for the year
        ended December 31, 1999.

    We estimate that U.S. sales of nebulizer devices will exceed $150 million in
2000, with close to half of sales for home use. The majority of sales are
captured by compressor nebulizers, typically sold to patients at approximately
$125 per device.

    PEDIATRIC ASTHMA.  We estimate that the U.S. population of asthma patients
under age six will be approximately three million by 2001. The two most commonly
prescribed classes of drugs for treatment are beta agonists and steroids. For
pediatric asthma patients under age six, 50% of albuterol prescriptions specify
the use of a nebulizer.

                                       30
<PAGE>
    CHRONIC OBSTRUCTIVE PULMONARY DISEASE.  COPD is estimated to affect
approximately 30 million people in the United States, mostly over the age of 45,
of whom approximately 50% remain undiagnosed. The Centers for Disease Control
and Prevention predicts that the incidence will grow in concert with the aging
population. The most commonly prescribed drugs to treat COPD are beta agonists
and anticholinergics, with approximately 55% of the prescriptions for these
drugs specifying the use of a nebulizer.

    CYSTIC FIBROSIS.  CF affects approximately 30,000 patients in the United
States and about 70,000 worldwide. CF patients spend up to a total of three and
one-half hours per day taking inhaled medications, oral medications, enzymes,
vitamins and receiving chest physiotherapy. Approximately 40% of the albuterol
prescriptions for the treatment of CF specify the use of a nebulizer. The
proprietary drugs TOBI and Pulmozyme are currently only available in nebulizer
solutions and represent approximately 50% of nebulizer uses for this patient
population.

OUR RESPIRATORY PRODUCTS IN DEVELOPMENT

<TABLE>
<S>                    <C>                    <C>                    <C>
                        AEROGEN'S PRODUCTS FOR RESPIRATORY THERAPY
PRODUCT                DOSING OPTION          INTENDED MARKET        DEVELOPMENT STAGE

AeroDose (albuterol)   Single- and            Pediatric asthma,      Preclinical
                         multi-dose canister    COPD and CF            development
AeroDose               Single- and            Pediatric asthma,      Preclinical
  (ipratropium)          multi-dose canister    COPD and CF            development
AeroDose (budesonide)  Single- and            Pediatric asthma,      Feasibility
                         multi-dose canister    COPD and CF
AeroDose (anti-        To be determined       Pediatric asthma,      Feasibility
  inflammatory)                                 COPD and CF
AeroNeb portable       Continuous             All patients using     510(k) cleared; U.S.
  nebulizer                                     nebulizers             launch targeted
                                                                       first half of 2001
AeroNeb InLine         Continuous             All patients on        510(k) filing
  nebulizer                                     mechanical             targeted first half
                                                ventilation            of 2001
</TABLE>

"Preclinical development" means customizing the AeroDose inhaler for a
particular application.
"Feasibility" means formulation studies to ascertain compatibility of compounds
of interest with our aerosol generator.

    AERODOSE INHALER.  We believe that our AeroDose inhaler is particularly
suited to address the most common complaints of physicians and their patients
who require aerosolized medication. Our inhaler is designed to combine the
convenience and portability of an MDI with the ease of administration of a
nebulizer, while minimizing drug waste and ensuring reproducible dosing. In a
six person imaging study, we compared lung deposition of drug following delivery
of the same dose of albuterol from an MDI and an AeroDose inhaler. The AeroDose
inhaler deposited, on average, 70% of the emitted dose in the lungs, compared to
the MDI, which deposited, on average, 18%. We estimate that our AeroDose
inhalers have the potential to reduce the typical prescribed dose of drug for a
nebulizer or MDI by more than half, while still delivering the same therapeutic
dose to a patient's lungs.

                                       31
<PAGE>
    Our AeroDose inhalers are designed to be cost competitive inhalers that span
the needs of the youngest and oldest patients in our target markets. We believe
our AeroDose inhalers also will address the coordination problems experienced by
other patient using MDIs. Even with repeat training, approximately 50% of
patients using MDIs have difficulty coordinating activation of the device with
their breathing.

    The initial drugs targeted for development include albuterol, ipratropium
and budesonide. Our activities will be focused on U.S. regulatory approval and
market introduction. The rights to our products outside the United States will
be licensed to partners who will undertake the studies and other activities
necessary to obtain regulatory approvals. We also plan to explore the potential
for commercializing appropriate drug combinations once individual formulations
have been developed including:

    -  AERODOSE (ALBUTEROL).  Albuterol solution for inhalation is approved for
       use by the FDA and is marketed by several different manufacturers. In the
       United States, nebulized albuterol sales in 1999 were approximately
       $189 million, while MDI albuterol sales were approximately $811 million.
       We expect that our supplier will purchase albuterol in bulk, formulate it
       and package it into single-dose and multi-dose canisters.

    -  AERODOSE (IPRATROPIUM).  Ipratropium solution for inhalation is approved
       for use by the FDA and is marketed by several different manufacturers. In
       the United States, nebulized ipratropium sales in 1999 were approximately
       $165 million, while MDI ipratropium sales were close to $500 million
       (including sales in combination with albuterol). We expect that our
       supplier will purchase ipratropium in bulk, formulate it and package it
       into single-dose and multi-dose canisters.

    -  AERODOSE (BUDESONIDE).  We believe that there is an unmet need for a
       budesonide dosage form suitable for use by pediatric asthma and COPD
       patients. Current treatment options for our target patient populations
       are limited to oral delivery, injections and use of an MDI or DPI. We
       have completed feasibility testing of a suspension of budesonide. We
       expect that our supplier will purchase budesonide in bulk, formulate it
       and package it into single-dose and multi-dose canisters. We believe that
       because budesonide is a steroid, it will likely require more clinical
       trials prior to regulatory approval than products using drug solutions of
       albuterol or ipratropium.

    -  AERODOSE (ANTI-INFLAMMATORY).  We are conducting feasibility studies with
       a proprietary approved anti-inflammatory drug currently available only in
       an oral dosage form. If our studies are successful, we intend to pursue
       licensing of the compound. We anticipate that the compound will require
       more preclinical studies prior to initiating clinical trials because
       inhalation is a novel method of delivery for such compound. The
       regulatory path is therefore likely to be more comprehensive and take
       longer than for drugs already approved for use in a nebulizer.

    AERONEB PORTABLE NEBULIZER.  Our quiet and portable AeroNeb nebulizer will
be our first commercial product. It has been designed and approved for use with
commercially available nebulizer solutions. The product will provide us with
commercial experience in the respiratory disease market and our initial target
clinical disease area for AeroDose inhalers. We plan to introduce the AeroNeb
portable nebulizer in the U.S. market in the first half of 2001.

    The AeroNeb nebulizer may also be used by partners and potential partners in
Phase I clinical studies to evaluate the potential use of our AeroDose inhalers
for delivery of their drugs under appropriate feasibility or development
agreements.

    AERONEB INLINE NEBULIZER.  The AeroNeb InLine nebulizer incorporates our
proprietary aerosol generator. We believe that the AeroNeb InLine nebulizer has
the potential to provide drug delivery and humidification to hospitalized
patients on ventilators. We have developed a means of integrating the electronic
circuits of the ventilator with our nebulizer. We are in discussions with a
ventilator company to make the AeroNeb InLine nebulizer an integral part of its
line of ventilator products. We expect that our first AeroNeb InLine nebulizer
will be sold as a stand-alone product that can be attached to any ventilator. We
plan to make a 510(k) submission to the FDA for this version of the AeroNeb
InLine nebulizer in the

                                       32
<PAGE>
first half of 2001. We intend to market the product ourselves in the United
States and through distributors elsewhere.

PARTNERED PRODUCTS FOR RESPIRATORY THERAPY

<TABLE>
<S>                     <C>                  <C>             <C>                     <C>
                              PARTNERED PRODUCTS FOR RESPIRATORY THERAPY
PARTNER                 PRODUCT              DOSING OPTION   INTENDED MARKET         DEVELOPMENT STAGE
PathoGenesis            AeroDose TOBI        Single-dose     Respiratory infection   Phase I
                          (tobramycin)         canister

Biotechnology Company   AeroNeb nebulizer    Continuous      Respiratory             Phase I
                          (undisclosed)

Biotechnology Company   AeroDose             Single-dose     Respiratory             Preclinical
                          (undisclosed)        canister                                development

Pharmaceutical Company  Undisclosed          To be           Respiratory             Feasibility
                          products             determined
</TABLE>

"Phase I" means testing the product in a small number of patients or normal
volunteers, primarily for safety, at one or more dosage strengths.
"Preclinical development" means customizing the AeroDose inhaler for a
particular application.
"Feasibility" means formulation studies to ascertain compatibility of compounds
of interest with our aerosol generator.

    AERODOSE TOBI (TOBRAMYCIN).  We are collaborating with PathoGenesis to
develop a customized version of the AeroDose inhaler to deliver TOBI, an
anti-infective drug used to treat CF. TOBI was approved in late 1997 as a
nebulized solution for use by CF patients with PSEUDOMONAS AERUGINOSA lung
infections. More than 60% of CF patients are chronically infected with
PSEUDOMONAS AERUGINOSA by age 17. TOBI has been designated an orphan drug by the
FDA which provides seven years of marketing exclusivity in the United States for
PathoGenesis. PathoGenesis' sales of TOBI were approximately $39.6 million for
the first six months of 2000. Market studies completed by PathoGenesis have
shown that the total time required for treatments of the CF patient can have an
impact on the patient's compliance with the recommended TOBI treatment regimen
and on the physician's assessment of a patient's likelihood of compliance. TOBI
currently is given via nebulizer twice a day during alternate months, with each
administration taking approximately 15 to 20 minutes per session.

    PathoGenesis and we believe that due to the efficiencies of the AeroDose
inhaler, the administration time per dose of TOBI can potentially be shortened
to five to ten minutes or less. In addition, the breath activation feature of
the AeroDose inhaler will allow for more efficient drug delivery and less drug
waste. By making these improvements, we believe that we can broaden the market
acceptance of TOBI by delivering an effective dose more quickly through our
hand-held, portable AeroDose inhaler.

    In March 2000, we entered into a development and supply agreement with
PathoGenesis to develop and commercialize the custom AeroDose inhaler and
PathoGenesis' formulation of TOBI. PathoGenesis is responsible for the
development and manufacture of the portion of the final product that contains
the drug. We are responsible for developing and manufacturing the custom
AeroDose inhaler. PathoGenesis will conduct the clinical testing needed for
regulatory approval of the final product. In July 2000, PathoGenesis announced
that it had begun Phase I testing of the AeroDose TOBI product.

    Under the agreement, PathoGenesis received exclusive worldwide
commercialization rights for the AeroDose inhaler when it is sold for use with
TOBI. We also granted PathoGenesis exclusive worldwide commercialization rights
to the AeroDose inhaler for the delivery of all other aminoglycoside drugs,

                                       33
<PAGE>
provided that we and PathoGenesis agree upon the terms of development of other
drug products and the royalties and other payments to be made to AeroGen
resulting from the sale of these products.

    We receive reimbursement of our costs to develop the AeroDose TOBI product.
We also will receive reimbursement for our manufacturing costs and a small
profit for each inhaler we provide to PathoGenesis, as well as royalties on
product sales. Upon entering into this agreement, PathoGenesis made a
$2.5 million equity investment in our Series E convertible preferred stock.
Unless terminated earlier by either party, the agreement will continue on a
country-by-country basis until the last patent covering the product expires, or
on January 20, 2015, whichever is later.

    In August 2000, PathoGenesis announced that it had entered into an agreement
to be acquired by Chiron Corporation, a leading biopharmaceutical company.

    OTHER RESPIRATORY PRODUCTS UNDER DEVELOPMENT WITH PARTNERS.  We intend to
collaborate with pharmaceutical and biotechnology companies to develop novel
pulmonary drug delivery products for respiratory therapy. Such collaborations
typically take one of two approaches: either a partner contacts us with a
proprietary drug to be delivered to the lungs, or we proactively identify
product opportunities and approach potential partners after obtaining
preclinical data, if possible.

    The flexibility of our technology to facilitate improved respiratory therapy
has attracted potential development partners. We currently are partnering with
three companies exploring respiratory therapies, of which one biotechnology
product is in Phase I trials, one biotechnology product is in preclinical
development and various products with one pharmaceutical company are currently
undergoing feasibility studies. We currently are conducting feasibility
activities with potential partners with both small and large molecules for
respiratory therapy.

    Feasibility studies can be paid for by potential partners or by us, and can
include IN VITRO (laboratory) testing and drug deposition studies. These studies
may be followed by some early clinical trials. Generally, the agreements and the
activities can be cancelled at any time by our partners. In the drug delivery
area, it is common for corporate partners to conduct feasibility studies with
multiple partners. Once feasibility of a particular drug has been established,
our partners typically fund additional development work and may make an equity
investment under the terms of our agreements with them. Following collaborative
development of a product, the partner will commercialize the product and pay us
a royalty on sales. We currently intend to manufacture AeroDose inhalers and
supply them to our partners at our cost plus a small profit.

PRODUCTS FOR SYSTEMIC THERAPY

    In addition to our respiratory therapy activities, our strategy includes
collaborating with pharmaceutical and biotechnology companies to develop novel
pulmonary drug delivery products for systemic therapy. We will pursue these
opportunities in the same manner as our partnered respiratory products; either
the potential partners will come to us, or we will propose products to them
after obtaining preclinical data, if possible.

    AERODOSE (INSULIN).  We are developing a special AeroDose inhaler for
delivery of insulin to diabetic patients which will incorporate a
patient-adjustable container being developed by BD. The estimated 800,000 Type I
(insulin dependent) diabetic patients in the United States require multiple
injections of insulin per day. We estimate that three of the nine million Type
II (non-insulin dependent) patients are currently injecting themselves with
insulin. Type II patients frequently fail to modify their lifestyle and are
reluctant to use injection-based therapy. We believe that once a non-invasive
form of insulin is approved, a significant portion of Type II patients may begin
treatment. Recent studies clearly demonstrate that injected insulin can
substantially limit the complications of diabetes. We estimate that the
worldwide insulin market will grow from $3.2 billion in 2000 to $6.5 billion by
2005.

                                       34
<PAGE>
    Our AeroDose insulin product is designed to be the first patient-adjustable
inhaler allowing a patient to precisely adjust their insulin dose based on
anticipated caloric intake. After extensive focus group testing with patients
and physicians, we believe that the AeroDose insulin inhaler will be an
attractive method for delivering inhaled insulin due to its small size and ease
of use.

    We have completed a Phase I clinical study using a prototype
patient-operated AeroDose inhaler with insulin in the United Kingdom in twelve
normal volunteers. The study compared insulin inhalation to subcutaneous
injection, focusing on both the absorption of insulin into the bloodstream and
its glucose-lowering effects. Subjects used separate AeroDose inhalers, which
were configured for slow, deep inhalations and production of a small-particle
aerosol appropriate for systemic drug delivery. Results indicated that the
absorption and glucose-lowering effects of inhaled insulin, relative to injected
insulin, were consistent with the published literature indicating that typically
10% to 15% of inhaled drug reaches the systemic circulation. There were no
reported respiratory complaints and no measurable differences in lung function
after inhalation versus injection. We recently began an additional Phase I
clinical trial in Europe, where we are studying optimal aerosolization
parameters. Phase II trials are planned for the first half of 2001. These
studies, in the United States and Europe, are designed to provide additional
evidence of AeroDose inhaler performance and inter- and intra-subject
variability in circulating levels of insulin following inhalation.

    In May of this year, we entered into an agreement with BD under which BD
will develop and supply a patient-adjustable container for use in our AeroDose
insulin inhaler. Under the agreement, we will develop the customized AeroDose
inhaler at our own cost and BD will develop the container at its own cost. We
will have the marketing rights to the product and BD will receive royalties on
product sales and a portion of any payments we receive from any future marketing
partner. BD will supply the container, without drug. Upon entering into the
agreement, BD made a $2.5 million equity investment in our Series E convertible
preferred stock.

    We plan to partner our AeroDose insulin product for further development,
clinical testing and commercialization.

    OTHER PHARMACEUTICAL AND BIOTECHNOLOGY COLLABORATIONS FOR SYSTEMIC
THERAPIES.  In addition to insulin, we are continuing to evaluate the market
opportunities for other drugs that we believe can be delivered to the
bloodstream using our AeroDose inhaler. We intend to collaborate with
pharmaceutical and biotechnology companies for development, clinical testing and
commercialization of these AeroDose products.

TECHNOLOGY OUT-LICENSING

    Our aerosol generator technology has proven to be of value to industries
focusing outside the field of pulmonary drug delivery. In October 1999, we
entered into an exclusive license agreement with a consumer company permitting
them to use our aerosol generator in the fields of air fresheners and insect
repellants worldwide. We expect the initial product will be introduced in Europe
in 2001. Under the license agreement, we will receive royalties based on net
sales of units and refills, and the license gives us access to any improvements
in our technology made by the consumer company during conduct of their
development and manufacturing activities. We have the right to terminate the
agreement with respect to either the air freshener products or insect repellant
products if such products are not introduced within specific time limits. We
will continue to explore out-licensing opportunities for our technologies
outside the field of pulmonary drug delivery.

                                 MANUFACTURING

    We plan to manufacture our aerosol generators and outsource the manufacture
of the other components used in our products. We manufacture the aperture plates
and assemble our aerosol generators at our facility in Sunnyvale, California. We
design the remaining components of our products, such as

                                       35
<PAGE>
molded parts and electronic circuitry, and outsource the manufacture of these
parts to qualified vendors. The manufacture of containers and sterile drug
filling will be outsourced, minimizing the need for capital investment in
specialized drug filling facilities that require GMP approval. We currently are
planning to have our AeroNeb nebulizer and our AeroNeb InLine nebulizer
manufactured for us by a qualified vendor in the EU, incorporating aerosol
generators that we will supply. We plan to assemble our AeroDose inhalers in our
California facilities.

                              SALES AND MARKETING

    We are evaluating options for the sales and marketing of our respiratory
products. We anticipate developing a U.S. sales force, through outsourced or
internal efforts or both, to support our respiratory products. Our strategy
includes maintaining the marketing rights for these products in the United
States and commercializing the products in other countries through distributors
or marketing partners. Using a targeted sales strategy, we plan to market the
AeroNeb portable nebulizer in the United States to certain home medical
equipment dealers, retail pharmacies, physicians and patients. We are
considering medical device distribution companies or respiratory equipment
companies as our partners to commercialize the AeroNeb and AeroNeb InLine
nebulizers. We currently expect that the products we develop in collaboration
with partner companies will be commercialized by our partners.

                                  COMPETITION

    There is intense competition in the drug delivery market. We compete with
pharmaceutical and biotechnology companies, hospitals, research organizations,
individual scientists and nonprofit organizations engaged in developing
non-invasive drug delivery dosage forms and new drug research and development.
Competing non-invasive alternatives to injectable drug delivery include oral,
intranasal, buccal, transdermal and colonic absorption dosage forms. We also
compete with entities producing and developing injectable drugs. Several of
these entities are working on sustained-release injectable systems. While these
systems still require injections, the lower number of injections could allow
these products to compete effectively with non-invasive therapies.

    The pulmonary drug delivery market in particular is intensely competitive.
Several companies, including Aradigm Corporation, Dura Pharmaceuticals, Inc.,
Inhale Therapeutics and Sheffield Pharmaceuticals, Inc. are developing competing
pulmonary drug delivery dosage forms. These competing dosage forms are designed
both to treat respiratory disease and to deliver drugs systemically. Several of
our competitors have collaborative arrangements with partners to develop
inhalers for insulin. We also face competition from existing pulmonary drug
delivery dosage forms such as MDIs, DPIs and nebulizers, which have been used
effectively to treat respiratory disease in certain patient populations for
years. There can be no assurance that our competitors will not develop and
introduce products or technologies that are competitive with or superior to
ours.

    Many of our competitors have greater research and development capabilities,
experience, manufacturing, marketing, financial and managerial resources than we
do. Accordingly, they may succeed in developing competing products and
technologies, obtaining regulatory approval for products or gaining market
acceptance more rapidly than we can. We believe that our products will compete
on the basis of patient convenience, efficiency, dose reproducibility, safety
and cost.

                  INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

    Our ability to compete effectively depends in part on developing and
maintaining the proprietary aspects of our aerosolization technology. We own
five issued U.S. patents and one allowed U.S. patent application. In addition,
we have eight pending U.S. patent applications and eight pending international

                                       36
<PAGE>
patent applications. None of our issued patents expire earlier than 2009. These
patents are directed at, among other things, the following:

    -  apparatus and methods for generating aerosols, such as delivering the
       liquid to be aerosolized in surface tension with a vibrating membrane,
       dispersing the liquid through tapered apertures in the vibrating
       membrane, and incorporating the tapered apertures in a dome-shaped
       aperture plate;

    -  particular aspects of the liquid feed system; and

    -  particular embodiments of the aerosolization devices.

    The pending patent applications include coverage for numerous improvements
on the fundamental aspects of our aerosolization technology.

    We cannot assure you that the patents we have obtained, or any patents that
we may obtain as a result of our U.S. or international patent applications, will
provide any competitive advantages for our products or that they will not be
successfully challenged, invalidated or circumvented in the future. In addition,
we cannot assure you that competitors, many of whom have substantial resources
and have made substantial investments in competing technologies, will not seek
to apply for and obtain patents that will prevent, limit or interfere with our
ability to make, use and sell our products either in the United States or in
international markets.

    A number of other companies, universities and research institutions have
filed patent applications or have issued patents relating to vibratory
aerosolization technology. In addition, we have become aware of, and may become
aware of in the future, patent applications and issued patents that relate to
our products. We do not believe that our products currently infringe any valid
and enforceable claims of the issued patents that we have reviewed. However, if
third-party patents or patent applications contain claims infringed by our
technology and such claims are ultimately determined to be valid, we cannot
assure you that we would be able to obtain licenses to those patents at a
reasonable cost, if at all, or be able to develop or obtain alternative
technology. The inability to do either would have a material adverse effect on
our business, financial condition, results of operations and future growth
prospects. We cannot assure you that we will not have to defend ourselves in
court against allegations of infringement of third-party patents.

    In addition to patents, we rely on trade secrets and proprietary know-how,
which we seek to protect, in part, through confidentiality and proprietary
information agreements. We require our employees and key consultants to execute
confidentiality agreements upon the commencement of employment or a consulting
relationship with us. These agreements generally provide that all confidential
information developed or made known to the individual by us during the course of
the individual's relationship with us is to be kept confidential and not
disclosed to third parties. These agreements also provide that inventions
conceived by the individual in the course of rendering services to us will be
our exclusive property. We cannot assure you that employees and consultants will
not breach the agreements, that we would have adequate remedies for any breach
or that our trade secrets will not otherwise become known to or be independently
developed by competitors.

    The pharmaceutical and medical device industries have been characterized by
extensive litigation regarding patents and other intellectual property rights,
and companies in these industries have employed intellectual property litigation
to gain a competitive advantage. We cannot assure you that we will not become
subject to patent infringement claims or litigation or interference proceedings
declared by the United States Patent and Trademark Office, or USPTO, to
determine the priority of inventions. In 1999 we settled a patent interference
involving U.S. Patent No. 5,261,601, assigned to Bespak concerning methods and
apparatus for dispensing atomized sprays by vibrating a membrane to atomize the
liquid in contact with the membrane through flared holes in the membrane. The
settlement provided for a cross-license between us and Bespak, as a result of
which Bespak has a license to certain of our technology. The scope of the
granted license was limited to products employing technology which was disclosed
by Bespak in

                                       37
<PAGE>
U.S. Patent No. 5,261,601. The license would not extend to any of our technology
which was not disclosed in this patent.

    Our patent position involves complex legal and factual questions and is
generally uncertain. The field of aerosolized drug delivery is crowded, and a
substantial number of patents have been issued to others. We are aware of
several issued U.S. and international patents that cover certain aspects of
vibratory aerosolization technology. Legal standards relating to the validity
and scope of patent claims in the biotechnology and pharmaceutical field are
evolving. Therefore, the degree of protection our patents will afford is
uncertain. Patents, if issued, may be challenged, invalidated or designed
around. Thus, any patents that we own or license may not provide any, or
significant, protection against competitors. Our pending patent applications or
those we may file in the future may not result in patents being issued. Also,
patent rights may not provide us with proprietary protection or competitive
advantages against competitors with similar technology. Furthermore, others may
independently develop similar technologies or duplicate any technology that we
have developed.

    The defense and prosecution of intellectual property litigation, USPTO
interference proceedings and related legal and administrative proceedings are
both costly and time-consuming. If others violate our proprietary rights,
litigation may be necessary to enforce our patents, to protect trade secrets or
know-how owned by us or to determine the enforceability, scope and validity of
the proprietary rights of others. Any litigation or interference proceedings
will be costly and cause significant diversion of effort by our technical and
management personnel. An adverse determination, other litigation or interference
proceedings to which we may become a party could subject us to significant
liabilities to third parties, require disputed rights to be licensed from third
parties or require us to cease using such technology. Although patent and
intellectual property disputes in the medical device area have often been
settled through licensing or similar arrangements, costs associated with such
arrangements may be substantial and could include ongoing royalties.
Furthermore, we cannot be sure that we could obtain necessary licenses on
satisfactory terms, if at all. Adverse determinations in a judicial or
administrative proceeding or failure to obtain necessary licenses could prevent
us from manufacturing and selling our products, which would have a material
adverse effect on our business, financial condition, results of operations and
future growth prospects.

                             GOVERNMENT REGULATION

    Our products are subject to extensive regulation by numerous governmental
authorities, principally the FDA in the United States, as well as numerous state
and foreign regulatory agencies. We need to obtain clearance of our products by
the FDA before we can begin marketing our products in the United States. Similar
approvals also are required in other countries before our products can be
marketed in those countries.

    Product development and approval within this regulatory framework is
uncertain, can take a number of years and requires substantial resources. The
nature and extent of the governmental premarket review process for our products
will vary depending on the regulatory categorization of particular products.
Because certain of our products may be characterized as either devices, drugs or
biologics, the regulatory path for our products is not clear.

    Our products regulated as medical devices will be classified into one of
three classes on the basis of the controls deemed by the FDA to be necessary to
reasonably ensure their safety and effectiveness. The class for any particular
product, as follows, will determine the regulatory route:

    -  CLASS I:  general controls, e.g., labeling, premarket notification and
       adherence to GMP quality system regulation, or QSR;

    -  CLASS II:  general controls and special controls, e.g., performance
       standards and postmarket surveillance; and

                                       38
<PAGE>
    -  CLASS III:  premarket approval (PMA).

    510(K) CLEARANCE.  Before a new device can be marketed, its manufacturer
must obtain marketing clearance through either a premarket notification under
Section 510(k) of the Federal Food, Drug and Cosmetic Act or approval of a
premarket approval application, or PMA. A 510(k) clearance typically will be
granted if a company establishes that its device is "substantially equivalent"
to a legally marketed Class I or II medical device or to a Class III device for
which the FDA has not yet required the submission of a PMA, referred to as a
predicate device. A 510(k) clearance must contain information to support the
claim of substantial equivalence, which may include laboratory test results or
the results of clinical studies. A clinical trial generally requires an
investigational device exemption (IDE) application approved, before the study
begins, by the FDA for a specified number of patients, unless the product is
approved for more abbreviated IDE requirements. The IDE must be supported by
appropriate data, such as animal and laboratory testing results. Clinical trials
may begin if the FDA and the appropriate institutional review boards approve the
IDE. Trials must be conducted in conformance with FDA regulations and
institutional review boards' requirements. The sponsor or the FDA may suspend
the trials at any time if it is believed that they pose unacceptable health
risks or the FDA finds deficiencies in the way they are being conducted. Data
from clinical trials are often subject to varying interpretations that could
delay, limit or prevent FDA approval. Commercial distribution of a device
subject to the 510(k) requirement may begin only after the FDA issues an order
finding the device to be substantially equivalent to a predicate device. It
generally takes from four to 12 months from the date of submission to obtain
clearance of a 510(k) submission, but it may take longer. The FDA may determine
that a proposed device is not substantially equivalent to a legally marketed
device, that additional information is needed before a substantial equivalence
determination may be made, or that the product must be approved through the PMA
process. An FDA determination of "not substantially equivalent," a request for
additional information, or the requirement of a PMA could delay market
introduction of products that fall into this category. Furthermore, for any
devices cleared through the 510(k) process, modifications or enhancements that
could significantly affect safety or effectiveness, or constitute a major change
in the intended use of the device, require new 510(k) submissions. We have
received 510(k) clearance for our AeroNeb nebulizer.

    PMA APPROVAL.  If a device does not qualify for the 510(k) premarket
notification procedure, a company must file a PMA. The PMA requires more
extensive pre-filing testing than required for a 510(k) premarket notification
and usually involves a significantly longer review process. A PMA must be
supported by valid scientific evidence that typically includes extensive data,
including preclinical and clinical trial data, to demonstrate the safety and
efficacy of the device. If clinical trials are required, and the device presents
a "significant risk," an IDE application must be filed with the FDA and become
effective prior to the commencing clinical trials. If the device presents a
"nonsignificant risk" to trial subjects, clinical trials may begin on the basis
of appropriate institutional review board approval.

    A PMA may be denied if applicable regulatory criteria are not satisfied, and
the FDA may impose certain conditions upon the applicant, such as postmarket
testing and surveillance. The PMA review and approval process can be expensive,
uncertain and lengthy, and approvals may not be granted. A number of devices for
which premarket approval has been sought have never been approved for marketing
and sale. After approval of a PMA, a new PMA or a new PMA supplement is required
if certain modifications are made to the device, its labeling or its
manufacture.

    NDA AND BLA APPROVAL.  Our AeroDose inhaler products may be regulated as
drugs or biologics if approval is requested for the inhaler with a new chemical
entity or a new biologic. In this instance, an Investigational Drug Application
(IND) will be required before Phase II studies in patients can be conducted.
Approval of a New Drug Application (NDA), or a Biologics License Application
(BLA), will be required before the product can be marketed. In addition to
reports of the preclinical and clinical trials conducted under an effective IND
application, the NDA or BLA includes information pertaining to the preparation
of the drug substance, the manufacture of the inhaler, analytical methods,
details on the

                                       39
<PAGE>
manufacture of finished products and proposed packaging and labeling. Submission
of an NDA or BLA does not assure FDA approval for marketing. The application
review process generally takes several years to complete. The process may take
substantially longer if, among other things, the FDA has questions or concerns
about the safety or efficacy of a product. In general, the FDA requires at least
two properly conducted, adequate and well-controlled clinical studies
demonstrating efficacy with sufficient levels of statistical assurance.

    There can be no assurance that approval for any of our products will be
granted on a timely basis, or at all. Notwithstanding the submission of safety
and efficacy data, the FDA ultimately may decide that the application does not
satisfy all of its regulatory criteria for approval. The FDA also may require
additional clinical tests (i.e., Phase IV clinical trials) following NDA or BLA
approval to confirm safety and efficacy. Upon approval, a product may only be
marketed for the approved indications.

    In addition, the FDA may in some circumstances impose restrictions on the
use of a product that may be difficult and expensive. Product approvals may be
withdrawn if compliance with regulatory requirements is not maintained or if
problems occur after the product reaches the market. The FDA also requires
reporting of certain safety and other information that becomes known to a
manufacturer of an approved product.

    The process for approval of products regulated as drugs and biologics
outside the United States is similar to the NDA/BLA process in the United
States.

    EUROPEAN UNION APPROVAL.  Commercialization of medical devices in the EU is
regulated under a system which presently requires that all medical products sold
in the EU bear the CE mark, an international symbol of adherence to quality
assurance standards and demonstrated clinical effectiveness. Compliance with the
Medical Device Directive--as certified by a recognized European Competent
Authority--permits the manufacturer to affix the CE mark on its products. We
cannot be certain that we will obtain the CE mark approval, or that we will not
have delays in obtaining the CE mark approval for any product.

    POST-APPROVAL REQUIREMENTS.  Regulatory approval, if granted, may entail
limitations on the indicated uses for which a product may be marketed, and
product approvals, once granted, may be withdrawn if problems occur after
initial marketing. Manufacturers of FDA-regulated products are subject to
pervasive and continuing governmental regulation, including recordkeeping
requirements and reporting of adverse experiences associated with product use.
Compliance with these requirements is costly, and failure to comply properly can
result in withdrawal of a product approval.

    GMP REQUIREMENTS.  We will be required to adhere to applicable regulations
setting forth the FDA's current Good Manufacturing Practices, which include
testing, control and documentation requirements. Other countries have similar
requirements. Failure to comply with GMP and other applicable regulatory
requirements may result in, among other things, warning letters, fines,
injunctions, civil penalties, recall or seizure of products, total or partial
suspension of production, failure of the government to review pending marketing
approval applications, withdrawal of marketing approvals and criminal
prosecution.

    HAZARDOUS MATERIALS.  Our operations involve use of hazardous and toxic
materials and generate hazardous, toxic and other wastes. We are subject to
federal, state and local laws and regulations governing the use, storage,
handling and disposal of such materials and certain waste products. Although we
believe that our safety procedures for using, handling, storing and disposing of
such materials comply with the standards required by state and federal laws and
regulations, we cannot completely eliminate the risk of accidental contamination
or injury from these materials.

                                       40
<PAGE>
                                   EMPLOYEES

    We had approximately 96 full-time employees as of June 30, 2000, 80 of whom
are engaged in product development and research activities. Ten of these
employees are at our Irish facility. Our employees are not represented by a
collective bargaining agreement. All employees participate in an employee stock
option plan and receive options that generally vest over a four-year period. We
believe our relations with our employees are good.

                                   FACILITIES

    We lease two contiguous facilities, approximately 25,000 square feet and
13,000 square feet, respectively, in Sunnyvale, California. The leases on these
laboratory, manufacturing and office spaces expire in December 2001. AeroGen
Ireland leases a laboratory and office facility of approximately 2,500 square
feet in Galway, Ireland. The lease in this office expires at the end of this
year and we expect to renew it.

                               LEGAL PROCEEDINGS

    We are not a party to any material legal proceedings.

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<PAGE>
                                   MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

    The following persons are our executive officers, senior management and
directors as of June 30, 2000:

<TABLE>
<CAPTION>
NAME                                     AGE      POSITION
----                                   --------   --------
<S>                                    <C>        <C>
Jane E. Shaw, Ph.D...................     61      Chairman, Chief Executive Officer and Director
Yehuda Ivri..........................     49      Chief Technical Officer and Director
Casper L. de Clercq..................     36      Vice President, Sales, Marketing and Business
                                                  Development
Carol A. Gamble......................     48      Vice President and General Counsel
Deborah K. Karlson...................     48      Chief Financial Officer
Michael A. Klimowicz.................     50      Vice President, Product Development
John S. Power........................     42      Vice President, European Operations
Thomas R. Baruch(1)..................     61      Director
Jean-Jacques Bienaime(1)(2)..........     47      Director
Phyllis I. Gardner, M.D(1)...........     50      Director
Philip M. Young(2)...................     60      Director
</TABLE>

------------------------
(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

    JANE E. SHAW, PH.D. has served as Chairman of our Board of Directors and as
our Chief Executive Officer since 1998. Dr. Shaw was a founder and consultant of
The Stable Network, a consulting company that focuses on improving the
productivity and profitability of biopharmaceutical companies, from 1994 to
1998. Dr. Shaw held various scientific and management positions in ALZA
Corporation, a pharmaceutical company, from 1970 to 1994, most recently as
President and Chief Operating Officer from 1987 to 1994. Dr. Shaw received a
B.S. and Ph.D. in Physiology from Birmingham University in England. Dr. Shaw
serves as a director of McKesson HBOC, Inc., a healthcare supply management
company, Intel Corporation, a semiconductor chip maker, Boise Cascade
Corporation, an office products and building materials company, and IntraBiotics
Pharmaceuticals, a biopharmaceutical company.

    YEHUDA IVRI founded AeroGen in 1991 and has served as a member of our Board
of Directors since its inception. Mr. Ivri has served as our Chief Technical
Officer since 1996 and previously as Chief Scientist and Vice President.
Mr. Ivri received an M.S. in Mechanical Engineering from the Technion-Israel
Institute of Technology.

    CASPER L. DE CLERCQ has served as our Vice President of Business Development
since 1998 and our Vice President of Sales, Marketing and Business Development
since 1999. Mr. de Clercq was Director of Market Development at
Heartport, Inc., a cardiovascular device company, from 1996 to 1998, and Co-
founder and Vice President of Business Development at Biointerventions, Co., a
biotechnology company, from 1994 to 1995. Mr. de Clercq held various positions
at Diagnostic Products Corporation, a medical device company, from 1987 to 1991,
and was a consultant at Bain & Company, an international strategy consulting
firm, from 1984 to 1987. Mr. de Clercq received a B.A. in Biochemistry from
Dartmouth College, an M.B.A. from Stanford University Graduate School of
Business and an M.S. in Biological Science from Stanford University.

    CAROL A. GAMBLE has served as Vice President and General Counsel since
May 2000. Previously Ms. Gamble was with ALZA Corporation, a pharmaceutical
company, from 1988 to 2000, most recently as Senior Vice President and Chief
Corporate Counsel. Ms. Gamble was a partner with the law firm of Heller, Ehrman,
White & McAuliffe. Ms. Gamble received a B.S. in Education from Syracuse
University and a J.D. from the University of California, Berkeley.

    DEBORAH K. KARLSON has served as our Chief Financial Officer since
February 2000 and Vice President of Finance and Administration since 1999.
Ms. Karlson was a financial consultant from 1992 until 1999,

                                       42
<PAGE>
and provided consulting services to AeroGen from 1997 to 1999. Previously,
Ms. Karlson was a manager with Deloitte & Touche LLP, an accounting firm. She
received a B.A. in Accounting and Economics and an M.B.A. in Finance and
Accounting from the Syracuse University School of Management.

    MICHAEL A. KLIMOWICZ has served as our Vice President, Product Development
since 1998. Mr. Klimowicz held a number of senior management positions at Alaris
Medical Systems, a medical device company, from 1990 to 1998, most recently as
Director of Product Development. Mr. Klimowicz was the Director of Biomedical
Engineering at Psicor Inc., a medical services company, from 1987 to 1990.
Mr. Klimowicz received a B.S. in Electrical Engineering from Western Michigan
University.

    JOHN S. POWER has served as our Vice President, European Operations and as
our Managing Director, AeroGen Ireland since May 2000. Mr. Power was the
Managing Director of Cerus Limited (now AeroGen Ireland), from 1998 to 2000.
Mr. Power was Engineering Manager in Mechanical Development at Nellcor Puritan
Bennett LTD, a medical products company, from 1993 to 1997. Mr. Power was an
engineering consultant to various companies from 1988 to 1992. Mr. Power
obtained I. Eng. Engineering Council Status from the Chesterfield College of
Technology.

    THOMAS R. BARUCH has served as a director of AeroGen since 1996. He has been
a General Partner at CMEA Ventures, a venture capital firm, since 1988
(previously an affiliated fund of New Enterprise Associates). Mr. Baruch was a
special partner of New Enterprise Associates from 1990 to 1996. Mr. Baruch
received a B.S. in Engineering from Rensselaer Polytechnic Institute and a J.D.
from Capital University. Mr. Baruch serves as a director of Netro Corporation, a
telecommunications company, Symyx Technologies, a technology research company,
Physiometrix Inc., a medical products company and Aclara Biosciences, Inc., a
life science company.

    JEAN-JACQUES BIENAIME has served as a director of AeroGen since 1999.
Mr. Bienaime has been President, Chief Executive Officer and a director of
SangStat, a transplant company, since 1998. Mr. Bienaime held various positions
at Rhone Poulenc Rorer Inc., a leading pharmaceutical company, from 1992 to
1998, most recently as Senior Vice President of Corporate Marketing and Business
Development. Mr. Bienaime received an M.B.A. from the Wharton School at the
University of Pennsylvania and a degree in Economics from Ecole Superieure de
Commerce de Paris in France. Mr. Bienaime serves as a director of the Fox Chase
Cancer Center in Philadelphia.

    PHYLLIS I. GARDNER, M.D. has served as a director of AeroGen since
May 2000. Dr. Gardner is currently the Senior Associate Dean for Education and
Student Affairs and Associate Professor of Molecular Pharmacology and Medicine
at Stanford University School of Medicine and has been with the university since
1984. Dr. Gardner was Vice President of Research, and Principal Scientist of
ALZA Corporation and Head of ALZA Technology Institute from 1996 to 1998.
Dr. Gardner was Principal Scientist and consultant to ALZA from 1994 to 1996.
Dr. Gardner received a B.S. in Biology from the University of Illinois and an
M.D. from Harvard Medical School.

    PHILIP M. YOUNG has served as a director of AeroGen since 1994. Mr. Young
has been a General Partner with U.S. Venture Partners, a venture capital firm,
since 1990. Mr. Young was a Managing Director of Dillon Read & Co., a financial
services company, and Concord Partners, a venture capital firm managed by Dillon
Read, from 1986 to 1990. Mr. Young was President and CEO of Oximetrix, Inc., a
privately held manufacturer of high technology medical instruments and sterile
disposable products, from 1978 to 1986. Mr. Young received a B.S. in Mechanical
Engineering from Cornell University, an M.S. in Engineering Physics from George
Washington University and an M.B.A. from Harvard Business School, where he was a
Baker Scholar. Mr. Young serves as a director of Vical Inc., a biotechnology
company, Compugen, Ltd., a bioinformatics company, The Immune Response
Corporation, a biopharmaceutical company, and Zoran Corporation, a digital
solutions provider.

                                       43
<PAGE>
CLASSIFIED BOARD

    Upon the closing of this offering, we will have authorized six directors. In
accordance with the terms of our certificate of incorporation, the terms of
office of our Board of Directors will be divided into three classes. As a
result, a portion of our Board of Directors will be elected each year. The
division of the three classes and their respective election dates are as
follows:

    -  the class I directors' term will expire at the annual meeting of
       stockholders to be held in 2001;

    -  the class II directors' term will expire at the annual meeting of
       stockholders to be held in 2002; and

    -  the class III director's term will expire at the annual meeting of
       stockholders to be held in 2003.

    Our class I directors will be Philip M. Young and Phyllis I. Gardner, M.D.
Our class II directors will be Thomas R. Baruch and Jane E. Shaw, Ph.D. Our
class III directors will be Jean-Jacques Bienaime and Yehuda Ivri. At each
annual meeting of stockholders after the initial classification, the successors
to directors whose terms will then expire will be elected to serve from the time
of election and qualification until the third annual meeting following election.
In addition, our bylaws provide that the authorized number of directors may be
changed by an amendment to the bylaws duly adopted by the Board of Directors or
by the stockholders, or by a duly adopted amendment to our certificate of
incorporation. Any additional directorships resulting from an increase in the
number of directors will be distributed among the three classes so that, as
nearly as possible, each class will consist of one-third of the total number of
directors.

BOARD COMMITTEES

    We established the audit committee of the Board of Directors in August 2000.
The audit committee reviews our internal accounting procedures and consults with
and reviews the services provided by our independent accountants. Our audit
committee currently consists of Thomas R. Baruch, Phyllis I. Gardner, M.D. and
Jean-Jacques Bienaime.

    We established the compensation committee of the Board of Directors in
August 2000. The compensation committee administers our stock plans, reviews and
approves the compensation and benefits of all our officers and establishes and
reviews general policies relating to compensation and benefits of our employees.
Our compensation committee currently consists of Philip M. Young and
Jean-Jacques Bienaime.

SCIENTIFIC ADVISORS

    We have retained advisors to provide guidance and counsel on key scientific
and medical aspects of our business. These advisors provide us an agreed upon
minimum number of days per year. They provide input on research, development and
clinical strategy. In addition, once a year they each convene a group of
consultants and organize a two-day symposium addressing a scientific or clinical
topic of particular relevance to our product development activities. Each
advisor is paid an annual retainer and receives options to purchase common
stock.

    RICHARD N. DALBY, PH.D., M.R. PHARM. S., B. PHARM., is currently our Chief
Scientific Advisor. Dr. Dalby is guiding our efforts to study and optimize the
delivery of aerosolized formulations in the lung, based on his expertise in
aerosol science, pharmaceutics and respiratory cell biology. Since 1997,
Dr. Dalby has held various positions in the Department of Pharmaceutical
Sciences at the University of Maryland, including the Vice Chair for Academic
Affairs. Dr. Dalby received a Ph.D. from the University of Kentucky and a B.
Pharm. from the Nottingham University School of Pharmacy.

    ALAN R. LEFF, M.D., is currently our Chief Medical Advisor. Dr. Leff assists
us in identifying and assessing new opportunities. He also provides guidance for
our development programs, based on his

                                       44
<PAGE>
expertise in respiratory pharmacology, cell biology and immunology. Dr. Leff has
held various positions at The University of Chicago where he is currently Senior
Director for Research and Development for Biological Sciences. Since 1993,
Dr. Leff has been the Director of the Asthma and Allergic and Immunologic
Disease Cooperative Research Center (National Institute of Allergy and
Infectious Diseases) and Professor of Pharmacological and Physiological
Sciences. From 1996 to 1997 he was Co-Chairman, Asthma Committee, NIAID Task
Force on Immunology, National Institutes of Health. Between 1994 and 1999,
Dr. Leff was editor for the AMERICAN JOURNAL OF RESPIRATORY and CRITICAL CARE
MEDICINE. Dr. Leff received an A.B. from Oberlin College and an M.D. from the
University of Rochester School of Medicine and Dentistry.

DIRECTOR COMPENSATION

    Directors currently receive no cash compensation from us for their services
as members of the Board of Directors or for attendance at committee meetings. In
August 1999, we granted Mr. Bienaime, in connection with his participation on
our Board of Directors, an option to purchase 50,000 shares of common stock at
$0.20 per share under our 1996 Stock Option Plan. One year from the date of
grant, 12,500 shares covered by Mr. Bienaime's option will become exercisable;
the balance of the shares covered by Mr. Bienaime's option will vest in equal
monthly installments over the following three years. In April 2000, we granted
Dr. Gardner, in connection with her participation on our Board of Directors, an
option to purchase 50,000 shares of common stock at $0.20 per share under our
1996 Stock Option Plan. One year from the date of grant, 12,500 shares covered
by Dr. Gardner's option will become exercisable; the balance of the shares
covered by Dr. Gardner's option will vest in equal monthly installments over the
following three years.

    In August 2000, we adopted the 2000 Non-employee Directors' Stock Option
Plan to provide for the automatic grant of options to purchase shares of common
stock to our directors who are not our employees. Any director elected after the
closing of this offering will receive an initial option to purchase 45,000
shares of common stock. Starting at the annual stockholder meeting in 2001, all
non-employee directors will receive an annual option to purchase 15,000 shares
of common stock.

EXECUTIVE COMPENSATION

    The following table sets forth summary information concerning the
compensation paid to our Chief Executive Officer and four most highly
compensated executive officers for services during the year ended December 31,
1999. All option grants were made under our 1996 Stock Option Plan.

                                       45
<PAGE>
                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                           NUMBER OF
                                                         ANNUAL            SHARES OF
                                                      COMPENSATION        COMMON STOCK
                                                   -------------------     UNDERLYING
NAME AND PRINCIPAL POSITION                         SALARY     BONUS        OPTIONS        OTHER
---------------------------                        --------   --------   --------------   --------
<S>                                                <C>        <C>        <C>              <C>
Jane E. Shaw, Ph.D. .............................  $240,000        --            --            --
  Chief Executive Officer
Michael A. Klimowicz ............................  $175,000   $44,501            --            --
  Vice President, Product Development
Casper L. de Clercq .............................  $160,000        --        50,000            --
  Vice President, Sales, Marketing & Business
  Development
Yehuda Ivri .....................................  $156,000        --            --       $30,000(1)
  Chief Technical Officer
Deborah K. Karlson(2) ...........................  $126,154        --       150,000            --
  Chief Financial Officer
</TABLE>

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

(1) Consists of $25,000 reimbursement for travel and lodging plus $5,000 tax
    gross-up on an interest-free loan.

(2) Ms. Karlson joined AeroGen in March 1999. Her annualized salary for 1999 was
    $160,000. Ms. Karlson was appointed Chief Financial Officer in
    February 2000.

                                    OPTIONS

    The following table sets forth each grant of stock options during the fiscal
year ended December 31, 1999 to each of the individuals listed on the previous
table.

    The exercise price of each option was equal to the fair market value of our
common stock, as determined by the board of directors on the date of grant. The
exercise price may be paid in cash, in shares of our common stock valued at the
fair market value on the exercise date or, after the effective date of this
offering, through a cashless exercise procedure involving a same-day sale of the
purchased shares.

    The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the SEC and does not represent our
prediction of our stock price performance. The potential realizable values at 5%
and 10% appreciation are calculated by

    -  multiplying the number of shares of common stock issuable upon exercise
       of a given option by the assumed initial public offering price of $
       per share;

    -  assuming that the aggregate stock value derived from that calculation
       compounds at the annual 5% or 10% rate shown in the table until the
       expiration of the options; and

    -  subtracting from that result the aggregate option exercise price.

    The options listed in the following table under "Number of Shares of Common
Stock Underlying Options Granted" are subject to vesting. For Mr. de Clercq, the
options vest in equal monthly installments over 48 months of service. For
Ms. Karlson, the options vest in equal monthly installments over 36 months of
service. For all the other individuals, the options vest as to 25% of the total
shares after one year and as to 1/48th of the total shares each month over the
next 36 months. Each of the options has a ten year term, subject to earlier
termination if the optionholder's service with us ends.

                                       46
<PAGE>
    Percentages shown under "Percent of Total Options Granted to Employees in
1999" are based on an aggregate of 1,063,500 options granted to our employees
under our stock option plans during the fiscal year ended December 31, 1999.

                             OPTION GRANTS IN 1999

<TABLE>
<CAPTION>
                                                                                               POTENTIAL
                                                                                           REALIZABLE VALUE
                                                                                              AT ASSUMED
                                  NUMBER OF                                                 ANNUAL RATES OF
                                  SHARES OF       PERCENT OF                                  STOCK PRICE
                                 COMMON STOCK    TOTAL OPTIONS                             APPRECIATION FOR
                                  UNDERLYING      GRANTED TO     EXERCISE                     OPTION TERM
                                   OPTIONS         EMPLOYEES     PRICE PER   EXPIRATION   -------------------
NAME                               GRANTED          IN 1999        SHARE        DATE         5%        10%
----                            --------------   -------------   ---------   ----------   --------   --------
<S>                             <C>              <C>             <C>         <C>          <C>        <C>
Casper L. de Clercq...........      50,000            4.7%         $0.20      08/04/09
Deborah K. Karlson............     150,000           14.1%         $0.20      03/18/09
</TABLE>

  AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 1999 AND YEAR-END
                                  OPTION VALUE

    The following table sets forth the number and value of securities underlying
unexercised options that are held by each of the individuals listed on the
previous page as of December 31, 1999.

    Amounts shown under the column "Value of Unexercised In-the-Money Options at
December 31, 1999" are based on the assumed initial public offering price of
$           , without taking into account any taxes that may be payable in
connection with the transaction, multiplied by the number of shares issuable
upon exercise of the option, less the exercise price payable for these shares.
Our 1994 and 1996 Stock Option Plans and 2000 Equity Incentive Plan allow for
the early exercise of options granted to employees. All options exercised early
are subject to repurchase by us at the original exercise price, if the
optionholder's service with us ends prior to the date when the options would
have vested based upon the original vesting schedule.

<TABLE>
<CAPTION>
                                                    NUMBER OF SECURITIES          VALUE OF UNEXERCISED
                                                         UNDERLYING                   IN-THE-MONEY
                            SHARES                 UNEXERCISED OPTIONS AT              OPTIONS AT
                           ACQUIRED                   DECEMBER 31, 1999             DECEMBER 31, 1999
                             UPON      VALUE     ---------------------------   ---------------------------
                           EXERCISE   REALIZED   EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
                           --------   --------   -----------   -------------   -----------   -------------
<S>                        <C>        <C>        <C>           <C>             <C>           <C>
Michael A. Klimowicz.....    --         --          73,125        196,875
Casper L. de Clercq......    --         --           5,208         44,792
Deborah K. Karlson.......    --         --         120,000        150,000
</TABLE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

    None of our executive officers serves as a member of the Board of Directors
or compensation committee of any entity that has one or more executive officers
serving as a member of our Board of Directors or compensation committee.

BENEFIT PLANS

    Since 1994, we have established five plans under which employees, officers,
non-employee directors and consultants may purchase or receive common stock
through incentive stock options and nonstatutory stock options, restricted stock
purchase awards and stock bonuses. These plans are the 1994 Stock Option Plan,
the 1996 Stock Option Plan, the 2000 Equity Incentive Plan, the 2000 Employee
Stock Purchase

                                       47
<PAGE>
Plan and the 2000 Non-employee Directors' Stock Option Plan. In addition, we
have established a defined contribution plan intended to be tax-qualified under
Sections 401(a) and 401(k) of the Internal Revenue Code, as amended and the
executive severance benefit plan described above.

2000 EQUITY INCENTIVE PLAN

    We adopted the 2000 Equity Incentive Plan in August 2000.

    RESERVED SHARES.  We have reserved 3,000,000 shares for issuance under the
Equity Incentive Plan. On the date of each annual stockholder meeting for
ten years, starting with the year 2001, the number of shares in this reserve
will automatically increase by the least of 6,000,000 shares, 4 1/2% of the
outstanding common stock on a fully-diluted basis or a lesser number as
determined by our Board of Directors. If stock awards granted under the Equity
Incentive Plan expire or otherwise terminate without being exercised, the shares
not acquired pursuant to the stock issuance under the Equity Incentive Plan.

    ADMINISTRATION.  The Equity Incentive Plan is administered by our Board of
Directors or a committee appointed by the Board which determines recipients and
types of awards to be granted, including the exercise price, number of shares
subject to the award and the exercisability.

    ELIGIBILITY.  Our Board of Directors may grant incentive stock options that
qualify under Section 422 of the Internal Revenue Code, to employees, including
officers, of AeroGen or an affiliate of AeroGen. Our Board of Directors may
grant nonstatutory stock options, stock bonuses and restricted stock purchase
awards to employees, including officers, or our directors and consultants. A
restricted stock purchase award is an offer to purchase our shares at a price
either at or near the fair market value of the shares. A stock bonus, on the
other hand, is a grant of our shares at no cost to the recipient in
consideration for past services rendered. We may reacquire the shares under
either type of award at the original purchase price, which is zero in the case
of a stock bonus, if the recipient's service to us or an affiliate terminates
before the shares vest.

    No incentive stock option may be granted to any person who, at the time of
the grant, owns, or is deemed to own, stock possessing more than 10% of the
total combined voting power of AeroGen or any affiliate of AeroGen, unless the
option exercise price is at least 110% of the fair market value of the stock
subject to the option on the date of grant and the term of the option does not
exceed five years from the date of grant. The aggregate fair market value,
determined at the time of grant, of the shares of common stock with respect to
which incentive stock options are exercisable for the first time by an optionee
during any calendar year under all of our plans may not exceed $100,000.

    Section 162(m) of the Internal Revenue Code denies a deduction to
publicly-held corporations for compensation paid to specific employees in a
taxable year to the extent that the compensation exceeds $1,000,000. When we
become subject to Section 162(m), our Board of Directors may not grant options
under the Equity Incentive Plan to an employee covering an aggregate of more
than 3,000,000 shares in any calendar year.

    OPTION TERMS.  The maximum option term is ten years. The exercise prices of
options granted under the Equity Incentive Plan are determined by our Board of
Directors, provided that the exercise price for an incentive stock option cannot
be less than 100% of the fair market value of the common stock on the date of
the option grant, and the exercise price for a nonstatutory stock option cannot
be less than 85% of the fair market value of the common stock on the date of the
option grant.

    Generally an option terminates three months after the optionholder's service
with us terminates. If the termination is due to the optionholder's disability,
the exercise period generally is extended to 12 months. If the termination is
due to the optionholder's death, or if the optionholder dies within three months
after his or her service terminates, in either case before the end of the option
term, the exercise period generally is extended to 18 months following death.

                                       48
<PAGE>
    OTHER PROVISIONS.  The optionholder may designate a beneficiary to exercise
the option following the optionholder's death. Nonstatutory stock options may be
transferable under limited circumstances. Otherwise, the option exercise rights
will pass by the optionholder's will or by the laws of descent and distribution.

    Our Board of Directors determines the purchase price of other stock awards,
but the purchase price may not be less than 85% of the fair market value of
AeroGen's common stock on the grant date. However, our Board of Directors may
award stock bonuses in consideration of past services without a purchase
payment. Shares sold or awarded under the Equity Incentive Plan may, but need
not, be restricted and subject to a repurchase option in favor of AeroGen in
accordance with a vesting schedule that our Board of Directors determines. Our
Board of Directors may accelerate the vesting of the restricted stock.

    Transactions not involving receipt of consideration by us, including a
merger, consolidation, reorganization, stock dividend, or stock split, may
change the nature, class and number of shares subject to the Equity Incentive
Plan and to outstanding awards. In that event, our Board of Directors will
appropriately adjust the Equity Incentive Plan as to the nature, class and the
maximum number of shares subject to the term of the Equity Incentive Plan,
including the Section 162(m) limitation. Our Board of Directors also will adjust
outstanding awards as to the nature, class, number of shares and price per share
subject to the awards.

    Upon a change in control of AeroGen the surviving entity will either assume,
continue or substitute outstanding awards under the Equity Incentive Plan. If
the awards are not assumed, continued or substituted, then the vesting of the
awards will accelerate.

    OPTIONS ISSUED.  As of July 31, 2000, no shares or options had been issued
under the Equity Incentive Plan. The Equity Incentive Plan will not be effective
until the effective date of this offering. The Equity Incentive Plan will
terminate in 2010 unless our Board of Directors terminates it sooner. See the
description below regarding stock options previously granted under the 1996
Stock Option Plan.

1994 AND 1996 STOCK OPTION PLANS

    In 1994, we adopted our 1994 Stock Option Plan. The 1994 plan will terminate
in November 2004 unless it is terminated earlier by our Board of Directors. In
1996, we adopted our 1996 Stock Option Plan. The 1996 plan will terminate in
March 2006 unless our Board of Directors terminates it sooner. In August 2000
our Board of Directors amended and restated the 1996 Stock Option Plan (Restated
1996 Plan) to provide for the same terms and conditions as the Equity Incentive
Plan described above. However, the original terms of the 1996 Plan as described
in this section will continue to apply to stock options granted under the
original 1996 Plan prior to August 2000.

    OPTION TERMS.  The option terms under the 1994 Plan and original 1996 Plan
are similar to the Equity Incentive Plan described above. However, an option
terminates 30 days under the original 1996 Plan and three months under the 1994
Plan after the optionholder's service with us terminates. In addition, if the
termination is due to the optionholder's disability or death, the exercise
period generally is extended to six months under the original 1996 Plan, and
twelve months under the 1994 Plan, from termination of service.

    Acceptable consideration for the purchase of common stock issued under the
1994 Plan and original 1996 Plan is determined by our Board of Directors and
generally includes cash, surrender of shares of our common stock with a fair
market value equal to the exercise price, services rendered or a promissory
note.

    Generally, an optionholder may not transfer a stock option other than by
will or the laws of descent or distribution unless the optionholder holds a
nonstatutory stock option that provides otherwise. However, an optionholder may
designate a beneficiary who may exercise the option following the optionholder's
death.

                                       49
<PAGE>
    ELIGIBILITY.  The eligibility to receive awards under the 1994 Plan and the
original 1996 Plan are the same as the 2000 Equity Incentive Plan.

    The 1994 Plan and the original 1996 Plan provide for the grant of stock
awards, including:

    -  incentive stock options, as defined in Section 422 of the Internal
       Revenue Code, that may be granted solely to employees (including
       officers);

    -  nonstatutory stock options; and

    -  under the original 1996 Plan, restricted stock purchase awards and stock
       bonuses that may be granted to employees (including officers),
       non-employee directors and consultants.

    RESTRICTED STOCK AND STOCK BONUS AWARDS.  The purchase price for each
restricted stock award granted must be at least 85% of the fair market value of
the stock on the date of the award or at the time the purchase is consummated.
Rights to acquire shares under a stock bonus or restricted stock bonus agreement
may not be transferred other than by will or by the laws of descent and
distribution. Some restricted stock awards made following the completion of this
offering may be otherwise transferable if the stock purchase agreement so
provides. Restricted stock purchase awards and stock bonuses granted under the
original 1996 Plan may include a repurchase option in favor of us that varies
according to a service vesting schedule determined by our Board of Directors.
Stock bonuses may be awarded in consideration for past services without a
purchase payment.

    CHANGE IN CONTROL.  Upon specified changes in control, all outstanding
options under the 1994 Plan and the original 1996 Plan will be either assumed or
substituted. Under the original 1996 Plan, upon a change in control outstanding
options also may be continued, cashed out or accelerated as determined under the
change in control agreement.

    AUTHORIZED SHARES.  As of August 24, 2000, an aggregate of 8.3 million
shares of common stock had been authorized for issuance under the 1994 Plan and
the original 1996 Plan. As of August 24, 2000, options to purchase a total of
3,737,192 shares of our common stock were held by all participants under the
1994 Plan and the original 1996 Plan. At that date, a total of 2,486,155 shares
of our common stock remained available for grant under the 1994 Plan and the
1996 original Plan. Shares subject to stock options that have expired or
otherwise terminated without having been exercised in full again become
available for the grant of awards under the 1994 Plan and the original 1996
Plan.

    ADMINISTRATION.  The 1994 Plan and original 1996 Plan are administered in
the same manner as the Equity Incentive Plan as described above.

2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

    We adopted the 2000 Non-employee Directors' Stock Option Plan in
August 2000.

    RESERVED SHARES.  We authorized the issuance of 750,000 shares of our common
stock pursuant to the Non-employee Directors' Stock Option Plan and in August
2000 the stockholders approved the plan. Under the Non-employee Directors' Stock
Option Plan, each new non-employee director who is subsequently elected or
appointed for the first time after this offering will automatically be granted
an option to purchase 45,000 shares of common stock. This is the non-employee
director's initial grant.

    On the date of each annual stockholder meeting, beginning in the year 2001,
each non-employee director will be granted an option to purchase 15,000 shares
of common stock. This is the non-employee director's annual grant.

    Options granted under the Non-employee Directors' Stock Option Plan are
granted at 100% of the fair market value of the common stock on the date of
grant. Options granted under the Non-employee Directors' Stock Option Plan have
a ten-year term and vest as follows: initial grants vest as to 1/3rd of the

                                       50
<PAGE>
shares 12 months after the date of grant and 1/36th of the shares each month for
24 months thereafter; and annual grants vest as to 1/36th of the shares monthly
for three years. The Non-employee Directors' Stock Option Plan will terminate if
and when terminated by our Board of Directors.

    CHANGE IN CONTROL.  Upon certain changes in control of AeroGen, the vesting
of all outstanding options under the Non-employee Directors' Stock Option Plan
will automatically accelerate and the options will terminate if not exercised
prior to the change in control.

    OPTIONS ISSUED.  No options have been granted under the Non-employee
Directors' Stock Option Plan.

2000 EMPLOYEE STOCK PURCHASE PLAN

    We adopted the Employee Stock Purchase Plan in August 2000.

    RESERVED SHARES.  We authorized the issuance of 750,000 shares of our common
stock pursuant to purchase rights granted to our U.S. employees and to employees
of our designated U.S. affiliates. On the date of each annual stockholders'
meeting, for 20 years, beginning in 2001, the number of shares in the reserve
automatically will be increased by the least of 1% of our outstanding shares on
a fully-diluted basis, 750,000 shares or such lesser number of shares as
determined by our Board of Directors.

    ELIGIBILITY.  The purchase plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code.
The purchase plan provides a means by which employees may purchase our common
stock through payroll deductions. We implement this purchase plan by offering
purchase rights to eligible employees. Generally, all U.S. employees of AeroGen
and any U.S. affiliate designated by our Board of Directors may participate in
the purchase plan, excluding part-time and seasonal employees. However, no
employee may participate in the purchase plan if immediately after we grant the
employee a purchase right, the employee has voting power over 5% or more of our
outstanding common stock. As of the date of this prospectus, no shares of common
stock have been purchased under the purchase plan.

    ADMINISTRATION.  Under the purchase plan, our Board of Directors may specify
offerings of up to 27 months. The first offering will begin on the effective
date of this initial public offering. Unless our Board of Directors otherwise
determines, our common stock is purchased for accounts of participating
employees at a price per share equal to the lower of 85% of the fair market
value of a share on the first day of this offering, or 85% of the fair market
value of a share on the purchase date.

    Our Board of Directors may provide that employees who become eligible to
participate after the offering period begins nevertheless may enroll in the
offering. These employees will purchase our stock at the lower of 85% of the
fair market value of a share on the day they began participating in the purchase
plan, or 85% of the fair market value of a share on the purchase date.

    Under the initial offering, employees may authorize payroll deductions of up
to 15% of their base compensation, excluding sales commissions and bonuses, for
the purchase of stock under the purchase plan, and may end their participation
in the offering at any time up to five days before a purchase date.
Participation ends automatically on termination of employment.

    OTHER PROVISIONS.  Our Board of Directors may grant eligible employees
purchase rights under the purchase plan only to the extent the purchase rights,
together with any other purchase rights granted under other employee stock
purchase plans established by us or our affiliate, if any, do not permit the
employee's rights to purchase our stock to accrue at a rate that exceeds $25,000
of the fair market value of our stock for each calendar year in which the
purchase rights are outstanding. Our Board of Directors also may limit the
number of shares that an employee may purchase on any purchase date.

                                       51
<PAGE>
    Upon a change of control of AeroGen, our Board of Directors may provide that
the successor corporation will assume or substitute outstanding purchase rights.
Alternatively, our Board of Directors may shorten the offering and provide that
shares will be purchased for participants immediately before the change in
control.

401(k) PLAN

    We maintain a 401(k) Plan for eligible employees. An employee participant
may contribute up to 20% of his or her total annual compensation to the 401(k)
Plan, up to the legal annual limit. The annual limit for calendar year 2000 is
$10,500. Each participant is fully vested in his or her salary deferral
contributions. Participant contributions are held and invested by the 401(k)
Plan's trustee. We may make discretionary contributions as a percentage of
participant contributions, subject to established limits. To date, we have made
no discretionary contributions to the 401(k) Plan on behalf of the participants.
The 401(k) Plan is intended to qualify under Section 401(a) of the Internal
Revenue Code, so that contributions by employees or by us to the 401(k) Plan,
and income earned on the 401(k) Plan contributions, are not taxable to employees
until withdrawn from the 401(k) Plan, and so that contributions by us, if any,
will be deductible by us when made.

LIMITATION OF LIABILITY AND INDEMNIFICATION

    Our certificate of incorporation and bylaws contain provisions permitted
under Delaware law relating to the liability of directors. These provisions
eliminate a director's personal liability for monetary damages resulting from a
breach of fiduciary duty, except in circumstances involving wrongful acts,
including:

    -  for any breach of the director's duty of loyalty to us or our
       stockholders;

    -  for acts or omissions not in good faith or which involve intentional
       misconduct or a knowing violation of law;

    -  for any acts under Section 174 of the Delaware General Corporation Law;
       or

    -  for any transaction from which the director derives an improper personal
       benefit.

    These provisions do not limit or eliminate our rights or any stockholder's
rights to seek non-monetary relief including an injunction or rescission, in the
event of a breach of a director's fiduciary duty. These provisions will not
alter a director's liability under federal securities laws. We intend to enter
into separate indemnification agreements with our directors and executive
officers that provide each of them indemnification protection in the event the
amended and restated certificate of incorporation and amended and restated
bylaws are subsequently amended. We believe that these provisions and agreements
will assist us in attracting and retaining qualified individuals to serve as
directors and officers.

EMPLOYEE CONFIDENTIALITY AGREEMENTS

    At the time of commencement of employment, our employees generally sign
offer letters specifying basic terms and conditions of employment. In general,
our employees are not subject to written employment agreements. Each employee
has entered into a standard form confidential information and invention
assignment agreement that provides that the employee will not disclose any of
our confidential information received during the course of employment and that,
with some exceptions, the employee will assign to us any and all inventions
conceived or developed during the course of employment.

                                       52
<PAGE>
                             PRINCIPAL STOCKHOLDERS

    The following table sets forth certain information regarding the beneficial
ownership of our common stock as of July 31, 2000, and as adjusted to reflect
the sale of our common stock offered by this prospectus, by:

    -  each of the individuals listed on the "Summary Compensation Table" above;

    -  each of our officers and directors;

    -  each person, or group of affiliated persons, who is known by us to own
       beneficially 5% or more of our common stock; and

    -  all current directors and executive officers as a group.

    Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to options
held by that person that are currently exercisable or exercisable within
60 days of July 31, 2000, and not subject to repurchase as of that date, are
deemed outstanding. These shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of any other person.

    Except as indicated in the notes to this table, and except pursuant to
applicable community property laws, each stockholder named in the table has sole
voting and investment power with respect to the shares shown as beneficially
owned by them. Percentage ownership is based on            shares of common
stock outstanding on July 31, 2000, after giving effect to the conversion of all
outstanding shares of preferred stock into common stock upon the closing of this
offering, and            shares of common stock outstanding after completion of
this offering. This table assumes no exercise of the underwriters'
over-allotment option.

    Unless otherwise indicated, the address of each of the individuals named
below is: c/o AeroGen, Inc., 1310 Orleans Drive, Sunnyvale, CA, 94089.

<TABLE>
<CAPTION>
                                                                         PERCENT BENEFICIALLY
                                                                                OWNED
                                                        NUMBER OF       ----------------------
                                                          SHARES         PRIOR TO      AFTER
                                                       BENEFICIALLY         THE         THE
BENEFICIAL OWNER                                          OWNED          OFFERING     OFFERING
----------------                                     ----------------   -----------   --------
<S>                                                  <C>                <C>           <C>
FIVE PERCENT STOCKHOLDERS:
Entities affiliated with US Venture Partners(1) ...      5,808,427         12.32
  2180 Sand Hill Road
  Suite 300
  Menlo Park, California 94025
CMEA, Ltd Partnership .............................      4,341,881          9.21
  235 Montgomery Street, Suite 920
  San Francisco, California 94104
Entities affiliated with InterWest Partners(3) ....      3,793,651          8.05
  3000 Sand Hill Road
  Building 3, Suite 255
  Menlo Park, California 94025
MF Private Capital, Inc. ..........................      2,714,286          5.76
  45 Milk Street, Suite 600
  Boston, Massachusetts 02109-5105
</TABLE>

                                       53
<PAGE>

<TABLE>
<CAPTION>
                                                                         PERCENT BENEFICIALLY
                                                                                OWNED
                                                        NUMBER OF       ----------------------
                                                          SHARES         PRIOR TO      AFTER
                                                       BENEFICIALLY         THE         THE
BENEFICIAL OWNER                                          OWNED          OFFERING     OFFERING
----------------                                     ----------------   -----------   --------
<S>                                                  <C>                <C>           <C>
Entities affiliated with Advent Partners,                2,546,584          5.70
  L.P.(2) .........................................
  75 State Street
  30th Floor
  Boston, Massachusetts 02109
DIRECTORS AND EXECUTIVE OFFICERS:
Jane E. Shaw, Ph.D.(4).............................      1,444,444          2.97
Yehuda Ivri........................................      3,780,000          8.01
Thomas R. Baruch(5)................................      4,341,881          9.21
Jean-Jacques Bienaime(6)...........................         13,541             *
Casper L. de Clercq(7).............................        284,583             *
Carol A. Gamble(8).................................             --            --
Phyllis I. Gardner, M.D.(9)........................         15,208             *
Deborah K. Karlson(10).............................        270,000             *
Michael A. Klimowicz(11)...........................        270,000             *
John S. Power(12)..................................      1,180,262           2.5
Philip M. Young(13)................................      5,808,427         12.32
All directors and executive officers as a group
  (11 persons)(14).................................     17,408,346          36.9
</TABLE>

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

   * Less than 1%

 (1) Includes 5,024,289 shares held by US Venture Partners IV, L.P., 609,885
     shares held by Second Ventures II, L.P. and 174,253 shares held by USVP
     Entrepreneur Partners II.

 (2) Includes 1,396,236 shares held by Noptek, L.P, 965,889 shares held by
     Advent Israel, L.P., 48,300 shares held by Advent Partners, L.P., 19,232
     shares held by Advent International L.P. II and 116,927 shares held by
     Advent Israel, Bermuda, L.P.

 (3) Includes 112,460 shares held by InterWest Investors VI, L.P. and 3,681,191
     shares held by InterWest Partners VI, L.P.

 (4) Includes 1,400,000 shares held by Dr. Shaw (of which 437,500 are subject to
     repurchase at the original purchase price in the event of termination of
     Dr. Shaw's employment with us, which repurchase right lapses over time) and
     44,444 shares held by the Carpenter Family Trust, in which Dr. Shaw has an
     economic interest.

 (5) All of these shares are held by CMEA. Mr. Baruch, a director of AeroGen, is
     a partner of CMEA. In such capacity, Mr. Baruch is deemed to have an
     indirect interest in an indeterminate portion of the shares beneficially
     owned by CMEA. Mr. Baruch disclaims beneficial ownership of the shares held
     by CMEA, within the meaning of Rule 13d-3 under the Securities Act of 1934.

 (6) Includes 13,541 shares issuable upon the exercise of options exercisable
     within 60 days of July 31, 2000.

 (7) Includes 14,583 shares issuable upon exercise of options exercisable within
     60 days of July 31, 2000 and 146,250 shares which are subject to repurchase
     at the original purchase price in the event of termination of Mr. de
     Clercq's service with us, which repurchase right lapses over time.

 (8) No shares vest until one year after beginning of service.

                                       54
<PAGE>
 (9) Includes 5,208 shares issuable upon the exercise of options exercisable
     within 60 days of July 31, 2000, and 6,250 subject to repurchase at the
     original purchase price in the event of termination of Dr. Gardner's
     service with us, which repurchase right lapses over time.

 (10) Includes 75,000 shares which are subject to repurchase at the original
      purchase price in the event of termination of Ms. Karlson's service with
      us, which repurchase right lapses over time.

 (11) Includes 146,250 shares which are subject to repurchase at the original
      purchase price in the event of termination of Mr. Klimowicz's service with
      us, which repurchase right lapses over time.

 (12) Includes 590,131 shares issued in conjunction with the acquisition of
      Cerus Limited, subject to repurchase in the event of termination of
      Mr. Power's service with us, which repurchase right lapses over time.

 (13) All of these shares are held by USVP and its affiliates. Mr. Young, a
      director of AeroGen, is a partner of USVP. In such capacity, Mr. Young is
      deemed to have an indirect interest in an indeterminate portion of the
      shares beneficially owned by USVP and its affiliates. Mr. Young disclaims
      beneficial ownership of the shares held by USVP and its affiliates, within
      the meaning of Rule 13d-3 under the Securities Act of 1934.

 (14) Includes shares described in the notes above as applicable to our
      directors and current executive officers.

                                       55
<PAGE>
                           RELATED PARTY TRANSACTIONS

    The following executive officers, directors or holders of more than five
percent of our voting securities purchased securities in the amounts and as of
the dates shown below.

<TABLE>
<CAPTION>
                                                          SHARES OF CONVERTIBLE PREFERRED STOCK
                             COMMON      -----------------------------------------------------------------------
PURCHASER (1)                 STOCK       SERIES A     SERIES B     SERIES C    SERIES D    SERIES E    SERIES F
-------------              -----------   ----------   ----------   ----------   ---------   ---------   --------
<S>                        <C>           <C>          <C>          <C>          <C>         <C>         <C>
DIRECTORS AND EXECUTIVE
  OFFICERS
Jane E. Shaw, Ph.D.......    1,400,000                                     --          --          --    44,444
Casper L. de Clercq......      270,000                                     --          --          --        --
Michael A. Klimowicz.....      270,000                                                                       --
Deborah K. Karlson.......      270,000                                     --          --          --        --
John S. Power(2).........                                                  --          --   1,180,262        --
ENTITIES AFFILIATED WITH
  DIRECTORS
Entities affiliated with
  US Venture
  Partners(3)............           --    1,282,052    1,602,565    2,666,667     257,143          --        --
CMEA.....................           --    1,282,052    1,282,052    1,333,333          --          --   444,444

OTHER 5% STOCKHOLDERS
Entities affiliated with
  Advent Partners,
  L.P.(4)................           --    1,153,847      897,437      495,300          --          --        --
Entities affiliated with
  InterWest
  Partners(5)............           --                              3,000,000     571,429          --   222,222
MF Private Capital,
  Inc....................           --                                     --   2,714,286          --        --

Price per Share..........  $0.10-$0.20        $0.39        $0.78        $1.00       $1.75       $2.97     $2.25
Date(s) of Purchase......    1/98-4/00   5/94-10/94   11/95-5/96   4/97-11/97        8/98        3/00      7/00
</TABLE>

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

(1) See "Principal Stockholders" for more detail on shares held by these
    purchasers.

(2) Consists of shares of Series E preferred stock issued to Mr. Power in
    exchange for his proportionate share of voting shares of stock of Cerus
    Limited in connection with the acquisition of Cerus by AeroGen, whereby
    Cerus became a subsidiary of AeroGen.

(3) Affiliates of US Venture Partners include U.S. Venture Partners IV, L.P.,
    Second Ventures II, L.P., and USVP Entrepreneur Partners II, L.P.

(4) Affiliates of Advent Partners, L.P. include Noptek, L.P., Advent Israel,
    L.P., Advent Partners, L.P., Advent International, L.P. II, and Advent
    Israel, Bermuda, L.P.

(5) Affiliates of InterWest Partners include InterWest Investors VI, L.P. and
    InterWest Partners VI, L.P.

    REGISTRATION RIGHTS AGREEMENT.  We have entered into an agreement with the
preferred stockholders identified above, excluding Mr. Power, pursuant to which
they will have registration rights with respect to their shares of common stock
following this offering. Upon the completion of this offering, all shares of our
outstanding preferred stock will be automatically converted into an equal number
of shares of common stock.

    INDEMNIFICATION AGREEMENTS.  We intend to enter into indemnification
agreements with our directors and officers for the indemnification of and
advancement of expenses to these persons to the full extent permitted by law. We
also intend to execute such agreements with our future directors and officers.

    TRANSACTIONS WITH OFFICERS AND DIRECTORS.  Mr. Ivri, AeroGen's Founder and
Chief Technical Officer, has three notes payable to us. On May 6, 1994, we
received a promissory note for the principal amount of

                                       56
<PAGE>
$69,009. The note bears annual interest of 6.43% with principal and interest due
the earlier of May 5, 2003, or 90 days after the date of termination of
Mr. Ivri's service with us. On August 15, 1996, we received a promissory note
for the principal amount of $200,000. The note bears no interest and the entire
principal balance is due the earliest of (i) August 14, 2001, (ii) 90 days after
Mr. Ivri's common stock is no longer subject to a lock-up agreement with the
underwriters, or (iii) the date Mr. Ivri's service with us terminates pursuant
to Mr. Ivri's resignation or is terminated by us for cause. On July 21, 2000, we
received a promissory note for the principal amount of $50,000. The note bears
interest at the rate of 6.62%, and the principal and interest are payable on the
earlier of (i) July 21, 2005 or (ii) the date at which Mr. Ivri's service with
us terminates. These latter two notes are secured by 500,000 shares of
Mr. Ivri's common stock.

    In 1998, we received a recourse note from Dr. Shaw, our Chairman and Chief
Executive Officer, in the aggregate principal amount of $140,000 in connection
with her purchase of 1,400,000 shares of common stock. The note bears annual
interest of 5.93%, with original principal and interest due January 28, 2002.
Certain portions of the common stock may be repurchased by us at the original
purchase price if Dr. Shaw's service with us terminates. This repurchase right
lapses over time.

    In 1998, Mr. de Clercq, our Vice President, Sales, Marketing and Business
Development, signed a note in the aggregate principal amount of $53,730 to
acquire 270,000 shares of common stock. The note bears annual interest of 4.51%,
with original principal and interest due November 19, 2002. Certain portions of
the common stock may be repurchased by us at the original purchase price if
Mr. de Clercq's service with us terminates. This repurchase right lapses over
time.

    In 2000, we received a recourse note from each of Ms. Karlson, our Chief
Financial Officer, and Mr. Klimowicz, our Vice President, Product Development,
in the aggregate principal amount of $51,730 and $53,730, respectively, to
acquire 270,000 shares of common stock. The notes bear annual interest at 6.7%,
with original principal and interest due April 17, 2004. A portion of the shares
purchased by each employee may be repurchased by us at the original purchase
price if his or her service with us terminates. This repurchase right lapses
over time.

    In March 1998 we granted Dr. Gardner an option to purchase 10,000 shares of
common stock at $0.10 per share under our 1996 Stock Option Plan in connection
with Dr. Gardner providing consulting services to us. After one year from the
date of grant, 2,500 shares covered by the option will vest, the remaining
shares will vest in equal monthly installments over the following three years.

    We believe that all of the transactions set forth above were made in our
best interest. All future transactions, including loans, between us and our
officers, directors, principal stockholders and their affiliates will be
approved by a majority of the board of directors, including a majority of the
independent and disinterested directors, and will continue to be on terms no
less favorable to us than could be obtained form unaffiliated third parties.

                                       57
<PAGE>
                          DESCRIPTION OF CAPITAL STOCK

    The following information describes our common stock and preferred stock, as
well as options and warrants to purchase our common stock, and provisions of our
certificate of incorporation and our bylaws, all as in effect upon the closing
of this offering. This description is only a summary. You should also refer to
our certificate of incorporation, bylaws and warrants which we have filed with
the SEC as exhibits to our registration statement of which this prospectus forms
a part.

    Upon the closing of this offering, our authorized capital stock will consist
of 100,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of
preferred stock, $0.001 par value.

COMMON STOCK

    As of June 30, 2000, there were 47,159,128 shares of common stock
outstanding, as adjusted for the sale of 7,498,223 shares of Series F Preferred
Stock in July 2000, that were held of record by approximately 70 stockholders,
after giving effect to the conversion of our preferred stock into common stock
at a one-to-one ratio. There will be            shares of common stock
outstanding, assuming no exercise of the underwriters' over-allotment option and
no exercise of outstanding options, after giving effect to the sale of the
shares of common stock offered by this prospectus and the conversion of shares
of preferred stock discussed below.

    The holders of common stock are entitled to one vote per share on all
matters submitted to a vote of our stockholders. Subject to preferences that may
be applicable to any preferred stock outstanding at the time, the holders of
outstanding shares of common stock are entitled to receive ratably any dividends
out of assets legally available therefor as our board of directors may from time
to time determine. Upon liquidation, dissolution or winding up of AeroGen,
holders of our common stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding shares of preferred stock. Holders of common stock have no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable.

PREFERRED STOCK

    Prior to this offering, there were 39,010,653 shares of convertible
preferred stock outstanding. All outstanding shares of convertible preferred
stock will be converted into 39,010,653 shares of common stock upon the closing
of this offering.

    Our certificate of incorporation provides that our Board of Directors will
have the authority, without further action by the stockholders, to issue up to
5,000,000 shares of preferred stock in one or more series. Our Board of
Directors will be able to fix the rights, preferences, privileges and
restrictions of the preferred stock, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund terms and the number of shares constituting any series or the designation
of this series. The issuance of preferred stock could adversely affect the
voting power of holders of common stock, and the likelihood that holders of
preferred stock will receive dividend payments and payments upon liquidation may
have the effect of delaying, deferring or preventing a change in control of
AeroGen, which could depress the market price of our common stock. We have no
present plan to issue any shares of preferred stock.

WARRANTS

    As of August 24, 2000, we have outstanding warrants to purchase:

    -  32,051 shares of common stock at an exercise price of $0.78 per share;

                                       58
<PAGE>
    -  65,000 shares of Series C preferred stock, at an exercise price of $1.00
       per share, which shares are convertible into 65,000 shares of common
       stock.

    The warrants to purchase common stock were issued to Venture Lending &
Leasing, Inc. and will expire no later than June 30, 2002. The warrants to
purchase Series C preferred stock were issued to Venture Lending & Leasing, Inc.
and Venture Lending & Leasing II, Inc. and will expire no later than
October 14, 2004.

REGISTRATION RIGHTS OF STOCKHOLDERS

    Upon completion of this offering, under the Fourth Amended and Restated
Information and Registration Rights Agreement dated July 7, 2000 the holders of
37,285,653 shares of common stock and warrants to purchase 65,000 shares of
common stock, or their transferees, will be entitled to rights to register these
shares under the Securities Act. If we propose to register any of our securities
under the Securities Act, either for our own account or for the account of other
security holders, the holders of these shares will be entitled to notice of the
registration and will be entitled to include, at our expense, their shares of
common stock. In addition, the holders of 35,362,575 of these shares may require
us, at our expense and on not more than three occasions at any time beginning
approximately six months from the date of the closing of this offering, to
file a registration statement under the Securities Act with respect to their
shares of common stock, and we will be required to use our best efforts to
effect the registration. Further, the holders may require us at our expense to
register their shares on Form S-3 when this form becomes available to us. These
rights shall terminate on the earlier of five years after the effective date of
this offering, or when a holder is able to sell all its shares pursuant to
Rule 144 under the Securities Act in any 90-day period.

ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND CHARTER PROVISIONS

    We are subject to Section 203 of the Delaware General Corporation Law. In
general, the statute prohibits a publicly held Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder unless:

    -  prior to the date, our board of directors approved either the business
       combination or the transaction that resulted in the stockholder becoming
       an interested stockholder;

    -  upon consummation of the transaction that resulted in the stockholder
       becoming an interested stockholder, the interested stockholder owned at
       least 85% of our voting stock of the corporation outstanding at the time
       the transaction commenced, excluding those shares owned by persons who
       are directors and also officers, and employee stock plans in which
       employee participants do not have the right to determine confidentially
       whether shares held subject to the plan will be tendered in a tender or
       exchange offer; or

    -  on or subsequent to the date, the business combination is approved by the
       board of directors and authorized at an annual or special meeting of
       stockholders, and not by written consent, by the affirmative vote of at
       least two-thirds of the outstanding voting stock that is not owned by the
       interested stockholder.

Section 203 defines "business combination" to include:

    -  any merger or consolidation involving the corporation and the interested
       stockholder;

    -  any sale, transfer, pledge or other disposition involving the interested
       stockholder of 10% or more of the assets of the corporation;

    -  subject to exceptions, any transaction that results in the issuance or
       transfer by the corporation of any stock of the corporation to the
       interested stockholder; or

                                       59
<PAGE>
    -  the receipt by the interested stockholder of the benefit of any loans,
       advances, guarantees, pledges or other financial benefits provided by or
       through the corporation.

    In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.

    Our bylaws provide that candidates for director may be nominated only by the
Board of Directors or by a stockholder who gives written notice to us no later
than 60 days prior nor earlier than 90 days prior to the first anniversary of
the last annual meeting of stockholders. The Board of Directors may consist of
one or more members to be determined from time to time by the Board of
Directors. The Board of Directors currently consists of six members divided into
three different classes. As a result, only one class of directors will be
elected at each annual meeting of our stockholders, with the other classes
continuing for the remainder of their respective terms. Between stockholder
meetings, the Board of Directors may appoint new directors to fill vacancies or
newly created directorships.

    Our certificate of incorporation requires that upon completion of this
offering, any action required or permitted to be taken by our stockholders must
be effected at a duly called annual or special meeting of stockholders and may
not be effected by a consent in writing. Our certificate of incorporation also
provides that the authorized number of directors may be changed only by
resolution of the Board of Directors. Delaware law and these charter provisions
may have the effect of deterring hostile takeovers or delaying changes in
control of our management, which could depress the market price of our common
stock.

SECTION 2115

    We currently are subject to Section 2115 of the California Corporations
Code. Section 2115 provides that, regardless of a company's legal domicile,
provisions of California corporate law relating to shareholder rights, election
and removal of directors and distributions to shareholders will apply to that
company if the company meets the requirements of Section 2115. We will not be
subject to Section 2115 if:

    -  we are qualified for trading as a national market security on The Nasdaq
       National Market, and we have at least 800 stockholders of record as of
       the record date of our most recent annual meeting, or

    -  during any income year less than 50% of our outstanding voting securities
       are held of record by persons having addresses in California.

    Our certificate of incorporation includes a provision requiring cumulative
voting for directors whenever Section 2115 of the California Corporations Code
applies to us. Under cumulative voting, a minority stockholder holding a
sufficient percentage of a class of shares may be able to ensure the election of
one or more directors. We expect that, following this offering, Section 2115
will not apply to us.

TRANSFER AGENT

    The transfer agent and registrar for our common stock is       .

                                       60
<PAGE>
                        SHARES ELIGIBLE FOR FUTURE SALE

    Prior to this offering, there has been no public market for our common
stock. The market price of our common stock after this offering could decline as
a result of the sale of a large number of shares of our common stock in the
market, or the perception that such sales could occur. Furthermore, since no
shares will be available for sale shortly after this offering because of
contractual and legal restrictions on resale as described below, sales of
substantial amounts of our common stock in the public market after these
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.

    Upon completion of this offering, we will have outstanding an aggregate of
           shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
all of the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, unless these
shares are purchased by affiliates. The remaining            shares of common
stock held by existing stockholders are restricted securities. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration described below under Rules 144,
144(k) or 701 promulgated under the Securities Act.

    As a result of the contractual restrictions described below and the
provisions of Rules 144, 144(k) and 701, the restricted shares will be available
for sale in the public market as follows:

    -  no shares will be eligible for immediate sale on the date the
       registration statement of which this prospectus is a part is declared
       effective;

    -  no shares will be eligible for sale prior to 180 days from the date the
       registration statement of which this prospectus is a part is declared
       effective;

    -             shares will be eligible for sale upon the expiration of the
       lock-up agreements, described below, 180 days after the date this
       offering is declared effective;

    -             shares will be eligible for sale at various times after the
       date of this offering is declared effective; and

    -             shares will be eligible for sale upon the exercise of vested
       options or warrants 180 days after the date this offering is declared
       effective.

    LOCK-UP AGREEMENTS.  All of our officers, directors, stockholders, option
holders and warrant holders have agreed not to transfer or dispose of, directly
or indirectly, any shares of our common stock or any securities convertible into
or exercisable or exchangeable for shares of our common stock, for a period of
180 days after the date the registration statement of which this prospectus is a
part is declared effective. Transfers or dispositions can be made sooner with
the prior written consent of Chase Securities Inc.

    RULE 144.  In general, under Rule 144 as currently in effect, beginning
90 days after the date the registration statement of which this prospectus is a
part is declared effective, a person or persons whose shares are aggregated, who
has beneficially owned restricted securities for at least one year, including
the holding period of any prior owner except an affiliate, would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of:

    -  1% of the number of shares of our common stock then outstanding, which
       will equal approximately            shares immediately after this
       offering; or

    -  the average weekly trading volume of our common stock on the Nasdaq
       National Market during the four calendar weeks preceding the filing of a
       notice on Form 144 with respect to the sale.

    Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.

                                       61
<PAGE>
    RULE 144(k).  Under Rule 144(k), a person who is not deemed to have been one
of our affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner except an affiliate, is entitled
to sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
shares of our common stock will qualify as "144(k) shares" within 180 days after
the date the registration statement of which this prospectus is a part, is
declared effective.

    RULE 701.  In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors, other than affiliates,
who purchase or receive shares from us in connection with a compensatory stock
purchase plan or option plan or other written agreement will be eligible to
resell their shares beginning 90 days after the effective date of the
registration statement of which this prospectus is a part, subject only to the
manner of sale provisions of Rule 144, and by affiliates under Rule 144 without
compliance with its holding period requirements.

    REGISTRATION RIGHTS.  Upon completion of this offering, the holders of
           shares of our common stock, or their transferees, will be entitled to
rights with respect to the registration of their shares under the Securities
Act. Registration of their shares under the Securities Act would result in the
shares becoming freely tradable without restriction under the Securities Act,
except for shares purchased by affiliates, immediately upon the effectiveness of
such registration.

    STOCK OPTIONS.  Immediately after this offering, we intend to file a
registration statement under the Securities Act covering the shares of common
stock reserved for issuance under our 2000 Equity Incentive Plan, 1996 Stock
Option Plan, 1994 Stock Option Plan, 2000 Non-employee Directors' Stock Option
Plan, and 2000 Employee Stock Purchase Plan. The registration statement is
expected to be filed and become effective as soon as practicable after the
closing of this offering. Accordingly, shares registered under the registration
statements will, subject to Rule 144 volume limitations applicable to
affiliates, be available for sale in the open market beginning 180 days after
the effective date of the registration statement of which this prospectus is a
part.

                                       62
<PAGE>
                                  UNDERWRITING

    Chase Securities Inc., CIBC World Markets Corp. and SG Cowen Securities
Corporation are the representatives of the underwriters. Subject to the terms
and conditions of the underwriting agreement, the underwriters named below,
through their representatives, have severally agreed to purchase from us the
following respective numbers of shares of common stock:

<TABLE>
<CAPTION>
                                                               NUMBER
                                                                 OF
NAME                                                           SHARES
----                                                          --------
<S>                                                           <C>
Chase Securities Inc........................................
CIBC World Markets Corp.....................................
SG Cowen Securities Corporation.............................
                                                              -------
Total.......................................................
                                                              =======
</TABLE>

    The underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in our business and the receipt of certain certificates,
opinions and letters from us and our counsel. The underwriters are committed to
purchase all of the shares of common stock offered by us if they purchase any
shares.

    The following table shows the per share and total underwriting discounts and
commissions we will pay to the underwriters. Such amounts are shown assuming
both no exercise and full exercise of the underwriters' over-allotment option to
purchase additional shares.

                     UNDERWRITING DISCOUNTS AND COMMISSIONS

<TABLE>
<CAPTION>
                                                 WITHOUT            WITH
                                              OVER-ALLOTMENT   OVER-ALLOTMENT
                                                 EXERCISE         EXERCISE
                                              --------------   --------------
<S>                                           <C>              <C>
Per Share...................................     $                $
Total.......................................     $                $
</TABLE>

    We estimate that the total expenses of this offering, excluding underwriting
discounts and commissions, will be approximately      .

    The underwriters propose to offer the shares of common stock directly to the
public at the initial public offering price set forth on the cover page of this
prospectus and to certain dealers at that price less a concession not in excess
of $     per share. The underwriters may allow and such dealers may re- allow a
concession not in excess of $     per share to certain other dealers. After the
initial public offering of the shares, the offering price and other selling
terms may be changed by the underwriters. The representatives have advised us
that the underwriters do not intend to confirm discretionary sales in excess of
5% of the shares of common stock offered in this offering.

    We have granted to the underwriters a 30-day option to purchase up to
additional shares of common stock at the initial public offering price, less the
underwriting discount set forth on the cover page of this prospectus. To the
extent that the underwriters exercise this option, each of the underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of common stock to be purchased by it shown in the
above table bears to the total number of shares of common stock offered hereby.
We will be obligated, pursuant to this option, to sell shares to the
underwriters to the extent the option is exercised. The underwriters may
exercise this option only to cover over-allotments made in connection with the
sale of shares of common stock offered by us.

                                       63
<PAGE>
    This offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of this offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

    We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments
the underwriters may be required to make in respect of these liabilities.

    All of our securityholders and all of our executive officers and directors
have agreed or will agree prior to completion of this offering, that they will
not, without the prior written consent of Chase Securities Inc., offer, sell or
otherwise dispose of any shares of capital stock, options or warrants to acquire
shares of capital stock or securities exchangeable for or convertible into
shares of capital stock owned by them for a period of 180 days following the
date of this prospectus. We have agreed that we will not, without the prior
written consent of Chase Securities Inc., offer, sell or otherwise dispose of
any shares of capital stock, options or warrants to acquire shares of capital
stock or securities exchangeable for or convertible into shares of capital stock
for a period of 180 days following the date of this prospectus, except that we
may issue shares upon the exercise of options and warrants granted prior to the
date hereof. We also may grant additional options or other awards under our
stock option plans. Without the prior written consent of Chase Securities Inc.,
any additional options granted shall not be exercisable during this 180-day
period.

    The representatives of the underwriters participating in this offering may
over-allot or effect transactions which stabilize, maintain or otherwise affect
the market price of the common shares at levels above those which might
otherwise prevail in the open market, including by entering stabilizing bids,
effecting syndicate covering transactions or imposing penalty bids. A
stabilizing bid means the placing of any bid or effecting of any purchase, for
the purpose of pegging, fixing or maintaining the price of the shares of common
stock. A syndicate covering transaction means the placing of any bid on behalf
of the underwriting syndicate or the effecting of any purchase to reduce a short
position created in connection with the offering. A penalty bid means an
arrangement that permits the underwriters to reclaim a selling concession from a
syndicate member in connection with the offering when common shares sold by the
syndicate member are purchased in syndicate covering transactions. Such
transactions may be effected on the Nasdaq National Market, in the
over-the-counter market, or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.

    In connection with this offering, the underwriters may make short sales of
our common stock and may purchase our shares on the open market to cover
positions created by short sales. Short sales involve the sale by the
underwriters of a greater number of shares than they are required to purchase in
this offering. "Covered" short sales are sales made in an amount not greater
than the underwriters' over-allotment option to purchase additional shares in
this offering. The underwriters may close out any covered short position by
either exercising their over-allotment option or purchasing shares in the open
market. In determining the source of shares to close out the covered short
position, the underwriters will consider, among other things, the price of
shares available for purchase in the open market as compared to the price at
which they may purchase shares through the over-allotment option. "Naked" short
sales are sales in excess of the over-allotment option. The underwriters must
close out any naked short position by purchasing shares in the open market. A
naked short position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the price of the shares in the
open market after pricing that could adversely affect investors who purchase in
this offering. Similar to other purchase transactions, the underwriters'
purchases to cover the syndicate short sales may have the effect of raising or
maintaining the market price of our common stock or preventing or retarding a
decline in the market price of our common stock. As a result, the price of our
common stock may be higher than the price that might otherwise exist in the open
market.

                                       64
<PAGE>
    Prior to this offering, there has been no public market for our common
stock. The initial public offering price for the shares of common stock was
determined by negotiations among us and the representatives. Among the factors
considered in determining the initial public offering price were prevailing
market and economic conditions, our revenues and earnings, market valuations of
other companies engaged in activities similar to our business operations, our
management and other factors deemed relevant.

    In addition, at our request, the underwriters have reserved up to
shares of common stock for sale at the initial public offering price to our
directors, business associates and related persons. The number of shares
available for sale to the general public will be reduced if such persons
purchase the reserved shares. Any reserved shares which are not so purchased
will be offered by the underwriters to the general public on the same basis as
the other shares offered by this prospectus.

    In connection with this offering, certain underwriters and selling group
members, if any, who are qualified market makers on the Nasdaq National Market
may engage in passive market making transactions in our shares of common stock
on the Nasdaq National Market in accordance with Rule 103 of Regulation M under
the Securities Exchange Act of 1934, as amended. In general, a passive market
maker must display its bid at a price not in excess of the highest independent
bid of such security; if all independent bids are lowered below the passive
market maker's bid, however, the passive market maker must then lower its bid
when certain purchase limits are exceeded.

                                       65
<PAGE>
                                 LEGAL MATTERS

    The validity of the common stock offered hereby will be passed upon for us
by Cooley Godward LLP, Palo Alto, California. As of the date of this prospectus,
partners and associates of Cooley Godward LLP have been granted options to
purchase an aggregate of 50,000 shares of our common stock through an investment
partnership. Stroock & Stroock & Lavan LLP, New York, New York, is acting as
counsel for the underwriters in connection with certain legal matters relating
to the shares of common stock offered by this prospectus.

                                    EXPERTS

    The consolidated financial statements of AeroGen, Inc. as of December 31,
1998 and 1999 and for each of the three years ended December 31, 1999 and for
the period from November 18, 1991 (date of inception) to December 31, 1999,
included in this prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

    The financial statements of Cerus Limited as of December 31, 1998 and 1999
and for each of the two years ended December 31, 1999 and for the period from
December 16, 1997 (date of inception) to December 31, 1999, included in this
prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

                      WHERE YOU CAN FIND MORE INFORMATION

    We have filed with the SEC a registration statement on Form S-1 (including
exhibits, schedules and amendments) under the Securities Act with respect to the
shares of common stock to be sold in this offering. This prospectus does not
contain all the information set forth in the registration statement. For further
information with respect to us and the shares of common stock to be sold in this
offering, reference is made to the registration statement. Statements contained
in this prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. Whenever we make reference in
this prospectus to any contract or other document of ours, the reference may not
be complete, and you should refer to the exhibits that are a part of the
registration statement for a copy of the contract or document.

    You may read and copy all or any portion of the registration statement or
any other information we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can request copies of these documents,
upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Our SEC filings, including the registration statement, are also available
to you on the SEC's web site (http://www.sec.gov).

    As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act, and, in accordance with
those requirements, will file periodic reports, proxy statements and other
information with the SEC.

                                       66
<PAGE>
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                PAGE
                                                              --------
<S>                                                           <C>
AEROGEN, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

  Report of Independent Accountants.........................     F-2
  Consolidated Balance Sheets...............................     F-3
  Consolidated Statements of Operations.....................     F-4
  Consolidated Statements of Stockholders' Equity
    (Deficit)...............................................     F-5
  Consolidated Statements of Cash Flows.....................     F-8
  Notes to Consolidated Financial Statements................     F-9

CERUS LIMITED
(A COMPANY IN THE DEVELOPMENT STAGE)

  Report of Independent Accountants.........................    F-29
  Balance Sheets............................................    F-30
  Statements of Operations..................................    F-31
  Statements of Stockholders' Equity........................    F-32
  Statements of Cash Flows..................................    F-33
  Notes to Financial Statements.............................    F-34
</TABLE>

                                      F-1
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of AeroGen, Inc.

    In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
AeroGen, Inc. (a company in the development stage) and its subsidiary at
December 31, 1998 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999 and for
the cumulative period from November 18, 1991 (date of inception) through
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

/s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California
February 25, 2000,
 (except for Note 11 as to which
the date is July 21, 2000
and Note 12 as to which the date is
August 24, 2000)

                                      F-2
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                            PRO FORMA
                                                                                                          STOCKHOLDERS'
                                                                                                            EQUITY AT
                                                                     DECEMBER 31,                           JUNE 30,
                                                              --------------------------     JUNE 30,         2000
                                                                 1998           1999           2000       (SEE NOTE 9)
                                                              -----------   ------------   ------------   -------------
                                                                                           (UNAUDITED)     (UNAUDITED)
<S>                                                           <C>           <C>            <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $17,499,487   $  1,821,945   $ 7,244,701
  Available-for-sale securities.............................           --      5,986,918            --
  Accounts receivable.......................................           --        319,051     1,430,946
  Prepaid expenses and other current assets.................      118,072        390,748       523,984
                                                              -----------   ------------   -----------
    Total current assets....................................   17,617,559      8,518,662     9,199,631
Property and equipment, net.................................      865,671      1,009,846     1,608,146
Goodwill and other intangible assets, net...................           --             --     1,252,077
Other assets................................................      125,000        145,093       167,593
                                                              -----------   ------------   -----------
    Total assets............................................  $18,608,230   $  9,673,601   $12,227,447
                                                              ===========   ============   ===========

LIABILITIES, CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable..........................................  $   344,372   $    455,700   $ 1,020,770
  Accrued liabilities.......................................      171,801        301,056       911,890
  Notes payable, current portion............................      276,518        354,470       197,800
                                                              -----------   ------------   -----------
    Total current liabilities...............................      792,691      1,111,226     2,130,460
Notes payable, less current portion.........................      379,509             --            --
Other long-term liabilities.................................      100,000        100,000       286,155
                                                              -----------   ------------   -----------
    Total liabilities.......................................    1,272,200      1,211,226     2,416,615
                                                              -----------   ------------   -----------

Commitments (Note 5)

Convertible preferred stock, par value: $0.001:
  Authorized: 27,994,352 shares;
  Issued and outstanding: 27,864,352 shares at December 31,
    1998
    and 1999, 31,512,430 shares at June 30, 2000 (unaudited)
    and none pro forma (unaudited)
  (Liquidation preference: $32,245,302 at December 31, 1998
    and 1999, $41,730,305 at June 30, 2000 (unaudited)).....   31,476,099     31,476,099    41,883,900     $        --
                                                              -----------   ------------   -----------     -----------

Stockholders' equity (deficit):

  Common stock, par value: $0.001:
    Authorized: 40,000,000 shares;
    Issued and outstanding: 6,547,787, 6,928,821 and
      8,153,158 shares at December 31, 1998, 1999 and June
      30, 2000 (unaudited), respectively; and 39,665,588 pro
      forma (unaudited).....................................        6,548          6,929         8,153          39,665
  Additional paid-in capital................................      247,567        949,905     5,247,795      47,100,183
  Notes receivable from stockholders........................     (492,795)      (510,318)     (626,137)       (626,137)
  Deferred stock-based compensation, net....................           --       (558,360)   (4,431,433)     (4,431,433)
  Accumulated other comprehensive income (loss).............           --        (32,576)       23,167          23,167
  Deficit accumulated during the development stage..........  (13,901,389)   (22,869,304)  (32,294,613)    (32,294,613)
                                                              -----------   ------------   -----------     -----------
    Total stockholders' deficit.............................  (14,140,069)   (23,013,724)  (32,073,068)    $ 9,810,832
                                                              -----------   ------------   -----------     ===========
      Total liabilities, convertible preferred stock and
        stockholders' equity (deficit)......................  $18,608,230   $  9,673,601   $12,227,447
                                                              ===========   ============   ===========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-3
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                         CUMULATIVE                                  CUMULATIVE
                                                                         PERIOD FROM                                 PERIOD FROM
                                                                        NOVEMBER 18,                                NOVEMBER 18,
                                                                        1991 (DATE OF       SIX MONTHS ENDED        1991 (DATE OF
                                     YEARS ENDED DECEMBER 31,           INCEPTION) TO           JUNE 30,            INCEPTION) TO
                              ---------------------------------------   DECEMBER 31,    -------------------------     JUNE 30,
                                 1997          1998          1999           1999           1999          2000           2000
                              -----------   -----------   -----------   -------------   -----------   -----------   -------------
                                                                                               (UNAUDITED)           (UNAUDITED)
<S>                           <C>           <C>           <C>           <C>             <C>           <C>           <C>
Research and development
  revenues..................  $   327,780   $    85,450   $   468,220   $  1,597,762    $        --   $ 3,568,467   $  5,166,229
                              -----------   -----------   -----------   ------------    -----------   -----------   ------------
Operating expenses:
  Research and
    development.............    3,961,130     4,392,901     7,837,312     18,979,330      3,305,242     7,374,076     26,353,406
  General and
    administrative..........    1,509,204     1,599,912     2,038,843      6,540,294      1,022,396     1,744,927      8,285,221
  Stock-based
    compensation............           --            --       109,855        109,855         43,248       205,589        315,444
  Purchased in-process
    research and
    development.............           --            --            --             --             --     3,500,000      3,500,000
                              -----------   -----------   -----------   ------------    -----------   -----------   ------------
    Total operating
      expenses..............    5,470,334     5,992,813     9,986,010     25,629,479      4,370,886    12,824,592     38,454,071
                              -----------   -----------   -----------   ------------    -----------   -----------   ------------
Loss from operations........   (5,142,554)   (5,907,363)   (9,517,790)   (24,031,717)    (4,370,886)   (9,256,125)   (33,287,842)
Interest income.............      116,544       466,926       626,003      1,420,312        348,842       206,756      1,627,068
Interest expense............      (29,239)     (121,946)      (76,128)      (257,899)       (46,007)      (23,344)      (281,243)
                              -----------   -----------   -----------   ------------    -----------   -----------   ------------
Net loss....................   (5,055,249)   (5,562,383)   (8,967,915)   (22,869,304)    (4,068,051)   (9,072,713)   (31,942,017)
Dividend related to
  beneficial conversion
  feature of preferred
  stock.....................           --            --            --             --             --      (352,596)      (352,596)
                              -----------   -----------   -----------   ------------    -----------   -----------   ------------
Net loss available to common
  stockholders..............  $(5,055,249)  $(5,562,383)  $(8,967,915)  $(22,869,304)   $(4,068,051)  $(9,425,309)  $(32,294,613)
                              ===========   ===========   ===========   ============    ===========   ===========   ============
Net loss per common share,
  basic and diluted.........  $     (1.14)  $     (1.16)  $     (1.65)                  $     (0.78)  $     (1.46)
                              ===========   ===========   ===========                   ===========   ===========
Shares used in computing net
  loss per common share,
  basic and diluted.........    4,429,151     4,809,593     5,433,341                     5,197,457     6,462,166
                              ===========   ===========   ===========                   ===========   ===========
Pro forma net loss per
  common share, basic and
  diluted (unaudited).......                              $     (0.27)                                $     (0.25)
                                                          ===========                                 ===========
Shares used in computing pro
  forma net loss per common
  share, basic and diluted
  (unaudited)...............                               33,427,693                                  35,701,151
                                                          ===========                                 ===========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-4
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
   FOR THE PERIOD FROM NOVEMBER 18, 1991 (DATE OF INCEPTION) TO JUNE 30, 2000
<TABLE>
<CAPTION>

                                                                                             NOTES
                                                         COMMON STOCK        ADDITIONAL    RECEIVABLE      DEFERRED
                                                     ---------------------    PAID-IN         FROM       STOCK-BASED
                                                      SHARES      AMOUNT      CAPITAL     STOCKHOLDERS   COMPENSATION
                                                     ---------   ---------   ----------   ------------   ------------
<S>                                                  <C>         <C>         <C>          <C>            <C>
Issuance of common stock to founder for cash in
  November 1991....................................  4,000,000   $   2,000   $      --     $      --     $        --
Note receivable from stockholder...................         --          --          --       (69,009)             --
Issuance of common stock at $0.04 per share for
  cash and note receivable in July 1994............  1,000,000      40,000          --       (35,000)             --
Accretion to redemption value of redeemable
  convertible preferred stock......................         --          --          --            --              --
Net loss...........................................         --          --          --            --              --
                                                     ---------   ---------   ----------    ---------     -----------
Balances, December 31, 1994........................  5,000,000      42,000          --      (104,009)             --
Issuance of common stock pursuant to exercise of
  stock options for cash in April..................     10,000         400          --            --              --
Repurchase of common stock in connection with
  cancellation of note receivable from stockholders
  in May...........................................   (791,700)    (31,668)         --        31,668              --
Repayment of note receivable from stockholder in
  November.........................................         --          --          --         3,332              --
Accrued interest on notes receivable from
  stockholders.....................................         --          --          --        (7,120)             --
Accretion to redemption value of redeemable
  convertible preferred stock......................         --          --          --            --              --
Net loss...........................................         --          --          --            --              --
                                                     ---------   ---------   ----------    ---------     -----------
Balances, December 31, 1995........................  4,218,300      10,732          --       (76,129)             --
Issuance of common stock at $0.08 per share for
  services rendered in May.........................     19,250       1,540          --            --              --
Notes and receivable from stockholders.............                                 --      (200,000)             --
Issuance of common stock pursuant to exercise of
  stock options for cash...........................     20,000       1,400          --            --              --
Accrued interest on notes receivable from
  stockholders.....................................         --          --          --        (4,709)             --
Accretion to redemption value of redeemable
  convertible preferred stock......................         --          --          --            --              --
Net loss...........................................         --          --          --            --              --
                                                     ---------   ---------   ----------    ---------     -----------
Balances, December 31, 1996........................  4,257,550      13,672          --      (280,838)             --

<CAPTION>
                                                                       DEFICIT
                                                      ACCUMULATED    ACCUMULATED
                                                         OTHER        DURING THE         TOTAL
                                                     COMPREHENSIVE   DEVELOPMENT     STOCKHOLDERS'
                                                     INCOME (LOSS)      STAGE       EQUITY (DEFICIT)
                                                     -------------   ------------   ----------------
<S>                                                  <C>             <C>            <C>
Issuance of common stock to founder for cash in
  November 1991....................................    $     --      $        --      $      2,000
Note receivable from stockholder...................          --               --           (69,009)
Issuance of common stock at $0.04 per share for
  cash and note receivable in July 1994............          --               --             5,000
Accretion to redemption value of redeemable
  convertible preferred stock......................          --          (68,621)          (68,621)
Net loss...........................................          --         (355,581)         (355,581)
                                                       --------      ------------     ------------
Balances, December 31, 1994........................          --         (424,202)         (486,211)
Issuance of common stock pursuant to exercise of
  stock options for cash in April..................          --               --               400
Repurchase of common stock in connection with
  cancellation of note receivable from stockholders
  in May...........................................          --               --                --
Repayment of note receivable from stockholder in
  November.........................................          --               --             3,332
Accrued interest on notes receivable from
  stockholders.....................................          --               --            (7,120)
Accretion to redemption value of redeemable
  convertible preferred stock......................          --         (208,506)         (208,506)
Net loss...........................................          --         (754,076)         (754,076)
                                                       --------      ------------     ------------
Balances, December 31, 1995........................          --       (1,386,784)       (1,452,181)
Issuance of common stock at $0.08 per share for
  services rendered in May.........................          --               --             1,540
Notes and receivable from stockholders.............          --               --          (200,000)
Issuance of common stock pursuant to exercise of
  stock options for cash...........................          --               --             1,400
Accrued interest on notes receivable from
  stockholders.....................................          --               --            (4,709)
Accretion to redemption value of redeemable
  convertible preferred stock......................          --         (515,687)         (515,687)
Net loss...........................................          --       (2,174,108)       (2,174,108)
                                                       --------      ------------     ------------
Balances, December 31, 1996........................          --       (4,076,579)       (4,343,745)
</TABLE>

                                      F-5
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)
          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
   FOR THE PERIOD FROM NOVEMBER 18, 1991 (DATE OF INCEPTION) TO JUNE 30, 2000
<TABLE>
<CAPTION>

                                                                                             NOTES
                                                         COMMON STOCK        ADDITIONAL    RECEIVABLE      DEFERRED
                                                     ---------------------    PAID-IN         FROM       STOCK-BASED
                                                      SHARES      AMOUNT      CAPITAL     STOCKHOLDERS   COMPENSATION
                                                     ---------   ---------   ----------   ------------   ------------
<S>                                                  <C>         <C>         <C>          <C>            <C>
Issuance of common stock, for a note receivable in
  January..........................................    850,000      68,000          --       (68,000)             --
Issuance of common stock at $0.08 per share for
  services rendered in May.........................     10,000         800          --            --              --
Issuance of common stock pursuant to exercise of
  stock options for cash...........................    245,297      16,457          --            --              --
Accrued interest on notes receivable from
  stockholders.....................................         --          --          --        (7,976)             --
Accretion to redemption value of redeemable
  convertible preferred stock......................         --          --          --            --              --
Net loss...........................................         --          --          --            --              --
                                                     ---------   ---------   ----------    ---------     -----------
Balances, December 31, 1997........................  5,362,847      98,929          --      (356,814)             --
Accretion to redemption value of redeemable
  convertible preferred stock......................         --          --          --            --              --
Reincorporation into a Delaware corporation........         --    (182,672)    182,672            --              --
Removal of redemption provision for Series A, B and
  C in conjunction with issuance of Series D.......         --          --          --            --              --
Issuance of common stock at $0.10 per share for a
  note receivable in January.......................  1,400,000     140,000          --      (140,000)             --
Repurchase of common stock at $0.08 per share and
  resulting in cancellation of note receivable in
  January..........................................   (626,500)    (50,120)         --        71,590              --
Issuance of common stock at $0.20 per share for a
  note receivable in December......................    270,000         270      53,730       (53,730)             --
Issuance of common stock pursuant to exercise of
  stock options for cash...........................    141,440         141      11,165            --              --
Accrued interest on notes receivable from
  stockholders.....................................         --          --          --       (13,841)             --
Net loss...........................................         --          --          --            --              --
                                                     ---------   ---------   ----------    ---------     -----------
Balances, December 31, 1998........................  6,547,787       6,548     247,567      (492,795)             --

<CAPTION>
                                                                       DEFICIT
                                                      ACCUMULATED    ACCUMULATED
                                                         OTHER        DURING THE         TOTAL
                                                     COMPREHENSIVE   DEVELOPMENT     STOCKHOLDERS'
                                                     INCOME (LOSS)      STAGE       EQUITY (DEFICIT)
                                                     -------------   ------------   ----------------
<S>                                                  <C>             <C>            <C>
Issuance of common stock, for a note receivable in
  January..........................................          --               --                --
Issuance of common stock at $0.08 per share for
  services rendered in May.........................          --               --               800
Issuance of common stock pursuant to exercise of
  stock options for cash...........................          --               --            16,457
Accrued interest on notes receivable from
  stockholders.....................................          --               --            (7,976)
Accretion to redemption value of redeemable
  convertible preferred stock......................          --         (895,541)         (895,541)
Net loss...........................................          --       (5,055,249)       (5,055,249)
                                                       --------      ------------     ------------
Balances, December 31, 1997........................          --      (10,027,369)      (10,285,254)
Accretion to redemption value of redeemable
  convertible preferred stock......................          --         (953,587)         (953,587)
Reincorporation into a Delaware corporation........          --               --                --
Removal of redemption provision for Series A, B and
  C in conjunction with issuance of Series D.......          --        2,641,950         2,641,950
Issuance of common stock at $0.10 per share for a
  note receivable in January.......................          --               --                --
Repurchase of common stock at $0.08 per share and
  resulting in cancellation of note receivable in
  January..........................................          --               --            21,470
Issuance of common stock at $0.20 per share for a
  note receivable in December......................          --               --               270
Issuance of common stock pursuant to exercise of
  stock options for cash...........................          --               --            11,306
Accrued interest on notes receivable from
  stockholders.....................................          --               --           (13,841)
Net loss...........................................          --       (5,562,383)       (5,562,383)
                                                       --------      ------------     ------------
Balances, December 31, 1998........................          --      (13,901,389)      (14,140,069)
</TABLE>

                                      F-6
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)
          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
   FOR THE PERIOD FROM NOVEMBER 18, 1991 (DATE OF INCEPTION) TO JUNE 30, 2000
<TABLE>
<CAPTION>

                                                                                             NOTES
                                                         COMMON STOCK        ADDITIONAL    RECEIVABLE      DEFERRED
                                                     ---------------------    PAID-IN         FROM       STOCK-BASED
                                                      SHARES      AMOUNT      CAPITAL     STOCKHOLDERS   COMPENSATION
                                                     ---------   ---------   ----------   ------------   ------------
<S>                                                  <C>         <C>         <C>          <C>            <C>
Issuance of common stock pursuant to exercise of
  stock options for cash...........................    381,034         381      34,123            --              --
Accrued interest on notes receivable from
  stockholders.....................................         --          --          --       (17,523)             --
Unrealized loss on available-for-sale securities...         --          --          --            --              --
Deferred stock compensation........................         --          --     668,215            --        (668,215)
Amortization of deferred stock compensation........         --          --          --            --         109,855
Net loss...........................................         --          --          --            --              --
                                                     ---------   ---------   ----------    ---------     -----------
Balances, December 31, 1999........................  6,928,821       6,929     949,905      (510,318)       (558,360)
Issuance of common stock pursuant to exercise of
  stock options for cash (unaudited)...............    684,337         684     113,768            --              --
Issuance of common stock at $0.10 and $0.20 per
  share for cash and notes receivable in April
  (unaudited)......................................    540,000         540     105,460      (105,460)             --
Accrued interest on notes receivable from
  stockholders (unaudited).........................         --          --          --       (10,359)             --
Changes in unrealized loss on available-for-sale
  securities (unaudited)...........................         --          --          --            --              --
Foreign currency translation (unaudited)...........         --          --          --            --              --
Deferred stock compensation (unaudited)............         --          --   4,078,662            --      (4,078,662)
Amortization of deferred stock compensation
  (unaudited)......................................         --          --          --            --         205,589
Beneficial conversion feature related to issuance
  of series preferred stock (unaudited)............         --          --     352,596            --              --
Deemed dividend related to beneficial conversion
  feature of preferred stock (unaudited)...........         --          --    (352,596)           --              --
Net loss (unaudited)...............................         --          --          --            --              --
                                                     ---------   ---------   ----------    ---------     -----------
Balances, June 30, 2000 (unaudited)................  8,153,158   $   8,153   $5,247,795    $(626,137)    $(4,431,433)
                                                     =========   =========   ==========    =========     ===========

<CAPTION>
                                                                       DEFICIT
                                                      ACCUMULATED    ACCUMULATED
                                                         OTHER        DURING THE         TOTAL
                                                     COMPREHENSIVE   DEVELOPMENT     STOCKHOLDERS'
                                                     INCOME (LOSS)      STAGE       EQUITY (DEFICIT)
                                                     -------------   ------------   ----------------
<S>                                                  <C>             <C>            <C>
Issuance of common stock pursuant to exercise of
  stock options for cash...........................          --               --            34,504
Accrued interest on notes receivable from
  stockholders.....................................          --               --           (17,523)
Unrealized loss on available-for-sale securities...     (32,576)              --           (32,576)
Deferred stock compensation........................          --               --                --
Amortization of deferred stock compensation........          --               --           109,855
Net loss...........................................          --       (8,967,915)       (8,967,915)
                                                       --------      ------------     ------------
Balances, December 31, 1999........................     (32,576)     (22,869,304)      (23,013,724)
Issuance of common stock pursuant to exercise of
  stock options for cash (unaudited)...............          --               --           114,452
Issuance of common stock at $0.10 and $0.20 per
  share for cash and notes receivable in April
  (unaudited)......................................          --               --               540
Accrued interest on notes receivable from
  stockholders (unaudited).........................          --               --           (10,359)
Changes in unrealized loss on available-for-sale
  securities (unaudited)...........................      32,576               --            32,576
Foreign currency translation (unaudited)...........      23,167               --            23,167
Deferred stock compensation (unaudited)............          --               --                --
Amortization of deferred stock compensation
  (unaudited)......................................          --               --           205,589
Beneficial conversion feature related to issuance
  of series preferred stock (unaudited)............          --               --           352,596
Deemed dividend related to beneficial conversion
  feature of preferred stock (unaudited)...........          --               --          (352,596)
Net loss (unaudited)...............................          --       (9,425,309)       (9,425,309)
                                                       --------      ------------     ------------
Balances, June 30, 2000 (unaudited)................    $ 23,167      $(32,294,613)    $(32,073,068)
                                                       ========      ============     ============
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-7
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                    CUMULATIVE
                                                                                    PERIOD FROM
                                                                                   NOVEMBER 18,
                                                                                   1991 (DATE OF          SIX MONTHS ENDED
                                             YEARS ENDED DECEMBER 31,              INCEPTION) TO              JUNE 30,
                                     ----------------------------------------      DECEMBER 31,       -------------------------
                                        1997          1998           1999              1999              1999          2000
                                     -----------   -----------   ------------   -------------------   -----------   -----------
                                                                                                             (UNAUDITED)
<S>                                  <C>           <C>           <C>            <C>                   <C>           <C>
Cash flows from operating
  activities:
  Net loss.........................  $(5,055,249)  $(5,562,383)  $ (8,967,915)     $(22,869,304)      $(4,068,051)  $(9,072,713)
  Adjustments to reconcile net loss
    to net cash used in operating
    activities:
    Depreciation and
     amortization..................      217,696       344,082        494,311         1,211,352           234,897       371,002
    Loss on disposal of property
     and equipment.................        4,858            --             --             4,858                --            --
    Common stock issued for
     services received.............          800            --             --             2,340                --            --
    Purchased in-process research
     and development...............           --            --             --                --                --     3,500,000
    Accrued interest on notes
     receivable from
     stockholders..................       (7,976)      (13,841)       (17,523)         (320,178)           (8,286)      (10,359)
    Amortization of deferred
     stock-based compensation......           --            --        109,855           109,855            43,248       205,589
    Changes in operating assets and
     liabilities:
      Accounts receivable..........     (127,488)      127,488       (319,051)         (319,051)               --    (1,006,857)
      Prepaid expenses and other
       current assets..............     (123,658)       30,457       (272,676)         (390,748)         (185,985)     (133,236)
      Accounts payable.............      100,311       132,290        111,328           455,700            27,273       502,917
      Accrued liabilities..........      208,346      (148,178)       129,255           301,056           177,657       566,938
      Other........................      (18,348)        4,500        (20,093)          (45,093)               --        32,691
                                     -----------   -----------   ------------      ------------       -----------   -----------
        Net cash used in operating
        activities.................   (4,800,708)   (5,085,585)    (8,752,509)      (21,859,213)       (3,779,247)   (5,044,028)
                                     -----------   -----------   ------------      ------------       -----------   -----------
Cash flows from investing
  activities:
  Acquisition of property and
    equipment......................     (764,371)     (410,855)      (638,486)       (2,183,768)         (385,890)     (914,078)
  Purchases of available-for-sale
    securities.....................           --            --    (28,565,057)      (28,565,057)       (6,998,474)           --
  Proceeds from maturities of
    available-for-sale
    securities.....................           --            --     22,545,563        22,545,563                --     6,019,494
  Cash acquired, net...............           --            --             --                --                --       442,749
                                     -----------   -----------   ------------      ------------       -----------   -----------
        Net cash provided by (used
        in) investing activities...     (764,371)     (410,855)    (6,657,980)       (8,203,262)       (7,384,364)   (5,548,165)
                                     -----------   -----------   ------------      ------------       -----------   -----------
Cash flows from financing
  activities:
  Proceeds from issuance of common
    stock..........................       16,457        11,576         34,504            71,337             6,629       114,992
  Proceeds from issuance of
    convertible preferred stock,
    net............................    9,180,558    17,345,599             --        31,476,107                --     4,937,130
  Proceeds from issuance of note
    payable........................      976,587            --             --         1,113,324                --            --
  Principal payments under capital
    lease obligations..............           --            --             --           (42,296)               --            --
  Repayment of note payable........     (138,235)     (286,341)      (301,557)         (758,854)         (155,702)     (156,670)
  Repayment of note receivable from
    stockholder....................           --        21,470             --            24,802                --            --
                                     -----------   -----------   ------------      ------------       -----------   -----------
        Net cash provided by (used
        in) financing activities...   10,035,367    17,092,304       (267,053)       31,884,420          (149,073)    4,895,452
                                     -----------   -----------   ------------      ------------       -----------   -----------
Effect of exchange rate changes on
  cash.............................           --            --             --                --                --        23,167
Net increase (decrease) in cash and
  cash equivalents.................    4,470,288    11,595,864    (15,677,542)        1,821,945       (11,312,684)    5,422,756
Cash and cash equivalents,
  beginning of period..............    1,433,335     5,903,623     17,499,487                --        17,499,487     1,821,945
                                     -----------   -----------   ------------      ------------       -----------   -----------
Cash and cash equivalents, end of
  period...........................  $ 5,903,623   $17,499,487   $  1,821,945      $  1,821,945       $ 6,186,803   $ 7,244,701
                                     ===========   ===========   ============      ============       ===========   ===========
Supplemental disclosure of noncash
  investing and financing
  activities:
  Acquisition of property and
    equipment under capital
    lease..........................  $        --   $        --   $         --      $     39,958       $        --   $        --
  Exchange of stockholder note
    receivable for common stock....  $    68,000   $   193,730   $         --      $    261,730       $        --   $   105,460
  Repurchase of common stock in
    connection with cancellation of
    note receivable from
    stockholder....................  $        --   $    50,120   $         --      $     81,788       $        --   $        --
  Common stock issued for
    acquisition....................  $        --   $        --   $         --      $         --       $        --   $ 5,217,500
  Accretion to redemption value of
    redeemable convertible
    preferred stock................  $   895,541   $   953,587   $         --      $  2,641,950       $        --   $        --
  Removal of redemption provision
    for convertible preferred
    stock..........................  $        --   $ 2,641,950   $         --      $  2,641,950       $        --   $        --
  Deferred stock-based
    compensation...................  $        --   $        --   $    668,215      $    668,215       $    52,679   $ 4,078,662
Supplemental disclosure of cash
  flow information:
  Cash paid during period for
    interest.......................  $    28,417   $   121,946   $     76,128      $    257,899       $    42,351   $    23,023

<CAPTION>
                                         CUMULATIVE
                                         PERIOD FROM
                                        NOVEMBER 18,
                                        1991 (DATE OF
                                        INCEPTION) TO
                                          JUNE 30,
                                            2000
                                     -------------------
                                         (UNAUDITED)
<S>                                  <C>
Cash flows from operating
  activities:
  Net loss.........................     $(31,942,017)
  Adjustments to reconcile net loss
    to net cash used in operating
    activities:
    Depreciation and
     amortization..................        1,582,354
    Loss on disposal of property
     and equipment.................            4,858
    Common stock issued for
     services received.............            2,340
    Purchased in-process research
     and development...............        3,500,000
    Accrued interest on notes
     receivable from
     stockholders..................         (330,537)
    Amortization of deferred
     stock-based compensation......          315,444
    Changes in operating assets and
     liabilities:
      Accounts receivable..........       (1,325,908)
      Prepaid expenses and other
       current assets..............         (523,984)
      Accounts payable.............          958,617
      Accrued liabilities..........          867,994
      Other........................          (12,402)
                                        ------------
        Net cash used in operating
        activities.................      (26,903,241)
                                        ------------
Cash flows from investing
  activities:
  Acquisition of property and
    equipment......................       (3,097,846)
  Purchases of available-for-sale
    securities.....................      (28,565,057)
  Proceeds from maturities of
    available-for-sale
    securities.....................       28,565,057
  Cash acquired, net...............          442,749
                                        ------------
        Net cash provided by (used
        in) investing activities...       (2,655,097)
                                        ------------
Cash flows from financing
  activities:
  Proceeds from issuance of common
    stock..........................          186,329
  Proceeds from issuance of
    convertible preferred stock,
    net............................       36,413,237
  Proceeds from issuance of note
    payable........................        1,113,324
  Principal payments under capital
    lease obligations..............          (42,296)
  Repayment of note payable........         (915,524)
  Repayment of note receivable from
    stockholder....................           24,802
                                        ------------
        Net cash provided by (used
        in) financing activities...       36,779,872
                                        ------------
Effect of exchange rate changes on
  cash.............................           23,167
Net increase (decrease) in cash and
  cash equivalents.................        7,244,701
Cash and cash equivalents,
  beginning of period..............               --
                                        ------------
Cash and cash equivalents, end of
  period...........................     $  7,244,701
                                        ============
Supplemental disclosure of noncash
  investing and financing
  activities:
  Acquisition of property and
    equipment under capital
    lease..........................     $     39,958
  Exchange of stockholder note
    receivable for common stock....     $    367,190
  Repurchase of common stock in
    connection with cancellation of
    note receivable from
    stockholder....................     $     81,788
  Common stock issued for
    acquisition....................     $  5,217,500
  Accretion to redemption value of
    redeemable convertible
    preferred stock................     $  2,641,950
  Removal of redemption provision
    for convertible preferred
    stock..........................     $  2,641,950
  Deferred stock-based
    compensation...................     $  4,746,877
Supplemental disclosure of cash
  flow information:
  Cash paid during period for
    interest.......................     $    280,922
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-8
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--FORMATION AND BUSINESS OF THE COMPANY:

    AeroGen, Inc., formerly Fluid Propulsion Technologies, Inc. (the "Company")
was incorporated on November 18, 1991 to develop industrial, consumer, and
medical products using a liquid aerosol generator. The Company is in the
development stage and since inception has devoted substantially all of its
efforts to developing its products, including engaging in research and
development activities with partners, raising capital, and recruiting personnel.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

    BASIS OF CONSOLIDATION

    In May 2000, the Company acquired a subsidiary in Ireland, AeroGen
(Ireland) Limited (see note 11). The consolidated financial statements include
the accounts of the Company and its subsidiary. All intercompany balances and
transactions have been eliminated.

    UNAUDITED INTERIM RESULTS

    The accompanying consolidated balance sheet as of June 30, 2000, the
consolidated statements of operations and of cash flows for the six months ended
June 30, 1999 and 2000 and for the cumulative period from November 8, 1991 (date
of inception) to June 30, 2000, and the statement of stockholders' deficit for
the six months ended June 30, 2000 are unaudited. The unaudited interim
consolidated financial statements have been prepared on the same basis as the
annual financial statements and, in the opinion of management, reflect all
adjustments, which include only normal recurring adjustments, necessary to
present fairly the Company's consolidated financial position and results of
operations and cash flows for the six months ended June 30, 1999, and 2000. The
financial data and other information disclosed in these notes to financial
statements related to the six month periods are unaudited. The results for the
six months ended June 30, 2000 are not necessarily indicative of the results to
be expected for the year ending December 31, 2000.

    USE OF ESTIMATES

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

    CASH AND CASH EQUIVALENTS

    The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. Cash and cash
equivalents include money market and deposit accounts.

    AVAILABLE-FOR-SALE SECURITIES

    All investments are classified as available-for-sale and therefore are
carried at fair market value. Unrealized gains and losses on such securities are
reported as a separate component of stockholders' deficit. Realized gains and
losses on sales of all such securities are reported in earnings and computed
using the specific identification cost method.

                                      F-9
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
    DEPRECIATION AND AMORTIZATION

    Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets, generally three to five years.
Amortization of leasehold improvements and leased assets is provided on a
straight-line basis over the life of the related asset or the lease term, if
shorter. Upon sale or retirement of assets, the cost and related accumulated
depreciation and amortization are removed from the balance sheet and the
resulting gain or loss is reflected in operations.

    GOODWILL AND OTHER INTANGIBLE ASSETS

    Goodwill and other intangible assets primarily consist of goodwill and
acquired workforce related to the acquisition of Cerus Limited and are amortized
on a straight-line basis to operations over six and two years, respectively.

    IMPAIRMENT OF LONG-LIVED ASSETS

    The Company accounts for long-lived assets under Statement of Financial
Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which requires
the Company to review for impairment of long-lived assets, whenever events or
changes in circumstances indicate that the carrying amount of an asset might not
be recoverable. When such an event occurs, management determines whether there
has been an impairment by comparing the anticipated undiscounted future net cash
flows to the related assets' carrying value. If an asset is considered impaired,
the asset is written down to fair value, which is determined based either on
discounted cash flows or appraised values, depending on the nature of the asset.

    REDEEMABLE PREFERRED STOCK

    The carrying value of redeemable convertible preferred stock was increased
by periodic accretions so that the carrying value would equal the redemption
amount of the preferred stock at their redemption dates. These increases were
effected through charges against the deficit accumulated during the development
stage. In August 1998, the Company amended its Certificate of Incorporation to
remove the redemption provisions of the then outstanding preferred stock and
accordingly, the Company reversed the cumulative accretion charges at that time.

    CONCENTRATION OF CREDIT RISK AND OTHER RISKS AND UNCERTAINTIES

    The Company maintains its cash and cash equivalents in accounts with two
major financial institutions in the United States. Deposits in these
institutions may exceed the amount of insurance provided on such deposits. The
Company has not experienced any losses on its deposits of cash and cash
equivalents.

    Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, available-for-sale securities, accounts
receivable, accounts payable and accrued liabilities approximate fair value due
to their relatively short maturities. Based upon borrowing rates currently
available to the Company for loans with similar terms, the carrying value of
notes payable approximates fair value.

    Products developed by the Company may require the approval of the Food and
Drug Administration ("FDA") and/or other international regulatory agencies prior
to commercial sales. The Company cannot be

                                      F-10
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
assured that its products will receive the necessary approvals. If the Company
is denied approval or if approval is delayed, this may have a material adverse
impact on the Company.

    The Company is subject to risks common to companies in the pharmaceutical
industry including, but not limited to, new technological innovations,
dependence on key personnel, protection of proprietary technology, compliance
with government regulations, uncertainty of market acceptance of products,
product liability and the need to obtain additional financing.

    Three customers accounted for 36%, 27% and 15% of the research and
development revenues during the year ended December 31, 1997, respectively.

    One customer accounted for 100% of the research and development revenues
during the year ended December 31, 1998.

    One customer accounted for 100% of accounts receivable at December 31, 1999
and three customers accounted for 75%, 11% and 11% of research and development
revenues during the year ended December 31, 1999, respectively.

    RESEARCH AND DEVELOPMENT REVENUE RECOGNITION

    Research and development revenues which are earned under cost-reimbursement
agreements are recorded as the related expenses are incurred, up to contractual
limits. Payments received that are related to future performance are recorded as
deferred revenue and recognized as revenues as they are earned. All revenues
recognized to date are not refundable if the relevant research effort is not
successful.

    RESEARCH AND DEVELOPMENT

    Research and development costs are charged to operations as incurred.
Certain research and development projects are funded under cost-reimbursement
agreements, and the costs related to these activities are included in research
and development expense.

    FOREIGN CURRENCY TRANSLATION

    The Company's international subsidiary uses its local currency as its
functional currency. Assets and liabilities are translated at exchange rates in
effect at the balance sheet date and income and expense accounts at average
exchange rates during the period. Resulting translation adjustments are recorded
directly to a separate component of stockholders' deficit.

    INCOME TAXES

    The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under
this method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.

                                      F-11
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
    SEGMENTS

    The Company follows Statement of Financial Accounting Standards No. 131, or
SFAS 131, "Disclosure About Segments of an Enterprise and Related Information."
The Company operates in one segment, using one measurement of profitability to
manage its business. As of December 31, 1998 and 1999, all long-lived assets are
maintained in the United States. All revenue was generated in the United States
during the years ended December 31, 1997, 1998 and 1999 and for the cumulative
period from November 18, 1991 (date of inception) to December 31, 1999.

    ACCOUNTING FOR STOCK-BASED COMPENSATION

    The Company uses the intrinsic value method of Accounting Principles Board
Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees," in
accounting for its employee stock options, and presents disclosure of pro forma
information required under Statement of Financial Accounting Standard No. 123
("SFAS No. 123"), "Accounting for Stock-Based Compensation."

    The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force
Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services."

    COMPREHENSIVE INCOME (LOSS)

    Comprehensive income (loss) generally represents all changes in
stockholders' deficit except those resulting from investments or contributions
by stockholders. The Company's unrealized losses on available-for-sale
securities represent the only component of comprehensive income (loss) that is
excluded from the Company's net loss for the years ended December 31, 1997, 1998
and 1999 and for the cumulative period from November 18, 1991 (date of
inception) to December 31, 1999. As it is not significant individually or in the
aggregate, no separate statements of comprehensive loss have been presented.

    NET LOSS PER COMMON SHARE

    Basic net loss per share is computed by dividing net loss available to
common stockholders by the weighted average number of vested common shares
outstanding for the period. Diluted net loss per share is computed giving effect
to all potential dilutive common shares, including options, warrants and
convertible preferred stock. Options, warrants and convertible preferred stock
were not included in the diluted net loss per share calculations because the
effect would be antidilutive.

                                      F-12
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
    A reconciliation of the numerator and denominator used in the calculation of
basic and diluted net loss per common share follows:

<TABLE>
<CAPTION>
                                                                                SIX MONTHS ENDED
                                         YEARS ENDED DECEMBER 31,                   JUNE 30,
                                  ---------------------------------------   -------------------------
                                     1997          1998          1999          1999          2000
                                  -----------   -----------   -----------   -----------   -----------
                                                                                   (UNAUDITED)
<S>                               <C>           <C>           <C>           <C>           <C>
Net loss per common share, basic
  and diluted:
  Net loss......................  $(5,055,249)  $(5,562,383)  $(8,967,915)  $(4,068,051)  $(9,072,713)
  Dividend related to beneficial
    conversion feature of
    preferred stock.............           --            --            --            --      (352,596)
                                  -----------   -----------   -----------   -----------   -----------
Net loss available to common
  stockholders..................  $(5,055,249)  $(5,562,383)  $(8,967,915)  $(4,068,051)  $(9,425,309)
                                  ===========   ===========   ===========   ===========   ===========
Weighted average common shares
  outstanding...................    5,224,984     6,226,468     6,728,550     6,619,541     7,463,882
Less weighted average shares
  subject to repurchase.........     (795,833)   (1,416,875)   (1,295,209)   (1,422,084)   (1,001,716)
                                  -----------   -----------   -----------   -----------   -----------
Weighted average shares used in
  computing basic and diluted
  net loss per common share.....    4,429,151     4,809,593     5,433,341     5,197,457     6,462,166
                                  ===========   ===========   ===========   ===========   ===========
</TABLE>

    The following outstanding options, common stock subject to repurchase,
convertible preferred stock and warrants were excluded from the computation of
diluted net loss per share as they had an antidilutive effect:

<TABLE>
<CAPTION>
                                                                                SIX MONTHS ENDED
                                         YEARS ENDED DECEMBER 31,                   JUNE 30,
                                  ---------------------------------------   -------------------------
                                     1997          1998          1999          1999          2000
                                  -----------   -----------   -----------   -----------   -----------
                                                                                   (UNAUDITED)
<S>                               <C>           <C>           <C>           <C>           <C>
  Options to purchase common
    stock.......................      832,400     1,835,960     2,129,650     1,863,722     3,504,150
  Common stock subject to
    repurchase..................      875,000     1,670,000       920,417     1,174,167     1,454,361
  Convertible preferred stock...   17,578,638    27,864,352    27,864,352    27,864,352    31,512,430
  Warrants......................      162,051       162,051        97,051        97,051        97,051
</TABLE>

    RECENT ACCOUNTING PRONOUNCEMENTS

    In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN No. 44") "Accounting for Certain Transactions
Involving Stock Compensation," an interpretation of the Accounting Principles
Board Opinion No. 25 ("APB No. 25"). This interpretation clarifies the
definition of employee for purposes of applying APB No. 25, "Accounting for
Stock Issued to Employees," the criteria for determining whether a plan
qualifies as a noncompensatory plan, the accounting consequence of

                                      F-13
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
various modifications to the terms of a previously fixed stock option or award,
and the accounting for an exchange of stock compensation awards in a business
combination. FIN No. 44 is effective July 1, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998, or January 12, 2000.
The adoption of FIN No. 44 did not and will not have a material impact on the
Company's financial statements.

    In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB No. 101"), "Revenue Recognition in
Financial Statements," which provides guidance on the recognition, presentation,
and disclosure of revenue in financial statements filed with the SEC. SAB
No. 101 outlines the basic criteria that must be met to recognize revenue and
provides guidance for disclosures related to revenue recognition policies. The
Company has complied with the guidance in SAB No. 101 for all periods presented.

    In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities. SFAS No. 133 requires that all derivatives be recognized at fair
value in the statement of financial position, and that the corresponding gains
or losses be reported either in the statement of operations or as a component of
comprehensive income, depending on the type of relationship that exists. As
amended SFAS No. 133 will be effective for fiscal years beginning after
June 15, 2000. The Company does not currently hold derivative instruments or
engage in hedging activities and does not believe that the implementation of
SFAS No. 133 will have any significant impact on its financial position or
results of operations.

NOTE 3--BALANCE SHEET COMPONENTS:

    Available-for-sale securities at December 31, 1999 are summarized as
follows:

<TABLE>
<CAPTION>
                                          AMORTIZED    UNREALIZED   FAIR MARKET
                                          COST BASIS      LOSS         VALUE
                                          ----------   ----------   -----------
<S>                                       <C>          <C>          <C>
Government notes........................  $3,011,243    $(22,803)   $2,988,440
Corporate paper.........................  3,008,251       (9,773)    2,998,478
                                          ----------    --------    ----------
                                          $6,019,494    $(32,576)   $5,986,918
                                          ==========    ========    ==========
</TABLE>

    All available-for-sale securities mature within one year. At December 31,
1998, the Company held no available-for-sale securities.

                                      F-14
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3--BALANCE SHEET COMPONENTS: (CONTINUED)
    Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                       ------------------------
                                                          1998         1999
                                                       ----------   -----------
<S>                                                    <C>          <C>
Laboratory, computer and office equipment............  $  867,459   $ 1,360,065
Furniture............................................     295,341       363,074
Leasehold improvements...............................     418,149       496,296
                                                       ----------   -----------
                                                        1,580,949     2,219,435
Less: accumulated depreciation and amortization......    (715,278)   (1,209,589)
                                                       ----------   -----------
                                                       $  865,671   $ 1,009,846
                                                       ==========   ===========
</TABLE>

    Included in property and equipment at December 31, 1998 and 1999 is
equipment acquired under capital leases totaling $39,958, and related
accumulated amortization of $39,958.

    Accrued liabilities consists of the following:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                          -------------------
                                                            1998       1999
                                                          --------   --------
<S>                                                       <C>        <C>
Payroll and related expense.............................  $150,662   $183,548
Other accrued liabilities...............................    21,139    117,508
                                                          --------   --------
                                                          $171,801   $301,056
                                                          ========   ========
</TABLE>

NOTE 4--NOTES PAYABLE:

    The Company maintained term loan facilities to finance property and
equipment acquisitions. The initial facility, which expired on October 31, 1996,
provided for borrowings up to $250,000, and was collateralized by the specific
property and equipment totaling $137,000. A payment on this term loan of $1,367
was due January 1, 1996. Thereafter, payments comprised 35 monthly installments
of $4,485 with a final lump sum payment of $20,511 on February 1, 1999. A
subsequent term loan facility, which expired in June 30, 1999, was obtained to
provide for borrowings up to $2,000,000 and is secured by the assets financed
under the facility. As of the expiration date, the Company had borrowed $976,587
under this facility. The loan bears interest at 14.4% per annum and is repayable
in thirty-six equal monthly payments of $29,591, which represent both principal
and interest, and a final lump sum payment of $146,488 due on November 1, 2000.
In conjunction with these term loan facilities, warrants to purchase 32,051
shares of common stock at $0.78 per share and warrants to purchase 65,000 shares
of Series C convertible preferred stock at $1.00 per share were issued (see
Note 7).

                                      F-15
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5--COMMITMENTS:

    The Company rents its office facilities under operating leases which expires
on December 31, 2001. At December 31, 1999, future minimum facility lease
payments are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S>                                                           <C>
2000........................................................  $  715,219
2001........................................................     740,678
                                                              ----------
                                                              $1,455,897
                                                              ==========
</TABLE>

    Under the terms of the lease agreement, the Company is obligated to return
the facility to shell condition at the end of the lease and to provide the
lessor with a letter of credit in the amount of $90,000. The estimated cost of
this demolition work ($100,000) is included in other long-term liabilities, and
the letter of credit is secured by a term deposit of $90,000 which is included
in other assets.

    Rent expense for 1997, 1998, 1999 and for the period from November 18, 1991
(date of inception) to December 31, 1999 was approximately $269,000, $488,800,
$564,800 and $1,451,500, respectively.

NOTE 6--CONVERTIBLE PREFERRED STOCK:

    Under the Company's Certificate of Incorporation, as amended, the redemption
provisions associated with the Series A, Series B and Series C convertible
preferred stock were removed in August 1998. At that time the cumulative
accretion charges to the deficit accumulated during the development stage were
reversed. As of December 31, 1998 and 1999, the convertible preferred stock
comprises:

<TABLE>
<CAPTION>
                         NUMBER      NUMBER OF
                           OF         SHARES      PROCEEDS NET   LIQUIDATION
                         SHARES     ISSUED AND    OF ISSUANCE    PREFERENCE    DIVIDENDS
                       AUTHORIZED   OUTSTANDING      COSTS        PER SHARE    PER SHARE
                       ----------   -----------   ------------   -----------   ---------
<S>                    <C>          <C>           <C>            <C>           <C>
Series A.............  3,846,156     3,846,156    $ 1,461,181       $0.39      $0.0312
Series B.............  4,487,182     4,487,182      3,488,769       $0.78      $0.0624
Series C.............  9,375,300     9,245,300      9,180,558       $1.00      $0.08
Series D.............  10,285,714   10,285,714     17,345,599       $1.75      $0.14
                       ----------   ----------    -----------
                       27,994,352   27,864,352    $31,476,107
                       ==========   ==========    ===========
</TABLE>

    As of June 30, 2000, the convertible preferred stock comprises (unaudited):

<TABLE>
<CAPTION>
                         NUMBER      NUMBER OF
                           OF         SHARES      PROCEEDS NET   LIQUIDATION
                         SHARES     ISSUED AND    OF ISSUANCE    PREFERENCE    DIVIDENDS
                       AUTHORIZED   OUTSTANDING      COSTS        PER SHARE    PER SHARE
                       ----------   -----------   ------------   -----------   ---------
<S>                    <C>          <C>           <C>            <C>           <C>
Series A.............  3,846,156     3,846,156    $ 1,461,181       $0.39      $0.0312
Series B.............  4,487,182     4,487,182      3,488,769       $0.78      $0.0624
Series C.............  9,375,300     9,245,300      9,180,558       $1.00      $0.08
Series D.............  10,285,714   10,285,714     17,345,599       $1.75      $0.14
Series E.............  3,648,078     3,648,078     10,055,789       $2.60      $0.208
                       ----------   ----------    -----------
                       31,642,430   31,512,430    $41,531,896
                       ==========   ==========    ===========
</TABLE>

                                      F-16
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6--CONVERTIBLE PREFERRED STOCK: (CONTINUED)
    The rights, preferences and privileges of the convertible preferred stock
are as follows:

    DIVIDENDS

    The holders of convertible preferred stock are entitled to receive dividends
at the annual rate stated above per share if and when declared by the board of
directors. Such dividends, which are noncumulative and in preference to any
common stock dividends, are payable whenever funds are legally available. As of
June 30, 2000, no dividends have been declared.

    In May 2000, the Company issued 961,539 of Series E convertible preferred
stock at $2.60 per share for gross cash proceeds of $2,500,001. The issuance
resulted in a beneficial conversion feature of $352,596, calculated in
accordance with Emerging Issues Task Force No. 98-5 ("EITF No. 98-5"),
"Accounting for Convertible Securities with Beneficial Conversion Features." The
beneficial conversion feature is reflected as a preferred dividend in the
Statement of Operations for the six months ended June 30, 2000.

    LIQUIDATION

    In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or not, the holders of convertible preferred stock are
entitled to receive, prior and in preference to any distribution of any of the
assets of the Company to the holders of common stock, an amount per share, as
stated above, for each outstanding share of convertible preferred stock, plus
any declared and unpaid dividends. If the funds available for distribution are
insufficient to cover the liquidation preference, then the entire assets and
funds of the Company legally available for distribution are to be distributed
ratably among the holders of convertible preferred stock. A liquidation includes
any recapitalization or any consolidation or corporate reorganization in which
the stockholders of the Company immediately prior to such event own less than
50% of the Company's voting power immediately after such event.

    After payment of the full liquidation preference of the preferred
stockholders, any remaining assets of the Company legally available are to be
distributed ratably to the holders of common stock and convertible preferred
stock on an as-if converted basis.

    CONVERSION

    Each share of convertible preferred stock, at the option of the holder, is
convertible into a number of fully paid shares of common stock as determined by
dividing the respective convertible preferred stock issue price by the
conversion price in effect at the time. The initial conversion price of
Series A, Series B, Series C, Series D and Series E convertible preferred stock
is $0.39, $0.78, $1.00, $1.75 and $2.60, respectively, and is subject to
adjustment in accordance with antidilution provisions contained in the Company's
Certificate of Incorporation. Conversion is automatic immediately upon the
closing of the Company's initial public offering in which the public offering
price equals or exceeds $3.50 per share (adjusted to reflect subsequent stock
dividends, stock splits or recapitalization) and the aggregate proceeds raised
exceed $15,000,000. At June 30, 2000, 31,642,430 shares of the Company's common
stock have been reserved for conversion.

                                      F-17
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6--CONVERTIBLE PREFERRED STOCK: (CONTINUED)

    VOTING RIGHTS

    The holder of each share of convertible preferred stock is entitled to one
vote for each share of common stock into which each share of convertible
preferred stock could be converted.

NOTE 7--STOCKHOLDERS' EQUITY (DEFICIT):

    REINCORPORATION

    In August 1998, the Company was reincorporated in Delaware, at which time
the Company's outstanding California corporation preferred and common stock was
exchanged on a one-for-one share basis for Delaware corporation preferred and
common stock. The related change in par value was recorded as an adjustment to
additional paid-in capital and preferred and common stock.

    COMMON STOCK

    Each share of common stock has the right to one vote. The holders of common
stock are also entitled to receive dividends whenever funds are legally
available and when declared by the Board of Directors, subject to the prior
rights of holders of all classes of stock outstanding having priority rights as
to dividends. No dividends have been declared or paid as of June 30, 2000.

    The Company issued shares of its common stock to certain employees under
stock purchase agreements, some of which contain repurchase provisions in the
event of termination of service with the Company. The shares are generally
released from repurchase provisions ratably over four years. Included in common
stock as of December 31, 1999 and June 30, 2000, are 920,417 and 711,667
(unaudited) shares subject to repurchase, respectively.

    STOCK OPTION PLANS

    The Company has reserved shares of common stock for issuance under the 1994
and 1996 Stock Incentive Plans (the "Plans"). Under the Plans the Board of
Directors may issue incentive stock options to employees and nonstatutory stock
options to employees, consultants or nonemployee directors of the Company, and
stock purchase rights to employees, nonemployee directors, or consultants. The
Board of Directors has the authority to determine to whom options will be
granted, the number of shares, the term and exercise price (which cannot be less
than fair market value at date of grant for incentive stock options or 85% of
fair market value for nonstatutory stock options). Historically, fair market
value has been determined by the Board of Directors. If an employee owns stock
representing more than 10% of the outstanding shares, the price of each share
shall be at least 110% of fair market value, as determined by the Board of
Directors. All options are immediately exercisable and generally vest over four
years, and expire ten years from date of grant. Unvested option exercises are
subject to repurchase upon termination of the holder's status as an employee or
consultant. At December 31, 1999 and June 30, 2000, none and 742,694 (unaudited)
shares of common stock were subject to the Company's repurchase rights,
respectively.

                                      F-18
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--STOCKHOLDERS' EQUITY (DEFICIT): (CONTINUED)
    Activity under the Plans is as follows:

<TABLE>
<CAPTION>
                                      SHARES                                              WEIGHTED
                                    AVAILABLE     NUMBER OF                                AVERAGE
                                       FOR         SHARES       EXERCISE     AGGREGATE    EXERCISE
                                      GRANT      OUTSTANDING      PRICE        PRICE        PRICE
                                    ----------   -----------   -----------   ----------   ---------
<S>                                 <C>          <C>           <C>           <C>          <C>
Shares reserved at Plan
  inception.......................     500,000
  Options granted.................    (305,000)     305,000       $0.04      $   12,200     $0.04
  Options exercised...............          --      (10,000)      $0.04            (400)    $0.04
  Options canceled................     160,000     (160,000)      $0.04          (6,400)    $0.04
                                    ----------   ----------                  ----------
Balances, December 31, 1995.......     355,000      135,000       $0.04           5,400     $0.04
  Reservation of shares...........   1,000,000           --        --                --     --
  Options granted.................    (848,396)     848,396       $0.08          67,840     $0.08
  Options exercised...............          --      (20,000)   $0.04-$0.08       (1,400)    $0.07
  Options canceled................      65,000      (65,000)      $0.08          (5,200)    $0.08
                                    ----------   ----------                  ----------
Balances, December 31, 1996.......     571,604      898,396    $0.04-$0.08       66,640     $0.07
  Options granted.................    (407,000)     407,000    $0.08-$1.25       43,480     $0.11
  Options exercised...............          --     (245,297)   $0.04-$0.08      (16,457)    $0.07
  Options canceled................     227,699     (227,699)   $0.04-$0.08      (17,382)    $0.08
                                    ----------   ----------                  ----------
Balances, December 31, 1997.......     392,303      832,400    $0.04-$1.25       76,281     $0.10
  Reservation of shares...........   1,700,000           --        --                --     --
  Options granted.................  (1,189,500)   1,189,500    $0.10-$0.20      176,740     $0.15
  Options exercised...............          --     (141,440)   $0.10-$0.20      (11,306)    $0.08
  Options canceled................      44,500      (44,500)   $0.08-$0.10       (3,800)    $0.09
                                    ----------   ----------                  ----------
Balances, December 31, 1998.......     947,303    1,835,960    $0.04-$1.25      237,915     $0.13
  Reservation of shares...........     400,000           --        --                --     --
  Options granted.................  (1,317,700)   1,317,700       $0.20         263,540     $0.20
  Options exercised...............          --     (381,034)   $0.04-$0.20      (34,504)    $0.09
  Options canceled................     642,976     (642,976)   $0.04-$0.20      (78,043)    $0.12
                                    ----------   ----------                  ----------
Balances, December 31, 1999.......     672,579    2,129,650    $0.08-$1.25      388,908     $0.18
  Reservation of shares
    (unaudited)...................   2,200,000           --        --                --     --
  Options granted (unaudited).....  (2,690,000)   2,690,000    $0.20-$1.00    2,623,600     $0.98
  Options exercised (unaudited)...          --   (1,234,341)   $0.08-$0.20     (222,444)    $0.18
  Options canceled (unaudited)....      81,159      (81,159)   $0.08-$1.25      (14,870)    $0.18
                                    ----------   ----------                  ----------
Balances, June 30, 2000
  (unaudited).....................     263,738    3,504,150    $0.08-$1.00   $2,775,194     $0.79
                                    ==========   ==========                  ==========
</TABLE>

                                      F-19
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--STOCKHOLDERS' EQUITY (DEFICIT): (CONTINUED)
    The options outstanding and currently vested by exercise price at
December 31, 1999 are as follows:

<TABLE>
<CAPTION>
                     OPTIONS OUTSTANDING
           ---------------------------------------
                           WEIGHTED
                           AVERAGE
                          REMAINING       NUMBER
             NUMBER      CONTRACTUAL        OF
EXERCISE   OF OPTIONS      LIFE IN       OPTIONS
 PRICE     OUTSTANDING      YEARS         VESTED
--------   -----------   ------------   ----------
<S>        <C>           <C>            <C>
 $0.08         93,000        6.71         80,249
 $0.10        296,321        8.13        173,819
 $0.18         72,000        8.55         26,914
 $0.20      1,662,929        8.74        240,285
 $1.25          5,400        7.65          5,400
            ---------                    -------
            2,129,650                    526,667
            =========                    =======
</TABLE>

    The options outstanding and currently vested by exercise price at June 30,
2000 (unaudited) are as follows:

<TABLE>
<CAPTION>
                     OPTIONS OUTSTANDING
           ---------------------------------------
                           WEIGHTED
                           AVERAGE
                          REMAINING       NUMBER
             NUMBER      CONTRACTUAL        OF
EXERCISE   OF OPTIONS      LIFE IN       OPTIONS
 PRICE     OUTSTANDING      YEARS         VESTED
--------   -----------   ------------   ----------
<S>        <C>           <C>            <C>
 $0.08         61,043        6.02         52,813
 $0.10         38,000        7.69         23,103
 $0.18         15,000        8.06          7,187
 $0.20        783,107        9.11         88,900
 $1.00      2,607,000        9.84          5,999
            ---------                    -------
            3,504,150                    178,002
            =========                    =======
</TABLE>

                                      F-20
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--STOCKHOLDERS' EQUITY (DEFICIT): (CONTINUED)
    STOCK-BASED COMPENSATION

    The Company has adopted the disclosure only provisions of SFAS No. 123. The
Company calculated the fair value of each option on the date of grant using the
minimum value method as prescribed by SFAS No. 123 with the following
assumptions:

<TABLE>
<CAPTION>
                                                                                   SIX MONTHS
                                                       YEARS ENDED                    ENDED
                                                       DECEMBER 31,                 JUNE 30,
                                              ------------------------------   -------------------
                                                1997       1998       1999       1999       2000
                                              --------   --------   --------   --------   --------
                                                                                   (UNAUDITED)
<S>                                           <C>        <C>        <C>        <C>        <C>
Risk-free interest rate.....................    5.82%      5.20%      5.71%      5.12%      6.70%
Expected life (in years)....................    5          5          5          5          5
Dividend yield..............................    --         --         --         --         --
</TABLE>

    The weighted average grant date fair value of options granted during the
years ended December 31, 1997, 1998 and 1999 was $0.11, $0.15 and $0.20,
respectively.

    As the determination of fair value of all options granted after such time as
the Company becomes a public entity will include an expected volatility factor
in addition to the factors described in the preceding table, the following
results may not be representative of future periods.

    Had compensation costs been determined based upon the fair value at the
grant date, consistent with the methodology prescribed under SFAS No. 123, the
Company's pro forma net loss and pro forma basic and diluted net loss per share
under SFAS No. 123 would have been as follows:

<TABLE>
<CAPTION>
                                                                                SIX MONTHS ENDED
                                         YEARS ENDED DECEMBER 31,                   JUNE 30,
                                  ---------------------------------------   -------------------------
                                     1997          1998          1999          1999          2000
                                  -----------   -----------   -----------   -----------   -----------
                                                                                   (UNAUDITED)
<S>                               <C>           <C>           <C>           <C>           <C>
Net loss available to common
  stockholders--as reported.....  $(5,055,249)  $(5,562,383)  $(8,967,915)  $(4,068,051)  $(9,425,309)
                                  ===========   ===========   ===========   ===========   ===========
Net loss available to common
  stockholders--pro forma.......  $(5,061,341)  $(5,571,770)  $(8,986,409)  $(4,080,522)  $(9,709,738)
                                  ===========   ===========   ===========   ===========   ===========
Net loss per share, basic and
  diluted--as reported..........  $     (1.14)  $     (1.16)  $     (1.65)  $     (0.78)  $     (1.46)
                                  ===========   ===========   ===========   ===========   ===========
Net loss per share, basic and
  diluted--pro forma............  $     (1.14)  $     (1.16)  $     (1.65)  $     (0.79)  $     (1.50)
                                  ===========   ===========   ===========   ===========   ===========
</TABLE>

    DEFERRED STOCK-BASED COMPENSATION

    During 1997, 1998, 1999 and 2000, the Company issued options to certain
employees under the Plans with exercise prices below what is now considered to
be the deemed fair market value of the Company's common stock at the date of
grant. In accordance with the requirements of APB 25, the Company has

                                      F-21
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--STOCKHOLDERS' EQUITY (DEFICIT): (CONTINUED)
recorded deferred stock-based compensation for the difference between the
exercise price of the stock options and the deemed fair market value of the
Company's stock at the date of grant. This deferred stock-based compensation is
amortized to expense over the period during which the Company's right to
repurchase the stock lapses or the options become vested, generally four years.
At December 31, 1999, the Company had recorded deferred compensation related to
these options in an amount of $3,999,519 (net of cancellations), of which none,
none and $8,827 had been amortized to expense during 1997, 1998 and 1999. Future
compensation expense from options granted through June 30, 2000 is estimated to
be $454,444, $748,187, $1,272,573 and $1,440,217 for 2000, 2001, 2002 and 2003,
respectively.

    Stock-based compensation expense related to stock options granted to
consultants is recognized as the stock options are earned. The Company believes
that the fair value of the stock options is more reliably measurable than the
fair value of the services received. The fair value of the stock options granted
is calculated at each reporting date using the Black-Scholes option pricing
model as prescribed by SFAS No. 123 using the following assumptions:

<TABLE>
<CAPTION>
                                                                                   SIX MONTHS
                                                       YEARS ENDED                    ENDED
                                                       DECEMBER 31,                 JUNE 30,
                                              ------------------------------   -------------------
                                                1997       1998       1999       1999       2000
                                              --------   --------   --------   --------   --------
                                                                                   (UNAUDITED)
<S>                                           <C>        <C>        <C>        <C>        <C>
Risk-free interest rate.....................    5.79%      4.93%      6.05%      5.81%      6.03%
Expected life (in years)....................    10         10         10         10         10
Dividend yield..............................    --         --         --         --         --
Expected volatility.........................      70%        70%        70%        70%        70%
</TABLE>

    The stock-based compensation expense will fluctuate as the deemed fair
market value of the common stock fluctuates. In connection with the grant of
stock options to consultants, the Company recorded deferred stock-based
compensation of none, none and $336,577 for the years ended December 31, 1997,
1998 and 1999 and $410,781 (unaudited) for the six months ended June 30, 2000,
of which none, none and $101,028 has been amortized to expense in 1997, 1998 and
1999 and $94,215 has been amortized to expense in the six months ended June 30,
2000.

    As of June 30, 2000, the Company expects to amortize stock-based
compensation expense from existing options granted to consultants of $109,424 in
the remainder of fiscal 2000, $169,284 in 2001, $152,623 in 2002, $105,179 in
2003 and $15,604 in 2004.

    WARRANTS

    In connection with the financing arrangements entered into by the Company in
July 1995 and October 1997, the Company issued warrants to purchase 32,051
shares of common stock and warrants to purchase 65,000 shares of Series C
convertible preferred stock at exercise prices of $0.78 and $1.00, respectively.
The warrants expire on June 30, 2002 and October 14, 2004, respectively.

    The fair value of these warrants, determined using the Black-Scholes option
pricing model, was not material.

                                      F-22
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--STOCKHOLDERS' EQUITY (DEFICIT): (CONTINUED)
    NOTES RECEIVABLE

    In May 1994, the Company loaned $69,009 to a stockholder/employee. The note
bears interest at 6.43% per annum and is due May 2003. At December 31, 1999 and
June 30, 2000, $96,373 and $99,581 of principal and interest was outstanding on
this note, respectively. In August 1996, the Company loaned an additional
$200,000 to this individual. The note is non-interest bearing, is due 2001, and
is secured by 500,000 shares of common stock. At June 30, 2000, no payments have
been made on the notes.

    In January 1998 and December 1998 the Company received notes receivable from
officers of the Company in exchange for common stock. The notes bear interest at
5.93% and 4.51%, and are due in January 2002 and December 2002, respectively. At
December 31, 1999, $156,454 and $55,993 of principal and interest are
outstanding on these notes, respectively. At June 30, 2000, $161,245 and $57,287
of principal and interest are outstanding on these notes, respectively. The
loans are secured by 1,400,000 and 270,000 shares of common stock, respectively.

    In April 2000, the Company received notes receivable from two officers of
the Company in exchange for common stock. Each note bears interest at 6.71% and
is due in April 2004. Each loan is secured by 270,000 shares of common stock. At
June 30, 2000, $106,526 of principal and interest are outstanding on these
notes.

NOTE 8--INCOME TAXES:

    At December 31, 1999, the Company has approximately $21.8 million and
$13.9 million in Federal and California net operating loss carryforwards,
respectively, which expire through the year 2014. United States Federal income
tax regulations may restrict the utilization of the operating loss and tax
credit carryforwards in the case of an "ownership change" of the Company.

    The tax effects of temporary differences and carryforwards that give rise to
significant portions of the net deferred tax assets are as follows:

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                       -----------------------
                                                          1998         1999
                                                       ----------   ----------
<S>                                                    <C>          <C>
Deferred tax assets:
  Net operating loss carryforwards...................  $5,264,000   $8,700,000
  Research and development tax credit
    carryforwards....................................     212,000      407,000
  Depreciation and amortization......................     166,000      296,000
  Other..............................................      46,000       48,000
  Less: valuation allowance..........................  (5,688,000)  (9,451,000)
                                                       ----------   ----------
                                                       $       --   $       --
                                                       ==========   ==========
</TABLE>

    The Company has established a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets.

                                      F-23
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9-- UNAUDITED PRO FORMA NET LOSS PER COMMON SHARE AND PRO FORMA
        STOCKHOLDERS' EQUITY:

    Pro forma basic and diluted net loss per share have been computed to give
effect to common equivalent shares from convertible preferred stock that will
convert to common stock upon the closing of the Company's initial public
offering (using the as-if-converted method) for the year ended December 31, 1999
and the six months ended June 30, 2000. A reconciliation of the numerator and
denominator used in the calculation of pro forma basic and diluted net loss per
common share follows:

<TABLE>
<CAPTION>
                                                                   SIX MONTHS
                                                   YEAR ENDED        ENDED
                                                  DECEMBER 31,      JUNE 30,
                                                      1999            2000
                                                  -------------   ------------
                                                          (UNAUDITED)
<S>                                               <C>             <C>
Pro forma net loss per common share, basic and
  diluted:
  Net loss......................................  $ (8,967,915)   $ (9,072,713)
                                                  ============    ============
Weighted average shares used in computing net
  loss per common share, basic and diluted......     5,433,341       6,462,166
Adjustments to reflect the effect of the assumed
  conversion of the preferred stock from the
  date of issuance..............................    27,994,352      29,238,985
                                                  ------------    ------------
Weighted average shares used in computing pro
  forma net loss per common share, basic and
  diluted.......................................    33,427,693      35,701,151
                                                  ============    ============
Pro forma net loss per common share, basic and
  diluted.......................................  $      (0.27)   $      (0.25)
                                                  ============    ============
</TABLE>

    If an initial public offering is consummated, all of the convertible
preferred stock outstanding, as of the closing date, will be converted into an
aggregate of approximately 31,512,430 shares of common stock based on the shares
of convertible preferred stock outstanding at June 30, 2000. This does not
include the issuance of 7,498,223 shares of convertible Series F preferred stock
in July 2000 (see note 12). Unaudited pro forma stockholders' equity at
June 30, 2000, as adjusted for the conversion of convertible preferred stock, is
disclosed on the consolidated balance sheet.

NOTE 10--EMPLOYEE BENEFIT PLAN:

    In August 1996, the Company adopted a plan (the "Plan") which is qualified
under section 401(k) of the Internal Revenue Code of 1986. Eligible employees
may make voluntary contributions to the Plan of up to 20% of their annual
compensation, not to exceed the statutory amount, and the Company may make
matching contributions. To date, the Company has not made any matching
contributions to the Plan.

NOTE 11--ACQUISITION:

    In May 2000, the Company acquired all the voting stock of Cerus Limited
("Cerus"), now AeroGen (Ireland) Limited in exchange for 1,725,000 shares of
Series E convertible preferred stock valued at $2.97 per share and transaction
costs of approximately $100,000. Cerus was a development stage company

                                      F-24
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11--ACQUISITION: (CONTINUED)
engaged in the development of pulmonary inhalation products utilizing the
Company's core aerosol generator technology, under a license agreement with the
Company.

    The acquisition of Cerus has been accounted for using the purchase method of
accounting and, accordingly the results of operations of Cerus have been
included in the Company's financial statements subsequent to May 25, 2000. The
purchase price was allocated to the assets acquired and the liabilities assumed
based on their estimated fair values at the date of acquisition as determined by
management. The excess of the purchase price over the fair value of the net
identifiable assets was allocated to goodwill. The purchase price was allocated
as follows:

<TABLE>
<S>                                                           <C>
Cash and cash equivalents...................................  $  542,174
Grants receivable...........................................     105,038
Property and equipment, net.................................      34,772
Other assets................................................      50,895
Assumed liabilities.........................................    (287,908)
Acquired workforce..........................................     100,000
Acquired in-process research and development................   3,500,000
Goodwill....................................................   1,172,529
                                                              ----------
Total purchase consideration................................  $5,217,500
                                                              ==========
</TABLE>

    The amortization of acquired workforce and goodwill is being computed over
two and six years, respectively, on the straight-line basis. The acquired
in-process research and development represents the value of new medical and
other technologies that were in various stages of development where no
alternative future use was identified. An independent appraisal which utilized
various methods, including the income approach, which includes an analysis of
the markets, cash flows and risks associated with achieving such cash flows, was
performed to determine the fair value of the identifiable assets, including the
portion of the purchase price attributed to the acquired in-process technology.

    The unaudited pro forma financial information, had the acquisition of Cerus
occurred at the beginning of 1999, is as follows:

<TABLE>
<CAPTION>
                                                        YEAR ENDED            SIX MONTHS
                                                       DECEMBER 31,         ENDED JUNE 30,
                                                       -------------   -------------------------
                                                           1999           1999          2000
                                                       -------------   -----------   -----------
<S>                                                    <C>             <C>           <C>
Revenue..............................................   $   756,575    $    74,158   $ 3,679,041
Net loss.............................................    (9,198,192)    (4,074,985)   (9,625,190)
Net loss per common share, basic and diluted.........   $     (1.69)   $     (0.78)  $     (1.49)
</TABLE>

    The unaudited pro forma financial information is presented for illustrative
purposes only and is not necessarily indicative of the operating results that
would have occurred had the transaction been completed at the beginning of the
earliest period presented, nor is it necessarily indicative of future operating
results.

    Accumulated amortization of goodwill and other intangibles was approximately
$21,000 at June 30, 2000.

                                      F-25
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--SUBSEQUENT EVENTS:

    RESEARCH AND DEVELOPMENT AGREEMENTS

    In March 2000, the Company entered into an agreement with PathoGenesis
Corporation ("PathoGenesis"). Under the terms of the agreement the Company and
PathoGenesis agreed to collaborate on the development and registration of a
product which will combine PathoGenesis' drug TOBI (tobramycin solution for
inhalation) with the Company's AeroDose inhaler. The Company will be reimbursed
for costs incurred in developing the product in accordance with an agreed upon
workplan, will manufacture inhalers on a cost plus a fixed profit margin, and
will receive royalties on future product sales. In connection with the
agreement, the Company issued 961,539 shares of Series E convertible preferred
stock at $2.60 per share for total gross proceeds of $2.5 million.

    In May 2000, the Company entered into an agreement with Becton Dickinson and
Company ("BD") under which BD will develop and supply a patent-adjustable
container for use in the Company's AeroDose insulin product. Under the terms of
the agreement, the Company issued 961,539 shares of Series E convertible
preferred stock at $2.60 per share for total gross proceeds of $2.5 million and
will be obligated to pay BD royalties on future product sales and a portion of
any payments the Company receives from any future marketing partner. As a result
of this issuance a beneficial conversion feature charge of $352,596 was recorded
in the six months ended June 30, 2000.

    ISSUANCE OF SERIES F CONVERTIBLE PREFERRED STOCK

    In July 2000, the Company issued 7,498,223 shares of Series F convertible
preferred stock at $2.25 per share for total proceeds of $16,871,002. The
holders of Series F convertible preferred stock are entitled to receive
dividends of $0.18 per share per annum when and if declared by the board of
directors and $2.25 per share upon liquidation. Substantially all other rights
and preferences of the Series F convertible preferred stock are consistent with
all other series of preferred outstanding except for Series E, which has
somewhat fewer rights and privileges. As a result of this issuance a beneficial
conversion feature charge will be recorded in the quarter ended September 30,
2000.

    STOCK OPTION PLAN

    In July 2000, the Board of Directors authorized an additional 2.5 million
shares of common stock to be available under the 1996 Stock Incentive Plan.

    OPTION GRANTS

    On July 21, 2000, options to purchase 119,000 shares of common stock under
the 1996 Stock Option Plan were granted at an exercise price of $1.25. The total
deferred stock-based compensation related to these grants amounts to $243,950,
of which $15,247 will be amortized to expense in the third quarter of 2000.

    On August 24, 2000, options to purchase 164,000 shares of common stock under
the 1996 Stock Option Plan were granted at an exercise price of $1.50. The total
deferred stock-based compensation related to these grants amounts to $295,200,
of which $12,300 will be amortized to expense in the third quarter of 2000.

                                      F-26
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--SUBSEQUENT EVENTS: (CONTINUED)
    INITIAL PUBLIC OFFERING

    In August 2000, the Company's Board of Directors authorized management to
file a registration statement with the Securities and Exchange Commission to
permit the Company to sell its common stock to the public. Upon completion of
the Company's initial public offering, all of the outstanding convertible
preferred stock will be converted into shares of common stock.

    2000 EQUITY INCENTIVE PLAN

    In August 2000, the Board of Directors adopted the 2000 Equity Incentive
Plan (the "2000 Plan"). The 2000 Plan, which will terminate no later than 2010,
provides for the granting of incentive stock options, nonstatutory stock options
and restricted stock purchase rights and stock bonuses to employees, and
consultants.

    A total of 3,000,000 shares of common stock have been authorized for
issuance under the 2000 Plan. At the date of the stockholders' meeting in 2001,
and annually thereafter, the authorized shares will automatically be increased
by a number of shares equal to the least of:

    -  4.5% of the then outstanding shares of common stock on a fully-diluted
       basis;

    -  6,000,000 shares; or

    -  a lesser number of shares determined by the Board of Directors.

    2000 EMPLOYEE STOCK PURCHASE PLAN

    In August 2000, the Board of Directors adopted the 2000 Employee Stock
Purchase Plan (the "Purchase Plan"), authorizing the issuance of 750,000 shares
of common stock pursuant to purchase rights granted to in the United States
employees.

    At the date of the stockholders' meeting in 2001, and annually thereafter,
for a period of 20 years, the share reserve will automatically be increased by a
number of shares equal to the least of:

    -  1.0% of the then outstanding shares of common stock on a fully diluted
       basis;

    -  750,000 shares; or

    -  a lesser number of shares determined by the Board of Directors.

    The Purchase Plan is intended to qualify as an employee stock purchase plan
within the meaning of Section 423 of the Internal Revenue Code of 1986, as
amended. As of the date hereof, no shares of common stock have been purchased
under the Purchase Plan.

    The Purchase Plan permits eligible employees to purchase common stock at a
discount through payroll deductions during defined offering periods. The price
at which stock is purchased under the purchase plan is equal to 85% of the fair
market value of the common stock on the first day of the offering period or 85%
of the fair market value on the subsequent designated purchase dates, whichever
is lower. The initial offering period will commence on the effective date of the
offering.

                                      F-27
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--SUBSEQUENT EVENTS: (CONTINUED)
    2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

    In August 2000, the Board of Directors adopted the 2000 Non-Employee
Directors' Stock Option Plan ("2000 Non-Employee Plan") under which 750,000
shares of common stock were reserved for issuance. Under the terms of the 2000
Non-Employee Plan, each new non-employee director elected on, or after, the
effectiveness of an initial public offering of the Company's common stock, will
be granted an option to purchase 45,000 shares of common stock which vest over a
4 year period. Thereafter, on an annual basis, on the date of the annual
stockholder meeting, each director will be granted an option to purchase 15,000
shares of common stock which vest over a three year period. The exercise price
of an option will not be less than the fair market value of the common stock on
the date of grant and the term will not exceed 10 years.

                                      F-28
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Cerus Limited.

    In our opinion, the accompanying balance sheets and the related statements
of operations, of shareholders' equity and cash flows present fairly, in all
material respects, the financial position of Cerus Limited (a company in the
development stage) at December 31, 1998 and 1999, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1999 and for the cumulative period from December 16, 1997 (date of
inception) through December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers
Chartered Accountants and Registered Auditors
Limerick
Ireland

August 23, 2000

                                      F-29
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                1998       1999
                                                              --------   --------
<S>                                                           <C>        <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 89,035   $756,032
  Accounts receivable.......................................    33,506     60,955
  Other current assets......................................        --    139,788
                                                              --------   --------
    Total current assets....................................   122,541    956,775
  Office equipment, and furniture & fittings, net...........     4,258     40,818
                                                              --------   --------
    Total assets............................................  $126,799   $997,593
                                                              ========   ========
LIABILITIES, REDEEMABLE SHARES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $ 11,792   $ 52,113
  Taxes payable.............................................    22,141     36,610
  Related party payable.....................................    29,541      8,241
                                                              --------   --------
    Total current liabilities...............................    63,474     96,964
                                                              --------   --------
Commitments (Note 4)
Redeemable shares:
  "B" ordinary shares par value: $1.41
  Authorised: 500,000 shares
  Issued and outstanding: No shares in 1998 and 154,000
    shares in 1999..........................................        --    216,308
                                                              --------   --------
Shareholders' equity:
  "A" ordinary shares par value: $0.014
  Authorised: 10,000,000 shares
  Issued and outstanding: 200 shares in 1998 and 95,000
    shares in 1999..........................................         3      1,352
  Additional paid-in capital................................        --    849,924
  Earnings (deficit) accumulated during the development
    stage...................................................    63,322   (166,955)
                                                              --------   --------
    Total shareholders' equity..............................    63,325    684,321
                                                              --------   --------
      Total liabilities, redeemable shares and shareholders'
        equity..............................................  $126,799   $997,593
                                                              ========   ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-30
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                              CUMULATIVE PERIOD
                                                                                    FROM
                                                          YEARS ENDED         DECEMBER 16, 1997
                                                          DECEMBER 31,       (DATE OF INCEPTION)
                                                      --------------------     TO DECEMBER 31,
                                                        1998       1999             1999
                                                      --------   ---------   -------------------
<S>                                                   <C>        <C>         <C>
Research and development revenues...................  $167,169   $ 180,815        $ 347,984
Grant income........................................        --     107,540          107,540
                                                      --------   ---------        ---------
                                                       167,169     288,355          455,524
                                                      --------   ---------        ---------

Operating expenses:
  Research and development..........................    80,962     206,307          287,269
  Administrative....................................     4,343      68,015           72,358
                                                      --------   ---------        ---------
    Total operating expenses........................    85,305     274,322          359,627
                                                      --------   ---------        ---------

Income from operations..............................    81,864      14,033           95,897

Interest and other income...........................     3,709       1,372            5,081
Interest and other expense..........................      (110)   (217,931)        (218,014)
                                                      --------   ---------        ---------

Net income (loss) before taxation...................    85,463    (202,526)        (117,063)
Taxation............................................   (22,141)    (27,751)         (49,892)
                                                      --------   ---------        ---------
Net income (loss)...................................  $ 63,322   $(230,277)       $(166,955)
                                                      ========   =========        =========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-31
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                       STATEMENTS OF SHAREHOLDERS' EQUITY
 FOR THE PERIOD FROM DECEMBER 16, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                           EARNINGS
                                                                          (DEFICIT)
                                                                         ACCUMULATED
                                      ORDINARY SHARES     ADDITIONAL      DURING THE
                                    -------------------    PAID-IN       DEVELOPMENT
                                     SHARES    AMOUNTS     CAPITAL          STAGE           TOTAL
                                    --------   --------   ----------   ----------------   ---------
<S>                                 <C>        <C>        <C>          <C>                <C>
Issuance of Class "A" ordinary
  shares for cash at $1.4245 per
  share in January................      200     $    3     $     --       $      --       $       3
Net income........................       --         --           --          63,322          63,322
                                     ------     ------     --------       ---------       ---------
Balances, December 31, 1998.......      200          3           --          63,322          63,325

Issuance of Class "A" ordinary
  shares for cash at $1.4234 per
  share in August, net of issuance
  costs of $39,345................   94,800      1,349      849,924              --         851,273
Net loss..........................       --         --           --        (230,277)       (230,277)
                                     ------     ------     --------       ---------       ---------
Balances, December 31, 1999.......   95,000     $1,352     $849,924       $(166,955)      $ 684,321
                                     ======     ======     ========       =========       =========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-32
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                             CUMULATIVE PERIOD
                                                        YEARS ENDED                 FROM
                                                        DECEMBER 31,         DECEMBER 16, 1997
                                                    --------------------   (DATE OF INCEPTION) TO
                                                      1998       1999        DECEMBER 31, 1999
                                                    --------   ---------   ----------------------
<S>                                                 <C>        <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................  $ 63,322   ($230,277)         ($166,955)
Adjustments to reconcile net income (loss) to net
  cash provided by (used in) operating activities:
  Depreciation....................................       752      16,532             17,284
  Changes in operating assets and liabilities:
    Accounts receivable...........................   (33,506)    (27,449)           (60,955)
    Prepaid expenses and other current assets.....        --    (139,788)          (139,788)
    Accounts payable..............................    11,792      40,321             52,113
    Taxes and related party payables..............    51,682      (6,831)            44,851
                                                    --------   ---------          ---------
Net cash provided by (used in) operating
  activities......................................    94,042    (347,492)          (253,450)
                                                    --------   ---------          ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of office equipment and furniture and
  fittings........................................    (5,010)    (53,092)           (58,102)
                                                    --------   ---------          ---------
Net cash used in investing activities.............    (5,010)    (53,092)           (58,102)
                                                    --------   ---------          ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Class `A' ordinary
  shares, net.....................................         3     851,273            851,276
Proceeds from issuance of Class `B' ordinary
  shares, net.....................................        --     216,308            216,308
                                                    --------   ---------          ---------
Net cash provided by financing activities.........         3   1,067,581          1,067,584
                                                    --------   ---------          ---------
Net increase in cash and cash equivalents.........    89,035     666,997            756,032
Cash and cash equivalents, beginning of period....        --      89,035                 --
                                                    --------   ---------          ---------
Cash and cash equivalents, end of period..........  $ 89,035   $ 756,032          $ 756,032
                                                    ========   =========          =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during period for interest..............  $    110   $     183          $     293
                                                    ========   =========          =========
Cash paid during period for taxes.................  $     --   $  10,837          $  10,837
                                                    ========   =========          =========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-33
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                         NOTES TO FINANCIAL STATEMENTS

1.  FORMATION AND BUSINESS OF THE COMPANY

    Cerus Limited (the "company") was incorporated in the Republic of Ireland on
December 16, 1997 to develop pulmonary medical products. The company, which
operates in the Republic of Ireland, is in the development stage and since
inception has devoted substantially all of its efforts to developing its
products, raising capital and recruiting personnel.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    FOREIGN CURRENCY TRANSLATION

    The financial accounts of the company were originally denominated in Irish
punts (IRL) and have now been translated in United States Dollars ($). Operating
results have been translated at the average exchange rate for the relevant
period. Monetary assets and liabilities have been translated at the exchange
rates in effect at the balance sheet dates. Non-monetary assets and liabilities
have been translated at the exchange rates in effect at the date of the
transaction. Differences arising on translation are included in the statements
of operations for the relevant period.

    USE OF ESTIMATES

    The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

    CASH AND CASH EQUIVALENTS

    The company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. Cash and cash
equivalents include money market and deposit accounts.

    DEPRECIATION

    Office equipment, and furniture and fittings are stated at cost less
accumulated depreciation. Depreciation is provided using the straight line
method over the estimated useful lives of the assets, generally three to five
years. Upon sale or retirement of assets, the cost and related accumulated
depreciation are removed from the balance sheet and the resulting gain or loss
is reflected in operations.

    FAIR VALUE OF FINANCIAL INSTRUMENTS

    Carrying amounts of certain of the company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable, and
other liabilities approximate fair value due to their short maturities.

                                      F-34
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    CONCENTRATION OF CREDIT RISK AND OTHER RISKS AND UNCERTAINTIES

    The company maintains its cash and cash equivalents in accounts with a major
financial institution in the Republic of Ireland. The company has not
experienced any losses on its deposits of cash and cash equivalents.

    Products developed by the company may require the approval of the Food and
Drug Administration (FDA) and/or other international regulatory agencies prior
to commercialised sales. The company cannot be assured that its products will
receive the necessary approvals. If the company was denied approval or if
approval was delayed, it may have a material adverse impact on the company. To
date the company has not made any product sales.

    In 1998, two customers individually accounted for 44% and 51%, respectively
of the company's total revenue. In 1999, one customer accounted for 90% of the
company's total revenue.

    At December 31, 1998, two customers accounted for 45% and 50% of accounts
receivable, respectively. At December 31, 1999, one customer accounted for 100%
of accounts receivable.

    REVENUE RECOGNITION

    The company recognises grant revenue based on meeting certain requirements,
completing milestones as specified in the grant agreements as work is performed
and evidenced by time sheets and expense reports for certain grants. Research
and development revenues which are earned under cost-reimbursement agreements
are recorded as the related expenses are incurred, up to contractual limits.
Payments received that are related to future performance are recorded as
deferred revenue and recognized as revenues as they are earned. All revenues
recognized to date are not refundable if the relevant research effort is not
successful.

    RESEARCH AND DEVELOPMENT

    Research and development costs are charged to operations as incurred.
Certain research and development projects are funded under cost-reimbursement
agreements, and the costs related to these activities are included in research
and development expense.

    INCOME TAXES

    The company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". Under
this method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realised.

    RECENT ACCOUNTING PRONOUNCEMENTS

    In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN No. 44") "Accounting for Certain Transactions
Involving Stock Compensation," an interpretation of the Accounting Principles
Board Opinion No. 25 ("APB No. 25"). The Interpretation clarifies the definition
of

                                      F-35
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
employee for purposes of applying APB No. 25, "Accounting for Stock Issued to
Employees," the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various modifications to the
terms of a previously fixed share option or award, and the accounting for an
exchange of share compensation awards in a business combination. FIN No. 44 is
effective July 1, 2000, but certain conclusions cover specific events that occur
after either December 15, 1998, or January 12, 2000. The adoption of FIN No. 44
did not and will not have a material impact on the company's financial
statements.

    In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 ("SAB No. 101"), "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognise revenue and provides
guidance for disclosures related to revenue recognition policies. The Company
has complied with the guidance in SAB No. 101 for all periods presented.

    In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities. SFAS No. 133 requires that all derivatives be recognised at fair
value in the statement of financial position, and that corresponding gains or
losses be reported either in the statement of operations or as a component of
comprehensive income, depending on the type of hedging relationship that exists.
As amended SFAS No. 133 will be effective for fiscal quarters beginning after
June 15, 2000. The Company does not currently hold derivative instruments or
engage in hedging activities and does not believe that the implementation of
SFAS No. 133 will have any significant impact on its financial position or
results of operations.

3.  OFFICE EQUIPMENT, AND FURNITURE AND FITTINGS

<TABLE>
<CAPTION>
                                                 DECEMBER 31,    DECEMBER 31,
                                                     1998            1999
                                                 -------------   -------------
<S>                                              <C>             <C>
Office equipment...............................     $   --          $42,643
Furniture and fittings.........................      5,010           15,459
                                                    ------          -------
                                                     5,010           58,102
Less accumulated depreciation..................       (752)         (17,284)
                                                    ------          -------
                                                    $4,258          $40,818
                                                    ======          =======
</TABLE>

4.  COMMITMENTS

    The company rents its office facilities under a lease which expires on
December 31, 2000. At December 31, 1999 future minimum rent payments are $15,800
in 2000.

    Rental expense for 1998, 1999 and cumulatively from December 16, 1997 (date
of inception) to December 31, 1999 was $1,428, $7,011 and $8,439, respectively.

                                      F-36
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4.  COMMITMENTS (CONTINUED)
    The company acquired an option to acquire land for a three year period from
April 1999 for a reservation fee of approximately $9,400 per annum. The option
expense in 1999 amounted to $6,507. At December 31, 1999 future payments are
approximately as follows:

<TABLE>
<S>                                                           <C>
2000........................................................  $ 9,400
2001........................................................    9,400
2002........................................................    2,890
                                                              -------
                                                              $21,690
                                                              =======
</TABLE>

5.  REDEEMABLE SHARES

    In April 1999 the company established an Irish Revenue approved Business
Expansion Scheme under which it raised $216,308. The Business Expansion Scheme
is a tax based scheme which grants investors tax breaks on the amounts invested.
The investment is generally for a five year period. Under the Business Expansion
Scheme the company issued 154,000 B ordinary shares of IRL1 each at par (or
$1.14 when translated at the historic exchange rate). The maximum amount which
the B ordinary shareholders will receive from the company in respect of their
shares either by way of redemption, dividend or a liquidation is IRL1.20 per
share (or $1.53 when translated as of December 31, 1999).

    REDEMPTION

    A Put/Call Option agreement has been entered into between the company and
the Business Expansion Scheme investors. This agreement provides an option to
the company to require the investors to sell their shares to the company (the
"Call Option') and an option to the investors to require the company to purchase
their shares (the "Put Option) within a three to four month period after a five
year period has elapsed from the date of issue of these shares. The share price
is to be determined by independent appraisal but is capped at a maximum value of
IRL1.20 per share. These B ordinary shares shall rank PARI PASSU (based on a
ratio of 100:1) with the A ordinary shares except that they shall not carry
voting rights.

    DIVIDENDS

    The B ordinary shares are entitled (based on a ratio 100:1 with A ordinary
shares) to receive such a portion (if any) of the profits of the company which
are proposed to be distributed by way of dividend in respect of any financial
year of the company whether by way of interim dividend declared by the directors
or by way of dividend declared by the company in a general meeting, up to a
maximum of IRL1.20 per share. The maximum aggregate amount paid by way of
dividend on B ordinary shares shall never exceed the aggregate sum of IRL1.20
per share.

    LIQUIDATION

    On a winding up, the B ordinary shares shall each rank PARI PASSU (based on
a ratio of 100:1) with A ordinary shares, as to entitlement to the return of
amounts paid up or credited as paid up on each share including any premium and
shall further rank PARI PASSU (with the A ordinary shares) as their entitlement
to participate further in the profits and assets of the company, up to a maximum
aggregate amount of

                                      F-37
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5.  REDEEMABLE SHARES (CONTINUED)
IRL1.20 for each share less the aggregate amount (if any) of all dividends
previously paid or declared in respect of B ordinary shares. The maximum
aggregate amount paid on winding up of the company to B ordinary shares, when
aggregated with the aggregate amount of all dividends paid on the B ordinary
shares, shall never exceed the aggregate of IRL1.20 per share inclusive of
amounts paid up or credited as paid up thereon including any premium.

6.  SHAREHOLDERS' EQUITY

    The A ordinary shares of IRL0.01 each (or $0.014 when translated at the
historic exchange rate) have full voting rights. The A ordinary shares shall be
entitled equally to B ordinary shares (based on a ratio of 1:100) to receive
such proportion (if any) of the profit of the company which is proposed to be
distributed by way of dividend in respect of any financial year of the company
whether by way of interim dividend declared by the directors or by way of
dividend declared by the company at a general meeting until such time as the
holders of the A and B ordinary shares shall have received an amount of IRL1.20
per share. Thereafter, the A ordinary shares shall entitle the holders thereof
to receive payment of any further dividend which may be declared to the
exclusion of any entitlement thereto on the part of the holders of B ordinary
shares.

7.  INCOME TAXES

    The company is subject to Irish Corporation Tax on certain research and
development revenues. The provision for income taxes consists of:

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                            -------------------
                                                              1998       1999
                                                            --------   --------
<S>                                                         <C>        <C>
Current income taxes......................................  $22,000    $20,000
Deferred taxes............................................       --         --
                                                            -------    -------
Provision for income taxes................................  $22,000    $20,000
                                                            =======    =======
</TABLE>

    The tax effects of temporary differences and carryforwards that give rise to
significant portions of the deferred tax assets at December 31, 1999 and 1998
are as follows:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           -------------------
                                                             1998       1999
                                                           --------   --------
<S>                                                        <C>        <C>
Deferred tax asset:
  Deferred research and development expenditures.........  $     --   $ 25,000
  Pension and other deferred expenses....................               13,000
                                                           --------   --------
  Total deferred tax asset...............................        --     38,000
  Valuation allowance....................................        --    (38,000)
                                                           --------   --------
                                                           $     --   $     --
                                                           ========   ========
</TABLE>

                                      F-38
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7.  INCOME TAXES (CONTINUED)
    A full valuation allowance is provided for the deferred tax assets as the
company determines that it is more likely than not that the deferred tax assets
will not be utilized. The deferred research and development expenditures can be
carried forward for three years.

8.  RELATED PARTY TRANSACTIONS

    Related party payables relate specifically to transactions with directors in
their capacity as directors of the company. At December 31, 1998 and 1999, the
company had payables of $29,541 and $8,241 respectively for these transactions.
Costs incurred by the company in respect of services rendered to the company by
directors in their capacity as directors for 1998, 1999 and cumulatively from
December 16, 1997 (date of inception) were approximately $30,000, $80,000 and
$110,000 respectively.

    Other costs incurred by the company in respect of services rendered to the
company by directors and companies connected to directors for 1998, 1999 and
cumulatively from December 16, 1997 (date of inception) were approximately nil,
$29,376 and $29,376 respectively.

    At December 31, 1998 and 1999, the company had payables of nil and $3,093
respectively relating to these services which are included in accounts payable.

9.  SUBSEQUENT EVENTS

    Effective May 25, 2000 all of the company's outstanding A ordinary shares
were acquired by AeroGen, Inc. ("AeroGen") in exchange for 1,725,000 shares of
AeroGen's Series E convertible preferred shares. This acquisition was recorded
by AeroGen as a purchase.

                                      F-39
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                                        SHARES

                                 [AEROGEN LOGO]

                                  COMMON STOCK

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

                                   PROSPECTUS

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

                                   CHASE H&Q

                               CIBC WORLD MARKETS

                                    SG COWEN

                                   ---------

                                       , 2000

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

    YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF
THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY
SALE OF OUR COMMON STOCK.

    NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO
PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN THAT JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS
PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO INFORM
THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND THE
DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT JURISDICTION.

    UNTIL            , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS THAT BUY, SELL OR TRADE IN OUR COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                                    PART II
                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

    The following table sets forth all costs and expenses, other than the
underwriting discounts and commissions, payable by the company in connection
with the sale of common stock being registered hereby. All of the amounts shown
are estimates except the SEC registration fee and the NASDAQ National Market
listing fee.

<TABLE>
<CAPTION>
                                                               AMOUNT
                                                                TO BE
                                                                PAID
                                                              ---------
<S>                                                           <C>
SEC registration fee........................................   $15,180
NASD filing fee.............................................     6,250
NASDAQ additional listing of shares fee.....................     *
Accounting fees and expenses................................     *
Legal fees and expenses.....................................     *
Printing and engraving expenses.............................     *
Transfer Agent and registrar fees...........................     *
Miscellaneous...............................................     *
                                                               -------
  Total.....................................................   $ *
                                                               =======
</TABLE>

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

*   To be completed by amendment

ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.

    As permitted by Delaware law, our amended and restated certificate of
incorporation provides that no director of ours will be personally liable to us
or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability for any breach of duty of loyalty to us or to our
stockholders;

    -  for acts or omissions not in good faith or that involve intentional
       misconduct or a knowing violation of law;

    -  for unlawful payment of dividends or unlawful stock repurchases or
       redemptions under Section 174 of the Delaware General Corporation Law; or

    -  for any transaction from which the director derived an improper personal
       benefit.

    Our amended and restated certificate of incorporation further provides that
we must indemnify our directors and executive officers and may indemnify our
other officers and employees and agents to the fullest extent permitted by
Delaware law. We believe that indemnification under our amended and restated
certificate of incorporation covers negligence and gross negligence on the part
of indemnified parties.

    We intend to enter into indemnification agreements with each of our
directors and officers. These agreements, among other things, will require us to
indemnify each director and officer for certain expenses including attorneys'
fees, judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including any action by or in the right of AeroGen,
arising out of the person's services as our director or officer, any subsidiary
of ours or any other company or enterprise to which the person provides services
at our request.

                                      II-1
<PAGE>
    The underwriting agreement (Exhibit 1.1) will provide for indemnification by
the underwriters of AeroGen, our directors, our officers who sign the
registration statement, and our controlling persons for some liabilities,
including liabilities arising under the Securities Act.

ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES.

    Since July 1997, we have sold and issued the following unregistered
securities:

 (1) From July 1997 through August 24, 2000, AeroGen has granted stock options
     to purchase 5,887,600 shares of common stock to employees, consultants and
     directors pursuant to its 1994 Stock Option Plan and 1996 Stock Option
     Plan. Of these options, 1,004,626 have been canceled without being
     exercised, 2,043,778 have been exercised, and 3,737,192 shares remain
     outstanding.

 (2) From April 1997 through November 1997, AeroGen issued 9,245,300 shares of
     Series C preferred stock to 17 purchasers at a purchase price of $1.00 per
     share for an aggregate purchase price of $9,245,300. Shares of Series C
     preferred stock are convertible into shares of common stock at the rate of
     one share of common stock for each share of Series C preferred stock owned.

 (3) In October 1997, AeroGen issued warrants to purchase up to 130,000 shares
     of Series C preferred stock at an exercise price of $1.00 per share. Shares
     of Series C preferred stock are convertible into shares of common stock at
     the rate of one share of common stock for each share of Series C preferred
     stock owned.

 (4) In January 1998, AeroGen issued 1,400,000 shares of common stock to one
     purchaser at $0.10 per share, for a purchase price of $140,000.

 (5) In August 1998, AeroGen issued 10,285,714 shares of Series D preferred
     stock to 21 purchasers at a purchase price $1.75 per share for an aggregate
     purchase price of $17,999,999. Shares of Series D preferred stock are
     convertible into shares of common stock at the rate of one share of common
     stock for each share of Series D preferred stock owned.

 (6) In November 1998, AeroGen issued 270,000 shares of common stock to one
     purchaser at $0.20 per share, for a purchase price of $54,000.

 (7) From March 2000 through May 2000, AeroGen issued 1,923,078 shares of
     Series E preferred stock to two purchasers at a purchase price of $2.60 per
     share for an aggregate purchase price of $5,000,002. Shares of Series E
     preferred stock are convertible into shares of common stock at the rate of
     one share of common stock for each share of Series E preferred stock owned.

 (8) In April 2000, AeroGen issued 540,000 shares of common stock to two
     purchasers at $0.20 per share, for a purchase price of $108,000.

 (9) In May 2000, AeroGen issued 1,725,000 shares of Series E preferred stock in
     exchange for all voting shares of stock of Cerus Limited in connection with
     the acquisition of Cerus by AeroGen, whereby Cerus became a subsidiary of
     AeroGen. Shares of Series E preferred stock are convertible into shares of
     common stock at the rate of one share of common stock for each share of
     Series E preferred stock owned.

 (10) In July 2000, AeroGen issued 7,498,223 shares of Series F preferred stock
      to 30 purchasers at a purchase price of $2.25 per share for an aggregate
      purchase price of $16,871,001. Shares of Series F Preferred Stock are
      convertible into shares of common stock at the rate of one share of common
      stock for each share of Series F Preferred Stock owned.

    The sales and issuances of securities described in paragraph (1) above were
deemed to be exempt from registration under the Securities Act by virtue of
Rule 701 of the Securities Act in that they were offered and sold either
pursuant to a written compensatory benefit plan or pursuant to a written
contract relating to compensation, as provided by Rule 701. The sales and
issuances of securities described in

                                      II-2
<PAGE>
paragraphs (2) through (10) above were deemed to be exempt from registration
under the Securities Act by virtue of Rule 4(2), Regulation D or Regulation S
promulgated thereunder. With respect to the grant of options described in
paragraph (1), an exemption from registration was unnecessary in that none of
the transactions involved a "sale" of securities as such term is used in
Section 2(3) of the Act.

    Appropriate legends are affixed to the stock certificates issued in the
aforementioned transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. All recipients either received adequate
information about AeroGen or had access, through employment or other
relationships, to such information.

ITEM 16.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

    (a)  Exhibits

<TABLE>
<CAPTION>
        EXHIBIT
        NUMBER                              DESCRIPTION OF DOCUMENT
        ------            ------------------------------------------------------------
<C>                       <S>
 1.1*                     Form of Underwriting Agreement
 3.1                      Amended and Restated Certificate of Incorporation of AeroGen
 3.2                      Amended and Restated Certificate of Incorporation of AeroGen
                          to be effective upon the closing of the offering
 3.3                      Bylaws of AeroGen
 3.4                      Amended and Restated Bylaws of the AeroGen to be effective
                          upon the closing of the offering
 4.1*                     Specimen Common Stock Certificate
 4.2                      Fourth Amended & Restated Information and Registration
                          Rights Agreement dated July 7, 2000 between AeroGen and
                          holders of AeroGen Series A, Series B, Series C, Series D,
                          Series E, and Series F preferred stock and holders of
                          warrants to purchase AeroGen common stock or Series C
                          preferred stock
 4.3                      Warrant, dated June 20, 1995, to purchase common stock of
                          AeroGen issued to Venture Lending & Leasing, Inc.
 4.4                      Warrant, dated October 14, 1997, to purchase Series C
                          preferred stock of AeroGen issued to Venture Lending &
                          Leasing II, Inc.
 4.5                      Warrant, dated October 14, 1997, to purchase Series C
                          preferred stock of AeroGen issued to Venture Lending &
                          Leasing, Inc.
 4.6                      Stock Purchase Agreement between AeroGen and PathoGenesis
                          Corporation, dated March 13, 2000
 4.7++                    Stock Purchase Agreement between AeroGen and Becton,
                          Dickinson and Company, dated May 10, 2000
 5.1*                     Opinion of Cooley Godward LLP
10.1                      Form of Indemnity Agreement
10.2                      1994 Stock Option Plan
10.3                      1996 Stock Option Plan
10.4                      2000 Equity Incentive Plan
10.5                      2000 Non-Employee Directors' Stock Option Plan
10.6                      2000 Employee Stock Purchase Plan
10.7                      Sublease between AeroGen and MicroBar dated April 3, 1997
10.8                      Sublease between AeroGen and MicroBar dated August 9, 1999
10.9++                    Development & Supply Agreement between AeroGen and
                          PathoGenesis Corporation dated March 13, 2000
</TABLE>

                                      II-3
<PAGE>

<TABLE>
<CAPTION>
        EXHIBIT
        NUMBER                              DESCRIPTION OF DOCUMENT
        ------            ------------------------------------------------------------
<C>                       <S>
10.10++                   Development Agreement between Becton, Dickinson and Company
                          and AeroGen, dated May 10, 2000
10.11                     Settlement Agreement between Bespak plc and AeroGen and
                          Tenax Corporation, dated March 4, 1999
10.12                     Agreement for the Acquisition By Way of Exchange of the
                          Entire Issued "A" Share Capital of Cerus Limited, dated May
                          25, 2000
10.13*                    Amended and Restated 1996 Stock Option Plan
21.1                      Subsidiaries of AeroGen
23.1                      Consent of PricewaterhouseCoopers LLP, independent
                          accountants
23.2                      Consent of PricewaterhouseCoopers LLP, independent
                          accountants
23.3*                     Consent of Cooley Godward LLP. Reference is made to Exhibit
                          5.1
24.1                      Power of Attorney. Reference is made to Page II-6
27.1                      Financial Data Schedule
</TABLE>

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

++   Confidential treatment requested as to specific portions, which portions
    are omitted and filed separately with the Securities and Exchange
    Commission.

*   To be filed by amendment.

    (b) Financial Statement Schedules

    All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.

ITEM 17.  UNDERTAKINGS.

    The registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

    Insofar as indemnification by the registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

    The registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the
    information omitted from the form of Prospectus filed as part of this
    Registration Statement in reliance upon Rule 430A and contained in a form of
    Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
    497(h) under the Securities Act shall be deemed to be part of this
    Registration Statement as of the time it was declared effective.

                                      II-4
<PAGE>
(2) For the purpose of determining any liability under the Securities Act, each
    post-effective amendment that contains a form of Prospectus shall be deemed
    to be a new registration statement relating to the securities offered
    therein, and the offering of such securities at that time shall be deemed to
    be the initial bona fide offering thereof.

                                      II-5
<PAGE>
                                   SIGNATURES

    Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Sunnyvale,
State of California, on the 25th day of August, 2000.

<TABLE>
<S>                                                    <C>  <C>
                                                       AEROGEN, INC.

                                                       By:  /s/ JANE E. SHAW, PH.D.
                                                            ----------------------------------------------
                                                            Jane E. Shaw, Ph.D.
                                                            Chairman and Chief Executive Officer
                                                            (Principal Executive Officer)
</TABLE>

                               POWER OF ATTORNEY

    KNOW ALL PERSONS BY THESE PRESENTS, that the persons whose signatures appear
below each severally constitutes and appoints Jane E. Shaw, Ph.D., Carol A.
Gamble and Deborah K. Karlson, and each of them, as true and lawful
attorneys-in-fact and agents, with full powers of substitution and
resubstitution, for them in their name, place and stead, in any and all
capacities, to sign any and all amendments (including pre-effective and
post-effective amendments) to this Registration Statement and to sign any
registration statement (and any post-effective amendments thereto) relating to
the same offering as this Registration Statement that is to be effective upon
filing pursuant to Rule 462 (b) under the Securities Act of 1933, as amended and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as they might or
could do in person, hereby ratifying and confirming all which said
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do, or cause to be done by virtue hereof.

    Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
              SIGNATURE                                          TITLE                              DATE
              ---------                                          -----                              ----
<S>                                              <C>                                           <C>
/s/ JANE E. SHAW, PH.D.                          Chairman and Chief Executive Officer          August 25, 2000
----------------------------                     and Director (Principal Executive
Jane E. Shaw, Ph.D.                              Officer)

/s/ DEBORAH K. KARLSON                           Chief Financial Officer (Principal            August 25, 2000
----------------------------                     Financial Officer)
Deborah K. Karlson

/s/ YEHUDA IVRI                                  Chief Technical Officer and Director          August 25, 2000
----------------------------
Yehuda Ivri

/s/ THOMAS R. BARUCH                             Director                                      August 25, 2000
----------------------------
Thomas R. Baruch

/s/ JEAN-JACQUES BIENAIME                        Director                                      August 25, 2000
----------------------------
Jean-Jacques Bienaime

/s/ PHYLLIS I. GARDNER                           Director                                      August 25, 2000
----------------------------
Phyllis I. Gardner, M.D.

/s/ PHILIP M. YOUNG                              Director                                      August 25, 2000
----------------------------
Philip M. Young
</TABLE>

                                      II-6
<PAGE>
                                 AEROGEN, INC.
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
       EXHIBIT
       NUMBER           DESCRIPTION
---------------------   -----------
<C>                     <S>
    1.1*                Form of Underwriting Agreement

    3.1                 Amended and Restated Certificate of Incorporation of AeroGen

    3.2                 Amended and Restated Certificate of Incorporation of AeroGen
                        to be effective upon the closing of the offering

    3.3                 Bylaws of AeroGen

    3.4                 Amended and Restated Bylaws of AeroGen to be effective upon
                        the closing of the offering

    4.1*                Specimen Common Stock Certificate

    4.2                 Fourth Amended & Restated Information and Registration
                        Rights Agreement dated July 7, 2000 between AeroGen and
                        holders of AeroGen Series A, Series B, Series C, Series D,
                        Series E, and Series F preferred stock and holders of
                        warrants to purchase AeroGen common stock or Series C
                        preferred stock

    4.3                 Warrant, dated June 20, 1995, to purchase common stock of
                        AeroGen issued to Venture Lending & Leasing, Inc.

    4.4                 Warrant, dated October 14, 1997, to purchase Series C
                        preferred stock of AeroGen issued to Venture Lending &
                        Leasing II, Inc.

    4.5                 Warrant, dated October 14, 1997, to purchase Series C
                        preferred stock of AeroGen issued to Venture Lending &
                        Leasing, Inc.

    4.6                 Stock Purchase Agreement between AeroGen and PathoGenesis
                        Corporation, dated March 13, 2000

    4.7++               Stock Purchase Agreement between AeroGen and Becton,
                        Dickinson and Company, dated May 10, 2000

    5.1*                Opinion of Cooley Godward LLP

   10.1                 Form of Indemnity Agreement

   10.2                 1994 Stock Option Plan

   10.3                 1996 Stock Option Plan

   10.4                 2000 Equity Incentive Plan

   10.5                 2000 Non-Employee Directors' Stock Option Plan

   10.6                 2000 Employee Stock Purchase Plan

   10.7                 Sublease between AeroGen and MicroBar dated April 3, 1997

   10.8                 Sublease between AeroGen and MicroBar dated August 9, 1999

   10.9++               Development & Supply Agreement between AeroGen and
                        PathoGenesis Corporation dated March 13, 2000

   10.10++              Development Agreement between Becton, Dickinson and Company
                        and AeroGen, dated May 10, 2000

   10.11                Settlement Agreement between Bespak plc and AeroGen and
                        Tenax Corporation, dated March 4, 1999

   10.12                Agreement for the Acquisition By Way of Exchange of the
                        Entire Issues "A" Share Capital of Cerus Limited, dated May
                        25, 2000.

   10.13*               Amended and Restated 1996 Stock Option Plan

   21.1                 Subsidiaries

   23.1                 Consent of PricewaterhouseCoopers LLP, independent
                        accountants
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
       EXHIBIT
       NUMBER           DESCRIPTION
---------------------   -----------
<C>                     <S>
   23.2                 Consent of PricewaterhouseCoopers LLP, independent
                        accountants

   23.3*                Consent of Cooley Godward LLP. Reference is made to Exhibit
                        5.1

   24.1                 Power of Attorney. Reference is made to Page II-6

   27.1                 Financial Data Schedule
</TABLE>

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

++   Confidential treatment requested as to specific portions, which portions
    are omitted and filed separately with the Securities and Exchange
    Commission.

*   To be filed by amendment
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1
<SEQUENCE>2
<FILENAME>ex-3_1.txt
<DESCRIPTION>EXHIBIT 3.1
<TEXT>

<PAGE>


                                                                     EXHIBIT 3.1

                              AMENDED AND RESTATED
                          CERTIFICATE OF INCORPORATION
                                OF AEROGEN, INC.

         AeroGen, Inc., a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:

         ONE: The name of the corporation is AeroGen, Inc.

         TWO: The original Certificate of Incorporation of the corporation was
filed with the Secretary of State of the State of Delaware on March 12, 1998
under the name AeroGen (Delaware), Inc.

         THREE: The Certificate of Incorporation of said corporation shall be
amended and restated to read in full as follows:

                                    ARTICLE 1

         The name of this corporation is AEROGEN, INC.

                                    ARTICLE 2

         The address of the registered office of the corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is The Corporation Trust
Company.

                                    ARTICLE 3

         The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.

                                    ARTICLE 4

         The total number of shares of stock and the classes of stock which the
corporation shall have authority to issue is as follows:

         A. CLASSES OF STOCK. This corporation is authorized to issue two
classes of stock to be designated "Common Stock" and "Preferred Stock." The
total number of shares which this corporation is authorized to issue is One
Hundred Two Million Six Hundred Forty Two Thousand Four Hundred Thirty
(102,642,430) shares, of which Sixty Two Million (62,000,000) shares with a par
value of One-Tenth of One Cent ($.001) shall be Common Stock and Forty Million
Six Hundred Forty Two Thousand Four Hundred Thirty (40,642,430) shares with a
par value of One-Tenth of One Cent ($.001) shall be Preferred Stock. The
Preferred Stock authorized by this Certificate of Incorporation shall be issued
by series as set forth hereto. The first series of Preferred Stock shall be
designated "Series A Preferred Stock" and shall consist of Three Million Eight
Hundred Forty-Six Thousand One Hundred Fifty-Six (3,846,156) shares.


                                       1.
<PAGE>

The second series of Preferred Stock shall be designated "Series B Preferred
Stock" and shall consist of Four Million Four Hundred Eighty-Seven Thousand One
Hundred Eighty-Two (4,487,182) shares. The third series of Preferred Stock shall
be designated "Series C Preferred Stock" and shall consist of Nine Million Three
Hundred Seventy-Five Thousand Three Hundred (9,375,300) shares. The fourth
series of Preferred Stock shall be designated "Series D Preferred Stock" and
shall consist of Ten Million Two Hundred Eighty-Five Thousand Seven Hundred
Fourteen (10,285,714) shares. The fifth series of Preferred Stock shall be
designated "Series E Preferred Stock" and shall consist of three million six
hundred forty-eight thousand seventy-eight (3,648,078) shares. The sixth series
of Preferred Stock shall be designated "Series F Preferred Stock" and shall
consist of nine million (9,000,000) shares.

         B. POWERS, PREFERENCES AND RIGHTS, AND QUALIFICATIONS, LIMITATIONS AND
RESTRICTIONS OF PREFERRED STOCK. The Preferred Stock authorized by this
Certificate of Incorporation may be issued from time to time in series. The
powers, preferences and rights, and the qualifications, limitations and
restrictions granted to and imposed on the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock are as set forth below in this
Division B of Article 4. The Board of Directors is hereby authorized to fix or
alter the powers, preferences and rights, and the qualifications, limitations
and restrictions granted to or imposed upon additional series of Preferred
Stock, and the number of shares constituting any such series and the designation
thereof, or of any of them. Subject to compliance with applicable protective
voting rights which have been or may be granted to the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock or other series of Preferred
Stock in certificate(s) of designation or this Certificate of Incorporation, as
amended from time to time ("Protective Provisions"), but notwithstanding any
other right of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock or any other series of Preferred Stock, the powers, preferences
and rights of and the qualifications, limitations and restrictions on, any such
additional series may be subordinated to, pari passu with (including, without
limitation, inclusion in provisions with respect to liquidation and acquisition
preferences and/or approval of matters by vote or written consent), or senior to
any of those of any present or future class or series of Preferred or Common
Stock. Subject to compliance with applicable Protective Provisions, the Board of
Directors is also authorized to increase or decrease the number of shares of any
series (other than the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock), prior or subsequent to the issue of any shares of
that series, but not below the number of shares of such series then outstanding,
in case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.

1.       DIVIDEND RIGHTS.

         The holders of the Preferred Stock shall be entitled to receive, out of
any funds legally available therefor, dividends on each outstanding share of
Preferred Stock payable in preference and priority to any payment of any
dividend on any shares of Common Stock of the corporation at an annual rate of
$.0312 per share of Series A Preferred Stock, $.0624 per share of Series B
Preferred Stock, $.08 per share of Series C Preferred Stock, $.14 per share of
Series D Preferred


                                       2.
<PAGE>

Stock, $.208 per share of Series E Preferred Stock, and $.18 per share of Series
F Preferred Stock, when and as declared by the Board of Directors. Dividends on
the shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock shall be paid ratably to holders of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock and Series F Preferred Stock, based on the number of
shares held. The right to such dividends on the Preferred Stock shall be
noncumulative. No right shall accrue to holders of shares of Preferred Stock by
reason of the fact that dividends on said shares are not declared in any prior
year, nor shall any undeclared or unpaid dividend bear or accrue any interest.
Dividends, if paid, or if declared and set apart for payment, must be paid or
declared and set apart for payment on all outstanding Preferred Stock
contemporaneously. Dividends shall be paid in cash. No shares of Common Stock
shall receive any dividend at a rate which is greater than the rate at which
dividends are simultaneously paid in respect of the Preferred Stock (based on
the number of shares of Common Stock into which the Preferred Stock is
convertible on the date of dividend).

         Dividends shall be paid by forwarding a check, postage prepaid, to the
address of each holder (or, in the case of joint holders, to the address of any
such holder) of Preferred Stock as shown on the books of the corporation, or to
such other address as such holder specifies for such purpose by written notice
to the corporation. The forwarding of such check shall satisfy all obligations
of the corporation with respect to such dividends, unless such check is not paid
upon timely presentation.

2.       LIQUIDATION RIGHTS

         In the event of any liquidation, dissolution or winding up of the
corporation, whether voluntary or not, each holder of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock and Series F Preferred Stock shall be entitled to
receive, before any amount shall be paid to holders of Common Stock, an amount
per share equal to $0.39, $.78, $1.00, $1.75, $2.60 and $2.25, respectively
(each, as adjusted for stock splits, combinations or similar events and
hereafter referred to as the "Original Issue Price" of such series) plus all
declared and unpaid dividends, if any. If upon the occurrence of a liquidation,
dissolution or winding up, the assets and surplus funds distributed among the
holders of Preferred Stock shall be insufficient to permit the payment to such
holders of the full preferential amount, then the entire assets and surplus
funds of the corporation legally available for distribution shall be distributed
ratably among the holders of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock, in proportion to the aggregate amount payable to each
of such holders pursuant to the immediately preceding sentence. If upon the
occurrence of a liquidation, dissolution or winding up, after the payment to the
holders of Preferred Stock of the preferential amount, assets or surplus funds
remain in the corporation, the holders of Preferred Stock and Common Stock shall
be entitled to receive all such remaining assets and surplus funds pro rata on
an as-if-converted basis.

         No later than 20 days before any event that, pursuant to Section 5(j),
permits a holder of Preferred Stock to have each share of Preferred Stock held
by such holder treated for all purposes as if it had been converted into Common
Stock (for purposes of this Section 2, a "Merger or Sale


                                       3.
<PAGE>

of Corporation"), the corporation shall deliver a notice to each holder of
Preferred Stock setting forth the principal terms of such Merger or Sale of
Corporation. Such notice shall be deemed delivered upon personal delivery or
five days after deposit in the United States mail, by registered or certified
mail, addressed to a party at its address as shown on the stock records of the
corporation. Such notice shall include a description of the amounts that would
be paid to holders of Preferred Stock under this Section 2 and of the
consideration that such holders would receive if they exercised their rights
under Section 5(j) to have shares of Preferred Stock treated as if they had been
converted into Common Stock. No later than ten days after delivery of the
notice, each holder of Preferred Stock may deliver an election to the
corporation notifying the corporation that the holder desires that such holder's
shares of Preferred Stock be treated, pursuant to Section 5, as if they had been
converted into shares of Common Stock and, if no such notice is delivered, such
holder shall receive such amounts as are provided for under this Section 2 as
any Merger or Sale of Corporation shall be deemed a liquidation, dissolution or
winding up of the corporation for the purposes of this Section 2.

3.       VOTING RIGHTS.

         (a) VOTE OTHER THAN FOR DIRECTORS. Except as otherwise set forth herein
or required by law, the holders of Preferred Stock and the holders of Common
Stock shall be entitled to notice of any stockholders' meeting and to vote upon
any matter submitted to the stockholders for a vote, other than the election of
directors, or to act by written consent, as follows: (i) the holders of
Preferred Stock shall have one vote for each full share of Common Stock into
which their respective shares of Preferred Stock are convertible on the record
date for the vote and (ii) the holders of Common Stock shall have one vote per
share of Common Stock.

         (b)      VOTING FOR DIRECTORS.

                  (i) The holders of shares of Preferred Stock voting as a class
shall be entitled to elect two (2) directors. The holders of shares of Common
Stock voting as a class shall be entitled to elect two (2) directors. The
holders of shares of Series D Preferred Stock voting as a class shall be
entitled to elect one (1) director. The remaining director or directors shall be
elected by the affirmative vote of the holders of the Preferred Stock and of the
holders the Common Stock, voting together as a class with the holders of
Preferred Stock having one vote for each full share of Common Stock into which
their respective shares of Preferred Stock are convertible on the record date
for the vote. If no shares of Preferred Stock remain outstanding, then the
directors otherwise elected by the Preferred Stock as provided above in this
Section 3(b), shall be elected by the holders of Common Stock. In the case of
any vacancy in the office of a director elected by a specified group of
stockholders, a successor shall be elected to hold office for the unexpired term
of such director by the affirmative vote of a majority of the shares of such
specified group given at a special meeting of such stockholders duly called or
by an action by written consent for that purpose. Any director who shall have
been elected by a specified group of stockholders may be removed during the
aforesaid term of office, either for or without cause by, and only by, the
affirmative vote of the holders of a majority of the shares of such specified
group, given at a special meeting of such stockholders duly called or by an
action by written consent for that purpose, and any such vacancy thereby created
may be filled by the vote of the holders of a majority of the shares of such
specified group represented at such meeting or in such consent.


                                       4.
<PAGE>

                  (ii) No person entitled to vote at an election for directors
may cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation is subject to Section 2115(b) of the California
General Corporation Law (" CGCL"). During such time or times that the
corporation is subject to Section 2115(b) of the CGCL, every stockholder
entitled to vote at an election for directors may cumulate such stockholder's
votes and give one candidate a number of votes equal to the number of directors
to be elected multiplied by the number of votes to which such stockholder's
shares are otherwise entitled, or distribute the stockholder's votes on the same
principle among as many candidates as such stockholder thinks fit. No
stockholder, however, shall be entitled to so cumulate such stockholder's votes
unless (a) the names of such candidate or candidates have been placed in
nomination prior to the voting and (b) the stockholder has given notice at the
meeting, prior to the voting, of such stockholder's intention to cumulate such
stockholder's votes. If any stockholder has given proper notice to cumulate
votes, all stockholders may cumulate their votes for any candidates who have
been properly placed in nomination. Under cumulative voting, the candidates
receiving the highest number of votes, up to the number of directors to be
elected, are elected.

4.       CERTAIN TAXES.

         The corporation shall pay any and all issuance and other taxes
(excluding any federal or state income taxes) that may be payable in respect of
any issuance or delivery of shares of Common Stock on conversion of Preferred
Stock. The corporation shall not, however, be required to pay any tax that may
be payable in respect of any transfer involved in the issuance and delivery of
shares of Common Stock in a name other than that in which the shares of
Preferred Stock to which such issuance relates were registered, and no such
issuance or delivery shall be made unless and until the person requesting such
issuance has paid to the corporation, if required, the amount of any such tax,
or it is established to the satisfaction of the corporation that such tax has
been paid.

5.       CONVERSION TO COMMON STOCK.

         The Preferred Stock shall be convertible into Common Stock of the
corporation as follows:

         (a)      DEFINITIONS. For purposes of this Section 5 the following
definitions shall apply:

                  (i) "COMMON STOCK EQUIVALENTS" shall mean Convertible
Securities and rights entitling the holder thereof to receive directly, or
indirectly, additional shares of Common Stock without the payment of any
consideration by such holder for such additional shares of Common Stock or
Common Stock Equivalents.

                  (ii) "COMMON STOCK OUTSTANDING" shall mean the aggregate of
all Common Stock outstanding and all Common Stock issuable upon exercise of all
outstanding Options and conversion of all outstanding Convertible Securities.

                  (iii) "CONVERSION PRICE" with respect to a series of Preferred
Stock, shall mean the price, determined pursuant to this Section 5, at which
shares of Common Stock shall be deliverable upon conversion of such series of
Preferred Stock.


                                       5.
<PAGE>

                  (iv) "CONVERTIBLE SECURITIES" shall mean any indebtedness or
shares of stock or other securities convertible into or exchangeable for Common
Stock, including without limitation Preferred Stock.

                  (v) "CURRENT CONVERSION PRICE" with respect to a series of
Preferred Stock, shall mean the Conversion Price immediately before the
occurrence of any event, which, pursuant to Section 5(c), causes an adjustment
to the Conversion Price of such series of Preferred Stock.

                  (vi) "ISSUANCE DATE" shall mean the first date on which this
Amended and Restated Certificate of Incorporation is filed with the Secretary of
State of the State of Delaware.

                  (vii) "OPTIONS" shall mean any rights, warrants or options to
subscribe for or purchase or otherwise acquire Common Stock or Convertible
Securities.

         (b) RIGHT TO CONVERT; INITIAL CONVERSION PRICE. Each holder of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock
may, at any time, convert any or all shares of such Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock or Series F Preferred Stock, as the case may be, into
fully-paid and non-assessable shares of Common Stock at the Conversion Price for
such series of Preferred Stock. Each share of Series A Preferred Stock shall be
convertible into the number of shares of Common Stock that results from dividing
the Conversion Price in effect at the time of conversion for Series A Preferred
Stock into $0.39 for each share of Series A Preferred Stock being converted; the
Conversion Price of the Series A Preferred Stock shall initially be $0.39 per
share of Common Stock. Each share of Series B Preferred Stock shall be
convertible into the number of shares of Common Stock that results from dividing
the Conversion Price in effect at the time of conversion for Series B Preferred
Stock into $0.78 for each share of Series B Preferred Stock being converted; the
Conversion Price of the Series B Preferred Stock shall initially be $0.78 per
share of Common Stock. Each share of Series C Preferred Stock shall be
convertible into the number of shares of Common Stock that results from dividing
the Conversion Price in effect at the time of conversion for Series C Preferred
Stock into $1.00 for each share of Series C Preferred Stock being converted; the
Conversion Price of the Series C Preferred Stock shall initially be $1.00 per
share of Common Stock. Each share of Series D Preferred Stock shall be
convertible into the number of shares of Common Stock that results from dividing
the Conversion Price in effect at the time of conversion for Series D Preferred
Stock into $1.75 for each share of Series D Preferred Stock being converted; the
Conversion Price of the Series D Preferred Stock shall initially be $1.75 per
share of Common Stock. Each share of Series E Preferred Stock shall be
convertible into the number of shares of Common Stock that results from dividing
the Conversion Price in effect at the time of conversion for Series E Preferred
Stock into $2.60 for each share of Series E Preferred Stock being converted; the
Conversion Price of the Series E Preferred Stock shall initially be $2.60 per
share of Common Stock. Each share of Series F Preferred Stock shall be
convertible into the number of shares of Common Stock that results from dividing
the Conversion Price in effect at the time of conversion for Series F Preferred
Stock into $2.25 for each share of Series F Preferred Stock being converted; the
Conversion Price of the Series F Preferred Stock shall initially be $2.25 per
share of Common Stock. The initial Conversion Price of each series of Preferred
Stock shall be


                                       6.
<PAGE>

subject to adjustment from time to time in certain instances as hereinafter
provided. No adjustments with respect to conversion shall be made on account of
any dividends that may be declared but unpaid on the Preferred Stock surrendered
for conversion, but no dividends shall thereafter be paid on the Common Stock
unless such unpaid dividends have first been paid to the holders entitled to
payment at the time of conversion of the Preferred Stock.

         Before any holder of Preferred Stock shall be entitled to convert the
same into Common Stock, such holder shall surrender the certificate or
certificates therefor, duly endorsed, to the office of the corporation or any
transfer agent for such Preferred Stock and shall give written notice to the
corporation at such office that such holder elects to convert the same. The
corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Preferred Stock, or to such holder's nominee or
nominees, certificates for the number of full shares of Common Stock to which
such nominee shall be entitled, together with cash in lieu of any fraction of a
share as hereinafter provided and for any declared and unpaid dividends on the
Preferred Stock, and, if less than all of the shares of Preferred Stock
represented by such certificate are converted, a certificate representing the
shares of Preferred Stock not converted. Such conversion shall be deemed to have
been made as of the date of such surrender of the certificate for the Preferred
Stock to be converted, and the person or persons entitled to receive the Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such Common Stock on such date. If the conversion is
in connection with an offer of securities registered pursuant to the Securities
Act of 1933, as amended, the conversion may, at the option of any holder
tendering Preferred Stock for conversion, be conditioned upon the closing of the
sale of securities pursuant to such offering, in which event the person(s)
entitled to receive the Common Stock issuable upon such conversion of the
Preferred Stock shall not be deemed to have converted such Preferred Stock until
immediately prior to the closing of such sale of securities.

         (c)      ADJUSTMENTS TO CONVERSION PRICE. Subject to Section 5(c)(v),
the Conversion Price in effect from time to time for the Preferred Stock shall
be subject to adjustment in certain cases as follows below. Notwithstanding
anything else herein, Sections 5(c)(i), 5(c)(ii) and 5(c)(iii) below shall not
apply to holders of Series E Preferred Stock.

                  (i) ISSUANCE OF SECURITIES. In the event the corporation shall
at any time after the Issuance Date issue or sell any Common Stock (or shall be
deemed to have issued Common Stock pursuant to Section 5(c)(i)(c) below) for a
consideration per share less than the Current Conversion Price with respect to a
series of Preferred Stock, then, and thereafter successively upon each such
issuance or sale, the Current Conversion Price of such series of Preferred Stock
shall simultaneously with such issuance or sale be adjusted (downward only) to a
Conversion Price (calculated to the nearest cent) determined by dividing

                           (1) an amount equal to (x) the total number of shares
of Common Stock Outstanding when the Current Conversion Price for such series of
Preferred Stock became effective multiplied by the Current Conversion Price for
such series of Preferred Stock, plus (y) the aggregate of the amount of all
consideration, if any, received by the corporation for the issuance or sale of
Common Stock since the Current Conversion Price for such series of Preferred
Stock became effective, including the aggregate consideration received by the
corporation for the Common Stock giving rise to such adjustment, by


                                       7.
<PAGE>

                           (2) the total number of shares of Common Stock
Outstanding immediately after such issuance or sale.

         For the purposes of this Section 5(c), the following provisions shall
also be applicable:

                  (a) CASH CONSIDERATION. In the event of the issuance or sale
of additional Common Stock, Options or Convertible Securities for cash, the
consideration received by the corporation therefor shall be deemed to be the
amount of cash received by the corporation for such shares (or, if such
securities are offered by the corporation for subscription, the subscription
price, or, if such securities are sold to underwriters or dealers for public
offering without a subscription offering, the initial public offering price),
without deducting therefrom any compensation or discount paid or allowed to
underwriters or dealers or others performing similar services or for any
expenses incurred in connection therewith.

                  (b) NON-CASH CONSIDERATION. In the event of the issuance
(otherwise than upon conversion or exchange of Convertible Securities) or sale
of additional Common Stock, Options or Convertible Securities for a
consideration other than cash or a consideration a part of which shall be other
than cash, the fair value of such consideration as determined by the Board of
Directors of the corporation in the good faith exercise of its business
judgment, irrespective of the accounting treatment thereof, shall be deemed to
be the value, for purposes of this Section 5, of the consideration other than
cash received by the corporation for such securities.

                  (c) OPTIONS AND CONVERTIBLE SECURITIES. In the event the
corporation shall in any manner issue or grant any Options or any Convertible
Securities, the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the total maximum
amount of such Convertible Securities at the time such Convertible Securities
first become convertible or exchangeable shall (as of the date of issue or grant
of such Options or, in the case of the issue or sale of Convertible Securities
other than where the same are issuable upon the exercise of Options, as of the
date of such issue or sale) be deemed to be issued and to be outstanding for the
purpose of this Section 5(c)(i) and to have been issued for the sum of the
amount (if any) paid for such Options or Convertible Securities and the initial
amount (if any) payable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities (as set forth in such Option or
Convertible Security without regard to any provisions contained therein for a
subsequent adjustment of such number) at the time such Convertible Securities
first become convertible or exchangeable: provided that, subject to the
provisions of Section 5(c)(ii), no further adjustment of the Conversion Price of
a series of Preferred Stock shall be made upon the actual issuance of any such
Common Stock or Convertible Securities or upon the conversion or exchange of any
such Convertible Securities.

                  (ii) CHANGE IN OPTION PRICE OR CONVERSION RATE. In the event
that the purchase price provided for in any Option referred to in subsection
5(c)(i)(c), or the rate at which any Convertible Securities referred to in
subsection 5(c)(i)(c) are convertible into or exchangeable for shares of Common
Stock shall change at any time (other than under or by reason of provisions
designed to protect against dilution), the Current Conversion Price of each
series of Preferred Stock in effect at the time of such event shall forthwith be
readjusted to the Conversion Price that would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or


                                       8.
<PAGE>

conversion rate, as the case may be, at the time initially granted, issued or
sold. In the event that the purchase price provided for in any such Option
referred to in subsection 5(c)(i)(c), or the additional consideration (if any)
payable upon the conversion or exchange of any Convertible Securities referred
to in subsection 5(c)(i)(c), or the rate at which any Convertible Securities
referred to in subsection 5(c)(i)(c) are convertible into or exchangeable for
shares of Common Stock, shall be reduced at any time under or by reason of
provisions with respect thereto designed to protect against dilution, then in
case of the delivery of shares of Common Stock upon the exercise of any such
Option or upon conversion or exchange of any such Convertible Security, the
Current Conversion Price of a series of Preferred Stock then in effect hereunder
shall, upon issuance of such shares of Common Stock, be adjusted to such amount
as would have obtained had such Option or Convertible Security never been issued
and had adjustments been made only upon the issuance of the shares of Common
Stock delivered as aforesaid and for the consideration actually received for
such Option or Convertible Security and the Common Stock.

                  (iii) TERMINATION OF OPTION OR CONVERSION RIGHT. In the event
of the termination or expiration of any right to purchase Common Stock under any
Option or of any right to convert or exchange Convertible Securities, the
Current Conversion Price of a series of Preferred Stock shall, upon such
termination, be changed to the Conversion Price of such series of Preferred
Stock that would have been in effect at the time of such expiration or
termination had such Option or Convertible Security, to the extent outstanding
immediately prior to such expiration or termination, never been issued, and the
shares of Common Stock issuable thereunder shall no longer be deemed to be
Common Stock Outstanding.

                  (iv) STOCK SPLITS, DIVIDENDS, DISTRIBUTIONS AND COMBINATIONS.
In the event the corporation should at any time or from time to time after the
Issuance Date fix a record date for the effectuation of a split or subdivision
of the outstanding shares of Common Stock or the determination of holders of
Common Stock entitled to receive any other distribution payable in additional
shares of Common Stock or Common Stock Equivalents, then, as of such record date
(or the date of such distribution, split or subdivision if no record date is
fixed), the Conversion Price of each series of Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of each series of Preferred Stock shall be increased in
proportion to such increase in the number of outstanding shares of Common Stock
(including for this purpose, Common Stock Equivalents). If the number of shares
of Common Stock outstanding at any time after the Issuance Date is decreased by
a combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price of each series of
Preferred Stock shall be appropriately increased so that the number of shares of
Common Stock issuable on conversion of each share of Preferred Stock shall be
decreased in proportion to such decrease in the number of outstanding shares of
Common Stock.

                  (v) OTHER EVENTS ALTERING CONVERSION PRICE. Upon the
occurrence of any event not specifically denominated in this Section 5 as
reducing the Conversion Price of a series of Preferred Stock that, in the
reasonable exercise of the business judgment of the Board of Directors of the
corporation requires, on equitable principles, the reduction of the Conversion
Price of such series of Preferred Stock, such Conversion Price will be equitably
reduced.


                                       9.
<PAGE>

                  (vi) MISCELLANEOUS CONVERSION PRICE MATTERS. The corporation
shall at all times reserve and keep available out of its authorized but unissued
Common Stock the full number of shares of Common Stock deliverable upon
conversion of all the then outstanding Preferred Stock and shall, at its own
expense, take all such actions and obtain all such permits and orders as may be
necessary to enable the corporation lawfully to issue such Common Stock upon the
conversion of such Preferred Stock.

                  (vii) EXCLUDED EVENTS. Notwithstanding anything in this
Section 5 to the contrary, the Conversion Price of a series of Preferred Stock
shall not be adjusted by virtue of (i) the conversion of shares of Preferred
Stock into shares of Common Stock, (ii) the repurchase of shares from the
corporation's employees, consultants, officers or directors at such person's
cost (or at such other price as may be agreed to by the corporation's Board of
Directors), or (iii) the issuance and sale of, or the grant of Options to
purchase, shares of Common Stock to employees, advisors, directors, officers or
consultants of the corporation or its subsidiaries (including shares issued or
sold pursuant to the exercise of any stock option or purchase pursuant to a
grant under the corporation's stock option plan or stock purchase plan) at any
time which have been approved by the Board of Directors, and none of such shares
referenced in clause (iii) shall be included in any manner in the computation
from time to time of such Conversion Price under Subsection 5(c)(i) or in Common
Stock Outstanding for purposes of such computation.

                  (viii) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of the Conversion Price of a series of Preferred
Stock pursuant to this Section 5, the corporation, at its expense, shall compute
such adjustment or readjustment in accordance with the terms hereof and prepare
and furnish to each holder of Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The corporation shall furnish or cause to
be furnished to such holder a certificate setting forth (A) such adjustment and
readjustment, (B) the Current Conversion Price of such series of Preferred Stock
at the time in effect before and after such adjustment or readjustment, and (C)
the number of shares of Common Stock and the amount, if any, of other property
which at the time would be received upon the conversion of a share of such
series of Preferred Stock.

         (d) OTHER DIVIDENDS. In the event this corporation shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by this corporation or other persons, assets (excluding cash dividends)
or options or rights for which such series of Preferred Stock are not entitled
to adjustment pursuant to subsection 5(c)(i)(c), then, in each such case for the
purpose of this Section 5(d), the holders of such series of Preferred Stock
shall be entitled to a proportionate share of any such distribution as though
they were the holders of the number of shares of Common Stock of the corporation
into which their shares of such series of Preferred Stock are convertible as of
the record date fixed for the determination of the holders of Common Stock of
the corporation entitled to receive such distribution and had they thereafter
during the period from the date of such event to and including the conversion
date, retained such securities receivable by them during such period, subject to
all other adjustments called for during such period under this Section 5 with
respect to the rights of the holders of the Preferred Stock; provided that such
holder actually holds such shares of Preferred Stock on the record date.


                                      10.
<PAGE>

         (e) RECAPITALIZATIONS. If at any time or from time to time there shall
be a recapitalization of the Common Stock (other than a subdivision, combination
or merger or a sale of assets transaction for which each series of Preferred
Stock (including, without limitation, the Series E Preferred Stock) is entitled
to adjustment pursuant to this Section 5), provision shall be made so that the
holders of Preferred Stock shall thereafter be entitled to receive upon
conversion of shares of Preferred Stock the number of shares of stock or other
securities or property of the corporation or otherwise, to which a holder of
Common Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 5 with respect to the rights of
the holders of Preferred Stock after the recapitalization to the end that the
provisions of this Section 5 (including adjustment of the Conversion Price then
in effect and the number of shares purchasable upon conversion of shares of
Preferred Stock) shall be applicable after that event as nearly equivalent as
may be practicable.

         (f) SUCCESSIVE CHANGES. The above provisions of this Section 5 shall
similarly apply to successive issuances, deemed issuances, dividends, sales or
other distributions, subdivisions and combinations on or of the Common Stock
after the Issuance Date.

         (g) NO IMPAIRMENT. The corporation will not, by amendment of this
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 5 and in the taking of all such action as may
be necessary or appropriate in order to protect the conversion rights of the
holders of Preferred Stock against impairment.

         (h) NO FRACTIONAL SHARES. No fractional shares shall be issued upon
conversion of shares of Preferred Stock and the number of shares of Common Stock
to be issued shall be rounded to the next smaller whole share. Whether or not
fractional shares are issuable upon such conversion shall be determined on the
basis of the total number of shares of Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock issuable
upon such aggregate conversion. The value of any fractional share issuable upon
conversion shall be paid in cash by the corporation.

         (i) AUTOMATIC CONVERSION. Immediately upon (a) the closing of the
corporation's registration statement on Form S-1 pursuant to which Common Stock
is sold to the public by the corporation (or selling stockholders, if any) in a
firmly underwritten public offering registered under the Securities Act of 1933,
as amended, at a per share public offering price of not less than $3.50
(equitably adjusted for any stock split, combination or similar event) and an
aggregate public offering price not less than $15,000,000, or (b) the conversion
of at least fifty percent (50%) of the then outstanding shares of Preferred
Stock, each share of Preferred Stock shall automatically be converted into
shares of Common Stock at the Conversion Price for such Preferred Stock then in
effect. On and after said conversion date, notwithstanding that any certificates
for the shares of Preferred Stock shall not have been surrendered for
conversion, the shares of Preferred Stock evidenced thereby shall be deemed to
be no longer outstanding, and all rights with respect thereto shall forthwith
cease and terminate, except only the rights of the



                                      11.
<PAGE>

holder (i) to receive the shares of Common Stock to which such holder shall be
entitled upon conversion thereof, (ii) to receive the amount of cash payable in
respect of any fractional share of Common Stock to which such holder shall be
entitled, and (iii) with respect to dividends declared but unpaid on Preferred
Stock prior to such conversion date. In the event that any holder of Preferred
Stock presents such holder's certificate therefor for surrender to the Company
or its transfer agent upon such conversion, a certificate for the number of
shares of Common Stock into which the shares of Preferred Stock surrendered were
convertible on such conversion date promptly will be issued and delivered to
such holder.

         (j) MERGER: SALE OF CORPORATION. In the event, after the Issuance Date
of any proposed consolidation of the corporation with, or merger of the
corporation with or into another corporation (other than a consolidation or
merger in which the corporation is the continuing corporation, the stockholders
of the corporation immediately prior to such event own more than fifty percent
(50%) of the voting and capital stock of the continuing corporation and which
does not result in any reclassification of, or change in, the outstanding shares
of Common Stock), or in the event of any proposed sale or transfer to another
corporation of all or substantially all of the assets of the corporation, or in
the event of a sale or transfer of a majority of the voting power of the
corporation, any holder of Preferred Stock may, by delivery of election pursuant
to Section 2 above, elect to have each share of Preferred Stock held by such
holder treated for all purposes as if it had been converted into Common Stock on
the earlier of (i) the record date, if any, for voting by holders of Common
Stock on such event and (ii) the date of such event.

6.       REDEMPTION.  The Preferred Stock is not redeemable.

7.       COVENANTS. In addition to any other rights provided by law, the
corporation shall not take any of the following actions.

         (a)      HOLDERS OF PREFERRED STOCK. So long as any shares of Preferred
Stock shall be outstanding, the corporation shall not without first obtaining
the affirmative vote or written consent of the holders of more than fifty
percent (50%) of the outstanding shares of Preferred Stock voting together as a
class:

                  (i) amend or repeal any provision of, or add any provision to,
this Certificate of Incorporation (including any Certificate of Designation) or
the corporation's By-laws if such action would alter or change the preferences,
rights, privileges or powers of or the restrictions provided for the benefit of,
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred
Stock, or increase or decrease the number of shares of Preferred Stock in total
or of any series authorized hereby; provided that any such amendment or repeal
of, or addition to, this Certificate of Incorporation or the corporation's
By-laws which affects the preferences, rights, privileges or powers of one
series of Preferred Stock shall affect each other series of Preferred Stock in a
like manner and on a proportionate basis or a vote will be required for such
adversely affected series of Preferred Stock as a separate class;

                  (ii) authorize or issue shares of any class or series of stock
not authorized herein having any preference or priority as to voting, dividends
or assets (including liquidation) superior to or on a parity with any such
preference or priority of the Series A Preferred Stock,



                                      12.
<PAGE>

Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock or Series F Preferred Stock; or authorize or issue
shares of stock of any class or series of any bonds, debentures, notes or other
obligations convertible into or exchangeable for, or having option rights to
purchase, any shares of stock of this corporation having any preference or
priority as to voting, dividends or assets (including liquidation) superior to
or on a parity with any such preference or priority of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock or Series F Preferred Stock;

                  (iii) reclassify any class or series of any Common Stock into
shares having any preference or priority as to voting, dividends or assets
(including liquidation) superior to or on a parity with any such preference or
priority of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F
Preferred Stock;

                  (iv) apply any of its assets to the redemption, retirement,
purchase or acquisition, directly or indirectly, through subsidiaries (as
defined in Section 425 of the Internal Revenue Code of 1986, as amended (the
"Code") or otherwise, of any shares of any class or series of Common Stock,
except from employees, advisors, officers, directors and consultants of, and
persons performing services for this corporation or its subsidiaries on terms
approved by the Board of Directors upon termination of employment or
association;

                  (v) do any act or thing which would result in taxation of the
holders of shares of the Preferred Stock under Section 305 of the Code (or any
comparable provision of the Code as hereafter from time to time amended);

                  (vi) sell, convey or otherwise dispose of all or substantially
all of its property or business, or merge into or consolidate with any other
corporation (other than a wholly owned subsidiary corporation) or effect any
other transaction or series of related transactions disposing of or transferring
at least 50% of the voting power or capital stock of the corporation; or

                  (vii) increase or decrease the authorized number of shares of
Preferred Stock or Common Stock.

         (b)      HOLDERS OF SERIES D PREFERRED STOCK. So long as any shares of
Series D Preferred Stock shall be outstanding, the corporation shall not without
first obtaining the affirmative vote or written consent of the holders of not
less than a majority of the outstanding shares of Series D Preferred Stock
voting together as a class, apply any of its assets to the purchase of any
shares of any class or series of the corporation's stock having any preference
or priority junior to or on a parity with the Series D Preferred Stock, except
from employees, advisors, officers, directors and consultants of, and persons
performing services for, this corporation or its subsidiaries on terms approved
by the Board of Directors upon termination of employment or association.

         (c)      DIRECTORS.



                                      13.
<PAGE>


         Without first obtaining the approval of at least a majority of the
Board of Directors, the corporation shall not enter into any contracts with, or
make any investments in, persons not resident within North America.

                  (viii) Without first obtaining the approval of a majority of
the directors elected by the holders of Preferred Stock, the corporation shall
not:

                           (1) increase the number of shares reserved for
issuance to employees, consultants and directors of the corporation pursuant to
incentive plans or agreements;

                           (2) incur indebtedness in principal amount in excess
of $1,000,000; or

                           (3) commit or make any capital expenditures in excess
of $200,000 in the aggregate.

         C.       COMMON STOCK.

         1.       DIVIDEND RIGHTS. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.

         2.       LIQUIDATION RIGHTS. Upon the liquidation, dissolution or
winding up of the corporation, the assets, of the corporation shall be
distributed as provided in Section 2 of Division B of this Article 4.

         3.       REDEMPTION.  The Common Stock is not redeemable.

         4.       VOTING RIGHTS. The holder of each share of Common Stock shall
have the right to one vote and shall be entitled to notice of any stockholders'
meeting in accordance with the By-laws of this corporation, and shall be
entitled to vote, or act by written consent, upon such matters and in such
manner as may be provided by law. With respect to the election of directors, the
holders of Common Stock shall vote in the same manner as provided in Section
3(b)(ii) herein.

         5.       NO PREEMPTIVE RIGHTS. The holders of the Common Stock shall
not by virtue of this Certificate of Incorporation have any preemptive rights.

                                    ARTICLE 5

         The corporation is to have perpetual existence.

                                    ARTICLE 6

         In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware:



                                      14.
<PAGE>

         A. The board of directors of the corporation is expressly authorized to
adopt, amend or repeal the By-laws of the corporation; provided, however, that
the By-laws may only be amended in accordance with the provisions thereof and
the provisions herein.

         B. Elections of directors need not be by written ballot unless the
By-laws of the corporation shall so provide.

         C. The books of the corporation may be kept at such place within or
without the State of Delaware as the By-laws of the corporation may provide or
as may be designated from time to time by the board of directors of the
corporation.

                                    ARTICLE 7

         Whenever a compromise or arrangement is proposed between the
corporation and its creditors or any class of them and/or between the
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the corporation or of any creditor or stockholder thereof or on the
application of any receivers appointed for the corporation under the provisions
of section 291 of Title 8 of the Delaware Code or on the application of trustees
in dissolution or of any receiver or receivers appointed for the corporation
under the provisions of section 279 of Title 8 of the Delaware Code order a
meeting of the creditors or class of creditors, and/or the stockholders or class
of stockholders of the corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority, in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall if sanctioned by the
court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the corporation, as the case may be, and also on the
corporation.

         A. NO PERSONAL LIABILITY. A director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (1) for any
breach of the director's duty of loyalty to the corporation and its
stockholders; (2) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law; (3) under section 174 of
the Delaware General Corporation law, or (4) for any transaction from which the
director derived an improper personal benefit.

         B. INDEMNIFICATION. Each person who is or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held



                                      15.
<PAGE>

harmless by the corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the corporation to provide broader indemnification rights than said law
permitted the corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in the
second paragraph hereof, the corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof), was authorized by the
Board of Directors of the corporation. The right to indemnification conferred in
this section shall be a contract right and shall include the right to be paid by
the corporation for any expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the Delaware
General Corporation Law requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this section or otherwise. The corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.

         If a claim under the first paragraph of this section is not paid in
full by the corporation within thirty (30) days after a written claim has been
received by the corporation, the claimant may at any time thereafter bring suit
against the corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense in any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the corporation) that the
claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law for the corporation to indemnity the
claimant for the amount claimed, but the burden of proving such defense shall be
on the corporation. Neither the failure of the corporation (including its Board
of Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.

         The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
section shall not be exclusive of



                                      16.
<PAGE>

any other right which any person may have or hereafter acquire under any
statute, provision of this Certificate of Incorporation, by-law, agreement, vote
of stockholders or disinterested directors or otherwise.

         C. INSURANCE. The corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.

         D. REPEAL AND MODIFICATION. Any repeal or modification of the foregoing
provisions of this Article 7 shall not adversely affect any right or protection
of a director, officer, employee or agent of the corporation existing at the
time of such repeal or modification.

         E. VOTE REQUIRED TO AMEND OR REPEAL. The amendment or repeal of this
Article 7 shall require the approval of the holders of shares representing at
least sixty six and two-thirds percent (66-2/3%) of the shares of the
corporation entitled to vote in the election of directors, voting as one class.

                                    ARTICLE 8

         Subject to the express provisions hereof, this corporation reserves the
right to amend or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon a stockholder herein are granted subject to this
reservation.

                                      *****
         FOURTH: This Amended and Restated Certificate of Incorporation was duly
adopted by the Board of Directors of the corporation.

         FIFTH: This Amended and Restated Certificate of Incorporation was duly
adopted by the written consent of a majority of the stockholders of the
corporation in accordance with Sections 242 and 245 of the General Corporation
Law of the State of Delaware and written notice of such action has been given as
provided in Section 228.


                                      17.
<PAGE>




         IN WITNESS WHEREOF, AeroGen, Inc. has caused this certificate to be
signed by the undersigned officer, thereunto duly authorized, this 5TH day of
JULY, 2000.



                                          By:  /s/ Jane Shaw
                                               ---------------------------------
                                               Jane Shaw
                                               Chairman and CEO





                                      18.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.2
<SEQUENCE>3
<FILENAME>ex-3_2.txt
<DESCRIPTION>EXHIBIT 3.2
<TEXT>

<PAGE>

                                                                     EXHIBIT 3.2

                              AMENDED AND RESTATED
                          CERTIFICATE OF INCORPORATION
                                       OF
                                  AEROGEN, INC.


         AEROGEN, INC., a corporation organized and existing under the laws of
the state of Delaware (the "Corporation") hereby certifies that:

         1. The name of the Corporation is AeroGen, Inc. The name under which
this corporation was originally incorporated is AeroGen, Inc.

         2. The date of filing of the Corporation's original Certificate of
Incorporation was March 12, 1998.

         3. The Amended and Restated Certificate of Incorporation of the
Corporation as provided in Exhibit A hereto was duly adopted in accordance
with the provisions of Section 242 and Section 245 of the General Corporation
Law of the State of Delaware by the Board of Directors of the Corporation.

         4. Pursuant to Section 245 of the Delaware General Corporation Law,
approval of the stockholders of the Corporation has been obtained.

         5. The Amended and Restated Certificate of Incorporation so adopted
reads in full as set forth in Exhibit A attached hereto and is hereby
incorporated by reference.

         IN WITNESS WHEREOF, the undersigned has signed this certificate this
___ day of ______, 2000, and hereby affirms and acknowledges under penalty of
perjury that the filing of this Amended and Restated Certificate of
Incorporation is the act and deed of AeroGen, Inc.

                                              AEROGEN,  INC.



                                              By
                                                -------------------------------
                                                    Jane E. Shaw
                                                    Chief Executive Officer


                                       1.
<PAGE>

                                                                      EXHIBIT A

                AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
                                OF AEROGEN, INC.
                             A DELAWARE CORPORATION

                                   ARTICLE I.

         The name of the corporation is AEROGEN, INC.

                                  ARTICLE II.

         The address of the corporation's registered office in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle. The
name of its registered agent at such address is The Corporation Trust Company.

                                  ARTICLE III.

         The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of Delaware ("DGCL").

                                  ARTICLE IV.

     A. CLASSES OF STOCK. This corporation is authorized to issue two classes
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
The total number of shares which the corporation is authorized to issue One
Hundred Million (100,000,000), of which Ninety Five Million (95,000,000)
shares shall be Common Stock, par value $0.001 per share, and Five Million
(5,000,000) shares shall be Preferred Stock, par value $0.001 per share.

     B. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The Preferred
Stock may be issued from time to time in one or more series. The Board of
Directors is hereby authorized, by filing a certificate (a "Preferred Stock
Designation") pursuant to DGCL, to fix or alter from time to time the
designation, powers, preferences and rights (voting or otherwise) granted
upon, and the qualifications, limitations or restrictions of, any wholly
unissued series of Preferred Stock, and to establish from time to time the
number of shares constituting any such series or any of them; and to increase
or decrease the number of shares of any series subsequent to the issuance of
shares of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be decreased in
accordance with the foregoing sentence, the shares constituting such decrease
shall resume the status that they had prior to the adoption of the resolution
originally fixing the number of shares of such series.

                                   ARTICLE V.

         For the management of the business and for the conduct of the affairs
of the corporation, and in further definition, limitation and regulation of
the powers of the corporation, of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided that:


                                       2.
<PAGE>

     A. MANAGEMENT OF BUSINESS. The management of the business and the conduct
of the affairs of the corporation shall be vested in its Board of Directors.
The number of directors which shall constitute the whole Board of Directors
shall be fixed exclusively by one or more resolutions adopted by the Board of
Directors.

     B. BOARD OF DIRECTORS.

          1. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, the
directors shall be divided into three classes designated as Class I, Class II
and Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors.
At the first annual meeting of stockholders following the closing of the
initial public offering pursuant to an effective registration statement under
the Securities Act of 1933, as amended, covering the offer and sale of Common
Stock to the public (the "Initial Public Offering"), the term of office of the
Class I directors shall expire and Class I directors shall be elected for a
full term of three years. At the second annual meeting of stockholders
following the Initial Public Offering, the term of office of the Class II
directors shall expire and Class II directors shall be elected for a full term
of three years. At the third annual meeting of stockholders following the
Initial Public Offering, the term of office of the Class III directors shall
expire and Class III directors shall be elected for a full term of three
years. At each succeeding annual meeting of stockholders, directors shall be
elected for a full term of three years to succeed the directors of the class
whose terms expire at such annual meeting. During such time or times that the
corporation is subject to Section 2115(b) of the California General
Corporation Law ("CGCL"), this Section B.1. of this Article V shall become
effective and be applicable only when the corporation is a "listed"
corporation within the meaning of Section 301.5 of the CGCL.

          2. In the event that the corporation is subject to Section 2115(b)
of the CGCL AND is not a "listed" corporation or ceases to be a "listed"
corporation under Section 301.5 of the CGCL, Section B.1. of this Article V
shall not apply and all directors shall be shall be elected at each annual
meeting of stockholders to hold office until the next annual meeting.

          3. No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation is subject to Section 2115(b) of the CGCL AND is not
a "listed" corporation or ceases to be a "listed" corporation under Section
301.5 of the CGCL. During this time, every stockholder entitled to vote at an
election for directors may cumulate such stockholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such stockholder's shares are
otherwise entitled, or distribute the stockholder's votes on the same
principle among as many candidates as such stockholder thinks fit. No
stockholder, however, shall be entitled to so cumulate such stockholder's
votes unless (i) the names of such candidate or candidates have been placed in
nomination prior to the voting and (ii) the stockholder has given notice at
the meeting, prior to the voting, of such stockholder's intention to cumulate
such stockholder's votes. If any stockholder has given proper notice to
cumulate votes, all stockholders may cumulate their votes for any candidates
who have been properly placed in nomination. Under cumulative voting, the
candidates receiving the highest number of votes, up to the number of
directors to be elected, are elected.


                                       3.
<PAGE>

     Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.

     C. REMOVAL OF DIRECTORS.

          1. During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote
of the holders of at least a majority of the outstanding shares entitled to
vote on such removal; PROVIDED, HOWEVER, that unless the entire Board is
removed, no individual director may be removed when the votes cast against
such director's removal, or not consenting in writing to such removal, would
be sufficient to elect that director if voted cumulatively at an election
which the same total number of votes were cast (or, if such action is taken by
written consent, all shares entitled to vote were voted) and the entire number
of directors authorized at the time of such director's most recent election
were then being elected.

          2. At any time or times that the corporation is not subject to
Section 2115(b) of the CGCL and subject to any limitations imposed by law,
Section C.1. above shall no longer apply and removal shall be as provided in
Section 141(k) of the DGCL.

     D. VACANCIES.

          1. Subject to the rights of the holders of any series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a
majority of the directors then in office, even though less than a quorum of
the Board of Directors, and not by the stockholders. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred
and until such director's successor shall have been elected and qualified.

          2. If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a
majority of the whole board (as constituted immediately prior to any such
increase), the Delaware Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent (10%) of the total
number of the shares at the time outstanding having the right to vote for such
directors, summarily order an election to be held to fill any such vacancies
or newly created directorships, or to replace the directors chosen by the
directors then in offices as aforesaid, which election shall be governed by
Section 211 of the DGCL.


                                       4.
<PAGE>

          3. At any time or times that the corporation is subject to Section
2115(b) of the CGCL, if, after the filling of any vacancy by the directors
then in office who have been elected by stockholders shall constitute less
than a majority of the directors then in office, then:

                 (a) Any holder or holders of an aggregate offive percent (5%)
or more of the total number of shares at the time outstanding having the right
to vote for those directors may call a special meeting of stockholders; or

                 (b) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in
accordance with Section 305(c) of the CGCL. The term of office of any director
shall terminate upon that election of a successor.

     E. BYLAW AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the voting stock of the
corporation entitled to vote. The Board of Directors shall also have the power
to adopt, amend, or repeal Bylaws.

     F. BALLOTS. The directors of the corporation need not be elected by
written ballot unless the Bylaws so provide.

     G. ACTION BY STOCKHOLDERS. No action shall be taken by the stockholders
of the corporation except at an annual or special meeting of stockholders
called in accordance with the Bylaws; no action shall be taken by the
stockholders by written consent.

     H.       ADVANCE NOTICE. Advance notice of stockholder nominations for
the election of directors and of business to be brought by stockholders before
any meeting of the stockholders of the corporation shall be given in the
manner provided in the Bylaws of the corporation.

     I.       SPECIAL MEETINGS OF STOCKHOLDERS.  Special meetings of the
stockholders may be called only by the Chairman of the Board, the Chief
Executive Officer, or a majority of the members of the Board of Directors.

                                  ARTICLE VI.

     A. NO PERSONAL LIABILITY. A director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (1) for any
breach of the director's duty of loyalty to the corporation and its
stockholders; (2) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law; (3) under section 174 of
the Delaware General Corporation law, or (4) for any transaction from which
the director derived an improper personal benefit.

     B. INDEMNIFICATION. Each person who is or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a
person of whom he or she is the legal representative, is or was a director or
officer of the corporation or is


                                       5.
<PAGE>

or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, shall be indemnified
and held harmless by the corporation to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the corporation to provide broader indemnification rights
than said law permitted the corporation to provide prior to such amendment),
against all expense, liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
that, except as provided in the second paragraph hereof, the corporation shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof), was authorized by the Board of Directors of the
corporation. The right to indemnification conferred in this section shall be a
contract right and shall include the right to be paid by the corporation for
any expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the Delaware General Corporation Law
requires, the payment of such expenses incurred by a director or officer in
his or her capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the corporation of an undertaking, by or on behalf of such director or
officer, to repay all amounts so advanced if it shall ultimately be determined
that such director or officer is not entitled to be indemnified under this
section or otherwise. The corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the corporation
with the same scope and effect as the foregoing indemnification of directors
and officers.

         If a claim under the first paragraph of this section is not paid in
full by the corporation within thirty (30) days after a written claim has been
received by the corporation, the claimant may at any time thereafter bring
suit against the corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense in any such
action (other than an action brought to enforce a claim for expenses incurred
in defending any proceeding in advance of its final disposition where the
required undertaking, if any is required, has been tendered to the
corporation) that the claimant has not met the standards of conduct which make
it permissible under the Delaware General Corporation Law for the corporation
to indemnity the claimant for the amount claimed, but the burden of proving
such defense shall be on the corporation. Neither the failure of the
corporation (including its Board of Directors, independent legal counsel, or
its stockholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual determination by
the corporation (including its Board of Directors, independent legal counsel,
or its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a


                                       6.
<PAGE>

defense to the action or create a presumption that the claimant has not met
the applicable standard of conduct.

         The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
section shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of this Certificate of
Incorporation, by-law, agreement, vote of stockholders or disinterested
directors or otherwise.

     C. INSURANCE. The corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the corporation
would have the power to indemnify such person against such expense, liability
or loss under the Delaware General Corporation Law.

     D. REPEAL AND MODIFICATION. Any repeal or modification of the foregoing
provisions of this Article 7 shall not adversely affect any right or
protection of a director, officer, employee or agent of the corporation
existing at the time of such repeal or modification.

     E. VOTE REQUIRED TO AMEND OR REPEAL. The amendment or repeal of this
Article 7 shall require the approval of the holders of shares representing at
least sixty six and two-thirds percent (66-2/3%) of the shares of the
corporation entitled to vote in the election of directors, voting as one class.

                                  ARTICLE VII.

     A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner
now or hereafter prescribed by statute, except as provided in paragraph B of
this Article VII, and all rights conferred upon the stockholders herein are
granted subject to this reservation.

     B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the voting stock required by law, this
Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
voting stock, voting together as a single class, shall be required to alter,
amend or repeal Articles V, VI and VII.


                                       7.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.3
<SEQUENCE>4
<FILENAME>ex-3_3.txt
<DESCRIPTION>EXHIBIT 3.3
<TEXT>

<PAGE>

                                                                     EXHIBIT 3.3




















                                     BYLAWS

                                       OF

                            AEROGEN (DELAWARE), INC.

                            (A DELAWARE CORPORATION)






<PAGE>


                                                       TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                                               PAGE
<S>               <C>                                                                                          <C>
ARTICLE 1             OFFICES.....................................................................................1

         1.1      Principal Office................................................................................1

         1.2      Additional Offices..............................................................................1

ARTICLE 2             MEETING OF STOCKHOLDERS.....................................................................1

         2.1      Place of Meeting................................................................................1

         2.2      Annual Meeting..................................................................................1

         2.3      Special Meetings................................................................................1

         2.4      Action Without a Meeting........................................................................1

         2.5      Notice of Meetings..............................................................................2

         2.6      Business Matter of a Special Meeting............................................................2

         2.7      List of Stockholders............................................................................2

         2.8      Organization and Conduct of Business............................................................2

         2.9      Quorum and Adjournments.........................................................................2

         2.10     Voting Rights...................................................................................3

         2.11     Majority Vote...................................................................................3

         2.12     Record Date for Stockholder Notice and Voting...................................................3

         2.13     Proxies.........................................................................................4

         2.14     Inspectors of Election..........................................................................4

ARTICLE 3             DIRECTORS...................................................................................4

         3.1      Number; Qualifications..........................................................................4

         3.2      Vacancies.......................................................................................4

         3.3      Resignation and Removal.........................................................................5

         3.4      Powers..........................................................................................5

         3.5      Chairman of the Board...........................................................................5

         3.6      Place of Meetings...............................................................................5

         3.7      Annual Meetings.................................................................................5

         3.8      Regular Meetings................................................................................5

         3.9      Special Meetings................................................................................5

         3.10     Quorum, Action at Meeting Adjournments..........................................................5

         3.11     Action Without Meeting..........................................................................6


                                                              i.
<PAGE>


                                                       TABLE OF CONTENTS
                                                          (CONTINUED)

                                                                                                               PAGE

         3.12     Telephone Meetings..............................................................................6

         3.13     Committees......................................................................................6

         3.14     Fees and Compensation of Directors..............................................................7

         3.15     Rights of Inspection............................................................................7

ARTICLE 4             OFFICERS....................................................................................7

         4.1      Officers Designated.............................................................................7

         4.2      Election........................................................................................7

         4.3      Tenure..........................................................................................7

         4.4      Compensation....................................................................................7

         4.5      The Chairman of the Board.......................................................................8

         4.6      The Chief Executive Officer.....................................................................8

         4.7      The President...................................................................................8

         4.8      The Vice President..............................................................................8

         4.9      The Secretary...................................................................................8

         4.10     The Assistant Secretary.........................................................................9

         4.11     The Chief Financial Officer.....................................................................9

         4.12     Bond............................................................................................9

         4.13     Delegation of Authority.........................................................................9

ARTICLE 5             NOTICES.....................................................................................9

         5.1      Deliver.........................................................................................9

         5.2      Waiver of Notice...............................................................................10

ARTICLE 6             INDEMNIFICATION............................................................................10

         6.1      Actions Other Than By or in the Right of the Corporation.......................................10

         6.2      Actions By or in the Right of the Corporation..................................................10

         6.3      Success on the Merits..........................................................................11

         6.4      Specific Authorization.........................................................................11

         6.5      Advance Payment................................................................................11

         6.6      Non-Exclusivity................................................................................11

         6.7      Insurance......................................................................................11

         6.8      Severability...................................................................................12


                                                             ii.
<PAGE>


                                                       TABLE OF CONTENTS
                                                          (CONTINUED)

                                                                                                               PAGE

         6.9      Intent of Article..............................................................................12

ARTICLE 7             CAPITAL STOCK..............................................................................12

         7.1      Certificates for Shares........................................................................12

         7.2      Signatures on Certificates.....................................................................12

         7.3      Transfer of Stock..............................................................................12

         7.4      Registered Stockholders........................................................................13

         7.5      Lost, Stolen or Destroyed Certificates.........................................................13

ARTICLE 8             CERTAIN TRANSACTIONS.......................................................................13

         8.1      Transactions with Interested Parties...........................................................13

         8.2      Quorum.........................................................................................14

ARTICLE 9             GENERAL PROVISIONS.........................................................................14

         9.1      Dividends......................................................................................14

         9.2      Dividend Reserve...............................................................................14

         9.3      Checks.........................................................................................14

         9.4      Corporate Seal.................................................................................14

         9.5      Fiscal Year....................................................................................14

         9.6      Execution of Corporate Contracts and Instruments...............................................14

         9.7      Representation of Shares of Other Corporations.................................................14

ARTICLE 10            AMENDMENTS.................................................................................15

</TABLE>

                                                             iii.
<PAGE>

                                     BYLAWS
                                       OF
                            AEROGEN (DELAWARE), INC.

                            (A DELAWARE CORPORATION)



                                    ARTICLE 1

                                     OFFICES

         1.1 PRINCIPAL OFFICE. The initial registered office of the corporation
shall be 1209 Orange Street, Wilmington, Delaware, and the name of the initial
registered agent in charge thereof is The Corporation Trust Company.

         1.2 ADDITIONAL OFFICES. The corporation may also have offices at such
other places, either within or without the State of Delaware, as the Board of
Directors (the "Board") may from time to time designate or the business of the
corporation may require.

                                    ARTICLE 2

                             MEETING OF STOCKHOLDERS

         2.1 PLACE OF MEETING. Meetings of stockholders may be held at such
place, either within or without of the State of Delaware, as may be designated
by or in the manner provided in these Bylaws, or, if not so designated, at the
registered office of the corporation or the principal executive offices of the
corporation.

         2.2 ANNUAL MEETING. Annual meetings of stockholders shall be held each
year at such date and time as shall be designated from time to time by the Board
and stated in the notice of the meeting. At such annual meeting, the
stockholders shall elect a Board and transact such other business as may
properly be brought before the meetings.

         2.3 SPECIAL MEETINGS. Special meetings of the stockholders may be
called for any purpose or purposes, unless otherwise prescribed by the statute
or by the Certificate of Incorporation, at the request of the Chairman of the
Board of Directors, the Chief Executive Officer, the President, the holders of
shares entitled to cast not less than 15% of the votes at such meeting or by a
resolution duly adopted by the affirmative vote of a majority of the Board of
Directors. Such request shall state the purpose or purposes of the proposed
meeting.

         2.4 ACTION WITHOUT A MEETING. Any action which may be taken at any
annual or special meeting of the stockholders of this corporation may be taken
without a meeting, without prior notice, and without a vote, if a consent or
consents in writing, setting forth the action or actions so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Such consent or consents


                                       1.
<PAGE>

shall be delivered to the corporation by hand or certified mail, return receipt
requested, to its principal executive office, or to an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded.

         2.5 NOTICE OF MEETINGS. Written notice of stockholders' meetings,
stating the place, date and time of the meeting and, in the case of a special
meeting, the purpose or purposes for which such special meeting is called, shall
be given to each stockholder entitled to vote at such meeting not less than ten
(10) nor more than sixty (60) days prior to the meeting.

         When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date and time of the adjourned meeting shall be given in conformity herewith. At
any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.

         2.6 BUSINESS MATTER OF A SPECIAL MEETING. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice, except to the extent such notice is waived or is not required.

         2.7 LIST OF STOCKHOLDERS. The officer in charge of the stock ledger of
the corporation or the transfer agent shall prepare and make, at least ten (10)
days before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, at a place within the
city where the meeting is to be held, which place, if other than the place of
the meeting, shall be specified in the notice of the meeting. The list shall
also be produced and kept at the place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present in person
thereat.

         2.8 ORGANIZATION AND CONDUCT OF BUSINESS. The Chairman of the Board or,
in his or her absence, the Chief Executive Officer of the corporation or, in
their absence, such person as the Board may have designated or, in the absence
of such a person, such person as may be chosen by the holders of a majority of
the shares entitled to vote who are present, in person or by proxy, shall call
to order any meeting of the stockholders and act as Chairman of the meeting. In
the absence of the Secretary of the corporation, the Secretary of the meeting
shall be such person as the Chairman appoints.

         The Chairman of any meeting of stockholders shall determine the order
of business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seems to him or her in order.

         2.9 QUORUM AND ADJOURNMENTS. Except where otherwise provided by law or
the Certificate of Incorporation or these Bylaws, the holders of a majority of
the stock issued and outstanding and entitled to vote, present in person or
represented in proxy, shall constitute a


                                       2.
<PAGE>

quorum at all meetings of the stockholders. The stockholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough stockholders to have
less than a quorum if any action taken (other than adjournment) is approved by
at least a majority of the shares required to constitute a quorum. At such
adjourned meeting at which a quorum is present or represented, any business may
be transacted which might have been transacted at the meeting as originally
notified. If, however, a quorum shall not be present or represented at any
meeting of the stockholders, the stockholders entitled to vote thereat who are
present in person or represented by proxy shall have the power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented.

         2.10     VOTING RIGHTS. Unless otherwise provided in the Certificate of
Incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder.

         2.11     MAJORITY VOTE. When a quorum is present at any meeting, the
vote of the holders of a majority of the stock having voting power present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision of the
statutes or of the Certificate of Incorporation or of these Bylaws, a different
vote is required in which case such express provision shall govern and control
the decision of such question.

         2.12     RECORD DATE FOR STOCKHOLDER NOTICE AND VOTING.

                           (i) For purposes of determining the stockholders
entitled to notice of any meeting or to vote, or entitled to receive payment of
any dividend or other distribution, or entitled to exercise any right in respect
of any change, conversion or exchange of stock or for the purpose of any other
lawful action, the Board may fix, in advance, a record date, which shall not be
more than sixty (60) days nor less than ten (10) days before the date of any
such meeting nor more than sixty (60) days before any other action. If the Board
does not so fix a record date, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the business day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the business day next
preceding the day on which the meeting is held.

                           (ii) For purposes of determining the stockholders
entitled to consent to corporate action in writing without a meeting, the board
of directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which date shall not be more than ten (10) days after the date
upon which the resolution fixing such record date is adopted by the board of
directors. If no record date has been fixed by the board of directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the board of directors is
required under Delaware law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation by hand or certified mail, return receipt requested, to its
principal executive office, or to an officer or agent of the corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. If no record date has been fixed by the board of directors


                                       3.
<PAGE>

and prior action by the board of directors is required under Delaware law, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting shall be the close of business on the day on which
the board of directors adopts the resolution taking such prior action.

         2.13 PROXIES. Every person entitled to vote for directors or on any
other matter shall have the right to do so either in person or by one or more
agents authorized by a written proxy signed by the person and filed with the
Secretary of the corporation. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, before the vote pursuant to that proxy, by a
writing delivered to the corporation stating that the proxy is revoked or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by, the person executing the proxy; or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the corporation before the
vote pursuant to that proxy is counted; provided, however, that no proxy shall
be valid after the expiration of three years from the date of the proxy, unless
otherwise provided in the proxy.

         2.14 INSPECTORS OF ELECTION. The corporation shall, in advance of any
meeting of stockholders, appoint one or more inspectors of election to act at
the meeting and make a written report thereof. The corporation may designate one
or more persons to act as alternate inspectors to replace any inspector who
fails to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his or her ability.

                                    ARTICLE 3

                                    DIRECTORS

         3.1 NUMBER; QUALIFICATIONS. The Board of Directors of the corporation
shall consist of not less than three (3) members nor more than eight (8)
members, the exact number thereof to be determined from time to time by
resolution of the Board. At each annual meeting of the stockholders, directors
shall be elected to replace those directors whose terms are then expiring,
except as otherwise provided in this Section and each director so elected shall
hold office until such director's successor is elected and qualified, unless
sooner displaced.

         Directors shall serve as provided in the Certificate of Incorporation
of the corporation. Directors need not be stockholders.

         3.2 VACANCIES. Vacancies and newly created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office until the next
annual election at which the term of the class to which they have been elected
expires and until their successors are duly elected and shall qualify, unless
sooner


                                       4.
<PAGE>

displaced. If there are no directors in office, then an election of directors
may be held in the manner provided by statute. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by law
or these Bylaws, may exercise the powers of the full Board until the vacancy is
filled.

         3.3 RESIGNATION AND REMOVAL. Any director may resign at any time upon
written notice to the corporation at its principal place of business or to the
Chief Executive Officer or the Secretary. Such resignation shall be effective
upon receipt of such notice unless the notice specifies such resignation to be
effective at some other time or upon the happening of some other event. Any
director or the entire Board of Directors may be removed, with or without cause,
by the holders of a majority of the shares then entitled to vote at an election
of directors, unless otherwise specified by law or the Certificate of
Incorporation.

         3.4 POWERS. The business of the corporation shall be managed by or
under the direction of the Board which may exercise all such powers of the
corporation and do all such lawful acts and things which are not by statute or
by the Certificate of Incorporation or by these Bylaws directed or required to
be exercised or done by the stockholders.

         3.5 CHAIRMAN OF THE BOARD. If the Board of Directors appoints a
Chairman of the Board, such Chairman shall, when present, preside at all
meetings of the stockholders and the Board. The Chairman shall perform such
duties and possess such powers as are customarily vested in the office of the
Chairman of the Board or as may be vested in the Chairman by the Board of
Directors.

         3.6 PLACE OF MEETINGS. The Board may hold meetings, both regular and
special, either within or without the State of Delaware.

         3.7 ANNUAL MEETINGS. The annual meetings of the Board shall be held
immediately following the annual meeting of stockholders, and no notice of such
meeting shall be necessary to the Board, provided a quorum shall be present. The
annual meetings shall be for the purposes of organization, and an election of
officers and the transaction of other business.

         3.8 REGULAR MEETINGS. Regular meetings of the Board may be held without
notice at such time and place as may be determined from time to time by the
Board; provided that any director who is absent when such a determination is
made shall be given prompt notice of such determination.

         3.9 SPECIAL MEETINGS. Special meetings of the Board may be called by
the Chairman of the Board, the Chief Executive Officer, the President, the
Secretary or on the written request of two or more directors, or by one director
in the event that there is only one director in office. Four hours' notice to
each director, either personally or by telegram, cable, telecopy, commercial
delivery service, telex or similar means sent to such director's business or
home address, or two days' notice by written notice deposited in the mail or
delivered by a nationally recognized courier service, shall be given to each
director by the secretary or by the officer or one of the directors calling the
meeting.

         3.10 QUORUM, ACTION AT MEETING ADJOURNMENTS. At all meetings of the
Board, a majority of directors then in office, but in no event less than one
third (1/3) of the entire Board,


                                       5.
<PAGE>

shall constitute a quorum for the transaction of business, and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board, except as may be otherwise specifically provided
by law or by the Certificate of Incorporation. For purposes of this section, the
term "entire Board" shall mean the number of directors last fixed by the
stockholders or directors, as the case may be, in accordance with law and these
Bylaws; provided, however, that if less than all the number so fixed of
directors were elected, the "entire Board" shall mean the greatest number of
directors so elected to hold office at any one time pursuant to such
authorization. If a quorum shall not be present at any meeting of the Board, a
majority of the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting until a quorum shall
be present.

         3.11 ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting, if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.

         3.12 TELEPHONE MEETINGS. Unless otherwise restricted by the Certificate
of Incorporation or these Bylaws, any member of the Board or any committee
thereof may participate in a meeting of the Board or of any committee, as the
case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.

         3.13 COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee, to the extent provided in the resolution of the Board, shall
have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to amending the
Restated Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, recommending
to the stockholders a dissolution of the corporation or a revocation of a
dissolution, or amending the bylaws of the corporation; and, unless the
resolution designating such committee or the Restated Certificate of
Incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board. Each committee shall keep
regular minutes of its meetings and make such reports to the Board as the Board
may request. Except as the Board may otherwise determine, any committee may make
rules for the conduct of its business, but unless otherwise provided by the
directors or in such rules, its business shall be conducted as nearly as
possible in the same manner as is provided in these Bylaws for the conduct of
its business by the Board.


                                       6.
<PAGE>

         3.14 FEES AND COMPENSATION OF DIRECTORS. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, the Board shall have the
authority to fix the compensation of directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board and may be paid a
fixed sum for attendance at each meeting of the Board or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.

         3.15 RIGHTS OF INSPECTION. Any director shall have the right to examine
the corporation's stock ledger, a list of its stockholders and its other books
and records for a purpose reasonably related to his or her position as a
director.

                                    ARTICLE 4

                                    OFFICERS

         4.1 OFFICERS DESIGNATED. The officers of the corporation shall be
chosen by the Board of Directors and shall be a Chief Executive Officer, a
Secretary and a Chief Financial Officer or Treasurer. The Board may also choose
a Chairman of the Board, a President, a Chief Operating Officer, a Chief
Technical Officer, one or more Vice Presidents, and one or more assistant
Secretaries. Any number of offices may be held by the same person, unless the
Certificate of Incorporation or these Bylaws otherwise provide.

         4.2 ELECTION. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a Chief Executive Officer, a
Secretary and a Chief Financial Officer or Treasurer. Other officers may be
appointed by the Board of Directors at such meeting at any other meeting, or by
written consent or may be appointed by the Chief Executive Officer pursuant to a
delegation of authority from the Board of Directors.

         4.3 TENURE. The officers of the corporation shall hold office until
their successors are chosen and qualify, unless a different term is specified in
the vote choosing or appointing such officer, or until such officer's earlier
death, resignation or removal. Any officer elected or appointed by the Board of
Directors or by the Chief Executive Officer may be removed with or without cause
at any time by the affirmative vote of a majority of the Board of Directors or a
committee duly authorized to do so, except that any officer appointed by the
Chief Executive Officer may also be removed at any time by the Chief Executive
Officer. Any vacancy occurring in any office of the corporation may be filled by
the Board of Directors, at its discretion. Any officer may resign by delivering
such officer's written resignation to the corporation at its principal place of
business or to the Chief Executive Officer or the Secretary. Such resignation
shall be effective upon receipt unless it is specified to be effective at some
other time or upon the happening of some other event.

         4.4 COMPENSATION. The salaries of all officers of the corporation shall
be fixed from time to time by the Board and no officer shall be prevented from
receiving a salary because such officer is also a director of the corporation.


                                       7.
<PAGE>

         4.5 THE CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an
officer be elected, shall, if present, perform such other powers and duties as
may be assigned to such officer from time to time by the Board. If there is no
Chief Executive Officer of the corporation, the Chairman of the Board shall also
be the Chief Executive Officer of the corporation and shall have the powers and
duties prescribed in Section 4.6 of this Article 4.

         4.6 THE CHIEF EXECUTIVE OFFICER. Subject to such supervisory powers, if
any, as may be given by the Board to the Chairman of the Board, if there be such
an officer, the Chief Executive Officer shall preside at all meetings of the
stockholders and in the absence of the Chairman of the Board, or if there be
none, at all meetings of the Board, shall have general and active management of
the business of the corporation and shall see that all orders and resolutions of
the Board are carried into effect. He or she shall execute bonds, mortgages and
other contracts requiring a seal, under the seal of the corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the Board to some other officer or agent of the corporation.

         4.7 THE PRESIDENT. The President shall, in the event there be no Chief
Executive Officer or in the absence of the Chief Executive Officer or in the
event of his or her disability or refusal to act, perform the duties of the
Chief Executive Officer, and when so acting, shall have the powers of and
subject to all the restrictions upon the Chief Executive Officer. The President
shall perform such other duties and have such other powers as may from time to
time be prescribed for them by the Board, the Chairman of the Board, the Chief
Executive Officer or these Bylaws.

         4.8 THE VICE PRESIDENT. The Vice President (or in the event there be
more than one, the Vice Presidents in the order designated by the directors, or
in the absence of any designation, in the order of their election), shall, in
the absence of the President or in the event of his or her disability or refusal
to act, perform the duties of the President, and when so acting, shall have the
powers of and subject to all the restrictions upon the President. The Vice
President(s) shall perform such other duties and have such other powers as may
from time to time be prescribed for them by the Board, the President, the
Chairman of the Board or these Bylaws.

         4.9 THE SECRETARY. The Secretary shall attend all meetings of the Board
and the stockholders and record all votes and the proceedings of the meetings in
a book to be kept for that purpose and shall perform like duties for the
standing committees, when required. The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and special meetings of the Board,
and shall perform such other duties as may from time to time be prescribed by
the Board, the Chairman of the Board or the Chief Executive Officer, under whose
supervision he or she shall act. The Secretary shall have custody of the seal of
the corporation, and the Secretary, or an Assistant Secretary, shall have
authority to affix the same to any instrument requiring it, and, when so
affixed, the seal may be attested by his or her signature or by the signature of
such Assistant Secretary. The Board may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing thereof
by his or her signature. The Secretary shall keep, or cause to be kept, at the
principal executive office or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the Board, a share register, or a
duplicate share register, showing the names of all stockholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates


                                       8.
<PAGE>

issued for the same and the number and date of cancellation of every certificate
surrendered for cancellation.

         4.10 THE ASSISTANT SECRETARY. The Assistant Secretary, or if there be
more than one, the Assistant Secretaries in the order designated by the Board
(or in the absence of any designation, in the order of their election) shall, in
the absence of the Secretary or in the event of his or her inability or refusal
to act, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as may from time to time be
prescribed by the Board.

         4.11 THE CHIEF FINANCIAL OFFICER. The Chief Financial Officer (or
Treasurer if the chief financial and accounting officer has such title) shall
have the custody of the Corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the corporation in such depositories as may be designated
by the Board. The Chief Financial Officer shall disburse the funds of the
corporation as may be ordered by the Board, taking proper vouchers for such
disbursements, and shall render to the Chief Executive Officer and the Board, at
its regular meetings, or when the Board so requires, an account of all his or
her transactions as Chief Financial Officer and of the financial condition of
the corporation.

         4.12 BOND. If required by the Board of Directors, any officer shall
give the corporation a bond in such sum and with such surety or sureties and
upon such terms and conditions as shall be satisfactory to the Board of
Directors, including without limitation a bond for the faithful performance of
the duties of such officer's office and for the restoration to the corporation
of all books, papers, vouchers, money and other property of whatever kind in
such officer's possession or under such officer's control and belonging to the
corporation.

         4.13 DELEGATION OF AUTHORITY. The Board of Directors may from time to
time delegate the powers or duties of any officer to any other officers or
agents, notwithstanding any provision hereof.

                                    ARTICLE 5

                                     NOTICES

         5.1 DELIVER. Whenever, under the provisions of law, or of the Restated
Certificate of Incorporation or these Bylaws, written notice is required to be
given to any director or stockholder, such notice may be given by mail,
addressed to such director or stockholder, at such person's address as it
appears on the records of the corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail or delivered to a nationally recognized
courier service. Unless written notice by mail is required by law, written
notice may also be given by telegram, cable, telecopy, commercial delivery
services, telex or similar means, addressed to such director or stockholder at
such person's address as it appears on the records of the corporation, in which
case such notice shall be deemed to be given when delivered into the control of
the persons charged with effecting such transmission, the transmission charge to
be paid by the corporation or the person sending


                                       9.
<PAGE>

such notice and not by the addressee. Oral notice or other in-hand delivery, in
person or by telephone, shall be deemed given at the time it is actually given.

         5.2 WAIVER OF NOTICE. Whenever any notice is required to be given under
the provisions of law or of the Restated Certificate of Incorporation or of
these Bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. In addition to the foregoing, notice of a meeting
need not be given to any director who signs a waiver of notice or a consent to
holding the meeting or an approval of the minutes thereof, whether before or
after the meeting, or who attends the meeting without protesting, prior thereto
or at its commencement, the lack of notice to such director. All such waivers,
consents and approvals executed under this Section 5.2 shall be filed with the
corporate records or made a part of the minutes of the meeting.

                                    ARTICLE 6

                                 INDEMNIFICATION

         6.1 ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. The
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceedings, had no reasonable cause to believe such person's conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that such
person's conduct was unlawful.

         6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
such person is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of such person's duty to
the corporation unless and only to the


                                      10.
<PAGE>

extent that the Court of Chancery of the State of Delaware or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery of the State of Delaware or such other court shall
deem proper.

         6.3 SUCCESS ON THE MERITS. To the extent that any person described in
Sections 6.1 or 6.2 of this Article 6 has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in said
Sections, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.

         6.4 SPECIFIC AUTHORIZATION. Any indemnification under Sections 6.1 or
6.2 of this Article 6 (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of any person described in said Sections is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in said Sections. Such determination shall be made (1) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders of the corporation.

         6.5 ADVANCE PAYMENT. Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding as authorized by the Board
of Directors in the manner provided for in Section 6.4 of this Article 6 upon
receipt of an undertaking by or on behalf of any person described in said
Section to repay such amount unless it shall ultimately be determined that such
person is entitled to indemnification by the corporation as authorized in this
Article 6.

         6.6 NON-EXCLUSIVITY. The indemnification provided by this Article 6
shall not be deemed exclusive of any other rights to which those indemnified may
be entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in such person's official capacity and
as to action in another capacity while holding such office, and shall continue
as to a person who has ceased to be director, officer, employee or agent of the
corporation and shall inure to the benefit of the heirs, executors and
administrators of such a person.

         6.7 INSURANCE. The Board of Directors may authorize, by a vote of the
majority of the full board, the corporation to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under the provisions of this
Article 6.


                                      11.
<PAGE>

         6.8 SEVERABILITY. If any word, clause or provision of this Article 6 or
any award made hereunder shall for any reason be determined to be invalid, the
provisions hereof shall not otherwise be affected thereby but shall remain in
full force and effect.

         6.9 INTENT OF ARTICLE. The intent of this Article 6 is to provide for
indemnification to the fullest extent permitted by Section 145 of the General
Corporation Law of the State of Delaware. To the extent that such Section or any
successor Section may be amended or supplemented from time to time, this Article
6 shall be amended automatically and construed so as to permit indemnification
to the fullest extent from time to time permitted by law.

                                    ARTICLE 7

                                  CAPITAL STOCK

         7.1 CERTIFICATES FOR SHARES. The shares of the corporation shall be
represented by certificates or shall be uncertificated. Certificates shall be
signed by, or in the name of the corporation by, the Chairman of the Board, the
Chief Executive Officer, the President or a Vice President and by the Chief
Financial Officer, the Treasurer), the Secretary or an Assistant Secretary of
the corporation. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if such
person were such officer, transfer agent or registrar at the date of issue.
Certificates may be issued for partly paid shares and in such case upon the face
or back of the certificates issued to represent any such partly paid shares, the
total amount of the consideration to be paid therefor, and the amount paid
thereon shall be specified.

         Within a reasonable time after the issuance or transfer of
uncertificated stock, the corporation shall send to the registered owner thereof
a written notice containing the information required by the General Corporation
Law of the State of Delaware or a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative participating, optional or other special rights of each
class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.

         7.2 SIGNATURES ON CERTIFICATES. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.

         7.3 TRANSFER OF STOCK. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate of shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Upon receipt of proper transfer instructions from
the registered owner of uncertificated share, such uncertificated shares shall
be canceled and issuance of new equivalent


                                      12.
<PAGE>

uncertificated shares or certificated shares shall be made to the person
entitled thereto and the transaction shall be recorded upon the books of the
corporation.

         7.4 REGISTERED STOCKHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a percent registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.

         7.5 LOST, STOLEN OR DESTROYED CERTIFICATES. The Board may direct that a
new certificate or certificates be issued to replace any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing the issue of a new certificate or certificates, the Board may, in
its discretion and as a condition precedent to the issuance thereof require the
owner of the lost, stolen or destroyed certificate or certificates, or his or
her legal representative, to advertise the same in such manner as it shall
require, and/or to give the corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.

                                    ARTICLE 8

                              CERTAIN TRANSACTIONS

         8.1 TRANSACTIONS WITH INTERESTED PARTIES. No contract or transaction
between the corporation and one or more of its directors or officers, or between
the corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
have a financial interest, shall be void or voidable solely for this reason, or
solely because the director or officer is present at or participates in the
meeting of the board or committee thereof which authorizes the contract or
transaction or solely because the vote or votes of such director or officer are
counted for such purpose, if:

                  (a) the material facts as to such person's relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum; or

                  (b) the material facts as to such person's relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or

                  (c) the contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders.


                                      13.
<PAGE>

         8.2 QUORUM. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.

                                    ARTICLE 9

                               GENERAL PROVISIONS

         9.1 DIVIDENDS. Dividends upon the capital stock of the corporation,
subject to any restrictions contained in the General Corporation Law of the
State of Delaware or the provisions of the Certificate of Incorporation, if any,
may be declared by the Board at any regular or special meeting. Dividends may be
paid in cash, in property or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation.

         9.2 DIVIDEND RESERVE. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the directors shall think conducive to the interest of
the corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.

         9.3 CHECKS. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board may from time to time designate.

         9.4 CORPORATE SEAL. The Board of Directors may, by resolution, adopt a
corporate seal. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the word "Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
otherwise reproduced. The seal may be altered from time to time by the Board of
Directors.

         9.5 FISCAL YEAR. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.

         9.6 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS. The Board, except
as otherwise provided in these Bylaws, may authorize any officer or officers, or
agent or agents, to enter into any contract or execute any instrument in the
name of and on behalf of the corporation; such authority may be general or
confined to specific instances. Unless so authorized or ratified by the Board or
within the agency power of an officer, no officer, agent or employee shall have
any power or authority to bind the corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or for any amount.

         9.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The Chief Executive
Officer, the President or any Vice President or the Secretary or any Assistant
Secretary of this corporation is authorized to vote, represent and exercise on
behalf of this corporation all rights incident to any and all shares of any
corporation or corporations standing in the name of this corporation. The
authority herein granted to said officers to vote or represent on behalf of this


                                      14.
<PAGE>

corporation any and all shares held by this corporation in any other corporation
or corporations may be exercised either by such officers in person or by any
other person authorized so to do by proxy or power of attorney duly executed by
said officers.

                                   ARTICLE 10

                                   AMENDMENTS

         These Bylaws may be altered, mended or repealed, or new Bylaws may be
adopted, by the Board of Directors, or by the affirmative vote of the holders of
a majority of the outstanding shares entitled to vote on such matters.


                                      15.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.4
<SEQUENCE>5
<FILENAME>ex-3_4.txt
<DESCRIPTION>EXHIBIT 3.4
<TEXT>

<PAGE>



                                                                    EXHIBIT 3.4












                                     BYLAWS

                                       OF

                                  AEROGEN, INC.

                            (A DELAWARE CORPORATION)



<PAGE>

                                                  TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                               PAGE
<S>                                                                                                            <C>

ARTICLE I  OFFICES................................................................................................1

         Section 1.  Registered Office............................................................................1

         Section 2.  Other Offices................................................................................1

ARTICLE II  CORPORATE SEAL........................................................................................1

         Section 3.  Corporate Seal...............................................................................1

ARTICLE III  STOCKHOLDERS' MEETINGS...............................................................................1

         Section 4.  Place Of Meetings............................................................................1

         Section 5.  Annual Meetings..............................................................................1

         Section 6.  Special Meetings.............................................................................4

         Section 7.  Notice Of Meetings...........................................................................5

         Section 8.  Quorum.......................................................................................5

         Section 9.  Adjournment And Notice Of Adjourned Meetings.................................................6

         Section 10. Voting Rights................................................................................6

         Section 11. Joint Owners Of Stock........................................................................6

         Section 12. List Of Stockholders.........................................................................6

         Section 13. Action Without Meeting.......................................................................7

         Section 14. Organization.................................................................................7

ARTICLE IV  DIRECTORS.............................................................................................8

         Section 15. Number And Term Of Office....................................................................8

         Section 16. Powers.......................................................................................8

         Section 17. Classes of Directors.........................................................................8

         Section 18. Vacancies....................................................................................9

         Section 19. Resignation.................................................................................10

         Section 20. Removal.....................................................................................10

         Section 21. Meetings....................................................................................11

         Section 22. Quorum And Voting...........................................................................12

         Section 23. Action Without Meeting......................................................................12

         Section 24. Fees And Compensation.......................................................................12

         Section 25. Committees..................................................................................12

         Section 26. Organization................................................................................13


                                                        i.

<PAGE>

                                                  TABLE OF CONTENTS
                                                     (CONTINUED)

<CAPTION>
                                                                                                               PAGE
<S>                                                                                                            <C>
ARTICLE V  OFFICERS..............................................................................................14

         Section 27.  Officers Designated........................................................................14

         Section 28.  Tenure And Duties Of Officers..............................................................14

         Section 29.  Delegation Of Authority....................................................................15

         Section 30.  Resignations...............................................................................15

         Section 31.  Removal....................................................................................15

ARTICLE VI  EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION.................16

         Section 32.  Execution Of Corporate Instruments.........................................................16

         Section 33.  Voting Of Securities Owned By The Corporation..............................................16

ARTICLE VII  SHARES OF STOCK.....................................................................................16

         Section 34.  Form And Execution Of Certificates.........................................................16

         Section 35.  Lost Certificates..........................................................................17

         Section 36.  Transfers..................................................................................17

         Section 37.  Fixing Record Dates........................................................................17

         Section 38.  Registered Stockholders....................................................................18

ARTICLE VIII  OTHER SECURITIES OF THE CORPORATION................................................................18

         Section 39.  Execution Of Other Securities..............................................................18

ARTICLE IX  DIVIDENDS............................................................................................19

         Section 40.  Declaration Of Dividends...................................................................19

         Section 41.  Dividend Reserve...........................................................................19

ARTICLE X  FISCAL YEAR...........................................................................................19

         Section 42.  Fiscal Year................................................................................19

ARTICLE XI  INDEMNIFICATION......................................................................................19

         Section 43.  Indemnification Of Directors, Executive Officers,
                      Other Officers,  Employees And Other Agents................................................19

ARTICLE XII  NOTICES.............................................................................................22

         Section 44.  Notices....................................................................................22

ARTICLE XIII  AMENDMENTS.........................................................................................24

         Section 45.  Amendments.................................................................................24


                                                        ii.

<PAGE>

                                                  TABLE OF CONTENTS
                                                     (CONTINUED)

<CAPTION>
                                                                                                               PAGE
<S>                                                                                                            <C>
ARTICLE XIV  LOANS TO OFFICERS...................................................................................24

         Section 46.  Loans To Officers..........................................................................24

</TABLE>





                                                        iii.

<PAGE>


                                     BYLAWS

                                       OF

                                  AEROGEN, INC.

                            (A DELAWARE CORPORATION)


                                    ARTICLE I

                                     OFFICES

     SECTION 1. REGISTERED OFFICE. The registered office of the corporation in
the State of Delaware shall be in the City of Wilmington, County of New Castle.

     SECTION 2. OTHER OFFICES. The corporation shall also have and maintain an
office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both
within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.

                                   ARTICLE II

                                 CORPORATE SEAL

     SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to
be impressed or affixed or reproduced or otherwise.

                                  ARTICLE III

                             STOCKHOLDERS' MEETINGS

     SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors,
or, if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.

     SECTION 5. ANNUAL MEETINGS.

          (a) The annual meeting of the stockholders of the corporation, for
the purpose of election of directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors. Nominations of persons
for election to the Board of Directors of the corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders: (i) pursuant to the corporation's notice of meeting of
stockholders; (ii) by or at the direction of the Board of Directors; or (iii)
by any stockholder of the corporation who was a

                                        1.

<PAGE>

stockholder of record at the time of giving of notice provided for in the
following paragraph, who is entitled to vote at the meeting and who complied
with the notice procedures set forth in Section 5.

          (b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. For
nominations or other business to be properly brought before an annual meeting
by a stockholder pursuant to clause (c) of Section 5(a) of these Bylaws, (i)
the stockholder must have given timely notice thereof in writing to the
Secretary of the corporation, (ii) such other business must be a proper matter
for stockholder action under the Delaware General Corporation Law ("DGCL"),
(iii) if the stockholder, or the beneficial owner on whose behalf any such
proposal or nomination is made, has provided the corporation with a
Solicitation Notice (as defined in this Section 5(b)), such stockholder or
beneficial owner must, in the case of a proposal, have delivered a proxy
statement and form of proxy to holders of at least the percentage of the
corporation's voting shares required under applicable law to carry any such
proposal, or, in the case of a nomination or nominations, have delivered a
proxy statement and form of proxy to holders of a percentage of the
corporation's voting shares reasonably believed by such stockholder or
beneficial owner to be sufficient to elect the nominee or nominees proposed to
be nominated by such stockholder, and must, in either case, have included in
such materials the Solicitation Notice, and (iv) if no Solicitation Notice
relating thereto has been timely provided pursuant to this section, the
stockholder or beneficial owner proposing such business or nomination must not
have solicited a number of proxies sufficient to have required the delivery of
such a Solicitation Notice under this Section 5. To be timely, a stockholder's
notice shall be delivered to the Secretary at the principal executive offices
of the Corporation not later than the close of business on the ninetieth
(90th) day nor earlier than the close of business on the one hundred twentieth
(120th) day prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
meeting is advanced more than thirty (30) days prior to or delayed by more
than thirty (30) days after the anniversary of the preceding year's annual
meeting, notice by the stockholder to be timely must be so delivered not
earlier than the close of business on the one hundred twentieth (120th) day
prior to such annual meeting and not later than the close of business on the
later of the ninetieth (90th) day prior to such annual meeting or the tenth
(10th) day following the day on which public announcement of the date of such
meeting is first made. In no event shall the public announcement of an
adjournment of an annual meeting commence a new time period for the giving of
a stockholder's notice as described above. Such stockholder's notice shall set
forth: (A) as to each person whom the stockholder proposed to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "1934 Act") and Rule 14a-11 thereunder (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (B) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of
such stockholder and the beneficial owner, if any, on whose behalf the
proposal is made; and (C) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is

                                        2.
<PAGE>

made (i) the name and address of such stockholder, as they appear on the
corporation's books, and of such beneficial owner, (ii) the class and number
of shares of the corporation which are owned beneficially and of record by
such stockholder and such beneficial owner, and (iii) whether either such
stockholder or beneficial owner intends to deliver a proxy statement and form
of proxy to holders of, in the case of the proposal, at least the percentage
of the corporation's voting shares required under applicable law to carry the
proposal or, in the case of a nomination or nominations, a sufficient number
of holders of the corporation's voting shares to elect such nominee or
nominees (an affirmative statement of such intent, a "Solicitation Notice").

          (c) Notwithstanding anything in the second sentence of Section 5(b)
of these Bylaws to the contrary, in the event that the number of directors to
be elected to the Board of Directors of the Corporation is increased and there
is no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the
corporation at least one hundred (100) days prior to the first anniversary of
the preceding year's annual meeting, a stockholder's notice required by this
Section 5 shall also be considered timely, but only with respect to nominees
for any new positions created by such increase, if it shall be delivered to
the Secretary at the principal executive offices of the corporation not later
than the close of business on the tenth (10th) day following the day on which
such public announcement is first made by the corporation.

          (d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as
shall have been brought before the meeting in accordance with the procedures
set forth in this Section 5. Except as otherwise provided by law, the Chairman
of the meeting shall have the power and duty to determine whether a nomination
or any business proposed to be brought before the meeting was made, or
proposed, as the case may be, in accordance with the procedures set forth in
these Bylaws and, if any proposed nomination or business is not in compliance
with these Bylaws, to declare that such defective proposal or nomination shall
not be presented for stockholder action at the meeting and shall be
disregarded.

          (e) Notwithstanding the foregoing provisions of this Section 5, in
order to include information with respect to a stockholder proposal in the
proxy statement and form of proxy for a stockholder's meeting, stockholders
must provide notice as required by the regulations promulgated under the 1934
Act. Nothing in these Bylaws shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the corporation proxy
statement pursuant to Rule 14a-8 under the 1934 Act.

          (f) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant
to Section 13, 14 or 15(d) of the 1934 Act.

                                        3.

<PAGE>

     SECTION 6. SPECIAL MEETINGS.

          (a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board of Directors for adoption), or (iv) by the holders of shares entitled to
cast not less than ten percent (10%) of the votes at the meeting; provided,
however, that following registration of any of the classes of equity
securities of the corporation pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, special meetings of the stockholders may
only be called as set forth in (i), (ii) or (iii) above, except as otherwise
required below.

         At any time or times that the corporation is subject to Section
2115(b) of the California General Corporation Law ("CGCL"), stockholders
holding five percent (5%) or more of the outstanding shares shall have the
right to call a special meeting of stockholders only as set forth in Section
18(c) HEREIN.

          (b) If a special meeting is properly called by any person or persons
other than the Board of Directors, the request shall be in writing, specifying
the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the Chairman of the Board of Directors, the Chief
Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice.
The Board of Directors shall determine the time and place of such special
meeting, which shall be held not less than thirty-five (35) nor more than one
hundred twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote,
in accordance with the provisions of Section 7 of these Bylaws. If the notice
is not given within one hundred (100) days after the receipt of the request,
the person or persons properly requesting the meeting may set the time and
place of the meeting and give the notice. Nothing contained in this paragraph
(b) shall be construed as limiting, fixing, or affecting the time when a
meeting of stockholders called by action of the Board of Directors may be held.

          (c) Nominations of persons for election to the Board of Directors
may be made at a special meeting of stockholders at which directors are to be
elected pursuant to the corporation's notice of meeting (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving notice
provided for in these Bylaws who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this Section 6(c). In the
event the corporation calls a special meeting of stockholders for the purpose
of electing one or more directors to the Board of Directors, any such
stockholder may nominate a person or persons (as the case may be), for
election to such position(s) as specified in the corporation's notice of
meeting, if the stockholder's notice required by Section 5(b) of these Bylaws
shall be delivered to the Secretary at the principal executive offices of the
corporation not earlier than the close of business on the one hundred
twentieth (120th) day prior to such special meeting and not later than the
close of

                                        4.

<PAGE>

business on the later of the ninetieth (90th) day prior to such meeting or the
tenth (10th) day following the day on which public announcement is first made
of the date of the special meeting and of the nominees proposed by the Board
of Directors to be elected at such meeting. In no event shall the public
announcement of an adjournment of a special meeting commence a new time period
for the giving of a stockholder's notice as described above.

     SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Any stockholder so waiving notice of such meeting
shall be bound by the proceedings of any such meeting in all respects as if
due notice thereof had been given.

     SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote
shall constitute a quorum for the transaction of business. In the absence of a
quorum, any meeting of stockholders may be adjourned, from time to time,
either by the chairman of the meeting or by vote of the holders of a majority
of the shares represented thereat, but no other business shall be transacted
at such meeting. The stockholders present at a duly called or convened
meeting, at which a quorum is present, may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave
less than a quorum. Except as otherwise provided by statute, the Certificate
of Incorporation or these Bylaws, in all matters other than the election of
directors, the affirmative vote of the majority of shares present in person or
represented by proxy at the meeting and entitled to vote on the subject matter
shall be the act of the stockholders. Except as otherwise provided by statute,
the Certificate of Incorporation or these Bylaws, directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of directors. Where
a separate vote by a class or classes or series is required, except where
otherwise provided by the statute or by the Certificate of Incorporation or
these Bylaws, a majority of the outstanding shares of such class or classes or
series, present in person or represented by proxy, shall constitute a quorum
entitled to take action with respect to that vote on that matter and, except
where otherwise provided by the statute or by the Certificate of Incorporation
or these Bylaws, the affirmative vote of the majority (plurality, in the case
of the election of directors) of the votes cast by the holders of shares of
such class or classes or series shall be the act of such class or classes or
series.

                                        5.
<PAGE>

     SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the
shares casting votes. When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty (30) days or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.

     SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the
stock records of the corporation on the record date, as provided in Section 12
of these Bylaws, shall be entitled to vote at any meeting of stockholders.
Every person entitled to vote shall have the right to do so either in person
or by an agent or agents authorized by a proxy granted in accordance with
Delaware law. An agent so appointed need not be a stockholder. No proxy shall
be voted after three (3) years from its date of creation unless the proxy
provides for a longer period.

     SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common,
tenants by the entirety, or otherwise, or if two (2) or more persons have the
same fiduciary relationship respecting the same shares, unless the Secretary
is given written notice to the contrary and is furnished with a copy of the
instrument or order appointing them or creating the relationship wherein it is
so provided, their acts with respect to voting shall have the following
effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1)
votes, the act of the majority so voting binds all; (c) if more than one (1)
votes, but the vote is evenly split on any particular matter, each faction may
vote the securities in question proportionally, or may apply to the Delaware
Court of Chancery for relief as provided in the DGCL, Section 217(b). If the
instrument filed with the Secretary shows that any such tenancy is held in
unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.

     SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list
of the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time
thereof and may be inspected by any stockholder who is present.

                                        6.
<PAGE>

     SECTION 13. ACTION WITHOUT MEETING.

          (a) Unless otherwise provided in the Certificate of Incorporation,
any action required by statute to be taken at any annual or special meeting of
the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action
so taken, shall be signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.

          (b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective
to take the corporate action referred to therein unless, within sixty (60)
days of the earliest dated consent delivered to the corporation in the manner
herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to
its registered office in the State of Delaware, its principal place of
business or an officer or agent of the corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made
to a corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.

          (c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing, and who, if the action had
been taken at a meeting, would have been entitled to notice of the meeting if
the record date for such meeting had been the date that written consents
signed by a sufficient number of stockholders to take action were delivered to
the corporation as provided in Section 228 (c) of the DGCL. If the action
which is consented to is such as would have required the filing of a
certificate under any section of the DGCL if such action had been voted on by
stockholders at a meeting thereof, then the certificate filed under such
section shall state, in lieu of any statement required by such section
concerning any vote of stockholders, that written consent has been given in
accordance with Section 228 of the DGCL.

          (d) Notwithstanding the foregoing, no such action by written consent
may be taken following the closing of the initial public offering pursuant to
an effective registration statement under the Securities Act of 1933, as
amended (the "1933 Act"), covering the offer and sale of Common Stock of the
corporation (the "Initial Public Offering").

     SECTION 14. ORGANIZATION.

          (a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen by
a majority in interest of the stockholders entitled to vote, present in person
or by proxy, shall act as chairman. The Secretary, or, in his absence, an
Assistant Secretary directed to do so by the President, shall act as secretary
of the meeting.

          (b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as
it shall deem necessary,

                                        7.
<PAGE>

appropriate or convenient. Subject to such rules and regulations of the Board
of Directors, if any, the chairman of the meeting shall have the right and
authority to prescribe such rules, regulations and procedures and to do all
such acts as, in the judgment of such chairman, are necessary, appropriate or
convenient for the proper conduct of the meeting, including, without
limitation, establishing an agenda or order of business for the meeting, rules
and procedures for maintaining order at the meeting and the safety of those
present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies
and such other persons as the chairman shall permit, restrictions on entry to
the meeting after the time fixed for the commencement thereof, limitations on
the time allotted to questions or comments by participants and regulation of
the opening and closing of the polls for balloting on matters which are to be
voted on by ballot. Unless and to the extent determined by the Board of
Directors or the chairman of the meeting, meetings of stockholders shall not
be required to be held in accordance with rules of parliamentary procedure.

                                    ARTICLE IV

                                    DIRECTORS

     SECTION 15. NUMBER AND TERM OF OFFICE.  The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation.  Directors need not be stockholders unless so required by
the Certificate of Incorporation.  If for any cause, the directors shall not
have been elected at an annual meeting, they may be elected as soon thereafter
as convenient at a special meeting of the stockholders called for that purpose
in the manner provided in these Bylaws.

     SECTION 16. POWERS.  The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.

     SECTION 17. CLASSES OF DIRECTORS.

          (a) Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, following
the closing of the Initial Public Offering, the directors shall be divided
into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first
annual meeting of stockholders following the closing of the Initial Public
Offering, the term of office of the Class I directors shall expire and Class I
directors shall be elected for a full term of three years. At the second
annual meeting of stockholders following the Initial Public Offering, the term
of office of the Class II directors shall expire and Class II directors shall
be elected for a full term of three years. At the third annual meeting of
stockholders following the Initial Public Offering, the term of office of the
Class III directors shall expire and Class III directors shall be elected for
a full term of three years. At each succeeding annual meeting of stockholders,
directors shall be elected for a full term of three years to succeed the
directors of the class whose terms expire at such annual meeting. During such
time or times that the corporation is subject to Section 2115(b) of the

                                        8.
<PAGE>

CGCL, this Section 17(a) shall become effective and apply only when the
corporation is a "listed" corporation within the meaning of Section 301.5 of
the CGCL.

          (b) In the event that the corporation is unable to have a classified
Board of Directors under applicable law, Section 17(a) of these Bylaws shall
not apply and all directors shall be elected at each annual meeting of
stockholders to hold office until the next annual meeting.

          (c) No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation (i) is subject to Sections2115(b) of the CGCL and
(ii) is not a "listed" corporation or ceases to be a "listed" corporation
under Section 301.5 of the CGCL. During this time, every stockholder entitled
to vote at an election for directors may cumulate such stockholder's votes and
give one candidate a number of votes equal to the number of directors to be
elected multiplied by the number of votes to which such stockholder's shares
are otherwise entitled, or distribute the stockholder's votes on the same
principle among as many candidates as such stockholder thinks fit. No
stockholder, however, shall be entitled to so cumulate such stockholder's
votes unless (i) the names of such candidate or candidates have been placed in
nomination prior to the voting and (ii) the stockholder has given notice at
the meeting, prior to the voting, of such stockholder's intention to cumulate
such stockholder's votes. If any stockholder has given proper notice to
cumulate votes, all stockholders may cumulate their votes for any candidates
who have been properly placed in nomination. Under cumulative voting, the
candidates receiving the highest number of votes, up to the number of
directors to be elected, are elected.

         Notwithstanding the foregoing provisions of this section, each
director shall serve until his successor is duly elected and qualified or
until his death, resignation or removal. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.

     SECTION 18. VACANCIES.

          (a) Unless otherwise provided in the Certificate of Incorporation,
any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other causes and any newly created directorships
resulting from any increase in the number of directors shall, unless the Board
of Directors determines by resolution that any such vacancies or newly created
directorships shall be filled by stockholders, be filled only by the
affirmative vote of a majority of the directors then in office, even though
less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred
and until such director's successor shall have been elected and qualified. A
vacancy in the Board of Directors shall be deemed to exist under this Section
18 in the case of the death, removal or resignation of any director.

          (b) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a
majority of the whole board (as constituted immediately prior to any such
increase), the Delaware Court of Chancery may, upon application

                                        9.
<PAGE>

of any stockholder or stockholders holding at least ten percent (10%) of the
total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen
by the directors then in offices as aforesaid, which election shall be
governed by Section 211 of the DGCL.

          (c) At any time or times that the corporation is subject to Section
2115(b) of the CGCL, if, after the filling of any vacancy, the directors then
in office who have been elected by stockholders shall constitute less than a
majority of the directors then in office, then

               (1) Any holder or holders of an aggregate of five percent (5%)
or more of the total number of shares at the time outstanding having the right
to vote for those directors may call a special meeting of stockholders; or

               (2) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in
accordance with Section 305(c) of the CGCL. The term of office of any director
shall terminate upon that election of a successor.

     SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to
specify whether it will be effective at a particular time, upon receipt by the
Secretary or at the pleasure of the Board of Directors. If no such
specification is made, it shall be deemed effective at the pleasure of the
Board of Directors. When one or more directors shall resign from the Board of
Directors, effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each Director so chosen shall hold
office for the unexpired portion of the term of the Director whose place shall
be vacated and until his successor shall have been duly elected and qualified.

         SECTION 20. REMOVAL.

                  (a) During such time or times that the corporation is
subject to Section 2115(b) of the CGCL, the Board of Directors or any
individual director may be removed from office at any time without cause by
the affirmative vote of the holders of at least a majority of the outstanding
shares entitled to vote on such removal; provided, however, that unless the
entire Board is removed, no individual director may be removed when the votes
cast against such director's removal, or not consenting in writing to such
removal, would be sufficient to elect that director if voted cumulatively at
an election which the same total number of votes were cast (or, if such action
is taken by written consent, all shares entitled to vote were voted) and the
entire number of directors authorized at the time of such director's most
recent election were then being elected.

                  (b) Following any date on which the corporation is no longer
subject to Section 2115(b) of the CGCL and subject to any limitations imposed
by law, Section 20(a) above shall no longer apply and removal shall be as
provided in Section 141(k) of the DGCL.

                                        10.

<PAGE>

     SECTION 21. MEETINGS.

          (a) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders
and at the place where such meeting is held. No notice of an annual meeting of
the Board of Directors shall be necessary and such meeting shall be held for
the purpose of electing officers and transacting such other business as may
lawfully come before it.

          (b) REGULAR MEETINGS. Unless otherwise restricted by the Certificate
of Incorporation, regular meetings of the Board of Directors may be held at
any time or date and at any place within or without the State of Delaware
which has been designated by the Board of Directors and publicized among all
directors. No formal notice shall be required for regular meetings of the
Board of Directors.

          (c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate
of Incorporation, special meetings of the Board of Directors may be held at
any time and place within or without the State of Delaware whenever called by
the Chairman of the Board, the President or any two of the directors.

          (d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of
any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a
meeting by such means shall constitute presence in person at such meeting.

          (e) NOTICE OF MEETINGS. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex, or
by electronic mail or other electronic means, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent
in writing to each director by first class mail, charges prepaid, at least
three (3) days before the date of the meeting. Notice of any meeting may be
waived in writing at any time before or after the meeting and will be waived
by any director by attendance thereat, except when the director attends the
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called
or convened.

          (f) WAIVER OF NOTICE. The transaction of all business at any meeting
of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either
before or after the meeting, each of the directors not present shall sign a
written waiver of notice. All such waivers shall be filed with the corporate
records or made a part of the minutes of the meeting.

                                        11.

<PAGE>

     SECTION 22. QUORUM AND VOTING.

          (a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number
of directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority
of the exact number of directors fixed from time to time by the Board of
Directors in accordance with the Certificate of Incorporation; PROVIDED,
HOWEVER, at any meeting whether a quorum be present or otherwise, a majority
of the directors present may adjourn from time to time until the time fixed
for the next regular meeting of the Board of Directors, without notice other
than by announcement at the meeting.

          (b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative
vote of a majority of the directors present, unless a different vote be
required by law, the Certificate of Incorporation or these Bylaws.

     SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee
thereof may be taken without a meeting, if all members of the Board of
Directors or committee, as the case may be, consent thereto in writing, and
such writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee.

     SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed
sum and expenses of attendance, if any, for attendance at each regular or
special meeting of the Board of Directors and at any meeting of a committee of
the Board of Directors. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity as an
officer, agent, employee, or otherwise and receiving compensation therefor.

     SECTION 25. COMMITTEES.

          (a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and
provided in the resolution of the Board of Directors shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to (i)
approving or adopting, or recommending to the stockholders, any action or
matter expressly required by the DGCL to be submitted to stockholders for
approval, or (ii) adopting, amending or repealing any bylaw of the corporation.

          (b) OTHER COMMITTEES. The Board of Directors may, from time to time,
appoint such other committees as may be permitted by law. Such other
committees appointed by

                                        12.
<PAGE>

the Board of Directors shall consist of one (1) or more members of the Board
of Directors and shall have such powers and perform such duties as may be
prescribed by the resolution or resolutions creating such committees, but in
no event shall any such committee have the powers denied to the Executive
Committee in these Bylaws.

          (c) TERM. Each member of a committee of the Board of Directors shall
serve a term on the committee coexistent with such member's term on the Board
of Directors. The Board of Directors, subject to any requirements of any
outstanding series of preferred Stock and the provisions of subsections (a) or
(b) of this Bylaw, may at any time increase or decrease the number of members
of a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee
member and the Board of Directors may fill any committee vacancy created by
death, resignation, removal or increase in the number of members of the
committee. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee, and, in addition, in the absence or
disqualification of any member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member.

          (d) MEETINGS. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 25 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from
time to time by such committee, and may be called by any director who is a
member of such committee, upon written notice to the members of such committee
of the time and place of such special meeting given in the manner provided for
the giving of written notice to members of the Board of Directors of the time
and place of special meetings of the Board of Directors. Notice of any special
meeting of any committee may be waived in writing at any time before or after
the meeting and will be waived by any director by attendance thereat, except
when the director attends such special meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. A majority of the
authorized number of members of any such committee shall constitute a quorum
for the transaction of business, and the act of a majority of those present at
any meeting at which a quorum is present shall be the act of such committee.

     SECTION 26. ORGANIZATION. At every meeting of the directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President (if a director), or if the President is absent, the most
senior Vice President (if a director), or, in the absence of any such person,
a chairman of the meeting chosen by a majority of the directors present, shall
preside over the meeting. The Secretary, or in his absence, any Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.

                                        13.
<PAGE>

                                    ARTICLE V

                                    OFFICERS

     SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more
Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer and
the Controller, all of whom shall be elected at the annual organizational
meeting of the Board of Directors. The Board of Directors may also appoint one
or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and
such other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the
officers of the corporation shall be fixed by or in the manner designated by
the Board of Directors.

     SECTION 28. TENURE AND DUTIES OF OFFICERS.

          (a) GENERAL. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If
the office of any officer becomes vacant for any reason, the vacancy may be
filled by the Board of Directors.

          (b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of
Directors shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers, as the Board of
Directors shall designate from time to time. If there is no President, then
the Chairman of the Board of Directors shall also serve as the Chief Executive
Officer of the corporation and shall have the powers and duties prescribed in
paragraph (c) of this Section 28.

          (c) DUTIES OF PRESIDENT. The President shall preside at all meetings
of the stockholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of Directors has been appointed and is present. Unless
some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers, as
the Board of Directors shall designate from time to time.

          (d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.

                                        14.

<PAGE>

          (e) DUTIES OF SECRETARY. The Secretary shall attend all meetings of
the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the
stockholders and of all meetings of the Board of Directors and any committee
thereof requiring notice. The Secretary shall perform all other duties given
him in these Bylaws and other duties commonly incident to his office and shall
also perform such other duties and have such other powers, as the Board of
Directors shall designate from time to time. The President may direct any
Assistant Secretary to assume and perform the duties of the Secretary in the
absence or disability of the Secretary, and each Assistant Secretary shall
perform other duties commonly incident to his office and shall also perform
such other duties and have such other powers as the Board of Directors or the
President shall designate from time to time.

          (f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep or cause to be kept the books of account of the corporation in a
thorough and proper manner and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board
of Directors or the President. The Chief Financial Officer, subject to the
order of the Board of Directors, shall have the custody of all funds and
securities of the corporation. The Chief Financial Officer shall perform other
duties commonly incident to his office and shall also perform such other
duties and have such other powers as the Board of Directors or the President
shall designate from time to time. The President may direct the Treasurer or
any Assistant Treasurer, or the Controller or any Assistant Controller to
assume and perform the duties of the Chief Financial Officer in the absence or
disability of the Chief Financial Officer, and each Treasurer and Assistant
Treasurer and each Controller and Assistant Controller shall perform other
duties commonly incident to his office and shall also perform such other
duties and have such other powers as the Board of Directors or the President
shall designate from time to time.

     SECTION 29. DELEGATION OF AUTHORITY.  The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.

     SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.

     SECTION 31. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.

                                        15.

<PAGE>

                                    ARTICLE VI

         EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES
                            OWNED BY THE CORPORATION

     SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS.  The Board of Directors
may, in its discretion, determine the method and designate the signatory
officer or officers, or other person or persons, to execute on behalf of the
corporation any corporate instrument or document, or to sign on behalf of the
corporation the corporate name without limitation, or to enter into contracts
on behalf of the corporation, except where otherwise provided by law or these
Bylaws, and such execution or signature shall be binding upon the corporation.

         All checks and drafts drawn on banks or other depositaries on funds
to the credit of the corporation or in special accounts of the corporation
shall be signed by such person or persons as the Board of Directors shall
authorize so to do.

         Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to
pledge its credit or to render it liable for any purpose or for any amount.

     SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such
authorization, by the Chairman of the Board of Directors, the Chief Executive
Officer, the President, or any Vice President.

                                  ARTICLE VII

                                SHARES OF STOCK

     SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the
name of the corporation by the Chairman of the Board of Directors, or the
President or any Vice President and by the Treasurer or Assistant Treasurer or
the Secretary or Assistant Secretary, certifying the number of shares owned by
him in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent, or registrar before such
certificate is issued, it may be issued with the same effect as if he were
such officer, transfer agent, or registrar at the date of issue. Each
certificate shall state upon the face or back thereof, in full or in summary,
all of the powers, designations, preferences, and rights, and the limitations
or restrictions of the shares authorized to be issued or shall, except as
otherwise required by law, set forth on the face or back a statement that the
corporation will furnish without charge to each stockholder who so requests


                                        16.
<PAGE>

the powers, designations, preferences and relative, participating, optional,
or other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
Within a reasonable time after the issuance or transfer of uncertificated
stock, the corporation shall send to the registered owner thereof a written
notice containing the information required to be set forth or stated on
certificates pursuant to this section or otherwise required by law or with
respect to this section a statement that the corporation will furnish without
charge to each stockholder who so requests the powers, designations,
preferences and relative participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Except as otherwise expressly
provided by law, the rights and obligations of the holders of certificates
representing stock of the same class and series shall be identical.

     SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock
to be lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to agree to indemnify the corporation in such manner as it
shall require or to give the corporation a surety bond in such form and amount
as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.

     SECTION 36. TRANSFERS.

          (a) Transfers of record of shares of stock of the corporation shall
be made only upon its books by the holders thereof, in person or by attorney
duly authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares.

          (b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock
of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any
manner not prohibited by the DGCL.

     SECTION 37. FIXING RECORD DATES.

          (a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall, subject to applicable law, not be more than sixty (60) nor less
than ten (10) days before the date of such meeting. If no record date is fixed
by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held. A determination of stockholders of record
entitled to notice of or to

                                        17.
<PAGE>

vote at a meeting of stockholders shall apply to any adjournment of the
meeting; PROVIDED, HOWEVER, that the Board of Directors may fix a new record
date for the adjourned meeting.

          (b) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.

     SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.

                                   ARTICLE VIII

                       OTHER SECURITIES OF THE CORPORATION

     SECTION 39. EXECUTION OF OTHER SECURITIES.  All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; PROVIDED, HOWEVER, that where any such
bond, debenture or other corporate security shall be authenticated by the
manual signature, or where permissible facsimile signature, of a trustee under
an indenture pursuant to which such bond, debenture or other corporate
security shall be issued, the signatures of the persons signing and attesting
the corporate seal on such bond, debenture or other corporate security may be
the imprinted facsimile of the signatures of such persons.  Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or
an Assistant Treasurer of the corporation or such other person as may be
authorized by the Board of Directors, or bear imprinted thereon the facsimile
signature of such person.  In case any officer who shall have signed or
attested any bond, debenture or other corporate security, or whose facsimile
signature shall appear thereon or on any such interest coupon, shall have
ceased to be such officer before the bond, debenture or other corporate
security so signed or attested shall have been delivered, such bond, debenture
or other corporate security nevertheless may be adopted by the corporation and
issued and delivered as though the person who signed the same or whose
facsimile signature shall have been used thereon had not ceased to be such
officer of the corporation.

                                        18.
<PAGE>

                                    ARTICLE IX

                                    DIVIDENDS

     SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation
and applicable law, if any, may be declared by the Board of Directors pursuant
to law at any regular or special meeting. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
Certificate of Incorporation and applicable law.

     SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or
for equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.

                                    ARTICLE X

                                   FISCAL YEAR

     SECTION 42. FISCAL YEAR.  The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.

                                   ARTICLE XI

                                INDEMNIFICATION

     SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.

          (a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this
Article XI, "executive officers" shall have the meaning defined in Rule 3b-7
promulgated under the 1934 Act) to the fullest extent not prohibited by the
DGCL or any other applicable law; PROVIDED, HOWEVER, that the corporation may
modify the extent of such indemnification by individual contracts with its
directors and executive officers; and, PROVIDED, FURTHER, that the corporation
shall not be required to indemnify any director or executive officer in
connection with any proceeding (or part thereof) initiated by such person
unless (i) such indemnification is expressly required to be made by law, (ii)
the proceeding was authorized by the Board of Directors of the corporation,
(iii) such indemnification is provided by the corporation, in its sole
discretion, pursuant to the powers vested in the corporation under the DGCL or
any other applicable law or (iv) such indemnification is required to be made
under subsection (d).

                                        19.
<PAGE>

          (b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation
shall have power to indemnify its other officers, employees and other agents
as set forth in the DGCL or any other applicable law. The Board of Directors
shall have the power to delegate the determination of whether indemnification
shall be given to any such person to such officers or other persons as the
Board of Directors shall determine.

          (c) EXPENSES. The corporation shall advance to any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was a director or
executive officer of the corporation, or is or was serving at the request of
the corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all
expenses incurred by any director or executive officer in connection with such
proceeding upon receipt of an undertaking by or on behalf of such person to
repay said amounts if it should be determined ultimately that such person is
not entitled to be indemnified under this Section 43 or otherwise.

         Notwithstanding the foregoing, unless otherwise determined pursuant
to paragraph (e) of this Section 43, no advance shall be made by the
corporation to an executive officer of the corporation (except by reason of
the fact that such executive officer is or was a director of the corporation
in which event this paragraph shall not apply) in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, if a
determination is reasonably and promptly made (i) by the Board of Directors by
a majority vote of a quorum consisting of directors who were not parties to
the proceeding, or (ii) if such quorum is not obtainable, or, even if
obtainable, a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, that the facts known to the
decision-making party at the time such determination is made demonstrate
clearly and convincingly that such person acted in bad faith or in a manner
that such person did not believe to be in or not opposed to the best interests
of the corporation.

          (d) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and
executive officers under this Bylaw shall be deemed to be contractual rights
and be effective to the same extent and as if provided for in a contract
between the corporation and the director or executive officer. Any right to
indemnification or advances granted by this Section 43 to a director or
executive officer shall be enforceable by or on behalf of the person holding
such right in any court of competent jurisdiction if (i) the claim for
indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
The claimant in such enforcement action, if successful in whole or in part,
shall be entitled to be paid also the expense of prosecuting his claim. In
connection with any claim for indemnification, the corporation shall be
entitled to raise as a defense to any such action that the claimant has not
met the standards of conduct that make it permissible under the DGCL or any
other applicable law for the corporation to indemnify the claimant for the
amount claimed. In connection with any claim by an executive officer of the
corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear
and convincing evidence that such person acted in bad faith or in a

                                        20.
<PAGE>

manner that such person did not believe to be in or not opposed to the best
interests of the corporation, or with respect to any criminal action or
proceeding that such person acted without reasonable cause to believe that his
conduct was lawful. Neither the failure of the corporation (including its
Board of Directors, independent legal counsel or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he has
met the applicable standard of conduct set forth in the DGCL or any other
applicable law, nor an actual determination by the corporation (including its
Board of Directors, independent legal counsel or its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense
to the action or create a presumption that claimant has not met the applicable
standard of conduct.

          (e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may
have or hereafter acquire under any applicable statute, provision of the
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding office. The
corporation is specifically authorized to enter into individual contracts with
any or all of its directors, officers, employees or agents respecting
indemnification and advances, to the fullest extent not prohibited by the
Delaware General Corporation Law, or by any other applicable law.

          (f) SURVIVAL OF RIGHTS. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.

          (g) INSURANCE. To the fullest extent permitted by the DGCL or any
other applicable law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or
permitted to be indemnified pursuant to this Section 43.

          (h) AMENDMENTS. Any repeal or modification of this Section 43 shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.

          (i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer
to the full extent not prohibited by any applicable portion of this Section 43
that shall not have been invalidated, or by any other applicable law. If this
Section 43 shall be invalid due to the application of the indemnification
provisions of another jurisdiction, then the corporation shall indemnify each
director and executive officer to the full extent under any other applicable
law.

          (j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:

                                        21.

<PAGE>

               (1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony
in, any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative.

               (2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and expenses
of any nature or kind incurred in connection with any proceeding.

               (3) The term the "corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Section 43 with respect to the resulting
or surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.

               (4) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is serving at the request of the corporation as,
respectively, a director, executive officer, officer, employee, trustee or
agent of another corporation, partnership, joint venture, trust or other
enterprise.

               (5) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed
on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties
on, or involves services by, such director, officer, employee, or agent with
respect to an employee benefit plan, its participants, or beneficiaries; and a
person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests
of the corporation" as referred to in this Section 43.

                                   ARTICLE XII

                                     NOTICES

     SECTION 44. NOTICES.

          (a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given
in writing, timely and

                                        22.

<PAGE>

duly deposited in the United States mail, postage prepaid, and addressed to
his last known post office address as shown by the stock record of the
corporation or its transfer agent.

          (b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by overnight
delivery service, facsimile, telex or telegram, except that such notice other
than one which is delivered personally shall be sent to such address as such
director shall have filed in writing with the Secretary, or, in the absence of
such filing, to the last known post office address of such director.

          (c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer
agent appointed with respect to the class of stock affected, specifying the
name and address or the names and addresses of the stockholder or
stockholders, or director or directors, to whom any such notice or notices was
or were given, and the time and method of giving the same, shall in the
absence of fraud, be prima facie evidence of the facts therein contained.

          (d) TIME NOTICES DEEMED GIVEN. All notices given by mail or by
overnight delivery service, as above provided, shall be deemed to have been
given as at the time of mailing, and all notices given by facsimile, telex or
telegram shall be deemed to have been given as of the sending time recorded at
time of transmission.

          (e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any
other permissible method or methods may be employed in respect of any other or
others.

          (f) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice
sent him in the manner above provided, shall not be affected or extended in
any manner by the failure of such stockholder or such director to receive such
notice.

          (g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever
notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such
person. Any action or meeting which shall be taken or held without notice to
any such person with whom communication is unlawful shall have the same force
and effect as if such notice had been duly given. In the event that the action
taken by the corporation is such as to require the filing of a certificate
under any provision of the DGCL, the certificate shall state, if such is the
fact and if notice is required, that notice was given to all persons entitled
to receive notice except such persons with whom communication is unlawful.

          (h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of

                                        23.
<PAGE>

the corporation, to any stockholder to whom (i) notice of two consecutive
annual meetings, and all notices of meetings or of the taking of action by
written consent without a meeting to such person during the period between
such two consecutive annual meetings, or (ii) all, and at least two, payments
(if sent by first class mail) of dividends or interest on securities during a
twelve-month period, have been mailed addressed to such person at his address
as shown on the records of the corporation and have been returned
undeliverable, the giving of such notice to such person shall not be required.
Any action or meeting which shall be taken or held without notice to such
person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given
to such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the DGCL, the certificate need not state that notice was not
given to persons to whom notice was not required to be given pursuant to this
paragraph.

                                  ARTICLE XIII

                                   AMENDMENTS

     SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the voting stock of the
corporation entitled to vote. The Board of Directors shall also have the power
to adopt, amend, or repeal Bylaws.

                                   ARTICLE XIV

                                LOANS TO OFFICERS

     SECTION 46. LOANS TO OFFICERS.  The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee
who is a Director of the corporation or its subsidiaries, whenever, in the
judgment of the Board of Directors, such loan, guarantee or assistance may
reasonably be expected to benefit the corporation. The loan, guarantee or
other assistance may be with or without interest and may be unsecured, or
secured in such manner as the Board of Directors shall approve, including,
without limitation, a pledge of shares of stock of the corporation. Nothing in
these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty
or warranty of the corporation at common law or under any statute.


                                        24.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.2
<SEQUENCE>6
<FILENAME>ex-4_2.txt
<DESCRIPTION>EXHIBIT 4.2
<TEXT>

<PAGE>

                                                                     EXHIBIT 4.2








                                                         AEROGEN, INC.

                                                  FOURTH AMENDED AND RESTATED
                                                       INFORMATION AND
                                                 REGISTRATION RIGHTS AGREEMENT

<PAGE>

                                                       TABLE OF CONTENTS


<TABLE>
<CAPTION>

                                                                                                               PAGE
<S>                                                                                                            <C>
1.       CERTAIN DEFINITIONS......................................................................................1

2.       DEMAND REGISTRATION......................................................................................2

         2.1      Request for Registration on Form Other Than Form S-3............................................2

         2.2      Right of Deferral of Registration on Form Other Than Form S-3...................................3

         2.3      Request for Registration on Form S-3............................................................3

         2.4      Registration of Other Securities in Demand Registration.........................................3

         2.5      Underwriting in Demand Registration.............................................................3

                  2.5.1    Notice of Underwriting.................................................................3

                  2.5.2    Inclusion of Other Holders in Demand Registration......................................4

                  2.5.3    Selection of Underwriter in Demand Registration........................................4

                  2.5.4    Marketing Limitation in Demand Registration............................................4

                  2.5.5    Right of Withdrawal in Demand Registration.............................................4

         2.6      Blue Sky in Demand Registration.................................................................5

3.       PIGGYBACK REGISTRATION...................................................................................5

         3.1      Notice of Piggyback Registration and Inclusion of Registrable Securities........................5

         3.2      Underwriting in Piggyback Registration..........................................................5

                  3.2.1    Notice of Underwriting in Piggyback Registration.......................................5

                  3.2.2    Marketing Limitation in Piggyback Registration.........................................5

                  3.2.3    Allocation of Shares in Piggyback Registration.........................................6

                  3.2.4    Withdrawal in Piggyback Registration...................................................6

         3.3      Blue Sky in Piggyback Registration..............................................................6

4.       EXPENSES OF REGISTRATION.................................................................................6

5.       REGISTRATION PROCEDURES..................................................................................6

6.       INFORMATION FURNISHED BY HOLDER..........................................................................7

7.       INDEMNIFICATION..........................................................................................8

         7.1      Company's Indemnification of Holders............................................................8

         7.2      Holder's Indemnification of Company.............................................................8

         7.3      Indemnification Procedure.......................................................................9

         7.4      Contribution....................................................................................9

         7.5      Underwriting Agreement.........................................................................10

                                                           i.

<PAGE>

                                                       TABLE OF CONTENTS
                                                          (CONTINUED)

                                                                                                               PAGE
                                                                                                               <C>

         7.6      Survival.......................................................................................10

8.       LIMITATIONS ON REGISTRATION RIGHTS GRANTED TO OTHER SECURITIES..........................................10

9.       TRANSFER OF RIGHTS......................................................................................10

10.      MARKET STAND-OFF........................................................................................11

11.      TERMINATION OF REGISTRATION RIGHTS......................................................................11

12.      FINANCIAL STATEMENTS AND REPORTS TO HOLDERS.............................................................11

         12.1     General........................................................................................11

         12.2     Major Holders..................................................................................12

13.      INSPECTION..............................................................................................12

14.      USE OF INFORMATION; TERMINATION OF COVENANTS............................................................13

15.      SMALL BUSINESS STOCK....................................................................................13

16.      RIGHT OF FIRST OFFER....................................................................................13

         16.1     General........................................................................................13

         16.2     Notice.........................................................................................13

         16.3     Election.......................................................................................13

         16.4     Company Rights.................................................................................14

         16.5     Definitions....................................................................................14

         16.6     Exceptions.....................................................................................15

         16.7     Transfer of Rights.............................................................................15

17.      MISCELLANEOUS...........................................................................................15

         17.1     Entire Agreement; Successors and Assigns.......................................................15

         17.2     Governing Law..................................................................................15

         17.3     Counterparts...................................................................................15

         17.4     Headings.......................................................................................15

         17.5     Notices........................................................................................16

         17.6     Amendment of Agreement.........................................................................16

         17.7     Amendment and Restatement of Prior Rights Agreement............................................16

         17.8     Changes in Registrable Securities..............................................................16
</TABLE>

                                                          ii.
<PAGE>

                           FOURTH AMENDED AND RESTATED

                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT

         This FOURTH AMENDED AND RESTATED INFORMATION AND REGISTRATION RIGHTS
AGREEMENT (the "Agreement") is made as of July 7, 2000, by and among AeroGen,
Inc., a Delaware corporation (the "Company"), and the persons listed on the
attached Schedule A (collectively, the "Holders").


                                    RECITALS


         A.   The Company and certain Holders are parties to that certain
Third Amended and Restated Information and Registration Rights Agreement dated
August 25, 1998, as amended March 10, 2000 (the "Prior Rights Agreement"),
which grants rights to the Common Stock issuable upon conversion of the shares
owned by, and information to, such Holders, which registration, information
and other rights are hereby terminated and superseded by this Agreement.

         B.   On the date hereof, the Company is issuing and selling shares of
its Series F Preferred Stock to certain Holders and is, therefore, amending
and restating the Prior Rights Agreement.

         C.   The Company wishes to enter into this Agreement to grant the
Holders registration rights with respect to the shares of Common Stock
issuable upon conversion of the Preferred Stock and to provide information
rights to each Holder.

         The Parties Agree As Follows:

         1.   CERTAIN DEFINITIONS.  As used in this Agreement, the following
terms shall have the following respective meanings:

                        (a)     "COMMISSION" shall mean the Securities and
Exchange Commission or any other federal agency at the time administering the
Securities Act.

                        (b)     "CONVERTIBLE SECURITIES" shall mean securities
of the Company convertible into or exchangeable for Registrable Securities.

                        (c)     "FORM S-3" shall mean Form S-3 issued by the
Commission or any substantially similar form then in effect.

                        (d)     "HOLDER" shall mean any holder of outstanding
Registrable Securities which have not been sold to the public or Convertible
Securities, but only if such holder is identified on Schedule A or an assignee
or transferee of Registration rights as permitted by Section 9.

                                        1.
<PAGE>

                        (e)     "INITIATING HOLDERS" shall mean Holders who in
the aggregate hold at least aggregate fifty percent (50%) of the Registrable
Securities.

                        (f)     "MATERIAL ADVERSE EVENT" shall mean an
occurrence having a consequence that either (a) is materially adverse as to
the business, properties, prospects or financial condition of the Company or
(b) is reasonably foreseeable, has a reasonable likelihood of occurring, and
if it were to occur might materially adversely affect the business,
properties, prospects or financial condition of the Company.

                        (g)     The terms "REGISTER", "REGISTERED" and
"REGISTRATION" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act ("Registration
Statement"), and the declaration or ordering of the effectiveness of such
Registration Statement.

                        (h)     "REGISTRABLE SECURITIES" shall mean all Common
Stock not previously sold to the public issued or issuable upon conversion or
exercise of any of the Company's Convertible Securities identified on Schedule
A purchased by or issued to the Holders, including Common Stock issued
pursuant to stock splits, stock dividends and similar distributions, and any
securities of the Company granted Registration rights pursuant to Section 8 of
this Agreement; PROVIDED, HOWEVER, that for the purposes of Section 2 and
Section 16 hereof, the Series E Preferred Stock held by PathoGenesis
Corporation and Becton, Dickinson and Company shall not be deemed Registrable
Securities and PathoGenesis Corporation and Becton, Dickinson and Company will
not be deemed a Holder under Section 2 or Section 16.

                        (i)     "REGISTRATION EXPENSES" shall mean all
expenses incurred by the Company in complying with Sections 2 or 3 of this
Agreement, including, without limitation, all federal and state registration,
qualification and filing fees, NASD fees, fees to list the Registrable
Securities on securities exchanges and quotation systems, printing fees and
disbursements expenses, of counsel for the Company and one special counsel for
Holders (if different from the Company), Blue Sky fees and expenses, and the
expense of any special audits incident to or required by any such Registration.

                        (j)     "SECURITIES ACT" shall mean the Securities Act
of 1933, as amended, or any similar federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect
at the time.

                        (k)     "SELLING EXPENSES" shall mean all underwriting
discounts and selling commissions applicable to the sale of Registrable
Securities pursuant to this Agreement.

         2.   DEMAND REGISTRATION.

              2.1   REQUEST FOR REGISTRATION ON FORM OTHER THAN FORM S-3.
Subject to the terms of this Agreement, in the event that the Company shall
receive from the Initiating Holders at any time after the earlier of (i) the
date two years after the date of this Agreement or

                                      2.

<PAGE>

(ii) six months following the Company's initial public offering, a written
request that the Company effect any Registration with respect to all or a part
of the Registrable Securities on a form other than Form S-3 for an offering of
at least 20% of the then outstanding Registrable Securities (or any lesser
percent if the reasonably anticipated aggregate net proceeds to the Holders,
the Company and any other selling stockholders would exceed $2,000,000), the
Company shall (i) promptly give written notice of the proposed Registration to
all other Holders and (ii) use its best efforts to effect the Registration, as
expeditiously as practicable, of the Registrable Securities specified in such
request, together with any Registrable Securities of any Holder joining in
such request as are specified in a written request given within 20 days after
written notice from the Company. The Company shall not be obligated to take
any action to effect any such Registration pursuant to this Section 2.1 (i)
within six months of the effective date of a Registration initiated by the
Company or (ii) after the Company has effected three such Registrations
pursuant to this Section 2.1 and such Registrations have been declared
effective.

              2.2   RIGHT OF DEFERRAL OF REGISTRATION ON FORM OTHER THAN FORM
S-3. If the Company shall furnish to all such Holders who joined in the
request a certificate signed by the Chief Executive Officer or President of
the Company stating that, in the good faith judgment of the Board of Directors
of the Company, it would be seriously detrimental to the Company for any
Registration to be effected as requested under Section 2.1 and/or Section 2.3,
the Company shall have the right, exercisable one time only with respect to
such Registration, to defer the filing of a Registration Statement with
respect to such offering for a period of not more than 120 days from delivery
of the request of the Initiating Holders.

              2.3   REQUEST FOR REGISTRATION ON FORM S-3. Subject to the terms
of this Agreement, in the event that the Company receives from Holders who in
the aggregate hold at least twenty-five percent (25%) of the then outstanding
Registrable Securities (or any lesser percent if the reasonably anticipated
net proceeds to the Holders, the Company and any other selling stockholders
would exceed $1,000,000) a written request that the Company effect any
Registration on Form S-3 (or any successor form to Form S-3 regardless of its
designation) at a time when the Company is eligible to register securities on
Form S-3 (or any successor form to Form S-3 regardless of its designation) for
an offering of Registrable Securities, the Company will promptly give written
notice of the proposed Registration to all the Holders and will as soon as
practicable use its best efforts to effect Registration of the Registrable
Securities specified in such request, together with all or such portion of the
Registrable Securities of any Holder joining in such request as are specified
in a written request delivered to the Company within 30 days after written
notice from the Company of the proposed Registration. There shall be no limit
to the number of occasions on which the Company shall be obligated to effect
Registration under this Section 2.3.

              2.4   REGISTRATION OF OTHER SECURITIES IN DEMAND REGISTRATION.
Any Registration Statement filed pursuant to the request of the Initiating
Holders under this Section 2 may, subject to the provisions of Section 2.5,
include securities of the Company other than Registrable Securities.

                                      3.

<PAGE>

              2.5   UNDERWRITING IN DEMAND REGISTRATION.

                    2.5.1    NOTICE OF UNDERWRITING.  If the Holders intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made
pursuant to this Section 2, and the Company shall include such information in
the written notice referred to in Section 2.1 or 2.3, and the right of any
Holder to Registration pursuant to Section 2 shall be conditioned upon such
Holder's agreement to participate in such underwriting and the inclusion of
such Holder's Registrable Securities in the underwriting.

                    2.5.2    INCLUSION OF OTHER HOLDERS IN DEMAND
REGISTRATION. If the Company, officers or directors of the Company holding
Common Stock other than Registrable Securities or holders of securities other
than Registrable Securities, request inclusion in such Registration, the
Initiating Holders, to the extent they deem advisable and consistent with the
goals of such Registration, shall, on behalf of all Holders, offer to any or
all of the Company, such officers or directors and such holders of securities
other than Registrable Securities that such securities other than Registrable
Securities be included in the underwriting and may condition such offer on the
acceptance by such persons of the terms of this Section 2, provided that no
Holder shall have Registrable Securities excluded from such Registration as a
result of the offer to others without such Holder's written consent. In the
event, however, that the number of shares so included exceeds the number of
shares of Registrable Securities included by all Holders, such Registration
shall be treated as governed by Section 3 hereof rather than Section 2, and it
shall not count as a Registration for purposes of Section 2.1 hereof.

                    2.5.3    SELECTION OF UNDERWRITER IN DEMAND REGISTRATION.
The Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement, in
customary form, with the representative ("Underwriter's Representative") of
the underwriter or underwriters selected for such underwriting by the Holders
of a majority of the Registrable Securities being Registered by the Holders
and agreed to by the Company in its reasonable business judgment.

                    2.5.4    MARKETING LIMITATION IN DEMAND REGISTRATION. In
the event the Underwriter's Representative advises the Initiating Holders in
writing that market factors (including, without limitation, the aggregate
number of shares of Common Stock and other securities requested to be
Registered, the general condition of the market, and the status of the persons
proposing to sell securities pursuant to the Registration) require a
limitation of the number of shares to be underwritten, then (i) first the
Common Stock (other than Registrable Securities) held by officers or directors
of the Company, (ii) next the securities other than Registrable Securities and
the securities set forth in the following subparagraph (iii), and (iii) last
the securities requested to be Registered by the Company, shall be excluded
from such Registration to the extent required by such limitation. If a
limitation of the number of shares is still required, the Initiating Holders
shall so advise all Holders and the number of shares of Registrable Securities
that may be included in the Registration and underwriting shall be allocated
among all Holders in proportion, as nearly as practicable, to the respective
amounts of

                                      4.

<PAGE>

Registrable Securities entitled to inclusion in such Registration held by such
Holders at the time of filing the Registration Statement. No Registrable
Securities or other securities excluded from the underwriting by reason of
this Section 2.5.4 shall be included in such Registration Statement.

                    2.5.5    RIGHT OF WITHDRAWAL IN DEMAND REGISTRATION. If
any Holder of Registrable Securities, or a holder of other securities entitled
(upon request) to be included in such Registration, disapproves of the terms
of the underwriting, such person may elect to withdraw therefrom by written
notice within a reasonable time prior to the effective date of the
Registration Statement to the Company, the underwriter and the Initiating
Holders. The securities so withdrawn shall also be withdrawn from the
Registration Statement.

              2.6   BLUE SKY IN DEMAND REGISTRATION. In the event of any
Registration pursuant to Section 2, the Company will exercise its best efforts
to Register and qualify the securities covered by the Registration Statement
under such other securities or Blue Sky laws of such jurisdictions as shall be
reasonably appropriate for the distribution of such securities; provided,
however, that the Company shall not be required to qualify to do business or
to file a general consent to service of process in any such states or
jurisdictions, except for those states or jurisdictions in which the Company
is already qualified to do business or subject to consent to service of
process and except as may be required by the Securities Act.

         3.   PIGGYBACK REGISTRATION.

              3.1   NOTICE OF PIGGYBACK REGISTRATION AND INCLUSION OF
REGISTRABLE SECURITIES. Subject to the terms of this Agreement, in the event
the Company decides to Register (either for its own account or the account of
a security holder or holders exercising their respective demand Registration
rights) on a form that would be suitable for a Registration involving solely
Registrable Securities, the Company will: (i) promptly give each Holder
written notice thereof (which shall include a list of the jurisdictions in
which the Company intends to attempt to qualify such securities under the
applicable Blue Sky or other state securities laws) and (ii) include in such
Registration (and any related qualification under Blue Sky laws or other
compliance), and in any underwriting involved therein, all the Registrable
Securities specified in a written request delivered to the Company by any
Holder within 15 days after delivery of such written notice from the Company.

              3.2   UNDERWRITING IN PIGGYBACK REGISTRATION.

                    3.2.1    NOTICE OF UNDERWRITING IN PIGGYBACK REGISTRATION.
If the Registration of which the Company gives notice is for a Registered
public offering involving an underwriting, the Company shall so advise the
Holders as a part of the written notice given pursuant to Section 3.1. In such
event the right of any Holder to Registration shall be conditioned upon such
underwriting and the inclusion of such Holder's Registrable Securities in such
underwriting to the extent provided in this Section 3. All Holders proposing
to distribute their securities through such underwriting shall (together with
the Company and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
Underwriter's Representative for such offering. The

                                      5.

<PAGE>

Holders shall have no right to participate in the selection of the
underwriters for an offering pursuant to this Section 3.

                    3.2.2    MARKETING LIMITATION IN PIGGYBACK REGISTRATION.
In the event the Underwriter's Representative advises the Holders seeking
Registration of Registrable Securities pursuant to Section 3 in writing that
market factors (including, without limitation, the aggregate number of shares
of Common Stock requested to be Registered, the general condition of the
market, and the status of the persons proposing to sell securities pursuant to
the Registration) require a limitation of the number of shares to be
underwritten, the Underwriter's Representative (subject to the allocation
priority set forth in Section 3.2.3) may exclude some or all Registrable
Securities from such Registration and underwriting.

                    3.2.3    ALLOCATION OF SHARES IN PIGGYBACK REGISTRATION.
In the event that the Underwriter's Representative limits the number of shares
to be included in a Registration pursuant to Section 3.2.2, the number of
shares to be included in such Registration shall be allocated (subject to
Section 3.2.2) in the following manner: The number of shares that may be
included in the Registration and underwriting by selling stockholders shall be
allocated among all other Holders thereof, in proportion, as nearly as
practicable, to the respective amounts of securities which such Holders would
otherwise be entitled to include in such Registration. No Registrable
Securities or other securities excluded from the underwriting by reason of
this Section 3.2.3 shall be included in the Registration Statement.

                    3.2.4    WITHDRAWAL IN PIGGYBACK REGISTRATION.  If any
Holder disapproves of the terms of any such underwriting, he may elect to
withdraw therefrom by written notice to the Company and the underwriter
delivered within a reasonable time prior to the effective date of the
Registration Statement. Any Registrable Securities or other securities
excluded or withdrawn from such underwriting shall be withdrawn from such
Registration.

              3.3   BLUE SKY IN PIGGYBACK REGISTRATION. In the event of any
Registration of Registrable Securities pursuant to Section 3, the Company will
exercise its best efforts to Register and qualify the securities covered by
the Registration Statement under such other securities or Blue Sky laws of
such jurisdictions as shall be reasonably appropriate for the distribution of
such securities; provided, however, that the Company shall not be required to
qualify to do business or to file a general consent to service of process in
any such states or jurisdictions, except for those states or jurisdictions in
which the Company is already qualified to do business or subject to consent to
service of process and except as may be required by the Securities Act.

         4.   EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with three Registrations pursuant to Section 2.1, any Registration
pursuant to Section 2.3, and any Registration pursuant to Section 3, shall be
borne by the Company. Notwithstanding the above, if a Registration request
made pursuant to Section 2.1 is subsequently withdrawn at the request of the
Holders of a majority of the Registrable Securities to be Registered, the
Holders shall forfeit their right to one demand Registration pursuant to
Section 2.l unless the Holders pay for any and all expenses of such withdrawn
Registration; provided further, however, that if at the

                                      6.

<PAGE>

time of such withdrawal, the Holders have learned of a Material Adverse Event
with respect to the condition, business or prospects of the Company not known
to the Holders at the time of their request, then the Holders shall not be
required to pay any of such expenses and shall retain their rights pursuant to
Section 2.1 and not forfeit any demand Registrations. All Selling Expenses
shall be borne by the Holders of the securities Registered pro rata on the
basis of the number of shares Registered.

         5.   REGISTRATION PROCEDURES. The Company will keep each Holder whose
Registrable Securities are included in any Registration pursuant to this
Agreement promptly advised as to the initiation and completion of such
Registration. At its expense the Company will:

                             (a)     prepare and file with the Commission a
Registration Statement with respect to such Registrable Securities and use its
best efforts to cause such Registration Statement to become effective, and
keep such Registration Statement effective for a period of up to 120
continuous days or until the Holder or Holders have completed the distribution
described in the Registration Statement relating thereto, whichever first
occurs; provided that such 120-day period shall be extended for a period of
time equal to the period the Holder refrains from selling any Registrable
Securities included in the Registration at the request of the Company or the
underwriter;

                             (b)     prepare and file with the Commission such
amendments and supplements to such Registration Statement and the prospectus
used in connection with such Registration Statement as may be necessary to
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement;

                             (c)     furnish to the Holders such numbers of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them;

                             (d)     use its best efforts to obtain clearance
from the National Association of Securities Dealers and cause all such
Registrable Securities included in such Registration to be listed on each
securities exchange (or The Nasdaq Stock Market, as the case may be) on which
similar securities of the Company are then listed;

                             (e)     promptly notify each Holder of
Registrable Securities covered by such Registration Statement, or the Holder's
designated attorney-in-fact, when a prospectus relating thereto covered by
such Registration Statement is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus
included in such Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing; and

                                      7.

<PAGE>

                             (f)     furnish, at the request of any Holder
requesting Registration of Registrable Securities pursuant to this Agreement,
on the date that such Registrable Securities are delivered to the underwriters
for sale in connection with a Registration pursuant to this Agreement, if such
securities are being sold through underwriters, or if such securities are not
being sold through underwriters, on the date that the Registration Statement
with respect to such securities becomes effective (i) an opinion of counsel
representing the Company for purposes of such Registration dated such date, in
such form and substance as is reasonably and customarily given to underwriters
in an underwritten public offering, addressed to the underwriters, if any, and
to the Holders requesting Registration of Registrable Securities and (ii) a
letter dated such date from the independent certified public accountants of
the Company, in such form and substance as is reasonably and customarily given
by independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the Holders
requesting Registration of Registrable Securities.

         6.   INFORMATION FURNISHED BY HOLDER. It shall be a condition
precedent of the Company's obligations under this Agreement as to any Holder
that such Holder of Registrable Securities included in any Registration
furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder or Holders as shall be required to effect
the registration of such Holder's Registrable Securities; provided, that such
Holder was given a reasonable opportunity to provide the Company with such
information, not to exceed ten (10) days.

         7.   INDEMNIFICATION.

              7.1   COMPANY'S INDEMNIFICATION OF HOLDERS. To the extent
permitted by law, the Company will indemnify each Holder, each of its
officers, directors, trustees, agents and constituent partners, legal counsel
for the Holders, and each person controlling such Holder, with respect to
which Registration, qualification or compliance of Registrable Securities has
been effected pursuant to this Agreement, and each underwriter, if any, and
each person who controls any underwriter against all claims, losses, damages,
liabilities or expenses (or actions in respect thereof) to the extent such
claims, losses, damages, liabilities or expenses arise out of or are based
upon any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus or other document (including any related
Registration Statement) incident to any such Registration, qualification or
compliance, or are based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by the Company of the
Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), any state securities law or any rule or regulation promulgated under
the Securities Act, the Exchange Act or any state securities law applicable to
the Company and relating to any such Registration, qualification or
compliance; and the Company will promptly reimburse each such Holder, such
officers, directors, trustees, agents, constituent parties and legal counsel,
each such underwriter and each person who controls any such Holder or
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability, expense or action; provided, however, that the indemnity contained
in this Section 7.1 shall not

                                      8.

<PAGE>

apply to amounts paid in settlement of any such claim, loss, damage, liability
or action if settlement is effected without the consent of the Company (which
consent shall not unreasonably be withheld); and provided, further, that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based upon and in
conformity with written information furnished to the Company such Holder,
underwriter, or controlling person and expressly stated to be for in use in
connection with the offering of securities of the Company.

              7.2   HOLDER'S INDEMNIFICATION OF COMPANY. To the extent
permitted by law, each Holder will, severally and not jointly, if Registrable
Securities held by such Holder are included in the securities as to which such
Registration, qualification or compliance is being effected pursuant to this
Agreement, indemnify the Company, each of its directors and officers that has
signed the Registration Statement, each legal counsel and independent
accountant of the Company, each underwriter, if any, of the Company's
securities covered by such a Registration Statement, each person who controls
the Company or such underwriter within the meaning of the Securities Act, and
each other such Holder, each of its officers, directors, trustees, agents and
constituent partners and each person controlling such other Holder, against
all claims, losses, damages, liabilities or expenses (or actions in respect
thereof) arising out of or based upon any untrue statement (or alleged untrue
statement) of a material fact contained in any such Registration Statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by
such Holder of any rule or regulation promulgated under the Securities Act
applicable to such Holder and relating to action or inaction required of such
Holder in connection with any such Registration, qualification or compliance;
and will reimburse the Company, such Holders, such directors, officers,
trustees, agents, partners, persons, law and accounting firms, underwriters or
control persons for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such Registration Statement, prospectus, offering
circular or other document in reliance upon and in conformity with written
information furnished to the Company by such Holder and expressly stated to be
specifically for use in connection with the offering of securities of the
Company, provided, however, that the indemnity contained in this Section 7.2
shall not apply to amounts paid in settlement of any such claim, loss, damage,
liability or action if settlement is effected without the consent of such
Holder (which consent shall not unreasonably be withheld); and provided
further that each Holder's liability under this Section 7.2 shall not exceed
such Holder's net proceeds from the offering of securities made in connection
with such Registration.

              7.3   INDEMNIFICATION PROCEDURE. Promptly after receipt by an
indemnified party under this Section 7 of notice of the commencement of any
action, such indemnified party will, if a claim in respect thereof is to be
made against an indemnifying party under this Section 7, notify the
indemnifying party in writing of the commencement thereof and generally
summarize such action. The indemnifying party shall, after acknowledging in
writing that it is obligated to provide indemnification with respect to such
claim and demonstrating its financial

                                      9.

<PAGE>

ability to pay such claim if adversely determined, have the right to
participate in and to assume the defense of such claim; provided, however,
that the indemnifying party shall be entitled to select counsel for the
defense of such claim only with the approval of any parties entitled to
indemnification, which approval shall not be unreasonably withheld; provided
further, however, that if either party reasonably determines that there may be
conflict between the position of the indemnifying and indemnified parties in
conducting the defense of such action, suit or proceeding by reason of
recognized claims for indemnity under this Section 7, then counsel for such
party shall be entitled to conduct the defense to the extent reasonably
determined by such counsel to be necessary to protect the interest of such
party at the expense of the indemnifying party; provided however, that the
indemnifying party shall not, in connection with any such action, claim or
proceeding or separate but substantially similar or related actions, claims or
proceedings arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate counsel
(together with appropriate local counsel) at any time for all such indemnified
parties. The failure to notify an indemnifying party promptly of the
commencement of any such action, if prejudicial to the ability of the
indemnifying party to defend such action, shall relieve such indemnifying
party, to the extent and only to the extent so prejudiced, of liability to the
indemnified party under this Section 7, but the omission so to notify the
indemnifying party will not relieve such party of any liability that such
party may have to any indemnified party otherwise other than under this
Section 7.

              7.4   CONTRIBUTION. If the indemnification provided for in this
Section 7 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or
expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss, liability,
claim, damage, or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or omissions
that resulted in such loss, liability, claim, damage, or expense as well as
any other relevant equitable considerations, provided, however, that each
Holder's aggregate liability under this Section 7.4 and Section 7.2 shall not
exceed such Holder's net proceeds from the offering of securities made in
connection with such Registration. The relative fault of the indemnifying
party and of the indemnified party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement, of a material
fact or the omission to state a material fact relates to information supplied
by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information, and opportunity to correct
or prevent such statement or omission.

              7.5   UNDERWRITING AGREEMENT. If a Holder participates in a
Company-initiated underwritten offering pursuant to Section 3 above, then to
the extent that the provisions relating to indemnification of and contribution
to the underwriter by such Holder contained in the applicable underwriting
agreement conflict with the provisions relating to such indemnification and
contribution contained in this Agreement, the provisions in such underwriting
agreement shall control as between the Holder and the underwriter.

                                     10.

<PAGE>

              7.6   SURVIVAL. The obligations of the Company and Holders under
this Section 7 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Agreement, and otherwise.

         8.   LIMITATIONS ON REGISTRATION RIGHTS GRANTED TO OTHER SECURITIES.
From and after the date of this Agreement, the Company shall not enter into
any agreement with any holder or prospective holder of any securities of the
Company providing for the granting to such holder of any Registration rights
(other than the inclusion hereunder as a "Holder" any holder of Series F
Preferred Stock authorized on the date hereof purchased in compliance with the
Company's Series F Preferred Stock Purchase Agreement of even date herewith,
and as "Registrable Securities" the shares of Common Stock issuable upon
conversion of such Series F Preferred Stock), except that, with the consent of
the Holders of 50% of the aggregate of the Convertible Securities and
Registrable Securities then outstanding, additional holders may be added as
parties to this Agreement with regard to any or all securities of the Company
held by them. Any such additional parties shall execute a counterpart of this
Agreement, and upon execution by such additional parties and by the Company,
shall be considered a Holder for all purposes of this Agreement. The
additional parties and the additional Registrable Securities shall be
identified in an amendment to Schedule A hereto.

         9.   TRANSFER OF RIGHTS. The right to cause the Company to Register
securities granted by the Company to the Holders under this Agreement may be
assigned by any Holder to a transferee or assignee of any Convertible
Securities or Registrable Securities not sold to the public acquiring at least
50% of the then outstanding Convertible Securities or Registrable Securities
(equitably adjusted for any stock splits, subdivisions, stock dividends,
changes, combinations or the like) held by such Holder on the date hereof;
provided, however, that (x) the Company must receive written notice prior to
the time of said transfer, stating the name and address of said transferee or
assignee and identifying the securities with respect to which such information
and Registration rights are being assigned, (y) the transferee or assignee of
such rights must not be a person deemed by the Board of Directors of the
Company, in its best judgment, to be a competitor or potential competitor of
the Company, and (z) the transferee or assignee agrees in writing to be
subject to and bound by the terms of this Agreement. Notwithstanding the
limitation set forth in the foregoing sentence respecting the minimum number
of shares which must be transferred, (i) any Holder which is a partnership may
transfer such Holder's Registration rights to such Holder's constituent
partners; (ii) any Holder or Holders, each of which is a corporation, may
transfer such Holder's or Holders' Registration rights to any corporation or
other entity at least 50% in interest of which is owned by such Holder or
Holders or the owners of at least 50% in interest of such Holder or Holders
without restriction as to the number or percentage of shares acquired by any
such constituent partner, corporation or other entity; (iii) any Holder which
is a registered investment company may transfer such Holder's Registration
rights to another registered investment company with a common investment
advisor; and (iv) any Holder which is a trust may transfer such Holder's
Registration rights to a successor trustee or trustees or to a successor trust
or trusts for the benefit of the same beneficiaries as the beneficiaries of
such Holder.

                                     11.

<PAGE>

         10.  MARKET STAND-OFF. Each Holder hereby agrees that such Holder
shall not sell or otherwise transfer any Registrable Securities or other
securities of the Company during a reasonable and customary period (not to
exceed one hundred eighty (180) days in the case of the Company's initial
public offering and ninety (90) days in the case of any other offering), as
agreed to between the Company and the Underwriter's Representative(s)
following the effective date of a Registration Statement of the Company filed
under the Securities Act; provided that such restriction shall only apply to
the first two Registration Statements of the Company to become effective which
include securities to be sold on behalf of the Company to the public in an
underwritten offering, and shall not apply to any shares purchased in the
initial public offering or in the open market thereafter; provided further,
that all of the Company's officers, directors, affiliates and holders of more
than 10,000 shares of Common Stock are subject to similar restrictions for the
same period of time; provided further, that the holders of Series F Preferred
Stock shall be subject to the restrictions of this Section 10 only with
respect to a Registration Statement filed in connection with the Company's
initial public offering.

         11.  TERMINATION OF REGISTRATION RIGHTS.

                             (a)     Except as set forth in subparagraph (b)
below, the right of any Holder to request registration or inclusion in any
registration pursuant to Section 2.1, 2.3 or 3 shall terminate on the closing
of the first Company-initiated firmly underwritten registered public offering
of Common Stock of the Company, or if all shares of Registrable Securities
held or entitled to be held upon conversion by such Holder may immediately be
sold under Rule 144 during any 90-day period.

                             (b)     The provisions of subparagraph (a) above
shall not apply to any Holder who owns more than one percent (1%) of the
Company's outstanding stock until the earlier of (x) such time as such Holder
owns less than one percent (1%) of the outstanding stock of the Company, or
(y) the expiration of five years after the closing of the first firmly
underwritten registered public offering of Common Stock of the Company.

         12.  FINANCIAL STATEMENTS AND REPORTS TO HOLDERS.

              12.1  GENERAL.  The Company shall deliver to each of the Holders:

                             (a)     as soon as practicable, but in any event
within ninety (90) days after the end of each fiscal year of the Company, a
balance sheet of the Company as of the end of such year and statements of
income and cash flows for such year, which year-end financial reports shall be
in reasonable detail and prepared in accordance with generally accepted
accounting principles consistently applied and shall be audited and
accompanied by the opinion of independent public accountants of recognized
national standing selected by the Company;

                             (b)     as soon as practicable after the end of
the first, second and third quarterly accounting periods in each fiscal year
of the Company, and in any event within forty-five (45) days thereafter, to
each Holder, a balance sheet of the Company as of the end of each such
quarterly period, and a statement of income and a statement of cash flows of
the

                                     12.

<PAGE>

Company for such period and for the current fiscal year to date, prepared in
accordance with generally accepted accounting principles, with the exception
that no notes need be attached to such statements and year-end audit
adjustments may not have been made;

                             (c)     contemporaneously with delivery to
holders of Common Stock of the Company, a copy of each report of the Company
delivered to holders of Common Stock; and

                             (d)     as soon as practicable following
submission to and approval by the Board of Directors of the Company, but in no
event later than 30 days prior to the end of each fiscal year, to each Holder,
the operating budget and plan (the "Plan") respecting the next fiscal year, a
summary of each such Plan containing a monthly financial budget together with
any update of the Plan as such update is prepared and a three-year financial
summary; provided, however, that the Company shall not be obligated to deliver
to any Holder any Plan or any other document under this Section 12.1(d) if the
Board of Directors shall reasonably determine that such Holder is a competitor
of the Company.

              12.2  MAJOR HOLDERS. So long as a Holder (with its affiliates)
shall own not less than 200,000 shares of Preferred Stock (a "Major Holder"),
the Company shall deliver to each such Major Holder:

                             (a)     promptly, but in any event within ten
(10) days, copies of all reports, proxy statements, registration statements
and notifications filed with the SEC or provided to security holders or
directors of the Company or to the financial community;

                             (b)     as soon as practicable, but in any event
within sixty (60) days after the end of each fiscal year of the Company, a
stockholders' list, showing the holders' of all outstanding shares (both
before giving effect to dilution and on a fully-diluted basis) and detailing
all options granted, exercised or lapsed and all stock issued or sold; and

                             (c)     promptly, such other financial data or
other information relating to the business, affairs or financial condition of
the Company as is available to the Company which a Major Holder may reasonably
request.

         13.  INSPECTION. The Company shall permit the Major Holders (or their
designated representative), at such Major Holder's expense, to visit and
inspect the Company's properties, to examine its books of account and records
and to discuss the Company's affairs, finances and accounts with its officers,
all at such reasonable times as may be requested by the Major Holders (or
their designated representative); provided, however, that the Company shall
not be obligated pursuant to this Section 13 to provide any information which
it reasonably considers a trade secret or confidential information.

         14.  USE OF INFORMATION; TERMINATION OF COVENANTS. The covenants of
the Company set forth in Sections 12 and 13 shall be terminated, and be of no
further force or effect, upon the earlier of (a) the consummation of an
underwritten public offering of the Company's

                                     13.

<PAGE>

Common Stock registered under the Securities Act or (b) the date the Company
registers any securities under the Exchange Act.

         15.  SMALL BUSINESS STOCK. The Company shall submit such reports as
the Secretary of the Treasury may require pursuant to Section 1202(d)(1)(c) of
the Internal Revenue Code of 1986, as amended (the "Code"), relating to
certain small business stock. The Company shall not make any election which
would cause it not to be an "eligible corporation" as defined in Section
1202(e)(4) of the Code. The Company shall not acquire or dispose of assets
such that real estate not used in the active conduct of a "qualified trade or
business", as defined in Section 1202(e)(3) of the Code, constitutes more than
ten percent of its assets. The Company shall use at least eighty percent (by
value) of its assets in the conduct of one or more qualified trades or
businesses, as provided in Section 1202(e)(1) of the Code.

         16.  RIGHT OF FIRST OFFER.

              16.1  GENERAL. Subject to the terms and conditions specified in
this Section 16, the Company hereby grants to each Holder, except for Venture
Lending & Leasing, Inc., Venture Lending & Leasing II, Inc., PathoGenesis
Corporation and Becton, Dickinson and Company, a right of first offer with
respect to future sales by the Company of its New Securities (as hereinafter
defined). For purposes of this Section 16, the term Holder includes any
partners, holders or affiliates of the Holder (which shall include another
registered investment company with a common investment advisor). The Holder
shall be entitled to apportion the right of first offer hereby granted among
itself and its partners, holders and affiliates in such proportions as it
deems appropriate.

              16.2  NOTICE. In the event the Company proposes to issue New
Securities, it shall give the Holder written notice (the "Notice") of its
intention stating (i) a description of the New Securities it proposes to
issue, (ii) the number of shares of New Securities it proposes to offer, (iii)
the price per share at which, and other terms on which, it proposes to offer
such New Securities and (iv) the number of shares that the Holder has the
right to purchase under this Section 16, based on the Holder's Percentage as
defined in Section 16.5(b)).

              16.3  ELECTION. Within thirty (30) days after the Notice is
given (in accordance with Section 17.5), the Holder may elect to purchase, at
the price specified in the Notice, up to the number of shares of the New
Securities proposed to be issued that the Holder has the right to purchase as
specified in the Notice. An election to purchase shall be made in writing and
must be given to the Company within such 30-day period (in accordance with
Section 17.5). The closing of the sale of New Securities by the Company to the
participating Holder upon exercise of its rights under this Section 16 shall
take place simultaneously with the closing of the sale of New Securities to
third parties.

              16.4  COMPANY RIGHTS. The Company shall have one hundred twenty
(120) days after the giving of the Notice to enter into an agreement to sell
the New Securities which the Holder did not elect to purchase under this
Section 16, at or above the price and upon terms not materially more favorable
to the purchasers of such securities than the terms specified in the

                                     14.

<PAGE>

initial Notice given in connection with such sale. In the event the Company
has not entered into an agreement to sell the New Securities within such
120-day period, the Company shall not thereafter issue or sell any New
Securities without first offering such New Securities to the Holders in the
manner provided in this Section 16.

              16.5  DEFINITIONS.

                             (a)     "New Securities" shall mean any shares
of, or securities convertible into or exercisable for any shares of, any class
of the Company's capital stock; provided that "New Securities" does not
include: (a) any shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock
or Series F Preferred Stock authorized for issuance on the date hereof or the
Common Stock issuable upon conversion thereof; (b) securities issued pursuant
to the acquisition of another business entity by the Company by merger,
purchase of substantially all of the assets of such entity, or other
reorganization whereby the Company owns not less than a majority of the voting
power of such entity; (c) shares, or options to purchase shares, of the
Company's Common Stock and the shares of Common Stock issuable upon exercise
of such options, issued pursuant to any arrangement approved by the Board of
Directors to employees, officers and directors of, or consultants, advisors or
other persons performing services for, the Company; (d) shares of the
Company's Common Stock or Preferred Stock of any series issued in connection
with any stock split, stock dividend or recapitalization of the Company; (e)
Common Stock issued upon exercise of warrants, options or convertible
securities if the issuance of such warrants, options or convertible securities
was a result of the exercise of the right of first offer granted under this
Section 16 or was subject to the right of first offer granted under this
Section 16; (f) capital stock or warrants or options for the purchase of
shares of capital stock issued by the Company to a lender in connection with
any loan or lease financing transaction; (g) securities sold to the public in
an offering pursuant to a registration statement filed with the Commission
under the Securities Act; and (h) any securities issued in connection with
strategic transactions involving the Company and other entities, including (i)
joint ventures, manufacturing, marketing or distribution arrangements or (ii)
technology transfer or development arrangements; provided that such strategic
transactions and the issuance of shares therein, has been approved by the
Company's Board of Directors.

                             (b)     The applicable "Percentage" for the
Holder shall be the number of shares of New Securities calculated by dividing
(a) the total number of shares of Common Stock owned by the Holder (assuming
conversion of all shares of Preferred Stock) by (b) the total number of shares
of Common Stock outstanding at the time the Notice is given (assuming
conversion of all shares of Preferred Stock).

              16.6  EXCEPTIONS. The right of first offer granted under this
Section 16 shall not apply to and shall expire upon the consummation of the
Company's sale of its Common Stock in a bona fide, firm commitment
underwriting pursuant to a registration statement on Form S-1 under the
Securities Act (other than a registration statement relating either to the
sale of

                                     15.

<PAGE>

securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or a transaction under Rule 145 of the Securities
Act).

              16.7  TRANSFER OF RIGHTS. The right of first offer granted under
this section may be assigned by a Holder to a transferee or assignee of the
Holder's shares of the Company's stock acquiring at least 50 percent of the
then outstanding Common Stock (assuming conversion of all shares of Preferred
Stock) held by such Holder on the date hereof. In the event that a Holder
shall assign its right of first offer pursuant to this Section 16.7 in
connection with the transfer of less than all of such Holder's shares of the
Company's stock, such Holder shall also retain such Holder's right of first
offer. Notwithstanding the limitation set forth in the first sentence of this
paragraph respecting the minimum number of shares which must be transferred,
(i) any Holder which is a partnership may transfer such Holder's right of
first offer to such Holder's constituent partners; (ii) any Holder or Holders,
each of which is a corporation, may transfer such Holder's or Holders' right
of first offer to any corporation or other entity at least 50% in interest of
which is owned by such Holder or Holders or the owners of at least 50% in
interest of such Holder or Holders without restriction as to the number or
percentage of shares acquired by such constituent partner, any corporation or
other entity; (iii) any Holder which is a registered, investment company may
transfer such Holder's right of first offer to another registered investment
company with a common investment advisor; and (iv) any Holder which is a trust
may transfer such Holder's right of first offer to a successor trustee or
trustees or to a successor trust or trusts for the benefit of the same
beneficiaries as the beneficiaries of such Holder.

         17.  MISCELLANEOUS.

              17.1  ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement
constitutes the entire contract between the Company and the Holders relative
to the subject matter hereof. Subject to the exceptions specifically set forth
in this Agreement, the terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the respective executors, administrators,
heirs, successors and assigns of the parties.

              17.2  GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts entered into and wholly to be performed within the State of
California by California residents.

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

              17.4  HEADINGS. The headings of the Sections of this Agreement
are for convenience and shall not by themselves determine the interpretation
of this Agreement.

              17.5  NOTICES. Any notice required or permitted hereunder shall
be given in writing and shall be conclusively deemed effectively given upon
personal delivery, or five days after deposit in the United States mail, by
registered or certified mail, postage prepaid, addressed

                                     16.

<PAGE>

(i) if to the Company, as set forth below the Company's name on the signature
page of this Agreement, and (ii) if to a Holder, at such Holder's address as
set forth on the Company's books, or at such other address as the Company or
such Holder may designate by ten (10) days' advance written notice to the
Holders or the Company, respectively.

              17.6  AMENDMENT OF AGREEMENT. Any provision of this Agreement
may be amended or waived only by a written instrument signed by the Company
and by persons holding at least fifty percent (50%) of the aggregate of the
Convertible Securities and Registrable Securities then outstanding.

              17.7  AMENDMENT AND RESTATEMENT OF PRIOR RIGHTS AGREEMENT.
Pursuant to Section 17.6 of the Prior Rights Agreement, the Prior Rights
Agreement is hereby amended and restated in its entirety by this Agreement.

              17.8  CHANGES IN REGISTRABLE SECURITIES. If, and as often as,
there are any changes in the Registrable Securities by way of stock split,
stock dividend, combination or reclassification, or through merger,
consolidation, reorganization or recapitalization, or by any other means,
appropriate adjustment shall be made in the provisions of this Agreement, as
may be required, so that the rights and privileges granted hereby shall
continue with respect to the Registrable Securities as so changed. Without
limiting the generality of the foregoing, the Company will require any
successor by merger or consolidation to assume and agree to be bound by the
terms of this Agreement, as a condition to any such merger or consolidation.














                                     17.
<PAGE>








         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.

                                  COMPANY

                                  AEROGEN, INC., a Delaware corporation



                                  By: /s/ Carol Gamble
                                     ------------------------------------------
                                                  Carol Gamble
                                  Vice President, General Counsel and Secretary

                                        18.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE








                                  Bonnie Dennis Living Trust
                                  ------------------------------------------
                                           [Print Name of Holder]

                                  By:      /s/
                                     ---------------------------------------
                                                Signature

                                  Address: 1080 Autumn Lane
                                           ---------------------------------

                                           Los Altos, CA 94024
                                           ---------------------------------

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


                                        19.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE








                                  Valor Capital Mgmt, L.P.
                                  -----------------------------------------
                                           [Print Name of Holder]

                                  By:   /s/
                                     --------------------------------------
                                                    Signature
                                               John M. Kratky III

                                  Address:          200 Park Ave
                                          ---------------------------------

                                                    Ste. 3900
                                          ---------------------------------

                                                    NY NY 10166
                                          ---------------------------------


                                        20.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE








                                           Matthew Frank
                                  ------------------------------------------
                                           [Print Name of Holder]

                                  By:      /s/
                                     ---------------------------------------
                                                    Signature

                                  Address:      2995 Woodside Rd Ste 400
                                          ----------------------------------

                                                Woodside, CA
                                          ----------------------------------

                                                94062
                                          ----------------------------------


                                        21.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE








                                           David B. Tuckerman
                                  ------------------------------------------
                                           [Print Name of Holder]

                                  By:      /s/
                                     ---------------------------------------
                                                    Signature
                                                 CMEA Ventures

                                  Address:       235 Montgomery St. # 920
                                          ----------------------------------

                                                 San Francisco, CA 94104
                                          ----------------------------------

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

                                        22.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE








                                           Harris Venture Partners, LLC
                                  --------------------------------------------
                                           [Print Name of Holder]

                                  By:      /s/
                                     -----------------------------------------
                                                  Signature
                                     Michael S. Resnick, VP,  William Harris

                                  Address: Investors, Inc, as Managing Member
                                          ------------------------------------

                                                2 N. LaSalle St, Suite 400
                                          ------------------------------------

                                                    Chicago, IL 60602
                                          ------------------------------------

                                        23.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE








                                           Interwest Investors VI, LP
                                  --------------------------------------------
                                           [Print Name of Holder]

                                  By:      /s/
                                     -----------------------------------------
                                                    Signature
                                                Managing Director

                                  Address:  3000 Sand Hill Rd. #3-255
                                          ------------------------------------

                                            Menlo Park, CA 94025
                                          ------------------------------------

                                        24.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE








                                           Interwest Partners VI, LP
                                  --------------------------------------------
                                           [Print Name of Holder]

                                  By:      /s/
                                     -----------------------------------------
                                                    Signature
                                                Managing Director

                                  Address: 3000 Sand Hill Rd. #3-255
                                          ------------------------------------

                                            Menlo Park, CA 94025
                                          ------------------------------------


                                        25.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE








                                           Virdian Capital, L.P.
                                  --------------------------------------------
                                           [Print Name of Holder]

                                  By:      /s/
                                     -----------------------------------------
                                                 Signature

                                  Address:        220 Montgomery St #946
                                          ------------------------------------

                                                  San Francisco, CA 94104
                                          ------------------------------------

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


                                        26.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE








                                           Avery Ventures I
                                  --------------------------------------------
                                           [Print Name of Holder]

                                  By:      /s/
                                     -----------------------------------------
                                                  Signature

                                  Address:        130 East Dana St.
                                          ------------------------------------

                                                  Mountain View, CA 94041
                                          ------------------------------------

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


                                        27.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE








                                           David Saks
                                  --------------------------------------------
                                           [Print Name of Holder]

                                  By:      /s/
                                     -----------------------------------------
                                                  Signature

                                  Address:        2 Knowllwood Road
                                          ------------------------------------

                                                  Woodcliff Lake
                                          ------------------------------------

                                                  N.J. 07675
                                          ------------------------------------


                                        28.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE








                                           David B. Musket
                                  --------------------------------------------
                                           [Print Name of Holder]

                                  By:      /s/
                                     -----------------------------------------
                                                   Signature

                                    Address:
                                            ----------------------------------

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

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


                                        29.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE








                                           Hunt Ventures, L.P.
                                  --------------------------------------------
                                           [Print Name of Holder]

                                  By:      /s/
                                     -----------------------------------------
                                                  Signature

                                  Address: 1445 Ross Avenue
                                          ------------------------------------

                                                20th Floor
                                          ------------------------------------

                                                Dallas, TX   75202
                                          ------------------------------------


                                        30.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE








                                           Kensigton Partners, L.P. II
                                  --------------------------------------------
                                           [Print Name of Holder]

                                  By:      /s/
                                     -----------------------------------------
                                                    Signature

                                    Address:
                                            ----------------------------------

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

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


                                        31.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE








                                           Bald Eagle Fund
                                  --------------------------------------------
                                           [Print Name of Holder]

                                  By:      /s/
                                     -----------------------------------------
                                                    Signature

                                  Address:

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

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

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

                                        32.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE








                                           Kensington Partners, L.P.
                                  --------------------------------------------
                                           [Print Name of Holder]

                                  By:      /s/
                                     -----------------------------------------
                                                    Signature

                                  Address:
                                          ------------------------------------

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

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


                                        33.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE








                                           The Kaufmann Fund
                                  --------------------------------------------
                                           [Print Name of Holder]

                                  By:      /s/
                                  --------------------------------------------
                                                    Signature

                                  Address:          The Kaufmann Fund
                                          ------------------------------------

                                                    140 E. 45th Street
                                          ------------------------------------

                                                    New York, NY 10017
                                          ------------------------------------


                                        34.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE








                                           Invescp Global Health Services Fund
                                  --------------------------------------------
                                           [Print Name of Holder]

                                  By:      /s/
                                     -----------------------------------------
                                                    Signature

                                  Address:          7800 E. Union Ave
                                          ------------------------------------

                                                    Ste 1100
                                          ------------------------------------

                                                    Denver, CO 80237
                                          ------------------------------------


                                        35.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE








                                           Jonathan J. Carpenter
                                  --------------------------------------------
                                           [Print Name of Holder]

                                  By:      /s/
                                     -----------------------------------------
                                                    Signature

                                  Address: 1 Larch Drive
                                          ------------------------------------

                                            Atherton
                                          ------------------------------------

                                            CA  94027
                                          ------------------------------------



                                        36.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE








                                  ZAFFARONI REVOCABLE TRUST
                                  D/T/D 1-24-86

                                  --------------------------------------------
                                           [Print Name of Holder]

                                  By:      /s/
                                     -----------------------------------------
                                            Signature Alejandro Zaffaroni
                                                       Trustee

                                  Address: 4005 Miranda Avenue
                                          ------------------------------------

                                               Suite 180
                                          ------------------------------------

                                               Palo Alto,  CA 94304
                                          ------------------------------------


                                        37.
<PAGE>

                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE








                                           CMEA
                                  ----------------------------------------------
                                           [Print Name of Holder]

                                  By:      /s/
                                      ------------------------------------------
                                                    Signature

                                  Address:
                                            ------------------------------------

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

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


                                        38.
<PAGE>

                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE








                                           Leeway & Co.
                                  ----------------------------------------------
                                           [Print Name of Holder]
                                                    Leeway & Co. by State Street

                                  By: Bank & Trust Co. a Partner by    /s/
                                      ------------------------------------------
                                                    Signature
                                               Kimberly A. Monyhan
                                               Assistant Vice President
                                  Address:  Leeway & Co. c/o State Street Bank &
                                            Trust
                                            ------------------------------------

                                            One Enterprise Drive - W6C
                                            ------------------------------------

                                            North Quincy, MA 02171
                                            ------------------------------------




                                        39.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE








                                           Wheatley Partners LP
                                           Wheatley Foreign Partners LP
                                  ----------------------------------------------
                                           [Print Name of Holder]

                                  By:      /s/
                                      ------------------------------------------
                                                    Signature
                                           By Barry Rubenstein, CEO
                                  Address:        Wheatley Partners LLC
                                            ------------------------------------
                                                  General Partner
                                                  80 Cutter Mill Road.. Ste 311
                                            ------------------------------------

                                                  Great Neck, NY 11021
                                            ------------------------------------



                                        40.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE








                                           ProMed Partners, L.P.
                                  ----------------------------------------------
                                           [Print Name of Holder]

                                  By:      /s/
                                      ------------------------------------------
                                                    Signature
                                                    Barry Kurokawa
                                  Address:          200 Park Ave, Ste 3900
                                            ------------------------------------

                                                    NY, NY 10166
                                            ------------------------------------

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


                                        41.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE








                                           PEC Israel Economic Corporation
                                  ----------------------------------------------
                                           [Print Name of Holder]

                                  By:      /s/
                                      ------------------------------------------
                                                    Signature

                                  Address:  511 Fifth Avenue
                                            ------------------------------------

                                            New York, N.Y. 10017
                                            ------------------------------------

                                            U.S.A.
                                            ------------------------------------


                                        42.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE







                                ------------------------------------------------
                                  The Northern Trust Company not
                                  Individually, but solely in its capacity as
                                  Trustee of the Lucent technologies Inc.
                                ------------------------------------------------
                                  Master Pension Trust
                                ------------------------------------------------
                                           [Print Name of Holder]

                                  By:      /s/
                                      ------------------------------------------
                                                    Signature

                                  Address:          Jeff Bullen
                                            ------------------------------------

                                                    Trust Officer
                                            ------------------------------------

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



                                        43.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE




<TABLE>

<S>                                                               <C>
* U.S. VENTURE PARTNERS IV, L.P.                                  * see entities listed on left
By Presidio Management Group IV, L.P.                             ------------------------------------
Its General Patner                                                         [Print Name of Holder]

                                                                  By:      /s/
                                                                      --------------------------------
SECOND VENTURES II, L.P.                                                            Signature
By Presidio Management Group IV, L.P.                                      Michael P. Maher, Attorney-in-Fact
Its General Partner                                               Address: US Venure Partners
                                                                           ---------------------------

                                                                           2180 Sand Hill Road  #300
                                                                           ---------------------------
USVP ENTREPRENEUR PARTNERS II, L.P.
A Delaware Limited Partnership                                             Menlo Park, CA 94025
By Presidio Management Group IV, L.P.                                      ---------------------------


</TABLE>


                                        44.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE








                                           PathoGenesis Corp.
                                  ----------------------------------------------
                                           [Print Name of Holder]

                                  By:      /s/
                                      ------------------------------------------
                                                    Signature
                                           Exec. VP & CFO
                                  Address:          5215 Old Orchard Rd
                                            ------------------------------------

                                                    Skokie, IL 60077
                                            ------------------------------------

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



                                        45.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE





                                  Advent Israel (Bermuda) Limited Partnership*
                                  Advent Israel Limited Partnership*
                                  Noptek Limited Partnership*
                                  By: Advent International Limited Partnership,
                                      General Partner
                                  By: Advent International Corporation, General
                                      Partner

                                  By:      /s/
                                      ------------------------------------------
                                           Janet L. Hennessy, Vice President


                                  Advent International Investors II Limited
                                      Partnership
                                  Advent Partners Limited Partnership*
                                  By: Advent International Corporation, General
                                      Partner

                                  By:      /s/
                                      ------------------------------------------
                                           Janet L. Hennessy, Vice President

                                  * c/o Advent International Corporation
                                    75 State Street, 29th Floor
                                    Boston, MA 02109




                                        46.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE




                                  Barry Kurokawa IRA Cowen & Co. Custodian
                                  ----------------------------------------------
                                           [Print Name of Holder]

                                  By:      /s/
                                      ------------------------------------------
                                                    Signature

                                  Address:          280 Park Ave, 31ST Flr
                                            ------------------------------------

                                                    NY,  NY 10017
                                            ------------------------------------

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


                                        47.
<PAGE>


                                  AEROGEN, INC.
                           FOURTH AMENDED AND RESTATED
                  INFORMATION AND REGISTRATION RIGHTS AGREEMENT
                        HOLDER COUNTERPART SIGNATURE PAGE





                                           Barry Kurokawa
                                  ----------------------------------------------
                                           [Print Name of Holder]

                                  By:      /s/
                                      ------------------------------------------
                                                    Signature

                                  Address:          37 Highridge Rd
                                            ------------------------------------

                                                    Hartsdale, NY 10530
                                            ------------------------------------

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




                                        48.
<PAGE>


                                   SCHEDULE A
<TABLE>
<CAPTION>
------------------------------------------------------------ ---------------------------------------------------------
INVESTOR                                                     NUMBER OF SECURITIES
------------------------------------------------------------ ---------------------------------------------------------
<S>                                                          <C>
Advent Israel, L.P.                                          446,000 Shares of Series A Preferred Stock and 330,589
                                                             Shares of Series B Preferred Stock and 189,300 Shares
                                                             of Series C Preferred Stock

Advent International II, L.P.                                12,822 Shares of Series A Preferred Stock and 6,411
                                                             Shares of Series B Preferred Stock

Advent Israel Bermuda, L.P.                                  54,000 Shares of Series A Preferred Stock and 40,027
                                                             Shares of Series B Preferred Stock and 22,900 Shares of
                                                             Series C Preferred Stock

Advent Partners L.P.                                         38,850 Shares of Series B Preferred Stock and 9,450
                                                             Shares of Series C Preferred Stock

Noptek, L.P.                                                 641,026 Shares of Series A Preferred Stock and 481,560
                                                             Shares of Series B Preferred Stock and 273,650 Shares
                                                             of Series C Preferred Stock

------------------------------------------------------------ ---------------------------------------------------------
Peter Frederick and Jane Elizabeth Carpenter PTEE            142,858 Shares of Series D Preferred Stock
Carpenter 1985 Irrev Trust Dated 4/29/85, Jane Carpenter,
Trustee
------------------------------------------------------------ ---------------------------------------------------------
Chemicals and Materials Enterprise Associates, Limited       1,282,052 Shares of Series A Preferred Stock and
Partnership                                                  1,282,052 Shares of Series B Preferred Stock and
                                                             1,333,333 Shares of Series C Preferred Stock and
                                                             444,444 Shares of Series F Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
Discount Investment Corporation Ltd.                         500,000 Shares of Series C Preferred Stock and 216,475
                                                             Shares of Series D Preferred Stock and 240,866 Shares
                                                             of Series F Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
Eckenhoff Family Trust A, Bonnie J. Eckenhoff TREE 1/8/92    75,000 Shares of Series C Preferred Stock and 33,644
                                                             Shares of Series D Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
InterWest Investors VI, LP                                   88,791 Shares of Series C Preferred Stock and
                                                             16,913 Shares of Series D Preferred Stock and
                                                             6,756 Shares of Series F Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------

                                        49.
<PAGE>

------------------------------------------------------------ ---------------------------------------------------------
INVESTOR                                                     NUMBER OF SECURITIES
------------------------------------------------------------ ---------------------------------------------------------
InterWest Partners VI, L.P.                                  2,911,209 Shares of Series C Preferred Stock and
                                                             554,516 Shares of Series D Preferred Stock and 215,466
                                                             Shares of Series F Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
INVESCO Funds Group, Inc.                                    1,142,858 Shares of Series D Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
Pirate Ship & Co., Nominee of INVESCO Funds Group, Inc.      888,889 Shares of Series F Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
Leeway & Co.                                                 1,437,960 Shares of Series D Preferred Stock and
                                                             266,667 Shares of Series F Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
Ell & Co.                                                    2,276,326 Shares of Series D Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
Gerlach  & Co., Nominee of The Manufacturers Life            2,714,286 Shares of Series D Preferred Stock
Insurance Company (USA)
------------------------------------------------------------ ---------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith Inc. FBO David H.        28,572 Shares of Series D Preferred Stock
McCallum (IRA)
------------------------------------------------------------ ---------------------------------------------------------
David B. Musket                                              72,575 Shares of Series D Preferred Stock and 100,000
                                                             Shares of Series F Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
David B. Musket SEP IRA c/o Cowen & Co., Custodian           50,000 Shares of Series C Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
PEC Israel Economic Corporation                              500,000 Shares of Series C Preferred Stock and 216,475
                                                             Shares of Series D Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
ProMed Partners, L.P.                                        150,000 Shares of Series D Preferred Stock and 46,125
                                                             Shares of Series F Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
Dr. Amram Rasiel                                             128,204 Shares of Series A Preferred Stock and 64,102
                                                             Shares of Series B Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
Targa Capital                                                100,000 Shares of Series C Preferred Stock and 42,860
                                                             Shares of Series D Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
Thomas E. Sparks, Jr.                                        25,000 Shares of Series C Preferred Stock and 10,824
                                                             Shares of Series D Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------

                                        50.
<PAGE>


------------------------------------------------------------ ---------------------------------------------------------
INVESTOR                                                     NUMBER OF SECURITIES
------------------------------------------------------------ ---------------------------------------------------------
U.S. Venture Partners IV, L.P.                               1,108,974 Shares of Series A Preferred Stock and
                                                             1,386,219 Shares of Series B Preferred Stock and
                                                             2,306,667 Shares of Series C Preferred Stock and
                                                             222,429 Shares of Series D Preferred Stock

Second Ventures II, L.P.                                     134,616 Shares of Series A Preferred Stock and 168,269
                                                             Shares of Series B Preferred Stock and 280,000 Shares
                                                             of Series C Preferred Stock and 27,000 Shares of Series
                                                             D Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
USVP Entrepreneur Partners II, L.P.                          38,462 Shares of Series A Preferred Stock and 48,077
                                                             Shares of Series B Preferred Stock and 80,000 Shares of
                                                             Series C Preferred Stock and 7,714 Shares of Series D
                                                             Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
Venture Lending & Leasing, Inc.                              32,051 Shares of Common Stock and up to 52,000 Shares
                                                             of Series C Preferred Stock

Venture Lending & Leasing II, Inc.                           Up to 78,000 Shares of Series C Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
Viridian Capital                                             400,000 Shares of Series D Preferred Stock and 333,333
                                                             Shares of Series F Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
Wheatley Partners, L.P.                                      526,798 Shares of Series D Preferred Stock and 819,463
                                                             Shares of Series F Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
Wheatley Foreign Partners, L.P.                              44,631 Shares of Series D Preferred Stock and 69,426
                                                             Shares of Series F Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
Alejandro C. Zaffaroni, Ph.D., & Lida Zaffaroni, Trustees    641,026 Shares of Series B Preferred Stock and 222,222
of the Zaffaroni Revocable Trust D/T/D 1-24-86               Shares of Series F Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
Zaffaroni Family Partnership, LP. (formerly Prydain          500,000 Shares of Series C Preferred Stock
Partners, L.P.)
------------------------------------------------------------ ---------------------------------------------------------
Jonathan Carpenter                                           24,013 Shares of Series F Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
PathoGenesis Corporation                                     961,539 Shares of Series E Preferred Stock
201 Elliott Avenue West, Suite 150
Seattle, WA  98118

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

                                        51.
<PAGE>


------------------------------------------------------------ ---------------------------------------------------------
INVESTOR                                                     NUMBER OF SECURITIES
------------------------------------------------------------ ---------------------------------------------------------
Becton, Dickinson and Company                                961,539 Shares of Series E Preferred Stock
1 Becton Drive
Franklin Lakes, NJ  07417-1866

------------------------------------------------------------ ---------------------------------------------------------
MVI Medical Venture Investments Limited                      1,333,333 Shares of Series F Preferred Stock

------------------------------------------------------------ ---------------------------------------------------------
Edgemont Asset Management                                    888,889 Shares of Series F Preferred Stock

------------------------------------------------------------ ---------------------------------------------------------
Hunt Ventures, L.P.                                          444,444 Shares of Series F Preferred Stock

------------------------------------------------------------ ---------------------------------------------------------
The NeoMed Fund Limited                                      222,222 Shares of Series F Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
Harris Venture Partners                                      222,222 Shares of Series F Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
Valor Capital Management, L.P.                               222,222 Shares of Series F Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
Kensington Partners, L.P.                                    86,076 Shares of Series F Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
Bald Eagle Fund                                              19,625 Shares of Series F Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
Kensington Partners, L.P. II                                 5,410 Shares of Series F Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
David Saks                                                   40,000 Shares of Series F Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
David Tuckerman                                              4,444 Shares of Series F Preferred Stock

------------------------------------------------------------ ---------------------------------------------------------
Matthew Frank                                                10,000 Shares of Series F Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
Avery Ventures I                                             222,222 Shares of Series F Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
Carpenter 1983 Family Trust UA dtd 3/9/83, Peter F.          44,444 Shares of Series F Preferred Stock
Carpenter and Jane Elizabeth Carpenter, Trustees
------------------------------------------------------------ ---------------------------------------------------------
Bonnie B. Dennis Living Trust                                20,000 Shares of Series F Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
Barry Kurokawa IRA, Cowen & Co. Custodian                    23,000 Shares of Series F Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------
Barry Kurokawa                                               12,000 Shares of Series F Preferred Stock
------------------------------------------------------------ ---------------------------------------------------------

------------------------------------------------------------ ---------------------------------------------------------
</TABLE>

                                        52.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.3
<SEQUENCE>7
<FILENAME>ex-4_3.txt
<DESCRIPTION>EXHIBIT 4.3
<TEXT>

<PAGE>

                                                                     EXHIBIT 4.3

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAWS.

                               WARRANT TO PURCHASE
                            SHARES OF COMMON STOCK OF
                       FLUID PROPULSION TECHNOLOGIES, INC.
                           (Void after June 30, 2002)

         This certifies that VENTURE LENDING & LEASING, INC., a Maryland
corporation, or assigns (the "Holder"), for value received, is entitled to
purchase from FLUID PROPULSION TECHNOLOGIES INC., a California corporation
(the "Company"), fully paid and nonassessable shares of the Company's Common
Stock ("Common Stock") with a value equal to $25,000 (as adjusted pursuant to
Section 4.7), determined on the basis of a price per share for such Common
Stock (the "Stock Purchase Price") equal to (a) if the Company closes a sale
of Series B Preferred Stock on or prior to November 30, 1995, the price of the
Series B Preferred Stock; (b) if the Company closes a sale of Series B
Preferred Stock after November 30, 1995 but on or prior to November 30, 1996,
the arithmetic mean of $0.39 and the price of the Series B Preferred Stock;
(c) if the Company fails to close a sale of Series B Preferred Stock on or
prior to November 30, 1996, $0.39; and (d) if the Stock Purchase Price has not
previously been set pursuant to (a), (b) or (c) above and the Warrant is set
to expire pursuant to Section 4.3(b) hereof, $0.39. The Stock Purchase Price
is subject to adjustment as provided in Section 4 of this Warrant. The Warrant
may be exercised at any time or from time to time up to and including 5:00
p.m. (Pacific time) on June 30, 2002 unless terminated earlier pursuant to
Section 4.3(b) (in either case, the "Expiration Date"), upon surrender to the
Company at its principal office at 3350 Scott Boulevard, Building 33, Santa
Clara, California 95054 (or at such other location as the Company may advise
Holder in writing) of this Warrant properly endorsed with the Form of
Subscription attached hereto duly filled in and signed and upon payment in
cash or by check of the aggregate Stock Purchase Price for the number of
shares for which this Warrant is being exercised determined in accordance with
the provisions hereof.

         This Warrant is subject to the following terms and conditions:

         1.       EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.

                  (a) Unless an election is made pursuant to clause (b) of
this Section 1, this Warrant shall be exercisable at the option of the Holder,
at any time or from time to time, on or before the Expiration Date for all or
any portion of the shares of Common Stock (but not for a fraction of a share)
which may be purchased hereunder for the Stock Purchase Price multiplied by
the number of shares to be purchased. The Company agrees that the shares of
Common Stock purchased under this Warrant shall be and are deemed to be issued
to the holder hereof as the

                                        1.
<PAGE>

record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered and payment made for such shares.
Subject to the provisions of Section 2, certificates for the shares of Common
Stock so purchased, together with any other securities or property to which
the Holder hereof is entitled upon such exercise, shall be delivered to the
Holder hereof by the Company at the Company's expense within a reasonable time
after the rights represented by this Warrant have been so exercised. Except as
provided in clause (b) of this Section 1, in case of a purchase of less than
all the shares which may be purchased under this Warrant, the Company shall
cancel this Warrant and execute and deliver a new Warrant or Warrants of like
tenor for the balance of the shares purchasable under the Warrant surrendered
upon such purchase to the Holder hereof within a reasonable time. Each stock
certificate so delivered shall be in such denominations of Common Stock as may
be requested by the Holder hereof and shall be registered in the name of such
Holder or such other name as shall be designated by such Holder, subject to
the limitations contained in Section 2.

                  (b) The Holder, in lieu of exercising this Warrant by the
payment of the Stock Purchase Price pursuant to clause (a) of this Section 1,
may elect, at any time on or before the Expiration Date, to receive, through
conversion of this Warrant or any portion hereof into that number of shares of
Common Stock equal to the quotient of: (i) the difference between (A) the Per
Share Price (as hereinafter defined) of the Common Stock, less (B) the Stock
Purchase Price then in effect, multiplied by the number of shares of Common
Stock the Holder would otherwise have been entitled to purchase hereunder
pursuant to clause (a) of this Section 1 (or such lesser number of shares as
the Holder may designate in the case of a partial exercise of this Warrant);
over (ii) the Per Share Price.

                  (c) For purposes of clause (b) of this Section 1, "Per Share
Price" means (i) if the Company's Common Stock is then listed or admitted to
trading on any national securities exchange or traded on any national market
system, the average of the closing bid and asked prices of the Company's
Common Stock as reported on such exchange or market system for the ten (10)
consecutive trading days prior to the date of the Holder's election to convert
hereunder; (ii) if this Warrant is being converted in conjunction with a
public offering of stock, the price to the public per share pursuant to the
offering; or (iii) if no shares of the Company's Common Stock are listed or
admitted to trading on any national securities exchange or traded on any
national market system, the fair market value of the Common Stock as
determined in the judgment of the Company's Board of Directors.

         2.       LIMITATION ON TRANSFER.

                  (a) The Warrant and the Common Stock shall not be
transferable except upon the conditions specified in this Section 2, which
conditions are intended to insure compliance with the provisions of the
Securities Act. Each holder of this Warrant or the Common Stock issuable
hereunder will cause any proposed transferee of the Warrant or Common stock to
agree to take and hold such securities subject to the provisions and upon the
conditions specified in this Section 2.

                  (b) Each certificate representing this Warrant or the Common
Stock shall (unless otherwise permitted by the provisions of this Section 2 or
unless such securities have been registered under the Securities Act or sold
under Rule 144) be stamped or otherwise

                                        2.

<PAGE>

imprinted with a legend substantially in the following form (in addition to
any legend required under applicable state securities laws):

         THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
         INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
         1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR
         TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
         THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

                  (c) The Holder of this Warrant and each person to whom this
Warrant is subsequently transferred represents and warrants to the Company (by
acceptance of such transfer) that it will not transfer the Warrant (or
securities issuable upon exercise hereof unless a registration statement under
the Securities Act was in effect with respect to such securities at the time
of issuance thereof) except pursuant to (i) an effective registration
statement under the Securities Act, (ii) Rule 144 under the Securities Act (or
any other rule under the Securities Act relating to the disposition of
securities), or (iii) an opinion of counsel, reasonably satisfactory to
counsel for the Company, that an exemption from such registration is available.

                  (d) At any time that amounts are outstanding under the Loan
Agreement between the Company and the initial Holder dated ________, 1995,
this Warrant may only be transferred if it is transferred in whole (but not in
part) to a party who has been transferred all of the rights and obligations of
the initial Holder under such Loan Agreement.

         3. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares of Common Stock which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable and free from
all preemptive rights of any shareholder and free of all taxes, liens and
charges with respect to the issue thereof. The Company further covenants and
agrees that during the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved, for the purpose of issue or transfer upon exercise of the
subscription rights evidenced by this Warrant, a sufficient number of shares
of authorized but unissued Common stock, or other securities and property,
when and as required to provide for the exercise of the rights represented by
this warrant. The Company will take all such action as may be necessary to
assure that such shares of Common Stock may be issued as provided herein
without violation of any applicable law or regulation, or of any requirements
of any domestic securities exchange upon which the Common Stock may be listed.
The Company will not take any action which would result in any adjustment of
the Stock Purchase Price (as defined in Section 4 hereof) (i) if the total
number of shares of Common Stock issuable after such action upon exercise of
all outstanding warrants, together with all shares of Common Stock then
outstanding and all shares of Common Stock then issuable upon exercise of all
options and upon the conversion of all convertible securities then
outstanding, would exceed the total number of shares of Common Stock then
authorized by the Company's Articles of Incorporation.

         4. ADJUSTMENT OF STOCK PURCHASE PRICE AND AGGREGATE VALUE OF SHARES
PURCHASABLE. The Stock Purchase Price and the aggregate value of shares
purchasable upon the exercise of this

                                        3.
<PAGE>

Warrant shall be subject to adjustment from time to time upon the occurrence
of certain events described in this Section 4.

                  4.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, the Stock Purchase Price in effect immediately prior
to such subdivision shall be proportionately reduced, and conversely, in case
the outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.

                  4.2 DIVIDENDS IN PREFERRED STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the holders of Common
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to
receive, without payment therefor,

                           (a) by way of dividend or other distribution any
shares of stock or other securities, whether or not such securities are at any
time directly or indirectly convertible into or exchangeable for Common Stock,
or any rights or options to subscribe for, purchase or otherwise acquire any
of the foregoing, or

                           (b) any cash paid or payable otherwise than as a
cash dividend, or

                           (c) additional stock or other securities or
property (including cash) by way of spinoff, split-up, reclassification,
combination of shares or similar corporate rearrangement, (other than shares
of Common Stock issued as a stock split, adjustments in respect of which shall
be covered by the terms of Section 4.1 above), then and in each such case, the
Holder hereof shall, upon the exercise of this Warrant, be entitled to
receive, in addition to the number of shares of Common Stock receivable
thereupon, and without payment of any additional consideration therefore, the
amount of stock and other securities and property (including cash in the cases
referred to in clauses (b) and (c) above) which such Holder would hold on the
date of such exercise had he been the holder of record of such Common Stock as
of the date on which holders of Common Stock received or became entitled to
receive such shares and/or all other additional stock and other securities and
property.

                  4.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER
OR SALE.

                           (a) If any capital reorganization or
reclassification of the capital stock of the Company, or any consolidation or
merger of the Company with another corporation, or the sale of all or
substantially all of its assets to another corporation (except for a
consolidation, merger or sale of assets described in Section 4.3(b)) shall be
effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provisions shall be made
whereby the holder hereof shall thereafter have the right to purchase and
receive (in lieu of the shares of the Common Stock of the Company immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby) such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number of outstanding
shares of such

                                        4.
<PAGE>

Common Stock equal to the number of shares of such stock immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby. In any such case, appropriate provision shall be made with
respect to the rights and interests of the holder of this Warrant to the end
that the provisions hereof (including, without limitation, provisions for
adjustments of the Stock Purchase Price and of the number of shares
purchasable and receivable upon the exercise of this Warrant) shall thereafter
be applicable, as nearly as may be possible, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise hereof.
The Company will not effect any such consolidation, merger or sale unless,
prior to the consummation thereof, the successor corporation (if other than
the Company) resulting from such consolidation or the corporation purchasing
such assets shall assume by written instrument, executed and mailed or
delivered to the registered Holder hereof at the last address of such Holder
appearing on the books of the Company, the obligation to deliver to such
Holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such Holder may be entitled to purchase

                           (b) Notwithstanding anything in Section 4.3(a) to
the contrary, this Warrant shall terminate upon the consummation of any
consolidation or merger with another corporation or any sale of all or
substantially all of the assets of the company in which the stockholders of
the Company immediately before such merger, consolidation or sale do not hold
more than 50% of the outstanding voting equity interests of the surviving or
acquiring entity following such merger, consolidation or sale, unless the
surviving or acquiring entity specifically assumes the Company's obligations
hereunder.

                  4.4 SALE OR ISSUANCE BELOW PURCHASE PRICE. If the Company
shall at any time or from time to time issue or sell any of its Common Stock
or any other securities convertible into Common Stock, other than Excluded
Shares (as defined below), for a consideration per share less than the Stock
Purchase Price in effect immediately prior to the time of such issue or sale,
the Stock Purchase Price then in effect and then applicable for any subsequent
period or periods shall be adjusted to a price determined by dividing (i) an
amount equal to the sum of (x) the number of shares of Common Stock
outstanding immediately prior to such issue or sale multiplied by the Stock
Purchase Price then in effect and (y) the consideration, if any, received by
the Company upon such issue or sale, by (ii) the total number of shares of
Common Stock outstanding immediately after such issue or sale. For purposes of
this Section 4.4, all shares of Common Stock issuable upon the exercise and/or
conversion of all outstanding warrants (including this Warrant), options and
convertible securities shall be deemed to be outstanding. The foregoing
notwithstanding, no adjustment shall be made pursuant to this Section 4.4 on
account of a given sale to the extent that (a) the Stock Purchase Price is
adjusted pursuant to any other Section of this Warrant or (b) the conversion
price of the Common Stock is decreased pursuant to the terms thereof.
"Excluded Shares" shall mean (i) Common Stock issuable upon conversion of
Preferred Stock, (ii) Common Stock issued to employees, advisors, directors,
officers or consultants of the Company and its subsidiaries under the
Company's stock option plan, stock purchase plan or otherwise as may be
approved by the Company's Board of Directors, (iii) Common Stock issued or
issuable in connection with loans from financial institutions, equipment
leases and other comparable transactions approved by the Board of Directors of
the Company, or (iv) Common Stock issued or issuable in connection with
collaborations, strategic alliances, joint ventures, technology acquisitions,
development

                                        5.
<PAGE>

agreements and other business transactions (excluding transactions with are
primarily for equity financing purposes) approved by the Board of Directors of
the Company.

                  4.5 NOTICE OF ADJUSTMENT. Upon any adjustment of the Stock
Purchase Price or aggregate value of stock purchasable hereunder, the Company
shall give written notice thereof, by first class mail, postage prepaid,
addressed to the registered holder of this Warrant at the address of such
holder as shown on the books of the Company. The notice shall be signed by the
Company's chief financial officer and shall state the Stock Purchase Price
resulting from such adjustment or, if applicable, the decrease in the
aggregate value of the stock purchasable hereunder, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.

                  4.6 OTHER NOTICES.  If at any time:

                           (a) the Company shall declare any cash dividend
upon any of its stock;

                           (b) the Company shall declare any dividend upon its
stock payable in stock, or make any special dividend or other distribution to
the holders of its stock;

                           (c) the Company shall offer for subscription pro
rata to the holders of its Common stock any additional shares of stock of any
class or other rights;

                           (d) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or
merger of the Company with, or sale of all or substantially all of its assets
to, another corporation;

                           (e) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company; or

                           (f) the Company shall take or propose to take any
other action, notice of which is actually provided to holders of the Common
Stock;

then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the holder of this Warrant at the address
of such holder as shown on the books of the Company, (i) at least 20 day's
prior written notice of the date on which the books of the Company shall close
or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action and (ii) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, or other action, at least 20 day's written notice of the date when
the same shall take place. Any notice given in accordance with the foregoing
clause (i) shall also specify, in the case of any such dividend, distribution
or subscription rights, the date on which the holders of stock shall be
entitled thereto. Any notice given in accordance with the foregoing clause
(ii) shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, or other action as the case may
be.

                                        6.
<PAGE>

                  4.7 ADJUSTMENT IN AGGREGATE VALUE OF SHARES PURCHASABLE.
This Warrant is being issued to the initial Holder in connection with a Loan
Agreement between the Company and Holder dated ___________, 1995 (the "Loan
Agreement"). Pursuant to the Loan Agreement, the initial Holder has committed
to loan the Company up to $250,000. If the Company is prohibited from
borrowing the full $250,000 from the initial Holder because of a termination
of the Loan Agreement by the initial Holder or the operation of any other
limitation in the Loan Agreement, then the aggregate value of the shares of
Common Stock purchasable under this Warrant shall be reduced from $25,000 to
the product of (a) $25,000 and (b) a fraction, the numerator of which is the
aggregate principal amount borrowed by the Company under the Loan Agreement
and the denominator of which is $250,000. In no other event shall the
aggregate value of stock purchasable hereunder be changed.

         5. ISSUE TAX. The issuance of certificates for shares of Common Stock
upon the exercise of the Warrant shall be made without charge to the Holder of
the Warrant for any issue tax in respect thereof; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the then Holder of the Warrant being exercised.

         6. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any Warrant or of any shares of Common Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.

         7. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent as a shareholder in respect of meetings
of shareholders for the election of directors of the Company or any other
matters or any rights whatsoever as a shareholder of the Company. No dividends
or interest shall be payable or accrued in respect of this Warrant or the
interest represented hereby or the shares purchasable hereunder until, and
only to the extent that, this Warrant shall have been exercised. No provisions
hereof, in the absence of affirmative action by the holder to purchase shares
of Common Stock, and no mere enumeration herein of the rights or privileges of
the Holder hereof, shall give rise to any liability of such Holder for the
Stock Purchase Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by its creditors.

         8. INTENTIONALLY OMITTED.

         9. REGISTRATION RIGHTS. At the time of the Series B Preferred Stock
financing of the Company, the Company shall use its reasonable best efforts to
obtain the approval of the holders of Series A Preferred Stock to include the
shares of Common Stock issuable under this Warrant as "Registrable Securities"
and the Holder as a "Holder" under the Company's Information and Registration
Rights Agreement dated May 6, 1995 for the purposes of the registration rights
provisions thereof.

         10. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights
and obligations of the Company, of the Holder of this Warrant and of the
holder of shares of Common Stock issued upon exercise of this Warrant,
contained in Sections 2 and 9 shall survive the exercise of this Warrant.

                                        7.
<PAGE>

         11. MODIFICATION AND WAIVER. This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.

         12. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall
be deemed to have been given (i) upon receipt if delivered personally or by
courier, (ii) upon confirmation of receipt if by telecopy, or (iii) three
business days after deposit in the U.S. mail, with postage prepaid and
certified or registered, to each such holder at its address as shown on the
books of the Company or to the Company at the address indicated therefor in
the first paragraph of this Warrant.

         13. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets to the extent set forth in
Section 4.3. All of the obligations of the company relating to the Common
Stock issuable upon the exercise of this Warrant shall survive the exercise
and termination of this Warrant. All of the covenants and agreements of the
Company shall inure to the benefit of the permitted successors and assigns of
the Holder hereof. The Company will, at the time of the exercise of this
Warrant, in whole or in part, upon request of the Holder hereof but at the
Company's expense, acknowledge in writing its continuing obligation to the
Holder hereof in respect of any rights (including, without limitation, any
right to registration of the shares of Common Stock) to which the Holder
hereof shall continue to be entitled after such exercise in accordance with
this Warrant; provided, that the failure of the Holder hereof to make any such
request shall not affect the continuing obligation of the company to the
Holder hereof in respect of such rights.

         14. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The descriptive headings
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of California.

         15. LOST WARRANTS OR STOCK CERTIFICATES. The Company represents and
warrants to the Holder hereof that upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any Warrant or stock certificate and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity reasonably satisfactory to the
Company, or in the case of any such mutilation upon surrender and cancellation
of such Warrant or stock certificate, the Company at its expense will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the
lost, stolen, destroyed or mutilated Warrant or stock certificate.

         16. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional
share, pay the holder entitled to such fraction a sum in cash equal to such
fraction multiplied by the then effective Stock Purchase Price.

         17. REPRESENTATIONS OF HOLDER. With respect to this Warrant, Holder
represents and warrants to the Company as follows:

                                        8.
<PAGE>

                  17.1 EXPERIENCE. It is experienced in evaluating and
investing in companies engaged in businesses similar to that of the Company;
it understands that investment in the Warrant involves substantial risks; it
has made detailed inquiries concerning the Company, its business and services,
its officers and its personnel; the officers of the Company have made
available to Holder any and all written information it has requested; the
officers of the Company have answered to Holder's satisfaction all inquiries
made by it; in making this investment it has relied upon information made
available to it by the Company; and it has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of investment in the Company and it is able to bear the economic risk of
that investment.

                  17.2 INVESTMENT. It is acquiring the Warrant for investment
for its own account and not with a view to, or f or resale in connection with,
any distribution thereof. It understands that the Warrant, the shares of
Common Stock issuable upon exercise thereof, have not been registered under
the Securities Act of 1933, as amended, nor qualified under applicable state
securities laws.

                  17.3 RULE 144. It acknowledges that the Warrant and the
Common Stock must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available.
It has been advised or is aware of the provisions of Rule 144 promulgated
under the Securities Act.

                  17.4 ACCESS TO DATA. It has had an opportunity to discuss
the Company's business, management and financial affairs with the Company's
management and has had the opportunity to inspect the Company's facilities.

         18. ADDITIONAL REPRESENTATIONS AND COVENANTS OF THE COMPANY. The
Company hereby represents, warrants and agrees as follows:

                  18.1 CORPORATE POWER. The Company has all requisite
corporate power and corporate authority to issue this Warrant and to carry out
and perform its obligations hereunder.

                  18.2 AUTHORIZATION. All corporate action on the part of the
Company, its directors and shareholders necessary for the authorization,
execution, delivery and performance by the Company of this has been taken.
This Warrant is a valid and binding obligation of the Company, enforceable in
accordance with its terms.

                  18.3 OFFERING. Subject in part to the truth and accuracy of
Holder's representations set forth in Section 17 hereof, the offer, issuance
and sale of the Warrant is, and the issuance of Common Stock upon exercise of
the Warrant will be exempt from the registration requirements of the
Securities Act, and are exempt from the qualification requirements of any
applicable state securities laws; and neither the Company nor anyone acting on
its behalf will take any action hereafter that would cause the loss of such
exemptions.

                  18.4 STOCK ISSUANCE. Upon exercise of the Warrant, the
Company will use its best efforts to cause stock certificates representing the
shares of Common Stock purchased pursuant to the exercise to be issued in the
individual names of Holder, its nominees or assignees, as appropriate at the
time of such exercise.

                                        9.
<PAGE>

                  18.5 ARTICLES AND BY-LAWS. The Company has provided Holder
with true and complete copies of the Company's Articles or Certificate of
Incorporation, By-Laws, and each Certificate of Determination or other charter
document setting, forth any rights, preferences and privileges of Company's
capital stock, each as amended and in effect on the date of issuance of this
Warrant.

                  18.6 FINANCIAL AND OTHER REPORTS. From time to time up to
the earlier of the Expiration Date or the complete exercise of this Warrant,
the Company shall furnish to Holder (i) within 90 days after the close of each
fiscal year of the Company an audited balance sheet and statement of changes
in financial position at and as of the end of such fiscal year, together with
an audited statement of income for such fiscal year; (ii) within 45 days after
the close of each fiscal quarter of the Company, an unaudited balance sheet
and statement of cash flows at and as of the end of such quarter, together
with an unaudited statement of income for such quarter; and (iii) promptly
after sending, making available, or filing, copies of all reports, proxy
statements, and financial statements that the Company sends or makes available
to its shareholders and all registration statements and reports that the
Company files with the SEC or any other governmental or regulatory authority.

                                        10.

<PAGE>

         IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this 24th day of July, 1995.

FLUID PROPULSION TECHNOLOGIES, INC.

By:  /s/  Donald Caddes
   --------------------------------

Title: President
   --------------------------------

By its signature below, the Holder
confirms the representations and
warranties set forth in Section 17
of the Warrant.

VENTURE LENDING & LEASING, INC.

By:  /s/  Salvador O. Gutierrez
   --------------------------------

Title:  VP & CFO
   --------------------------------



                                        11.
<PAGE>

                              FORM OF SUBSCRIPTION

                  (To be signed only upon exercise of Warrant)

To: __________________________

         The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, __________________ (_______) (1) shares of Common Stock of
_________________________ and herewith makes payment of _______________________
Dollars ($___________) therefor, and requests that the certificates for such
shares be issued in the name of, and delivered to, __________________________
__________________________ whose address is ___________________________________

         The undersigned represents that it is acquiring such Common Stock for
its own account for investment and not with a view to or for sale in
connection with any distribution thereof (subject, however, to any requirement
of law that the disposition thereof shall at all times be within its control.)

DATED: __________________________

                                    __________________________________________
                                    (Signature must conform in all respects to
                                    name of holder as specified on the face of
                                    the Warrant)


__________________________

                                    __________________________________________
                                                    (Address)

(1)      Insert here the number of shares called for on the face of the Warrant
         (or, in the case of a partial exercise, the portion thereof as to which
         the Warrant is being exercised), in either case without making any
         adjustment for additional Common Stock or any other stock or other
         securities or property or cash which, pursuant to the adjustment
         provisions of the Warrant, may be deliverable upon exercise.


                                        12.
<PAGE>

                                   ASSIGNMENT

         FOR VALUE RECEIVED, the undersigned, the holder of the within
Warrant, hereby sells, assigns and transfers all of the rights of the
undersigned under the within Warrant, with respect to the number of shares of
Common Stock covered thereby set forth hereinbelow, unto:

Name of Assignee         Address        No. of Shares
_______________________________________________________________________________







                                        Dated:_________________________________

                                        _______________________________________
                                        (Signature must conform in all respects
                                        to name of holder as specified on the
                                        face of the Warrant)



                                        13.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.4
<SEQUENCE>8
<FILENAME>ex-4_4.txt
<DESCRIPTION>EXHIBIT 4.4
<TEXT>

<PAGE>

                                                                     EXHIBIT 4.4


THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.

                               WARRANT TO PURCHASE

                  78,000 SHARES OF SERIES C PREFERRED STOCK OF

                                  AEROGEN, INC.

                          (Void after October 14, 2004)

This certifies that VENTURE LENDING & LEASING II, INC., a Maryland corporation,
or assigns (the "Holder"), for value received, is entitled to purchase from
AEROGEN, INC., a California corporation (the "Company"), up to 78,000 fully paid
and nonassessable shares ("Warrant Shares") of the Company's Series C Preferred
Stock ("Preferred Stock") for cash at a price of $1.00 per share (the "Stock
Purchase Price") at any time or from time to time up to and including 5:00 p.m.
(Pacific time) on October 14, 2004 (the "Expiration Date"), upon surrender to
the Company at its principal office at 1310 Orleans Drive, Sunnyvale, CA 94089 ,
(or at such other location as the Company may advise Holder in writing) of this
Warrant properly endorsed with the Form of Subscription attached hereto duly
filled in and signed and upon payment in cash or by certified bank check of the
aggregate Stock Purchase Price for the number of shares for which this Warrant
is being exercised determined in accordance with the provisions hereof.
Notwithstanding the above, this warrant shall be exercisable for only 19,500
Warrant Shares upon the date hereof. This warrant shall vest and become
exercisable for additional shares to a maximum of 78,000 shares, on a pro rata
basis as the Company makes draw downs above $300,000.00 under the Loan Agreement
between the Company and the initial Holder dated October 14, 1997 ("Loan
Agreement"). The Stock Purchase Price and the number of shares purchasable
hereunder are subject to adjustment as provided in Section 4 of this Warrant.

This Warrant is subject to the following terms and conditions:

         1.       EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.

                           (a) Unless an election is made pursuant to clause (b)
of this Section 1, this Warrant shall be exercisable, subject to the vesting
provisions described above, at the option of the Holder, at any time or from
time to time, on or before the Expiration Date for all or any portion of the
shares of Preferred Stock (but not for a fraction of a share) which may be
purchased hereunder for the Stock Purchase Price multiplied by the number of
shares to be purchased. In the event, however, that pursuant to the Company's
Articles of Incorporation, as amended, an event causing automatic conversion of
the Company's Preferred Stock shall have occurred prior to the exercise of this
Warrant, in whole or in part, then this Warrant shall be exercisable, subject to
the vesting provisions described above, for the number of shares of


                                       1.
<PAGE>

Common Stock of the Company into which the Preferred Stock not purchased upon
any prior exercise of the Warrant would have been so converted (and, where the
context requires, reference to "Preferred Stock" shall be deemed to include such
Common Stock). The Company agrees that the shares of Preferred Stock purchased
under this Warrant shall be and are deemed to be issued to the holder hereof as
the record owner of such shares as of the close of business on the date on which
the form of subscription shall have been delivered and payment made for such
shares. Subject to the provisions of Section 2, certificates for the shares of
Preferred Stock so purchased, together with any other securities or property to
which the Holder hereof is entitled upon such exercise, shall be delivered to
the Holder hereof by the Company at the Company's expense within a reasonable
time after the rights represented by this Warrant have been so exercised. Except
as provided in clause (b) of this Section 1, in case of a purchase of less than
an the shares which may be purchased under this Warrant, the Company shall
cancel this Warrant and execute and deliver a new Warrant or Warrants of like
tenor for the balance of the shares purchasable under the Warrant surrendered
upon such purchase to the Holder hereof within a reasonable time. Each stock
certificate so delivered shall be in such denominations of Preferred Stock as
may be requested by the Holder hereof and shall be registered in the name of
such Holder or such other name as shall be designated by such Holder, subject to
the limitations contained in Section 2.

                           (b) In the event the Company has registered its
Common Stock pursuant to a registration statement filed by the Company under the
Securities Act of 1933, as amended (the "Securities Act"), the Holder, in lieu
of exercising this Warrant by the payment of the Stock Purchase Price pursuant
to clause (a) of this Section 1, may elect, at any time on or before the
Expiration Date, to receive that number of shares of Preferred Stock equal to
the quotient of: (i) the difference between (A) the Per Share Price (as
hereinafter defined) of the Preferred Stock, less (B) the Stock Purchase Price
then in effect, multiplied by the number of shares of Preferred Stock the Holder
would otherwise have been entitled to purchase hereunder pursuant to clause (a)
of this Section I (or such lesser number of shares as the Holder may designate
in the case of a partial exercise of this Warrant); over (ii) the Per Share
Price. Election to exercise under this section (b) may be made by delivering a
signed form of subscription to the Company via facsimile (upon receipt of
appropriate confirmation), to be followed by delivery of the warrant.

                           (c) For purposes of clause (b) of this Section 1,
"Per Share Price" means the product of: (i) the greater of (A) the closing price
of the Company's Common Stock as quoted by NASDAQ or listed on any exchange,
whichever is applicable, as published in the Western Edition of THE WALL STREET
JOURNAL for the trading day immediately prior to the date of the Holder's
election hereunder or, (B) if applicable at the time of or in connection with
the exercise under clause (b) of this Section 1, the gross sales price of one
share of the Company's Common Stock pursuant to a registered public offering or
that amount which shareholders of the Company will receive for each share of
Common Stock pursuant to a merger, reorganization or sale of assets; and (ii)
that number of shares of Common Stock into which each share of Preferred Stock
is convertible. If the Company's Common Stock is not quoted by NASDAQ or listed
on any exchange, the Per Share Price of the Preferred Stock (or the equivalent
number of shares of Common Stock into which such Preferred Stock is convertible)
shall be determined by the Company's Board of Directors.


                                       2.

<PAGE>

         2.       LIMITATION ON TRANSFER.

                           (a) The Warrant and the Preferred Stock shall not be
transferable except upon the conditions specified in this Section 2, which
conditions are intended to insure compliance with the provisions of the
Securities Act. Each holder of this Warrant or the Preferred Stock issuable
hereunder will cause any proposed transferee of the Warrant or Preferred Stock
to agree to take and hold such securities subject to the provisions and upon the
conditions specified in this Section 2.

                           (b) Each certificate representing (i) this Warrant,
(ii) the Preferred Stock, (iii) shares of the Company's Common Stock issued upon
conversion of the Preferred Stock and (iv) any other securities issued in
respect to the Preferred Stock or Common Stock issued upon conversion of the
Preferred Stock upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event shall, (unless otherwise permitted by the
provisions of this Section 2 or unless such securities have been registered
under the Securities Act or sold under Rule 144) be stamped or otherwise
imprinted with a legend substantially in the following form (in addition to any
legend required under applicable state securities laws):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.

                           (c) The Holder of this Warrant and each person to
whom this Warrant is subsequently transferred represents and warrants to the
Company (by acceptance of such transfer) that it will not transfer the Warrant
(or securities issuable upon exercise hereof unless a registration statement
under the Securities Act was in effect with respect to such securities at the
time of issuance thereof) except pursuant to (i) an effective registration
statement under the Securities Act, (ii) Rule 144 under the Securities Act (or
any other rule under the Securities Act relating to the disposition of
securities), or (iii) an opinion of counsel, reasonably satisfactory to counsel
for the Company, that an exemption from such registration is available.

                           (d) At any time that amounts are outstanding under
the Loan Agreement this Warrant may only be transferred if it is transferred in
whole (but not in part) to a party who has been transferred all of the rights
and obligations of the initial Holder under such Loan Agreement.

         3. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares of Preferred Stock which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any shareholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees that
during the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized and reserved, for the
purpose of issue or transfer upon exercise of the subscription rights evidenced
by this Warrant, a sufficient number of shares of


                                       3.

<PAGE>

authorized but unissued Preferred Stock, or other securities and property, when
and as required to provide for the exercise of the rights represented by this
Warrant. The Company will take all such action as may be necessary to assure
that such shares of Preferred Stock may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of any
domestic securities exchange upon which the Preferred Stock may be listed. The
Company will not take any action which would result in any adjustment of the
Stock Purchase Price (as defined in Section 4 hereof) (i) if the total number of
shares of Preferred Stock issuable after such action upon exercise of all
outstanding Warrants, together with all shares of Preferred Stock then
outstanding and all shares of Preferred Stock then issuable upon exercise of all
options and upon the conversion of all convertible securities then outstanding,
would exceed the total number of shares of Preferred Stock then authorized by
the Company's Articles of Incorporation, or (ii) if the total number of shares
of Common Stock issuable after such action upon the conversion of all such
shares of Preferred Stock together with all shares of Common Stock then
outstanding and then issuable upon exercise of all options and upon the
conversion of all convertible securities then outstanding would exceed the total
number of shares of Common Stock then authorized by the Company's Articles of
Incorporation.

         4. ADJUSTMENT OF STOCK PURCHASE PRICE NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 4. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment the number
of shares obtained by multiplying the Stock Purchase Price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment, and dividing the product thereof by the
Stock Purchase Price resulting from such adjustment.

                  4.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company
shall at any time subdivide its outstanding shares of Preferred Stock into a
greater number of shares, the Stock Purchase Price in effect immediately prior
to such subdivision shall be proportionately reduced, and conversely, in case
the outstanding shares of Preferred Stock of the Company shall be combined into
a smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.

                  4.2 DIVIDENDS IN PREFERRED STOCK, OTHER STOCK, PROPERTY
RECLASSIFICATION. If at any time or from time to time the holders of Preferred
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,

                           (a) Preferred Stock, or any shares of stock or other
securities whether or not such securities are at any time directly or indirectly
convertible into or exchangeable for Preferred Stock, or any rights or options
to subscribe for, purchase or otherwise acquire any of the foregoing by way of
dividend or other distribution, or

                           (b) any cash paid or payable otherwise than as a cash
dividend, or


                                       4.

<PAGE>

                           (c) Preferred Stock or other or additional stock or
other securities or property (including cash) by way of spinoff, split-up,
reclassification, combination of shares or similar corporate rearrangement,
(other than shares of Preferred Stock issued as a stock split adjustments in
respect of which shall be covered by the terms of Section 4.1 above),

Then and in each such case, the Holder hereof shall, upon the exercise of this
Warrant be entitled to receive, in addition to the number of shares of Preferred
Stock receivable thereupon, and without payment of any additional consideration
therefore, the amount of stock and other securities and property (including cash
in the cases referred to in clauses (b) and (c) above) which such Holder would
hold on the date of such exercise had he been the holder of record of such
Preferred Stock as of the date on which holders of Preferred Stock received or
became entitled to receive such shams and/or all other additional stock and
other securities and property.

                  4.3      REORGANIZATION, RECLASSIFICATION, CONSOLIDATION,
MERGER OR SALE.

                           (a) If any capital reorganization of the capital
stock of the Company, or any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation (except for a consolidation, merger or sale of assets described in
section 4.3(b) shall be effected in such a way that holders of Preferred Stock
shall be entitled to receive stock, securities or assets with respect to or in
exchange for Preferred Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provisions
shall be made whereby the holder hereof shall thereafter have the right to
purchase and receive (in lieu of the shares of the Preferred Stock of the
Company immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby) such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for a number of outstanding
shares of such Preferred Stock equal to the number of shares of such stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby. In any such case, appropriate provision shall be made
with respect to the rights and interests of the holder of this Warrant to the
end that the provisions hereof (including, without limitation, provisions for
adjustments of the Stock Purchase Price and of the number of shares purchasable
and receivable upon the exercise of this Warrant) shall thereafter be
applicable, as nearly as may be possible, in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise hereof. The
Company will not effect any such consolidation, merger or sale unless, prior to
the consummation thereof, the successor corporation (if other than the Company)
resulting from such consolidation or the corporation purchasing such assets
shall assume by written instrument, executed and mailed or delivered to the
registered Holder hereof at the last address of such Holder appearing on the
books of the Company, the obligation to deliver to such Holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such Holder may be entitled to purchase.

                           (b) Notwithstanding anything in Section 4.3(a) to the
contrary, this Warrant shall terminate upon the consummation of any
consolidation or merger with another corporation or any sale of all or
substantially all of the assets of the Company in which the stockholders of the
Company immediately before such merger, consolidation or sale do not hold more
than 50% of the outstanding voting equity interests of the surviving or
acquiring entity following such merger, consolidation or sale, unless the
surviving or acquiring entity specifically assumes the Company's obligations
hereunder.


                                       5.

<PAGE>

                  4.4 ADJUSTMENTS TO SERIES C PREFERRED STOCK. Upon the
occurrence of an adjustment or readjustment of the Conversion Price, as such
term is defined in the Company's Amended and Restated Articles of Incorporation
(the "Restated Articles"), of the Series C Preferred Stock, the Company shall
give to the registered holder of this Warrant a copy of the Certificate as to
Adjustments provided for in Section 5.3.8 of the Restated Articles, setting,
forth the Current Conversion Price, determined as provided for in the Section 5
of Article Five of the Restated Articles, of the Series C Preferred Stock to be
received upon exercise of this Warrant.

                  4.5 NOTICE OF ADJUSTMENT. Upon any adjustment of the Stock
Purchase Price, and/or any increase or decrease in the number of shares
purchasable upon the exercise of this Warrant the Company shall give written
notice thereof, by first class mail, postage prepaid, addressed to the
registered holder of this Warrant at the address of such holder as shown on the
books of the Company. The notice shall be signed by the Company's chief
financial officer and shall state the Stock Purchase Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares
purchasable at such price upon the exercise of this Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.

                  4.6      OTHER NOTICES. If at any time:

                           (a) the Company shall declare any cash dividend upon
its Preferred Stock;

                           (b) the Company shall declare any dividend upon its
Preferred Stock payable in stock or make any special dividend or other
distribution to the holders of its Preferred Stock;

                           (c) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with, or sale of all or substantially all of its assets to,
another corporation;

                           (d) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company, or

then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the holder of this Warrant at the address of
such holder as shown on the books of the Company, (i) at least 20 day's prior
written notice of the date on which the books of the Company shall close or a
record shall be taken for such dividend, distribution or subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action and (ii) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action, at least 20 day's written notice of the date when
the same shall take place. Any notice given in accordance with the foregoing
clause (i) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Preferred Stock shall be
entitled thereto. Any notice given in accordance with the foregoing clause (ii)
shall also specify the date on which the holders of Preferred Stock shall be
entitled to exchange their Preferred Stock for securities or other property
deliverable upon such


                                       6.

<PAGE>

reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, or other action as the case may be. In the event the
majority of Preferred Stock Holders waive the above notices, then Holder of the
Warrant shall be deemed to waive this notice period

                  4.7 CERTAIN EVENTS. If any change in the outstanding Preferred
Stock of the Company or any other event occurs as to which the other provisions
of this Section 4 are not strictly applicable or if strictly applicable would
not fairly protect the purchase rights of the Holder of the Warrant in
accordance with the essential intent and principles of such provisions, then the
Board of Directors of the Company shall make an adjustment in the number and
class of shares available under the Warrant, the Stock Purchase Price and/or the
application of such provisions, in accordance with such essential intent and
principles, so as to protect such purchase rights as aforesaid. The adjustment
shall be such as will give the Holder of the Warrant upon exercise for the same
aggregate Stock Purchase Price the total number, class and kind of shares as he
would have owned had the Warrant been exercised prior to the event and had he
continued to hold such shares until after the event requiring adjustment.

         5. ISSUE TAX. The issuance of certificates for shares of Preferred
Stock upon the exercise of the Warrant shall be made without charge to the
Holder of the Warrant for any issue tax in respect thereof; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any certificate
in a name other than that of the then Holder of the Warrant being exercised.

         6. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any Warrant or of any shares of Preferred Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.

         7. NO VOTING OR DIVIDEND RIGHTS LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent as shareholder in respect of meetings of
shareholders for the election of directors of the Company or any other matters
or any rights whatsoever as a shareholder of the Company. No dividends or
interest shall be payable or accrued in respect of this Warrant or the interest
represented hereby or the shares purchasable hereunder until, and only to the
extent that, this Warrant shall have been exercised. No provisions hereof, in
the absence of affirmative action by the holder to purchase shares of Preferred
Stock, and no mere enumeration herein of the rights or privileges of the Holder
hereof, shall give rise to any liability of such Holder for the Stock Purchase
Price or as a shareholder of the Company, whether such liability is asserted by
the Company or by its creditors.

         8. INTENTIONALLY DELETED.

         9. REGISTRATION RIGHTS. By its execution hereof, the Holder shall
become a party to the Second Amended and Restated Information Rights Agreement
dated April 11, 1997 by and among the Company and the Holders listed therein and
hereby agrees to be bound by the terms and conditions thereof. Provided however
that the Holder shall not be entitled to a right of first offer under Section
16, thereof.


                                       7.

<PAGE>

         10. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the Holder of this Warrant and of the holder of
shares of Preferred Stock issued upon exercise of this Warrant, contained in
Sections 6, 8 and 9 shall survive the exercise of this Warrant.

         11. MODIFICATION AND WAIVER. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.

         12. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
deemed to have been given (i) upon receipt if delivered personally or by courier
(ii) upon confirmation of receipt if by telecopy or (iii) three business days
after deposit in the US mail, with postage prepaid and certified or registered,
to each such holder at its address as shown on the books of the Company or to
the Company at the address indicated therefor in the first paragraph of this
Warrant.

         13. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets. All of the obligations of
the Company relating to the Preferred Stock issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assign of the holder hereof. The Company will, at the time of the
exercise of this Warrant, in whole or in part, upon request of the Holder hereof
but at the Company's expense, acknowledge in writing its continuing obligation
to the Holder hereof in respect of any rights (including, without limitation,
any right to registration of the shares of Common Stock) to which the holder
hereof shall continue to be entitled after such exercise in accordance with this
Warrant; provided, that the failure of the holder hereof to make any such
request shall not affect the continuing obligation of the Company to the Holder
hereof in respect of such rights.

         14. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The descriptive headings of
the several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of California.

         15. LOST WARRANTS OR STOCK CERTIFICATES. The Company represents and
warrants to the Holder hereof that upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any Warrant or stock certificate and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity reasonably satisfactory to the
Company, or in the case of any such mutilation upon surrender and cancellation
of such Warrant or stock certificate, the Company at its expense will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.

         16. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional
share, pay the holder entitled to such fraction a sum in cash equal to such
fraction multiplied by the then effective Stock Purchase Price.


                                       8.

<PAGE>

         17. REPRESENTATIONS OF HOLDER. With respect to this Warrant, Holder
represents and warrants to the Company as follows:

                  17.1 EXPERIENCE. It is experienced in evaluating and investing
in companies engaged in businesses similar to that of the Company; it
understands that investment in the Warrant involves substantial risks; it has
made detailed inquiries concerning the Company, its business and services, its
officers and its personnel; the officers of the Company have made available to
Holder any and all written information it has requested; the officers of the
Company have answered to Holder's satisfaction all inquiries made by it; in
making this investment it has relied upon information made available to it by
the Company; and it has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of investment in
the Company and it is able to bear the economic risk of that investment.

                  17.2 INVESTMENT. It is acquiring the Warrant for investment
for its own account and not with a view to, or for resale in connection with,
any distribution thereof. It understands that the Warrant, the shares of
Preferred Stock issuable upon exercise thereof and the shares of Common Stock
issuable upon conversion of the Preferred Stock, have not been registered under
the Securities Act of 1933, as amended, nor qualified under applicable state
securities laws.

                  17.3 RULE 144. It acknowledges that the Warrant, the Preferred
Stock and the Common Stock must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. It has been advised or is aware of the provisions of
Rule 144 promulgated under the Securities Act.

                  17.4 ACCESS TO DATA. It has had an opportunity to discuss the
Company's business, management and financial affairs with the Company's
management and has had the opportunity to inspect the Company's facilities.

                  17.5 ACCREDITED INVESTOR. Holder represents that it is an
Accredited Investor as defined in Rule 501(a) of Regulation D promulgated under
the Security Act.

         18. ADDITIONAL REPRESENTATIONS AND COVENANTS OF THE COMPANY. The
Company hereby represents, warrants and agrees as follows:

                  18.1 CORPORATE POWER. The Company has all requisite corporate
power and corporate authority to issue this Warrant and to carry out and perform
its obligations hereunder.

                  18.2 AUTHORIZATION. All corporate action on the part of the
Company, its directors and shareholders necessary for the authorization,
execution, delivery and performance by the Company of this has been taken. This
Warrant is a valid and binding obligation of the Company, enforceable in
accordance with its terms.

                  18.3 OFFERING. Subject in part to the truth and accuracy of
Holder's representations set forth in Section 17 hereof, the offer, issuance and
sale of the Warrant is, and the issuance of Preferred Stock upon exercise of the
Warrant and the issuance of Common Stock upon conversion of the Preferred Stock
will be exempt from the registration requirements of the Securities Act, and are
exempt from the qualification requirements of any applicable state


                                       9.

<PAGE>

securities laws; and neither the Company nor anyone acting on its behalf will
take any action hereafter that would cause the loss of such exemptions.

                  18.4 STOCK ISSUANCE. Upon exercise of the Warrant, the Company
will use its best efforts to cause stock certificates representing the shares of
Preferred Stock purchased pursuant to the exercise to be issued in the
individual names of Holder, its nominees or assignees, as appropriate at the
time of such exercise. Upon conversion of the shares of Preferred Stock to
shares of Common Stock, the Company will issue the Common Stock in the
individual names of Holder, its nominees or assignees, as appropriate.

                  18.5 ARTICLES AND BY-LAWS. The Company has provided Holder
with true and complete copies of the Company's Articles or Certificate of
Incorporation, By-Laws, and each Certificate of Determination or other charter
document setting, forth any rights, preferences and privileges of Company's
capital stock, each as amended and in effect on the date of issuance of this
Warrant.

                  18.6 CONVERSION OF PREFERRED STOCK. As of the date hereof,
each share of the Preferred Stock is convertible into one share of the Common
Stock.



IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
its officers, thereunto duly authorized this 14th day of October, 1997.

AEROGEN, INC.



By:  /s/ Andrew Heath
   ---------------------------------

Title:   President


                                       10.

<PAGE>




                              FORM OF SUBSCRIPTION

                  (To be signed only upon exercise of Warrant)

To:
   -----------------------------------

The undersigned, the holder of the within Warrant, hereby irrevocably elects to
exercise the purchase right represented by such Warrant for, and to purchase
thereunder, _____________________ (____) shares of Preferred Stock of
___________________ and herewith makes payment of___________ Dollars ($_______)
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to,___, whose address is ______________________________.

The undersigned represents that it is acquiring such Preferred Stock for its own
account for investment and not with a view to or for sale in connection with any
distribution thereof (subject, however, to any requirement of law that the
disposition thereof shall at all times be within its control.

                       DATED:
                             ------------------------------

                       ------------------------------------
                       (Signature must conform to name of Holder as specified on
                       the face of the Warrant or as specified in an Assignment)

                       (Address)

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

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

(1) Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the Warrant
is being exercised), in either case without making any adjustment for additional
Preferred Stock or any other stock or other securities or property or cash
which, pursuant to the adjustment provisions of the Warrant, may be deliverable
upon exercise.


                                       11.

<PAGE>


                                   ASSIGNMENT

FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant, hereby
sells, assigns and transfers all of the rights of the undersigned under the
within Warrant, with respect to the number of shares of Preferred Stock covered
thereby set forth hereinbelow, unto:

Name of Assignee                        Address                    No. of Shares
--------------------------------------------------------------------------------






                       Dated:
                             -----------------------



                       ---------------------------------------------------------
                       (Signature must conform to name of Holder as specified on
                       the face of the Warrant or as specified in an Assignment)




                                       12.

<PAGE>


                                   EXHIBIT "A"

         This Exhibit is incorporated by reference into that certain Warrant
dated October 14 , 1997, issued by Aerogen, Inc., a California corporation (the
"Company"), to VENTURE LENDING & LEASING II, INC., a Maryland corporation (the
"Holder").

         This certifies that the Holder is entitled to purchase from the Company
___________ (___________) fully paid and nonassessable shares of the Company's
_______________ Stock at a price of ___________ Dollars ($_________) per share
(the "Stock Purchase Price"). The Stock Purchase Price and the number of shares
purchasable under the Warrant remain subject to adjustment as provided in
Section 4 of the Warrant.

         IN WITNESS WHEREOF, the Company and the Holder have executed this
Exhibit to the Warrant this ____ day of ___________, 199____.

Aerogen, Inc.


By:
   -----------------------------------------
Name:
     ---------------------------------------
Title:
      --------------------------------------

VENTURE LENDING & LEASING II, INC.

By:
   -----------------------------------------
Name:
     ---------------------------------------
Title:
      --------------------------------------




                                       13.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.5
<SEQUENCE>9
<FILENAME>ex-4_5.txt
<DESCRIPTION>EXHIBIT 4.5
<TEXT>

<PAGE>

                                                                     EXHIBIT 4.5

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.

                               WARRANT TO PURCHASE

                  52,000 SHARES OF SERIES C PREFERRED STOCK OF

                                  AEROGEN, INC.

                          (Void after October 14, 2004)

This certifies that VENTURE LENDING & LEASING INC., a Maryland corporation, or
assigns (the "Holder"), for value received, is entitled to purchase from
AEROGEN, INC., a California corporation (the "Company"), up to 52,000 fully
paid and nonassessable shares ("Warrant Shares") of the Company's Series C
Preferred Stock ("Preferred Stock") for cash at a price of $1.00 per share (the
"Stock Purchase Price") at any time or from time to time up to and including
5:00 p.m. (Pacific time) on October 14, 2004 (the "Expiration Date"), upon
surrender to the Company at its principal office at 1310 Orleans Drive,
Sunnyvale, CA 94089 , (or at such other location as the Company may advise
Holder in writing) of this Warrant properly endorsed with the Form of
Subscription attached hereto duly filled in and signed and upon payment in cash
or by certified bank check of the aggregate Stock Purchase Price for the number
of shares for which this Warrant is being exercised determined in accordance
with the provisions hereof. Notwithstanding the above, this warrant shall be
exercisable for only 13,000 Warrant Shares upon the date hereof. This warrant
shall vest and become exercisable for additional shares to a maximum of 52,000
shares, on a pro rata basis as the Company makes draw downs above $200,000.00
under the Loan Agreement between the Company and the initial Holder dated
October 14, 1997 ("Loan Agreement"). The Stock Purchase Price and the number of
shares purchasable hereunder are subject to adjustment as provided in Section 4
of this Warrant.

This Warrant is subject to the following terms and conditions:

         1.       EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.

               (a) Unless an election is made pursuant to clause (b) of this
Section 1, this Warrant shall be exercisable, subject to the vesting provisions
described above, at the option of the Holder, at any time or from time to time,
on or before the Expiration Date for all or any portion of the shares of
Preferred Stock (but not for a fraction of a share) which may be purchased
hereunder for the Stock Purchase Price multiplied by the number of shares to be
purchased. In the event, however, that pursuant to the Company's Articles of
Incorporation, as amended, an event causing automatic conversion of the
Company's Preferred Stock shall have occurred prior to the exercise of the
Warrant, in whole or in part, then this Warrant shall be exercisable, subject to
the vesting provisions described above, for the number of shares of

                                       1.
<PAGE>


Common Stock of the Company into which the Preferred Stock not purchased upon
any prior exercise of the Warrant would have been so converted (and, where
the context requires, reference to "Preferred Stock" shall be deemed to
include such Common Stock). The Company agrees that the shares of Preferred
Stock purchased under this Warrant shall be and are deemed to be issued to
the holder hereof as the record owner of such shares as of the close of
business on the date on which the form of subscription shall have been
delivered and payment made for such shares. Subject to the provisions of
Section 2, certificates for the shares of Preferred Stock so purchased,
together with any other securities or property to which the Holder hereof is
entitled upon such exercise, shall be delivered to the Holder hereof by the
Company at the Company's expense within a reasonable time after the rights
represented by this Warrant have been so exercised. Except as provided in
clause (b) of this Section 1, in case of a purchase of less than an the
shares which may be purchased under this Warrant, the Company shall cancel
this Warrant and execute and deliver a new Warrant or Warrants of like tenor
for the balance of the shares purchasable under the Warrant surrendered upon
such purchase to the Holder hereof within a reasonable time. Each stock
certificate so delivered shall be in such denominations of Preferred Stock as
may be requested by the Holder hereof and shall be registered in the name of
such Holder or such other name as shall be designated by such Holder, subject
to the limitations contained in Section 2.

               (b) In the event the Company has registered its Common Stock
pursuant to a registration statement filed by the Company under the Securities
Act of 1933, as amended (the "Securities Act"), the Holder, in lieu of
exercising this Warrant by the payment of the Stock Purchase Price pursuant to
clause (a) of this Section 1, may elect, at any time on or before the Expiration
Date, to receive that number of shares of Preferred Stock equal to the quotient
of: (i) the difference between (A) the Per Share Price (as hereinafter defined)
of the Preferred Stock, less (B) the Stock Purchase Price then in effect,
multiplied by the number of shares of Preferred Stock the Holder would otherwise
have been entitled to purchase hereunder pursuant to clause (a) of this Section
1 (or such lesser number of shares as the Holder may designate in the case of a
partial exercise of this Warrant); over (ii) the Per Share Price. Election to
exercise under this section (b) may be made by delivering a signed form of
subscription to the Company via facsimile (upon receipt of appropriate
confirmation), to be followed by delivery of the warrant.

               (c) For purposes of clause (b) of this Section 1, "Per Share
Price" means the product of: (i) the greater of (A) the closing price of the
Company's Common Stock as quoted by NASDAQ or listed on any exchange, whichever
is applicable, as published in the Western Edition of THE WALL STREET JOURNAL
for the trading day immediately prior to the date of the Holder's election
hereunder or, (B) if applicable at the time of or in connection with the
exercise under clause (b) of this Section 1, the gross sales price of one share
of the Company's Common Stock pursuant to a registered public offering or that
amount which shareholders of the Company will receive for each share of Common
Stock pursuant to a merger, reorganization or sale of assets; and (ii) that
number of shares of Common Stock into which each share of Preferred Stock is
convertible. If the Company's Common Stock is not quoted by NASDAQ or listed on
any exchange, the Per Share Price of the Preferred Stock (or the equivalent
number of shares of Common Stock into which such Preferred Stock is convertible)
shall be determined by the Company's Board of Directors.

                                       2.
<PAGE>


         2.       LIMITATION ON TRANSFER.

               (a) The Warrant and the Preferred Stock shall not be transferable
except upon the conditions specified in this Section 2, which conditions are
intended to insure compliance with the provisions of the Securities Act. Each
holder of this Warrant or the Preferred Stock issuable hereunder will cause any
proposed transferee of the Warrant or Preferred Stock to agree to take and hold
such securities subject to the provisions and upon the conditions specified in
this Section 2.

               (b) Each certificate representing (i) this Warrant, (ii) the
Preferred Stock, (iii) shares of the Company's Common Stock issued upon
conversion of the Preferred Stock and (iv) any other securities issued in
respect to the Preferred Stock or Common Stock issued upon conversion of the
Preferred Stock upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event; shall (unless otherwise permitted by the
provisions of this Section 2 or unless such securities have been registered
under the Securities Act or sold under Rule 144) be stamped or otherwise
imprinted with a legend substantially in the following form (in addition to any
legend required under applicable state securities Laws):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.

               (c) The Holder of this Warrant and each person to whom this
Warrant is subsequently transferred represents and warrants to the Company (by
acceptance of such transfer) that it will not transfer the Warrant (or
securities issuable upon exercise hereof unless a registration statement under
the Securities Act was in effect with respect to such securities at the time of
issuance thereof) except pursuant to (i) an effective registration statement
under the Securities Act, (ii) Rule 144 under the Securities Act (or any other
rule under the Securities Act relating to the disposition of securities), or
(iii) an opinion of counsel, reasonably satisfactory to counsel for the Company,
that an exemption from such registration is available.

               (d) At any time that amounts are outstanding under the Loan
Agreement this Warrant may only be transferred if it is transferred in whole
(but not in part) to a party who has been transferred all of the rights and
obligations of the initial Holder under such Loan Agreement.

         3. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares of Preferred Stock which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any shareholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees that
during the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized and reserved, for the
purpose of issue or transfer upon exercise of the subscription rights evidenced
by this Warrant, a sufficient number of shares of

                                       3.
<PAGE>


authorized but unissued Preferred Stock, or other securities and property,
when and as required to provide for the exercise of the rights represented by
this Warrant. The Company will take all such action as may be necessary to
assure that such shares of Preferred Stock may be issued as provided herein
without violation of any applicable law or regulation, or of any requirements
of any domestic securities exchange upon which the Preferred Stock may be
listed. The Company will not take any action which would result in any
adjustment of the Stock Purchase Price (as defined in Section 4 hereof) (i)
if the total number of shares of Preferred Stock issuable after such action
upon exercise of all outstanding warrants, together with all shares of
Preferred Stock then outstanding and all shares of Preferred Stock then
issuable upon exercise of all options and upon the conversion of all
convertible securities then outstanding, would exceed the total number of
shares of Preferred Stock then authorized by the Company's Articles of
Incorporation, or (ii) if the total number of shares of Common Stock issuable
after such action upon the conversion of all such shares of Preferred Stock
together with all shares of Common Stock then outstanding and then issuable
upon exercise of all options and upon the conversion of all convertible
securities then outstanding would exceed the total number of shares of Common
Stock then authorized by the Company's Articles of Incorporation.

         4. ADJUSTMENT OF STOCK PURCHASE PRICE NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 4. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment the number
of shares obtained by multiplying the Stock Purchase Price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment, and dividing the product thereof by the
Stock Purchase Price resulting from such adjustment.

          4.1 SUBDIVISION OR COMBINATION OF STOCK.  In case the Company shall
at any time subdivide its outstanding shares of Preferred Stock into a greater
number of shares, the Stock Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Preferred Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.

          4.2 DIVIDENDS IN PREFERRED STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the holders of Preferred
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,

               (a) Preferred Stock, or any shares of stock or other securities
whether or not such securities are at any time directly or indirectly
convertible into or exchangeable for Preferred Stock, or any rights or options
to subscribe for, purchase or otherwise acquire any of the foregoing by way of
dividend or other distribution, or

               (b) any cash paid or payable otherwise than as a cash dividend,
or

                                       4.
<PAGE>


               (c) Preferred Stock or other or additional stock or other
securities or property (including cash) by way of spinoff, split-up,
reclassification, combination of shares or similar corporate rearrangement,
(other than shares of Preferred Stock issued as a stock split adjustments in
respect of which shall be covered by the terms of Section 4.1 above),

Then and in each such case, the Holder hereof shall, upon the exercise of this
Warrant be entitled to receive, in addition to the number of shares of Preferred
Stock receivable thereupon, and without payment of any additional consideration
therefore, the amount of stock and other securities and property (including cash
in the cases referred to in clauses (b) and (c) above) which such Holder would
hold on the date of such exercise had he been the holder of record of such
Preferred Stock as of the date on which holders of Preferred Stock received or
became entitled to receive such shares and/or all other additional stock and
other securities and property.

          4.3  REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.

               (a) If any capital reorganization of the capital stock of the
Company, or any consolidation or merger of the Company with another corporation,
or the sale of all or substantially all of its assets to another corporation
(except for a consolidation, merger or sale of assets described in section
4.3(b) shall be effected in such a way that holders of Preferred Stock shall be
entitled to receive stock, securities or assets with respect to or in exchange
for Preferred Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provisions
shall be made whereby the holder hereof shall thereafter have the right to
purchase and receive (in lieu of the shares of the Preferred Stock of the
Company immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby) such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for a number of outstanding
shares of such Preferred Stock equal to the number of shares of such stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby. In any such case, appropriate provision shall be made
with respect to the rights and interests of the bolder of this Warrant to the
end that the provisions hereof (including, without limitation, provisions for
adjustments of the Stock Purchase Price and of the number of shares purchasable
and receivable upon the exercise of this Warrant) shall thereafter be
applicable, as nearly as may be possible, in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise hereof. The
Company will not effect any such consolidation, merger or sale unless, prior to
the consummation thereof, the successor corporation (if other than the Company)
resulting from such consolidation or the corporation purchasing such assets
shall assume by written instrument, executed and mailed or delivered to the
registered Holder hereof at the last address of such Holder appearing on the
books of the Company, the obligation to deliver to such Holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such Holder may be entitled to purchase.

               (b) Notwithstanding anything in Section 4.3(a) to the contrary,
this Warrant shall terminate upon the consummation of any consolidation or
merger with another corporation or any sale of all or substantially all of the
assets of the Company in which the stockholders of the Company immediately
before such merger, consolidation or sale do not hold more than 50% of the
outstanding voting equity interests of the surviving or acquiring entity
following such merger, consolidation or sale, unless the surviving or acquiring
entity specifically assumes the Company's obligations hereunder.

                                       5.
<PAGE>


          4.4 ADJUSTMENTS TO SERIES C PREFERRED STOCK. Upon the occurrence of an
adjustment or readjustment of the Conversion Price, as such term is defined in
the Company's Amended and Restated Articles of Incorporation (the "Restated
Articles"), of the Series C Preferred Stock, the Company shall give to the
registered holder of this Warrant a copy of the Certificate as to Adjustments
provided for in Section 5.3.8 of the Restated Articles, setting, forth the
Current Conversion Price, determined as provided for in the Section 5 of Article
Five of the Restated Articles, of the Series C Preferred Stock to be received
upon exercise of this Warrant.

          4.5 NOTICE OF ADJUSTMENT. Upon any adjustment of the Stock Purchase
Price, and/or any increase or decrease in the number of shares purchasable upon
the exercise of this Warrant the Company shall give written notice thereof, by
first class mail, postage prepaid, addressed to the registered holder of this
Warrant at the address of such holder as shown on the books of the Company. The
notice shall be signed by the Company's chief financial officer and shall state
the Stock Purchase Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.

          4.6 OTHER NOTICES. If at any time:

               (a) the Company shall declare any cash dividend upon its
Preferred Stock;

               (b) the Company shall declare any dividend upon its Preferred
Stock payable in stock or make any special dividend or other distribution to the
holders of its Preferred Stock;

               (c) there shall be any capital reorganization or reclassification
of the capital stock of the Company, or consolidation or merger of the Company
with, or sale of all or substantially all of its assets to, another corporation;

               (d) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company, or

then, in any one or more of said cases, the Company shall give, by first
class mail, postage prepaid, addressed to the holder of this Warrant at the
address of such holder as shown on the books of the Company, (i) at least 20
day's prior written notice of the date on which the books of the Company
shall close or a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, or other action and (ii) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, or other action, at least 20 day's written notice
of the date when the same shall take place. Any notice given in accordance
with the foregoing clause (i) shall also specify, in the case of any such
dividend, distribution or subscription rights, the date on which the holders
of Preferred Stock shall be entitled thereto. Any notice given in accordance
with the foregoing clause (ii) shall also specify the date on which the
holders of Preferred Stock shall be entitled to exchange their Preferred
Stock for securities or other property deliverable upon such

                                       6.
<PAGE>


reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, or other action as the case may be. In the event
the majority of Preferred Stock Holders waive the above notices, then Holder
of the Warrant shall be deemed to waive this notice period.

          4.7 CERTAIN EVENTS. If any change in the outstanding Preferred Stock
of the Company or any other event occurs as to which the other provisions of
this Section 4 are not strictly applicable or if strictly applicable would not
fairly protect the purchase rights of the Holder of the Warrant in accordance
with the essential intent and principles of such provisions, then the Board of
Directors of the Company shall make an adjustment in the number and class of
shares available under the Warrant, the Stock Purchase Price and/or the
application of such provisions, in accordance with such essential intent and
principles, so as to protect such purchase rights as aforesaid. The adjustment
shall be such as will give the Holder of the Warrant upon exercise for the same
aggregate Stock Purchase Price the total number, class and kind of shares as he
would have owned had the Warrant been exercised prior to the event and had he
continued to hold such shares until after the event requiring adjustment.

         5. ISSUE TAX. The issuance of certificates for shares of Preferred
Stock upon the exercise of the Warrant shall be made without charge to the
Holder of the Warrant for any issue tax in respect thereof; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any certificate
in a name other than that of the then Holder of the Warrant being exercised.

         6. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any Warrant or of any shares of Preferred Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.

         7. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent as shareholder in respect of meetings of
shareholders for the election of directors of the Company or any other matters
or any rights whatsoever as a shareholder of the Company. No dividends or
interest shall be payable or accrued in respect of this Warrant or the interest
represented hereby or the shares purchasable hereunder until, and only to the
extent that, this Warrant shall have been exercised. No provisions hereof, in
the absence of affirmative action by the holder to purchase shares of Preferred
Stock, and no mere enumeration herein of the rights or privileges of the Holder
hereof, shall give rise to any liability of such Holder for the Stock Purchase
Price or as a shareholder of the Company, whether such liability is asserted by
the Company or by its creditors.

         8. INTENTIONALLY DELETED.

         9. REGISTRATION RIGHTS. By its execution hereof, the Holder shall
become a party to the Second Amended and Restated Information Rights Agreement
dated April 11, 1997 by and among the Company and the Holders listed therein and
hereby agrees to be bound by the terms and conditions thereof. Provided however
that the Holder shall not be entitled to a right of first offer under Section
16, thereof.

                                       7.
<PAGE>


         10. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the Holder of this Warrant and of the holder of
shares of Preferred Stock issued upon exercise of this Warrant, contained in
Sections 6, 8 and 9 shall survive the exercise of this Warrant.

         11. MODIFICATION AND WAIVER. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.

         12. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
deemed to have been given (i) upon receipt if delivered personally or by courier
(ii) upon confirmation of receipt if by telecopy or (iii) three business days
after deposit in the US mail, with postage prepaid and certified or registered,
to each such holder at its address as shown on the books of the Company or to
the Company at the address indicated therefor in the first paragraph of this
Warrant.

         13. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets. All of the obligations of
the Company relating to the Preferred Stock issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assign of the holder hereof. The Company will, at the time of the
exercise of this Warrant, in whole or in part, upon request of the Holder hereof
but at the Company's expense, acknowledge in writing its continuing obligation
to the Holder hereof in respect of any rights (including, without limitation,
any right to registration of the shares of Common Stock) to which the holder
hereof shall continue to be entitled after such exercise in accordance with this
Warrant; provided, that the failure of the holder hereof to make any such
request shall not affect the continuing obligation of the Company to the Holder
hereof in respect of such rights.

         14. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The descriptive headings of
the several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of California.

         15. LOST WARRANTS OR STOCK CERTIFICATES. The Company represents and
warrants to the Holder hereof that upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any Warrant or stock certificate and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity reasonably satisfactory to the
Company, or in the case of any such mutilation upon surrender and cancellation
of such Warrant or stock certificate, the Company at its expense will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.

         16. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional
share, pay the holder entitled to such fraction a sum in cash equal to such
fraction multiplied by the then effective Stock Purchase Price.

                                       8.
<PAGE>


         17.  REPRESENTATIONS OF HOLDER. With respect to this Warrant, Holder
represents and warrants to the Company as follows:

          17.1 EXPERIENCE. It is experienced in evaluating and investing in
companies engaged in businesses similar to that of the Company; it understands
that investment in the Warrant involves substantial risks; it has made detailed
inquiries concerning the Company, its business and services, its officers and
its personnel; the officers of the Company have made available to Holder any and
all written information it has requested; the officers of the Company have
answered to Holder's satisfaction all inquiries made by it; in making this
investment it has relied upon information made available to it by the Company;
and it has such knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of investment in the Company
and it is able to bear the economic risk of that investment.

          17.2 INVESTMENT. It is acquiring the Warrant for investment for its
own account and not with a view to, or for resale in connection with, any
distribution thereof. It understands that the Warrant, the shares of Preferred
Stock issuable upon exercise thereof and the shares of Common Stock issuable
upon conversion of the Preferred Stock, have not been registered under the
Securities Act of 1933, as amended, nor qualified under applicable state
securities laws.

          17.3 RULE 144. It acknowledges that the Warrant, the Preferred Stock
and the Common Stock must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available. It has been advised or is aware of the provisions of Rule 144
promulgated under the Securities Act.

          17.4 ACCESS TO DATA. It has had an opportunity to discuss the
Company's business, management and financial affairs with the Company's
management and has had the opportunity to inspect the Company's facilities.

          17.5 ACCREDITED INVESTOR. Holder represents that it is an Accredited
Investor as defined in Rule 501(a) of Regulation D promulgated under the
Security Act.

         18. ADDITIONAL REPRESENTATIONS AND COVENANTS OF THE Company. The
Company hereby represents, warrants and agrees as follows:

          18.1 CORPORATE POWER. The Company has all requisite corporate power
and corporate authority to issue this Warrant and to carry out and perform its
obligations hereunder.

          18.2 AUTHORIZATION. All corporate action on the part of the Company,
its directors and shareholders necessary for the authorization, execution,
delivery and performance by the Company of this has been taken. This Warrant is
a valid and binding obligation of the Company, enforceable in accordance with
its terms.

          18.3 OFFERING. Subject in part to the truth and accuracy of Holder's
representations set forth in Section 17 hereof, the offer, issuance and sale of
the Warrant is, and the issuance of Preferred Stock upon exercise of the Warrant
and the issuance of Common Stock upon conversion of the Preferred Stock will be
exempt from the registration requirements of the Securities Act, and are exempt
from the qualification requirements of any applicable state

                                       9.
<PAGE>


securities laws; and neither the Company nor anyone acting on its behalf will
take any action hereafter that would cause the loss of such exemptions.

          18.4 STOCK ISSUANCE. Upon exercise of the Warrant, the Company will
use its best efforts to cause stock certificates representing the shares of
Preferred Stock purchased pursuant to the exercise to be issued in the
individual names of Holder, its nominees or assignees, as appropriate at the
time of such exercise. Upon conversion of the shares of Preferred Stock to
shares of Common Stock, the Company will issue the Common Stock in the
individual names of Holder, its nominees or assignees. as appropriate.

          18.5 ARTICLES AND BY-LAWS. The Company has provided Holder with true
and complete copies of the Company's Articles or Certificate of Incorporation,
By-Laws, and each Certificate of Determination or other charter document
setting, forth any rights, preferences and privileges of Company's capital
stock, each as amended and in effect on the date of issuance of this Warrant.

          18.6 CONVERSION OF PREFERRED STOCK. As of the date hereof, each share
of the Preferred Stock is convertible into one share of the Common Stock.



IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
its officers, thereunto duly authorized this 14th day of October, 1997.

AEROGEN, INC.



By: /s/ Andrew Heath
   ---------------------------
Title: President

                                       10.
<PAGE>





                              FORM OF SUBSCRIPTION

                  (To be signed only upon exercise of Warrant)

To:
   --------------------------------

The undersigned, the holder of the within Warrant, hereby irrevocably elects to
exercise the purchase right represented by such Warrant for, and to purchase
thereunder, _____________________ (____) shares of Preferred Stock of
_______________________ and herewith makes payment of Dollars ($_____) therefor,
and requests that the certificates for such shares be issued in the name of,
and delivered to,_______________________,       whose address is
_____________________________________.

The undersigned represents that it is acquiring such Preferred Stock for its own
account for investment and not with a view to or for sale in connection with any
distribution thereof (subject, however, to any requirement of law that the
disposition thereof shall at all times be within its control.

                                    DATED:
                                          ------------------

                                    ------------------------
                                    (Signature must conform to name of Holder
                                    as specified on the face of the Warrant or
                                    as specified in an Assignment)

                                    (Address)

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

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



(1) Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the Warrant
is being exercised), in either case without making any adjustment for additional
Preferred Stock or any other stock or other securities or property or cash
which, pursuant to the adjustment provisions of the Warrant, may be deliverable
upon exercise.

                                       11.
<PAGE>



                                   ASSIGNMENT

FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant, hereby
sells, assigns and transfers all of the rights of the undersigned under the
within Warrant, with respect to the number of shares of Preferred Stock covered
thereby set forth hereinbelow, unto:

NAME OF ASSIGNEE                  ADDRESS                NO. OF SHARES
--------------------------------------------------------------------------------




                                  Dated:
                                        -----------------------


                                  -----------------------------
                                  (Signature must conform to name of
                                  Holder as specified on the face of the
                                  Warrant or as specified in an
                                  Assignment)

                                       12.
<PAGE>


                                   EXHIBIT "A"

         This Exhibit is incorporated by reference into that certain Warrant
dated October 14 , 1997, issued by Aerogen, Inc., a California corporation (the
"Company"), to VENTURE LENDING & LEASING, INC., a Maryland corporation (the
"Holder").

         This certifies that the Holder is entitled to purchase from the Company
___________ (___________) fully paid and nonassessable shares of the Company's
_______________ Stock at a price of ___________ Dollars ($_________) per share
(the "Stock Purchase Price"). The Stock Purchase Price and the number of shares
purchasable under the Warrant remain subject to adjustment as provided in
Section 4 of the Warrant.



         IN WITNESS WHEREOF, the Company and the Holder have executed this
Exhibit to the Warrant this ____ day of ___________, 199____.

Aerogen, Inc.


By:
   ----------------------------
Name:
     --------------------------
Title:
      -------------------------

VENTURE LENDING & LEASING, INC.

By:
   ----------------------------
Name:
     --------------------------
Title:
      -------------------------
                                       13.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.6
<SEQUENCE>10
<FILENAME>ex-4_6.txt
<DESCRIPTION>EXHIBIT 4.6
<TEXT>

<PAGE>

                                                                     EXHIBIT 4.6













                                  AEROGEN, INC.


                                       AND

                            PATHOGENESIS CORPORATION

                            STOCK PURCHASE AGREEMENT


                                 MARCH 13, 2000


<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                               PAGE
<S>                                                                                                            <C>
1.       PURCHASE OF SERIES E STOCK...............................................................................2

2.       CLOSING DATE; DELIVERY...................................................................................2

         2.1      Closing; Closing Date...........................................................................2

         2.2      Delivery........................................................................................2

3.       REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................3

         3.1      Organization, Good Standing and Qualification...................................................3

         3.2      Capitalization..................................................................................3

         3.3      Subsidiaries....................................................................................4

         3.4      Authorization...................................................................................4

         3.5      Valid Issuance of Securities....................................................................4

         3.6      Governmental Consents...........................................................................5

         3.7      Litigation......................................................................................5

         3.8      Employee Agreement..............................................................................5

         3.9      Patents and Trademarks..........................................................................5

         3.10     Compliance with Other Instruments...............................................................6

         3.11     Agreements; Action..............................................................................6

         3.12     Disclosure......................................................................................7

         3.13     Rights of Registration and First Offer..........................................................7

         3.14     Corporate Documents.............................................................................7

         3.15     Title to Property and Assets....................................................................7

         3.16     Financial Statements............................................................................8

         3.17     Employee Benefit Plans; ERISA...................................................................8

         3.18     Tax Returns and Payments........................................................................9

         3.19     Insurance.......................................................................................9

         3.20     Labor Agreements and Actions....................................................................9

         3.21     Absence of Changes..............................................................................9

         3.22     Brokers........................................................................................10

4.       REPRESENTATIONS AND WARRANTIES OF PATHOGENESIS..........................................................10

         4.1      Legal Power....................................................................................10

         4.2      Due Execution..................................................................................10


                                       i.
<PAGE>

                               TABLE OF CONTENTS
                                  (CONTINUED)
<CAPTION>
                                                                                                               PAGE
<S>                                                                                                            <C>
         4.3      Investment Representations.....................................................................10

         4.4      Brokers........................................................................................11

5.       CONDITIONS TO CLOSING...................................................................................12

         5.1      Conditions to Obligations of PathoGenesis at Closing...........................................12

         5.2      Conditions to Obligations of the Company at Closing............................................13

6.       COVENANTS AND RIGHTS  OF PATHOGENESIS...................................................................13

         6.1      Sale Restriction...............................................................................13

         6.2      Right of First Offer...........................................................................14

         6.3      Standstill Agreement...........................................................................14

         6.4      Registration...................................................................................15

7.       COVENANTS OF THE COMPANY................................................................................15

         7.1      Information Rights.............................................................................15

         7.2      Press Releases.................................................................................16

8.       MISCELLANEOUS...........................................................................................16

         8.1      Governing Law..................................................................................16

         8.2      Successors and Assigns.........................................................................16

         8.3      Entire Agreement...............................................................................16

         8.4      Severability...................................................................................16

         8.5      Amendment and Waiver...........................................................................16

         8.6      Notices........................................................................................16

         8.7      Fees and Expenses..............................................................................17

         8.8      Titles and Subtitles...........................................................................17

         8.9      Counterparts...................................................................................17
</TABLE>

                                      ii.
<PAGE>

                            STOCK PURCHASE AGREEMENT

         THIS AGREEMENT is made effective as of the 13th day of March, 2000,
by and between AEROGEN, INC., a Delaware corporation with its principal place
of business at 1310 Orleans Drive, Sunnyvale, California 94089 (the
"Company"), and PATHOGENESIS CORPORATION, a Delaware corporation with its
principal place of business at 201 Elliott Avenue West, Suite 150, Seattle,
Washington 98119 ("PathoGenesis"). AeroGen and PathoGenesis are sometimes
referred to herein individually as a "Party" and collectively as the "Parties."

RECITALS

         WHEREAS, the Company and PathoGenesis have entered into that certain
Product Development and Supply Agreement of even date herewith (the
"Development Agreement", and together with this Agreement, the "Transactional
Agreements"); and

         WHEREAS, in connection with the Development Agreement, the Company
desires to sell to PathoGenesis and PathoGenesis desires to purchase from the
Company an aggregate of 961,539 shares of Series E Convertible Preferred Stock
of the Company ("Series E Stock"), having the rights and preferences as set
forth in the Company's Amended and Restated Certificate of Incorporation
(attached as Exhibit A) (the "Restated Certificate"), for an aggregate price
of two million five hundred thousand one dollars and forty cents
($2,500,001.40) on the terms and subject to the conditions set forth in this
Agreement.

         NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements contained herein, the parties hereto,
intending to be legally bound, do hereby agree as follows:

         1. PURCHASE OF SERIES E STOCK. Subject to the terms and conditions of
this Agreement at the Closing (as hereinafter defined) the Company agrees to
sell to PathoGenesis and PathoGenesis agrees to purchase from the Company, for
a price of two million five hundred thousand one dollars and forty cents
($2,500,001.40), an aggregate of 961,539 shares of Series E Stock, free and
clear of all liens and encumbrances, at the purchase price per share of $2.60.

         2.       CLOSING DATE; DELIVERY.

                  2.1 CLOSING; CLOSING DATE. The closing of the sale and
purchase of shares of Series E Stock under Section 1.1 of this Agreement (the
"Closing") shall be held at 9:00 a.m. (Pacific Time) on the business day
following the satisfaction of the Closing Conditions specified in Section 5
below (the "Closing Date") at the offices of Cooley Godward LLP, 5 Palo Alto
Square, 4th Floor, Palo Alto, California, or at such other time and place as
the Company and PathoGenesis may agree.

                  2.2 DELIVERY. At the Closing, subject to the terms and
conditions hereof, the Company will deliver to PathoGenesis a stock
certificate, in the name of PathoGenesis, representing the shares of Series E
Stock deliverable at the Closing, dated as of the Closing, against payment of
the purchase price therefor by wire transfer, unless other means of payment
shall have been agreed upon by PathoGenesis and the Company.

                                       1.
<PAGE>

         3.       REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

         The Company hereby represents and warrants to PathoGenesis that,
except as set forth on a Schedule of Exceptions attached as Exhibit B (the
"Schedule of Exceptions"), specifically identifying the relevant subsection
hereof, which exceptions shall be deemed to be representations and warranties
as if made hereunder:

                  3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate power
and authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure so to qualify would have a
material adverse effect on its business or properties.

                  3.2 CAPITALIZATION. The authorized capital of the Company
immediately prior to the Closing will consist of:

                           (a) PREFERRED STOCK. 28,955,891 shares of Preferred
Stock (the "Preferred Stock"), of which 3,846,156 shares have been designated
Series A Preferred Stock, all of which are issued and outstanding immediately
prior to the Closing; of which 4,487,182 shares have been designated Series B
Preferred Stock, all of which are issued and outstanding immediately prior to
the Closing; of which 9,375,300 shares have been designated Series C Preferred
Stock, 9,245,300 of which are issued and outstanding immediately prior to the
Closing; of which 10,285,714 shares have been designated Series D Preferred
Stock, all of which are issued and outstanding immediately prior to the
Closing; and of which 961,539 shares have been designated Series E Preferred
Stock, none of which are issued and outstanding immediately prior to the
Closing. The rights, privileges and preferences of the Preferred Stock and
Common Stock are as stated in the Restated Certificate.

                           (b) COMMON STOCK. 50,000,000 shares of Common Stock
("Common Stock"), of which 6,928,821 shares are issued and outstanding
immediately prior to the Closing and 28,955,891 shares are reserved for
issuance upon conversion of Preferred Stock.

                           (c) Except for the conversion privileges of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock outstanding, the Stock to be issued under this
Agreement (and the conversion privileges thereof), outstanding options to
purchase 2,212,650 shares of Common Stock, warrants to purchase 32,051 shares
of Common Stock and warrants to purchase 65,000 shares of Series C Preferred
Stock, as of the Closing Date, (i) no person will have any right to subscribe
for or to purchase (including conversion or preemptive rights), or any options
for the purchase of, or any agreements providing for the issuance (contingent
or otherwise) of, or any calls, commitments or other claims of any character
relating to, any capital stock or any stock or securities convertible into or
exchangeable for any capital stock of the Company; (ii) except as set forth in
this Section 3.2, the Company will not have any capital stock, equity
interests or other securities reserved for issuance for any purpose; and (iii)
the Company will not be subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its capital stock or
any convertible securities, rights or options of the type described in the
preceding clause (i). No

                                       2.
<PAGE>

outstanding option, warrant or other security directly or indirectly
exercisable for or convertible into any class or series of the Company's
capital stock requires anti-dilution adjustment by reason of the transactions
contemplated by this Agreement. To the best knowledge of the Company, there
are no agreements among the Company's stockholders with respect to the voting
or transfer of the Company's capital stock, other than the agreements
regarding voting contained in the Amended and Restated Voting Agreement dated
August 25, 1998, (the "Voting Agreement") and the agreements regarding
transfer contained in the Co-Sale Agreement, dated August 25, 1998, (the
"Co-Sale Agreement"). Schedule 3.2(c) sets forth a complete and correct list
of the name of each of the Directors, Officers and five percent shareholders
of the Company and the amount of stock each owns in the Company. The Company
has reserved 5,800,000 shares of Common Stock under its 1994 and 1996 Stock
Option Plans, for issuance upon the exercise of options to be granted under
such stock plans. 2,696,029 shares of Common Stock remain in the employee
reserve pool.

                  3.3 SUBSIDIARIES. The Company does not currently own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity.

                  3.4 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the performance of
all obligations of the Company under this Agreement and the authorization,
issuance and delivery of the Series E Stock (and the Common Stock issuable
upon conversion of the Stock) has been taken or will be taken prior to the
Closing, and this Agreement constitutes a valid and legally binding obligation
of the Company, enforceable against the Company in accordance with its terms.

                  3.5      VALID ISSUANCE OF SECURITIES.

                           (a) The Series E Stock that is being issued to
PathoGenesis hereunder, when issued, sold and delivered in accordance with the
terms hereof for the consideration expressed herein, (i) will be duly and
validly issued, fully paid and nonassessable and (ii) will be free of any
pledges, liens, security interests, claims or encumbrances of any kind. Based
in part upon the representations of PathoGenesis in this Agreement, the Series
E Stock will be issued in compliance with all applicable federal and state
securities laws. The Common Stock issuable upon conversion of the Series E
Stock has been duly and validly reserved for issuance, and upon issuance in
accordance with the terms of the Restated Certificate (i) will be duly and
validly issued, fully paid and non-assessable, (ii) will be issued in
compliance with all applicable federal and state securities laws and (iii)
will be free of any pledges, security interests, claims or encumbrances of any
kind.

                           (b) The outstanding shares of Common Stock, Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock are all duly and validly authorized and issued, fully
paid and nonassessable, and were issued in compliance with all applicable
federal and state securities laws.

                  3.6 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the

                                       3.
<PAGE>

consummation of the transactions contemplated by this Agreement, except for
the filings pursuant to (i) Section 25102(f) of the California Corporate
Securities Law of 1968, as amended, and the rules thereunder, (ii) Rule 506 of
Regulation D promulgated under the Securities Act of 1933, as amended (the
"Act"), and (iii) any other post-Closing filings with any other jurisdictions
required under applicable state securities laws, which filings will be timely
effected in accordance with such sections and/or rules.

                  3.7 LITIGATION. There is no action, suit, proceeding or
investigation pending or currently threatened against the Company that
questions the validity of the Transaction Agreements or the right of the
Company to enter into them, or to consummate the transactions contemplated
thereby, or that might result, either individually or in the aggregate, in any
material adverse changes in the assets, condition or affairs of the Company,
financially or otherwise, or any change in the current equity ownership of the
Company, nor is the Company aware that there is any basis for the foregoing.
The foregoing includes, without limitation, actions pending or threatened (or
any basis therefor known to the Company) involving the prior employment of any
of the Company's employees, their use in connection with the Company's
business of any information or techniques allegedly proprietary to any of
their former employers, or their obligations under any agreements with prior
employers. The Company is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency
or instrumentality. There is no action, suit, proceeding or investigation by
the Company currently pending or which the Company intends to initiate.

                  3.8 EMPLOYEE AGREEMENT. Each employee and officer of the
Company and each consultant to the Company has executed an agreement with the
Company regarding confidentiality and proprietary information. The Company,
after reasonable investigation, is not aware that any of its employees are in
violation thereof, and the Company will use its best efforts to prevent any
such violation.

                  3.9 PATENTS AND TRADEMARKS. The Company has sufficient title
to and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
necessary for its business as now conducted and as proposed to be conducted
without any conflict with or infringement upon the rights of others. The
patents, patent applications, trademarks, service marks, trade names and
copyrights owned by the Company and that the Company has rights to use are set
forth on the Schedule of the Exceptions. There are no outstanding options,
licenses, or agreements of any kind relating to the foregoing, nor is the
Company bound by or a party to any options, licenses or agreements of any kind
with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights and
processes of any other person or entity. The Company has not received any
communications alleging that the Company has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary rights of
any other person or entity. The Company is not aware that any of its employees
is obligated under any contract (including licenses, covenants or commitments
of any nature) or other agreement, or subject to any judgment, decree or order
of any court or administrative agency, that would interfere with the use of
the employee's best efforts to promote the interests of the Company or that
would conflict with the Company's business as proposed to be conducted.
Neither the execution nor delivery of this Agreement, nor the carrying on of
the Company's business by the employees of the

                                       4.
<PAGE>

Company, nor the conduct of the Company's business as proposed, will, to the
Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. The
Company does not believe it is or will be necessary to utilize any inventions
of any of its employees (or people it currently intends to hire) made prior to
their employment by the Company.

                  3.10     COMPLIANCE WITH OTHER INSTRUMENTS.

                           (a) The Company is not in violation or default of
any provisions of its Restated Certificate or Bylaws or of any instrument,
judgment, order, writ, decree or contract to which it is a party or by which
it is bound or of any material provision of any federal or state statute, rule
or regulation applicable to the Company. Without limiting the generality of
the foregoing, the Company is in compliance with all material federal, state
and local laws, rules and regulations relating to the development,
manufacture, safety, sale, labeling, marketing and, if required, governmental
approval of its products. The execution, delivery and performance of this
Agreement and the consummation of the transaction contemplated hereby will not
result in any such violation or be in conflict with or constitute, with or
without the, passage of time and giving of notice, either a default under any
such provision, instrument, judgment, order, writ, decree or contract or an
event which results in the creation of any lien, charge or encumbrance upon
any assets of the Company.

                           (b) The Company has avoided every condition, and
has not performed any act, the occurrence of which would result in the
Company's loss of any right granted under any license, distribution or other
agreement.

                  3.11     AGREEMENTS; ACTION.

                           (a) There are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors,
affiliates, or any affiliate thereof.

                           (b) Except for the Transactional Agreements, there
are no agreements, understandings, instruments, contracts or proposed
transactions to which the Company is a party or by which it is bound that
involve (i) obligations of, or payments to the Company in excess of $50,000, or
(ii) the license of any patent, copyright, trade secret or other proprietary
right to or from the Company, or (iii) obligations of, or payments by, the
Company to any officer, director, employee or family member of any such
individual.

                           (c) The Company has not (i) declared or paid any
dividends, or authorized or made distribution upon or with respect to any class
or series of its capital stock, (ii) incurred any indebtedness for money
borrowed or incurred any other liabilities individually in excess of $50,000 or
in excess of $100,000 in the aggregate, (iii) made any loans or advances to any
person, or (iv) sold, exchanged or otherwise disposed of any of its assets or
rights, other than the sale of its inventory in the ordinary course of business.

                           (d) The Company is not a party to and is not bound
by any contract, agreement or instrument, or subject to any restriction under
its Restated Certificate or Bylaws,

                                       5.
<PAGE>

that adversely affects its business as now conducted or as proposed to be
conducted, its properties or its financial condition.

                           (e) The Company has not engaged in the past three
(3) months in any discussion (i) with any representative of any corporation or
corporations regarding the merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership,
association or other business entity or any individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the
Company or a transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company is disposed of, or
(iii) regarding any other form of liquidation, dissolution or winding up of
the Company.

                           (f) All contracts to which the Company is a party
or by which its assets may be bound are valid, binding and in full force and
effect, and no material breach or default, or event which, with notice or
lapse of time or both, would constitute any such material breach or default by
the Company (or, to the best knowledge of the Company, by any other party
thereto), exists with respect thereto. The Company has received no notice of
cancellation or non-renewal of any material contract.

                  3.12 DISCLOSURE. Except for certain agreements that the
Company considers to be confidential or proprietary in nature, agreements
which the Company is under an obligation not to disclose, and agreements that
the Company believes contain nonessential details of the interference
settlement, the Company has provided PathoGenesis or its counsel with all the
information which PathoGenesis has requested for deciding whether to acquire
the Series E Stock. No representation or warranty of the Company contained in
this Agreement and the Exhibits attached hereto, or, any other written
statement or certificate furnished or to be furnished to PathoGenesis in
connection herewith contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
herein or therein not misleading in light of the circumstances under which
they were made. The Company has provided counsel to PathoGenesis access to
complete and accurate copies of each agreement, except for the agreements
stated above, to which the Company is a party or to which it, its assets or
its properties are subject.

                  3.13 RIGHTS OF REGISTRATION AND FIRST OFFER. Except for
registration rights granted to the holders of Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock and
to be granted to PathoGenesis, in each case pursuant to the Third Amended and
Restated Information and Registration Rights Agreement dated August 25, 1998
(the "Registration Rights Agreement"), the Company has not granted or agreed
to grant any registration rights, including piggyback rights, to any person or
entity. All rights of first offer granted by the Company related to its
securities have been satisfied or will be waived prior to the Closing.

                  3.14 CORPORATE DOCUMENTS. The Restated Certificate and
By-laws of the Company are in the form provided to counsel to PathoGenesis.

                  3.15 TITLE TO PROPERTY AND ASSETS. The Company owns its
property and assets free and clear of all mortgages, liens, loans and
encumbrances, except such encumbrances and

                                       6.
<PAGE>

liens which arise in the ordinary course of business and do not materially
impair the Company`s ownership or use of such property or assets. With respect
to the property and assets it leases, the Company is in compliance with such
leases and, to the best of its knowledge, holds a valid leasehold interest
free of any liens, claims or encumbrances.

                  3.16 FINANCIAL STATEMENTS. The Company has delivered to
PathoGenesis its audited financial statements (balance sheet, profit and loss
statement, cash flows statement and statement of stockholder equity) for the
year ended December 31, 1998 and its unaudited financial statements (balance
sheet, profit and loss statement, cash flows statement and statement of
stockholder equity) for the twelve months ended December 31, 1999
(collectively, the "Financial Statements"). The Financial Statements have been
prepared in accordance with generally accepted accounting principles and on a
consistent basis throughout the periods indicated and with each other. The
Financial Statements fairly present the financial condition and operating
results of the Company as of the dates, and for the periods, indicated
therein, subject, in the case of the unaudited financial statements, to normal
year-end audit adjustments, which are neither individually nor in the
aggregate material. Except as set forth in the Financial Statements, the
Company has no material liabilities, contingent or otherwise.

                  3.17     EMPLOYEE BENEFIT PLANS; ERISA.

                           (a) Item 3.17 of the Schedule of Exceptions contains
a true and complete list of all "employee benefit plans," within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and any other bonus, profit sharing, compensation, severance,
deferred compensation, fringe benefit, insurance, welfare, medical,
post-retirement health or welfare benefit, life, stock option, stock purchase,
disability, termination, retention or other plan, agreement, trust fund or
arrangement (whether written or unwritten), maintained, sponsored or contributed
to by the Company or any entity that would be deemed a "single employer" with
the Company under Section 414(b), (c), (m) or (o) of the Internal Revenue Code
of 1986, as amended (the "Code") or Section 4001 of ERISA (an "ERISA Affiliate")
on behalf of any employee of the Company or any ERISA Affiliate (whether
current, former or retired) or their beneficiaries or with respect to which the
Company or any ERISA Affiliate has or has had any obligation on behalf of any
such employee or beneficiary (each a "Plan" and, collectively, the "Plans").

                           (b) None of the ERISA Affiliates or the Company has
ever contributed to or contributes to, been required to contribute to, or
otherwise participated in or participates in (i) any "multiemployer plan"
(within the meaning of Section 4001(a)(3) of ERISA or Section 414(f) of the
Code), (ii) any single employer pension plan (within the meaning of Section
4001(a)(15) of ERISA) which is subject to Sections 4063 and 4064 of ERISA or
(iii) any plan subject to Title IV of ERISA or Section 412 of the Code.

                           (c) The Company, each ERISA Affiliate, each Plan
and each "plan sponsor" (within the meaning of Section 3(16) of ERISA) and
each "employee benefit plan" (within the of section 3(3) of ERISA) has
complied in all material respects with applicable law including, without
limitation, the Code and ERISA and each Plan complies with and has been
maintained and operated in all material respects in accordance with its terms.

                                       7.
<PAGE>

                           (d) With respect to each of the Plans referenced in
item 3.17 of the Schedule of Exceptions: (i) all payments required by any Plan
or by law with respect to all periods through the date of the Closing have
been made prior to the Closing; (ii) no "prohibited transaction," within the
meaning of Section 4975 of the Code and Section 406 of ERISA, has occurred, or
to the best of the Company's knowledge is expected to occur, with respect to
any Plan which has subjected or could subject the Company, any officer,
director or employee thereof or any trustee, administrator or other fiduciary,
to a tax or penalty on prohibited transactions imposed by either Section 502
of ERISA or Section 4975 of the Code, or any other liability with respect
thereto; and (iii) no Plan is under audit or investigation by the Internal
Revenue Service or the Department of Labor or any other governmental authority
and no such completed audit, if any, has resulted in the imposition of any tax
or penalty.

                  3.18 TAX RETURNS AND PAYMENTS. The Company has filed all tax
returns and reports as required by law. These returns and reports are true and
correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith which are listed
in the Schedule of Exceptions. The provision for taxes of the Company as shown
in the Financial Statements is adequate for taxes due or accrued as of the
date thereof. The Company has not elected pursuant to the Internal Revenue
Code of 1986, as amended (the "Code"), to be treated as a Subchapter S
corporation or a collapsible corporation pursuant to Section 1362(a) or
Section 341(f) of the Code, nor has it made any other elections pursuant to
the Code (other than elections which relate solely to methods of accounting,
depreciation or amortization) which would have a material adverse effect on
the Company, its financial condition, its business as currently conducted or
as proposed to be conducted or any of its properties or material assets.

                  3.19 INSURANCE. The Company has in full force and effect
fire and casualty insurance policies, with extended coverage, sufficient in
amount (subject to reasonable deductibles) to allow it to replace any of its
properties that might be damaged or destroyed. The Company also has in full
force and effect product liability insurance and comprehensive general
liability insurance in amounts and with such coverages as are generally
maintained by responsible companies in the same industry.

                  3.20 LABOR AGREEMENTS AND ACTIONS. The Company is not bound
by or subject to (and none of its assets or properties is bound by or subject
to) any written or oral, express or implied, contract, commitment or
arrangement with any labor union, and no labor union has requested or, to the
knowledge of the Company, has sought to represent any of the employees,
representatives or agents of the Company. There is no strike or other labor
dispute involving the Company pending, or to the knowledge of the Company
threatened, which could have a material adverse effect on the assets,
properties, financial condition, operating results, prospects or business of
the Company (as such business is currently conducted and as it is proposed to
be conducted), nor is the Company aware of any labor organization activity
involving its employees. The Company is not aware that any officer or key
employee, or that any group of key employees, intends to terminate their
employment, with the Company, nor does the Company have a present intention to
terminate the employment of any of the foregoing. The employment of each
officer and employee of the Company is terminable at the will of the Company.

                                       8.
<PAGE>

                  3.21 ABSENCE OF CHANGES. Except as specifically set forth in
this Agreement, since December 31, 1999, (a) the Company has not entered into
any transaction other than in the ordinary course of business and which is
not, individually or in the aggregate, material to the assets, properties,
financial condition, operating results or business of the Company (as such
business is currently conducted and as it is proposed to be conducted), (b)
the Company has not changed any compensation arrangement or agreement with any
of its key employees or executive officers, or changed the rate of pay of its
employees as a group, (c) the Company has not changed or amended any contract
by which the Company or any of its respective assets are bound or subject
which would have a material adverse effect on the business of the Company, (d)
there has been no waiver by the Company of a valuable right or of a debt owing
to the Company which would have a material and adverse effect on the business
of the Company, (e) there has not been any satisfaction or discharge of any
lien, claim or encumbrance or any payment of any obligation by the Company
except in the ordinary course of business and which is not, individually or in
the aggregate, material to the assets, properties, financial condition,
operating results or business of the Company (as such business is currently
conducted and as it is proposed to be conducted), and (f) except as set forth
in the Financial Statements, the Company has no material liabilities,
contingent or otherwise, other than obligations under contracts and
commitments incurred in the ordinary course of business not in excess of
$50,000 individually and $100,000 in the aggregate.

                  3.22 BROKERS. The Company has retained no finder, broker,
agent, financial adviser or other intermediary in connection with the
transactions contemplated by this Agreement and the Company agrees to
indemnify and hold harmless PathoGenesis from liability for any compensation
to any such intermediary and the fees and expenses of defending against such
liability or alleged liability.

         4.       REPRESENTATIONS AND WARRANTIES OF PATHOGENESIS.

         PathoGenesis hereby represents and warrants to the Company as follows:

                  4.1 LEGAL POWER. PathoGenesis has the requisite corporate
power to enter into this Agreement and to carry out and perform its
obligations under the terms of this Agreement.

                  4.2 DUE EXECUTION. This Agreement has been duly authorized,
executed and delivered by PathoGenesis, and, upon due execution and delivery
by the Company, this Agreement will be a valid and binding agreement of
PathoGenesis, enforceable against Pathogenesis in accordance with its terms.

                  4.3 INVESTMENT REPRESENTATIONS. In connection with any sale
of shares under this Agreement, PathoGenesis makes the following
representations:

                           (a) PathoGenesis is acquiring the shares of Series
E Stock under this Agreement for its own account, not as nominee or agent, for
investment and not with a view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities
Act of 1933, as amended (the "Securities Act").

                                       9.
<PAGE>

                           (b) PathoGenesis understands that (i) the shares of
Series E Stock to be purchased under this Agreement have not been registered
under the Securities Act by reason of a specific exemption therefrom, that
such securities must be held by PathoGenesis, and that PathoGenesis must,
therefore, bear the economic risk of such investment, until a subsequent
disposition thereof is registered under the Securities Act or is exempt from
such registration; (ii) each certificate representing such shares will be
endorsed with the following legends:

                               A. THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE
SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE
IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

                               B. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS, INCLUDING RESTRICTIONS ON
TRANSFERABILITY, OF THAT CERTAIN STOCK PURCHASE AGREEMENT, DATED MARCH 1,
2000. A COPY OF SUCH STOCK PURCHASE AGREEMENT WILL BE FURNISHED TO THE RECORD
HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO AEROGEN,
INC. AT ITS PRINCIPAL PLACE OF BUSINESS."

                               C. Any legend required to be placed thereon by
the Company's Bylaws (and shown on Exhibit B hereto or as may hereafter be
added to such Bylaws with respect to all Series E Stock of the Company) or
under applicable state securities laws.

and (iii) the Company will instruct any transfer agent not to register the
transfer of the shares of Series E Stock purchased pursuant to this Agreement
(or any portion thereof) unless the conditions specified in the foregoing
legends are satisfied, until such time as a transfer is made, pursuant to the
terms of this Agreement, and in compliance with Rule 144 or pursuant to a
registration statement or, if the opinion of counsel referred to above is to
the further effect that such legend is not required in order to establish
compliance with any provisions of the Securities Act or this Agreement.

                           (c) PathoGenesis has such knowledge and experience
in financial or business matters that it is capable of evaluating the merits
and risks of the investment in the shares of Series E Stock purchased
hereunder.

                           (d) PathoGenesis is an "accredited investor" as
such term is defined in Rule 501(a) of Regulation D of the General Rules and
Regulations prescribed by the Securities and Exchange Commission pursuant to
the Securities Act.

                                      10.
<PAGE>

                  4.4 BROKERS. PathoGenesis has retained no finder, broker,
agent, financial advisor or other intermediary in connection with the
transactions contemplated by this Agreement and PathoGenesis agrees to
indemnify and hold harmless the Company from liability for any compensation to
any such intermediary and the fees and expenses of defending against such
liability or alleged liability.

         5.       CONDITIONS TO CLOSING.

                  5.1 CONDITIONS TO OBLIGATIONS OF PATHOGENESIS AT CLOSING.
PathoGenesis' obligation to purchase the shares of the Company's Series E
Stock at the Closing is subject to the fulfillment to PathoGenesis'
satisfaction, on or prior to the Closing, of all of the following conditions,
any of which may be waived by PathoGenesis:

                           (a) REPRESENTATIONS AND WARRANTIES TRUE;
PERFORMANCE OF OBLIGATIONS. The representations and warranties made by the
Company in Section 3 hereof shall be true and correct in all material respects
and the Company shall have performed and complied with all obligations and
conditions herein required to be performed or complied with by it on or prior
to the Closing, and a Certificate duly executed by an officer of the Company,
to the effect of the foregoing, shall be delivered to PathoGenesis.

                           (b) PROCEEDINGS AND DOCUMENTS. All corporate and
other proceedings in connection with the transactions contemplated at the
Closing and all documents and instruments incident to such transactions shall
be reasonably satisfactory in substance and form to counsel to PathoGenesis,
and counsel to PathoGenesis shall have received all such counterpart originals
or certified or other copies of such documents as they may reasonably request.

                           (c) QUALIFICATIONS, LEGAL INVESTMENT. All
authorizations, approvals, or permits, if any, of any governmental authority
or regulatory body of the United States or of any state that are required in
connection with the lawful sale and issuance of the shares to be issued
pursuant to this Agreement shall have been duly obtained and shall be
effective on and as of the Closing. No stop order or other order enjoining the
sale of the shares to be sold at such Closing shall have been issued and no
proceedings for such purpose shall be pending or, to the best knowledge of the
Company, threatened by the Securities and Exchange Commission, or any
commissioner of corporations or similar officer of any state having
jurisdiction over this transaction. At the time of the Closing, the sale and
issuance of the shares of Series E Stock to be sold thereat shall be legally
permitted by all laws and regulations to which PathoGenesis and the Company
are subject.

                           (d) NO PENDING LITIGATION. There shall not be any
proceeding, hearing action, suit, arbitration or any investigation pending or
threatened or any legal requirement (including any federal, state, local,
municipal, foreign, international law, statute, rule or regulation) in effect
that would prevent the consummation of any of the transactions contemplated by
this Agreement.

                                      11.
<PAGE>

                           (e) OPINION OF COMPANY COUNSEL. PathoGenesis shall
have received from Cooley Godward LLP, counsel for the Company, an opinion,
dated as of the Closing, in the form attached hereto as Exhibit C.

                           (f) NECESSARY CONSENTS. The Company shall have
obtained, and shown by written evidence satisfactory to PathoGenesis, all
required consents and approvals of third parties necessary to convey to
PathoGenesis all of the shares of Series E Preferred Stock and to consummate
the other transactions contemplated by this Agreement.

                  5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY AT CLOSING. The
Company's obligation to issue and sell the shares of its Series E Stock at the
Closing is subject to the fulfillment to the Company's satisfaction, on or
prior to the Closing, of the following conditions, any of which may be waived
by the Company:

                           (a) REPRESENTATIONS AND WARRANTIES TRUE. The
representations and warranties made by PathoGenesis in Section 4 hereof shall
be true and correct in all material respects at the date of the Closing.

                           (b) PERFORMANCE OF OBLIGATIONS. PathoGenesis shall
have performed and complied with all agreements and conditions herein required
to be performed or complied with by it on or before the Closing, and a
Certificate duly executed by an officer of PathoGenesis, to the effect of the
foregoing, shall be delivered to the Company.

                           (c) QUALIFICATIONS, LEGAL INVESTMENT. All
authorizations, approvals, or permits, if any, of any governmental authority
or regulatory body of the United States or of any state that are required in
connection with the lawful sale and issuance of the shares of Series E Stock
to be sold and issued pursuant to this Agreement shall have been duly obtained
and shall be effective on and as of the Closing. No stop order or other order
enjoining the sale of such shares shall have been issued and no proceedings
for such purpose shall be pending or, to the best knowledge of the Company,
threatened by the Securities and Exchange Commission, or any commissioner of
corporations or similar officer of any state having jurisdiction over this
transaction. At the time of the Closing, the sale and issuance of the shares
of Series E Stock to be sold and issued at the Closing shall be legally
permitted by all laws and regulations to which PathoGenesis and the Company
are subject.

                           (d) NO PENDING LITIGATION. There shall not be any
proceeding, hearing, action, suit, arbitration or any investigation pending or
threatened or any legal requirement (including any federal, state, local,
municipal, foreign, international law, statute, rule or regulation) in effect
that would prevent the consummation of any of the transactions contemplated by
this Agreement.

         6.       COVENANTS AND RIGHTS  OF PATHOGENESIS.

                  6.1 SALE RESTRICTION. PathoGenesis hereby covenants and
agrees that it will not contract to sell, or otherwise transfer, loan, pledge
or grant any rights with respect to any shares of the Company's Series E Stock
acquired pursuant to this Agreement, or Common Stock issued on conversion
thereof (or purchase or sell any derivative security that has a similar effect
or enter into any contract that has a similar effect), without the prior
written consent of the

                                      12.
<PAGE>

Company until the earlier of (a) one year following the Closing of the initial
public offering of securities of the Company pursuant to an underwritten
registration under the Securities Act, as amended (the "IPO"), or (b) four
years after the date of this Agreement. Notwithstanding anything in this
Section 6.1 to the contrary, if the Company sells its equity securities to
another corporate partner (defined as a corporation which is purchasing equity
securities of the Company in connection with entering into a commercial
relationship with the Company) and such corporate partner does not agree to a
restriction on the sale of equity securities of the Company for at least one
year following the Company's IPO, then subsection (a) above shall be modified
to provide that PathoGenesis' sale restriction shall extend only for that
length of time following an IPO as the sale restriction of such corporate
partner. Following the expiration of the sale restriction set forth in this
Section 6.1, PathoGenesis agrees that it will give the Company at least five
(5) business days' advance notice of its intention to sell the Company's
equity securities, and will use commercially reasonable efforts to cooperate
with the Company and its designated market makers to find a buyer or buyers
for the Company's stock and conclude its sale of such stock in an orderly
manner.

                  6.2      RIGHT OF FIRST OFFER.

                           (a) Prior to the Company's IPO, PathoGenesis shall
not transfer any shares of the Company's Series E Stock (or Common Stock
issued on conversion thereof) purchased pursuant to this Agreement, whether or
not for consideration, to a third party, without complying with the provisions
of this Section 6.2. The right of first offer herein shall be freely
assignable by the Company.

                           (b) Prior to the Company's IPO, in the event
PathoGenesis desires to transfer any shares of the Company then held by it,
PathoGenesis shall give written notice to the Secretary of the Company of its
intention to transfer the shares (the "Company Notice"). The Company Notice
must name the number of Shares of Series E Stock (or Common Stock issued on
conversion thereof) involved in the proposed transfer, the proposed purchase
price per share, and any other terms and conditions of the proposed transfer.
Within fifteen (15) days after delivery of the Company Notice, the Company
shall have the right to elect to purchase all (but not less than all) of the
shares proposed to be transferred (the "Option Shares") on substantially the
same terms and conditions specified in the Company Notice, by delivery to
PathoGenesis of a written notice.

                           (c) In the event that the Company fails to exercise
the right to purchase set forth in foregoing paragraph (b) as to all the
Option Shares within the period specified above, PathoGenesis shall have sixty
(60) days thereafter to sell the Option Shares at a price and upon terms no
more favorable to the purchaser thereof than specified in the Company Notice.
In the event that PathoGenesis has not sold such shares within such sixty (60)
day period, PathoGenesis shall not thereafter sell any of such shares without
first offering such shares to the Company in the manner provided above.

                  6.3 STANDSTILL AGREEMENT. Other than shares of Series E
Stock, which it is purchasing pursuant to this Agreement, and the Common Stock
issued upon conversion thereof, PathoGenesis hereby covenants and agrees that
it will not, nor will it permit any of its parents, subsidiaries or other
related entities to, purchase or otherwise acquire, directly or indirectly,
any

                                      13.
<PAGE>

equity securities of the Company (or rights or options to purchase such
securities) without the prior written approval of the Company. This provision
shall terminate and be of no further force or effect five years from the date
hereof or such earlier date as shall be agreed to by the Company; provided,
that the undertaking of this Section 6.3 shall automatically terminate upon
the occurrence of any of the following events: (a) the filing with the SEC of
a Schedule 13D by any person or entity indicating that a person or entity has
acquired (x) more than 20% of any class of the Company's voting equity
securities, or (y) has acquired at least 5% of any class of the Company's
voting equity securities which Schedule 13D expresses the filing party's
intention to assume control of the Company, whether by tender offer, merger,
proxy contest or otherwise; (b) the commencement of a tender offer by any
person or entity to acquire 20% or more of the Company's outstanding voting
equity securities; or (c) the solicitation of proxies by any party other than
the Company to which Rule 14a-11 of the rules and regulations under the
Securities and Exchange Act of 1934, as amended, applies and is intended to
effect a change in the majority of members of the Company's Board of Directors.

                  6.4 REGISTRATION. PathoGenesis shall become a party to, and
shall be deemed a "Holder" under, the Registration Rights Agreement for all
purposes except Section 2 and Section 16 thereof.

         7.       COVENANTS OF THE COMPANY

                  7.1 INFORMATION RIGHTS. Until the closing of an IPO by the
Company, the Company covenants and agrees that for so long as PathoGenesis
owns, beneficially or of record, at least 500,000 shares of the Company's
Series E Stock (or Common Stock issued on conversion thereof) (in each case as
adjusted for stock splits or combinations, stock dividends or similar events),
the Company shall furnish to PathoGenesis the following reports:

                           (a) ANNUAL REPORTS. As soon as available and in any
event within 90 days after the end of each fiscal year, consolidated and
consolidating financial statements of the Company including a balance sheet as
of the end of such fiscal year and statements of income and retained earnings
and of sources and applications of funds for such fiscal year, prepared in
reasonable detail and in accordance with generally accepted accounting
principles consistently applied and accompanied by the opinion thereon of a
recognized firm of independent certified public accountants as may be selected
by the Board of Directors of the Company.

                           (b) INTERIM REPORTS. As soon as available, and in
any event within 45 days after the end of each of the first three quarters of
each of the Company's fiscal years beginning with the quarter ending March 31,
2000, consolidated and consolidating financial statements of the Company
including a cash flow statement, a balance sheet as of the end of such
accounting period and statements of income and retained earnings and of
sources and applications of funds for such accounting period and for the
period from the beginning of such fiscal year to the end of such accounting
period, and setting forth in comparative form the figures for the
corresponding periods of the preceding fiscal year, prepared in reasonable
detail and in accordance with generally accepted accounting principles
consistently applied and certified as correct by the chief executive officer
and chief financial officer of the Company.

                                      14.
<PAGE>

                  7.2 PRESS RELEASES. Except as provided by law, each party
will secure advanced written approval from the other party of the decision to
issue and the content of any statement regarding or mentioning the
transactions contemplated hereby, whether in writing or otherwise to the
public or press. This provision shall not be deemed to have been breached if
the disclosing party acting on the advice of its securities or other
regulatory counsel makes disclosures to investors and potential investors or
to any governmental or other regulatory agency or organization.

         8.       MISCELLANEOUS.

                  8.1 GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the substantive laws of Delaware and the United
States of America, without regard to choice of law rules.

                  8.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, and permitted assigns of the parties hereto.

                  8.3 ENTIRE AGREEMENT. This Agreement, the Development
Agreement and the Exhibits hereto and thereto, and the other documents
delivered pursuant hereto, constitutes the full and entire understanding and
agreement among the parties with regard to the subjects hereof and thereof and
no party shall be liable or bound to any other party in any manner by any
representations, warranties, covenants, or agreements except as specifically
set forth herein or therein. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto and their
respective successors and assigns, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
herein.

                  8.4 SEVERABILITY. Whenever possible, each provision of the
Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of the Agreement is held to be
prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of the Agreement in the event of such invalidity,
the parties shall seek to agree on an alternative enforceable provision that
preserves the original purpose of this Agreement.

                  8.5 AMENDMENT AND WAIVER. Except as otherwise provided
herein, any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance, either retroactively or prospectively, and either for a specified
period of time or indefinitely), with the written consent of the Company and
PathoGenesis. Any amendment or waiver effected in accordance with this Section
shall be binding upon any holder of any securities purchased under this
Agreement (including securities into which such securities have been
convened), each future holder of all such securities, and the Company.

                  8.6 NOTICES. All notices and other communications required
or permitted hereunder shall be in writing and shall be deemed effectively
given and received (a) upon

                                      15.
<PAGE>

personal delivery, (b) on the fifth day following mailing by registered or
certified mail, return receipt requested, postage prepaid, addressed to the
Company and PathoGenesis at their respective addresses first above written,
(c) upon transmission of telegram or facsimile (with telephonic notice), or
(d) upon confirmed delivery by overnight commercial courier service.

                  8.7 FEES AND EXPENSES. The Company and PathoGenesis shall
bear their own expenses and legal fees incurred on their behalf with respect
to this Agreement and the transactions contemplated hereby.

                  8.8 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.

                  8.9 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one instrument.

                                      16.
<PAGE>


         IN WITNESS WHEREOF, the foregoing Stock Purchase Agreement is hereby
executed as of the date first above written.

                                            AEROGEN, INC.


                                            By:/s/  Jane E. Shaw
                                               ---------------------------------


                                            Dr. Jane E. Shaw

                                            Chairman and Chief Executive Officer

                                            PATHOGENESIS CORPORATION


                                            By:/s/  Wilbur H. Gantz
                                               ---------------------------------


                                            Wilbur H. Gantz

                                            Chairman and Chief Executive Officer


                                      17.

<PAGE>


                                    EXHIBIT A
                              AMENDED AND RESTATED
                          CERTIFICATE OF INCORPORATION
                                OF AEROGEN, INC.

         AeroGen, Inc., a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:

         ONE:  The name of the corporation is AeroGen, Inc.

         TWO: The original Certificate of Incorporation of the corporation was
filed with the Secretary of State of the State of Delaware on March 12, 1998
under the name AeroGen (Delaware), Inc.

         THREE: The Certificate of Incorporation of said corporation shall be
amended and restated to read in full as follows:

                                    ARTICLE 1

         The name of this corporation is AEROGEN, INC.

                                    ARTICLE 2

         The address of the registered office of the corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is The Corporation Trust
Company.

                                    ARTICLE 3

         The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.

                                    ARTICLE 4

         The total number of shares of stock and the classes of stock which the
corporation shall have authority to issue is as follows:

                  A. CLASSES OF STOCK. This corporation is authorized to issue
two classes of stock to be designated "Common Stock" and "Preferred Stock." The
total number of shares which this corporation is authorized to issue is
Seventy-Eight Million Nine Hundred Fifty-Five Thousand Eight Hundred Ninety-One
(78,955, 891) shares, of which Fifty Million (50,000,000) shares of the par
value of One-Tenth of One Cent ($.001) shall be Common Stock and Twenty-Eight
Million Nine Hundred Fifty-Five Thousand Eight Hundred Ninety-One (28,955,891)
shares of the par value of One-Tenth of One Cent ($.001) shall be Preferred
Stock. The Preferred Stock authorized by this Certificate of Incorporation shall
be issued by series as set forth hereto. The first series of Preferred Stock
shall be designated "Series A Preferred Stock" and shall consist of Three
Million Eight Hundred Forty-Six Thousand One Hundred Fifty-Six (3,846,156)
shares. The second series of Preferred Stock shall be designated "Series B
Preferred


                                       18.
<PAGE>

Stock" and shall consist of Four Million Four Hundred Eighty-Seven Thousand One
Hundred Eighty-Two (4,487,182) shares. The third series of Preferred Stock shall
be designated "Series C Preferred Stock" and shall consist of Nine Million Three
Hundred Seventy-Five Thousand Three Hundred (9,375,300) shares. The fourth
series of Preferred Stock shall be designated "Series D Preferred Stock" and
shall consist of Ten Million Two Hundred Eighty-Five Thousand Seven Hundred
Fourteen (10,285,714) shares. The fifth series of Preferred Stock shall be
designated "Series E Preferred Stock" and shall consist of Nine Hundred
Sixty-One Thousand Five Hundred Thirty-Nine (961,539) shares.

                  B. POWERS, PREFERENCES AND RIGHTS, AND QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS OF PREFERRED STOCK. The Preferred Stock authorized
by this Certificate of Incorporation may be issued from time to time in series.
The powers, preferences and rights, and the qualifications, limitations and
restrictions granted to and imposed on the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock are as set forth below in this Division B of Article IV. The
Board of Directors is hereby authorized to fix or alter the powers, preferences
and rights, and the qualifications, limitations and restrictions granted to or
imposed upon additional series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or of any of them.
Subject to compliance with applicable protective voting rights which have been
or may be granted to the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, or
other series of Preferred Stock in certificate(s) of determination or this
Certificate of Incorporation, as amended from time to time ("Protective
Provisions"), but notwithstanding any other right of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock or any other series of Preferred Stock, the
powers, preferences and rights of and the qualifications, limitations and
restrictions on, any such additional series may be subordinated to, pari passu
with (including, without limitation, inclusion in provisions with respect to
liquidation and acquisition preferences and/or approval of matters by vote or
written consent), or senior to any of those of any present or future class or
series of Preferred or Common Stock. Subject to compliance with applicable
Protective Provisions, the Board of Directors is also authorized to increase or
decrease the number of shares of any series (other than the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock), prior or subsequent to the issue of any
shares of that series, but not below the number of shares of such series then
outstanding, in case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.

1.       DIVIDEND RIGHTS.

         The holders of the Preferred Stock shall be entitled to receive, out of
any funds legally available therefor, dividends on each outstanding share of
Preferred Stock payable in preference and priority to any payment of any
dividend on any shares of Common Stock of the corporation at an annual rate of
$.0312 per share of Series A Preferred Stock, $.0624 per share of Series B
Preferred Stock, $.08 per share of Series C Preferred Stock, $.14 per share of
Series D Preferred Stock, and $.208 per share of Series E Preferred Stock, when
and as declared by the Board of Directors. Dividends on the shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock shall be paid ratably to


                                       19.
<PAGE>

holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, based on
the number of shares held. The right to such dividends on the Preferred Stock
shall be noncumulative. No right shall accrue to holders of shares of Preferred
Stock by reason of the fact that dividends on said shares are not declared in
any prior year, nor shall any undeclared or unpaid dividend bear or accrue any
interest. Dividends, if paid, or if declared and set apart for payment, must be
paid or declared and set apart for payment on all outstanding Preferred Stock
contemporaneously. Dividends shall be paid in cash. No shares of Common Stock
shall receive any dividend at a rate which is greater than the rate at which
dividends are simultaneously paid in respect of the Preferred Stock (based on
the number of shares of Common Stock into which the Preferred Stock is
convertible on the date of dividend).

         Dividends shall be paid by forwarding a check, postage prepaid, to the
address of each holder (or, in the case of joint holders, to the address of any
such holder) of Preferred Stock as shown on the books of the corporation, or to
such other address as such holder specifies for such purpose by written notice
to the corporation. The forwarding of such check shall satisfy all obligations
of the corporation with respect to such dividends, unless such check is not paid
upon timely presentation.

2.       LIQUIDATION RIGHTS

         In the event of any liquidation, dissolution or winding up of the
corporation, whether voluntary or not, each holder of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, and Series E Preferred Stock shall be entitled to receive, before any
amount shall be paid to holders of Common Stock, an amount per share equal to
$0.39, $0.78, $1.00, $1.75, and $2.60, respectively (each, as adjusted for
stock splits, combinations or similar events and hereafter referred to as the
"Original Issue Price" of such series) plus all declared and unpaid
dividends, if any. If upon the occurrence of a liquidation, dissolution or
winding up, the assets and surplus funds distributed among the holders of
Preferred Stock shall be insufficient to permit the payment to such holders
of the full preferential amount, then the entire assets and surplus funds of
the corporation legally available for distribution shall be distributed
ratably among the holders of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock, in proportion to the aggregate amount payable to each of
such holders pursuant to the immediately preceding sentence. If upon the
occurrence of a liquidation, dissolution or winding up, after the payment to
the holders of Preferred Stock of the preferential amount, assets or surplus
funds remain in the corporation, the holders of Preferred Stock and Common
Stock shall be entitled to receive all such remaining assets and surplus
funds pro rata on an as-if-converted basis.

         No later than 20 days before any event that, pursuant to Section 5(a),
permits a holder of Preferred Stock to have each share of Preferred Stock held
by such holder treated for all purposes as if it had been converted into Common
Stock (for purposes of this Section 2, a "Merger or Sale of Corporation"), the
corporation shall deliver a notice to each holder of Preferred Stock setting
forth the principal terms of such Merger or Sale of Corporation. Such notice
shall be deemed delivered upon personal delivery or five days after deposit in
the United States mail, by registered or certified mail, addressed to a party at
its address as shown on the stock records of


                                       20.
<PAGE>

the corporation. Such notice shall include a description of the amounts that
would be paid to holders of Preferred Stock under this Section 2 and of the
consideration that such holders would receive if they exercised their rights
under Section 5(a) to have shares of Preferred Stock treated as if they had been
converted into Common Stock. No later than ten days after delivery of the
notice, each holder of Preferred Stock may deliver an election to the
corporation notifying the corporation that the holder desires that such holder's
shares of Preferred Stock be treated, pursuant to Section 5, as if they had been
converted into shares of Common Stock and, if no such notice is delivered, such
holder shall receive such amounts as are provided for under this Section 2 as
any Merger or Sale of Corporation shall be deemed a liquidation, dissolution or
winding up of the corporation for the purposes of this Section 2.

3.       VOTING RIGHTS.

         (a) VOTE OTHER THAN FOR DIRECTORS. Except as otherwise required by law,
the holders of Preferred Stock and the holders of Common Stock shall be entitled
to notice of any stockholders' meeting and to vote upon any matter submitted to
the stockholders for a vote, other than the election of directors, as follows:
(i) the holders of Preferred Stock shall have one vote for each full share of
Common Stock into which their respective shares of Preferred Stock are
convertible on the record date for the vote and (ii) the holders of Common Stock
shall have one vote per share of Common Stock.

         (b) VOTING FOR DIRECTORS.

                  (i) The holders of shares of Preferred Stock voting as a class
shall be entitled to elect two (2) directors. The holders of shares of Common
Stock voting as a class shall be entitled to elect two (2) directors. The
holders of shares of Series D Preferred Stock voting as a class shall be
entitled to elect one (1) director. The remaining director or directors shall be
elected by the affirmative vote of the holders of the Preferred Stock and of the
holders the Common Stock, voting together as a class with the holders of
Preferred Stock having one vote for each full share of Common Stock into which
their respective shares of Preferred Stock are convertible on the record date
for the vote. If no shares of Preferred Stock remain outstanding, then the
directors otherwise elected by the Preferred Stock as provided above in this
Section 3(b), shall be elected by the holders of Common Stock. In the case of
any vacancy in the office of a director elected by a specified group of
stockholders, a successor shall be elected to hold office for the unexpired term
of such director by the affirmative vote of a majority of the shares of such
specified group given at a special meeting of such stockholders duly called or
by an action by written consent for that purpose. Any director who shall have
been elected by a specified group of stockholders may be removed during the
aforesaid term of office, either for or without cause by, and only by, the
affirmative vote of the holders of a majority of the shares of such specified
group, given at a special meeting of such stockholders duly called or by an
action by written consent for that purpose, and any such vacancy thereby created
may be filled by the vote of the holders of a majority of the shares of such
specified group represented at such meeting or in such consent.

                  (ii) No person entitled to vote at an election for directors
may cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation is subject to Section 2115(b) of the California
General Corporation Law (" CGCL"). During such time or


                                       21.
<PAGE>

times that the corporation is subject to Section 2115(b) of the CGCL, every
stockholder entitled to vote at an election for directors may cumulate such
stockholder's votes and give one candidate a number of votes equal to the number
of directors to be elected multiplied by the number of votes to which such
stockholder's shares are otherwise entitled, or distribute the stockholder's
votes on the same principle among as many candidates as such stockholder thinks
fit. No stockholder, however, shall be entitled to so cumulate such
stockholder's votes unless (a) the names of such candidate or candidates have
been placed in nomination prior to the voting and (b) the stockholder has given
notice at the meeting, prior to the voting, of such stockholder's intention to
cumulate such stockholder's votes. If any stockholder has given proper notice to
cumulate votes, all stockholders may cumulate their votes for any candidates who
have been properly placed in nomination. Under cumulative voting, the candidates
receiving the highest number of votes, up to the number of directors to be
elected, are elected.

4.       CERTAIN TAXES.

         The corporation shall pay any and all issuance and other taxes
(excluding any federal or state income taxes) that may be payable in respect of
any issuance or delivery of shares of Common Stock on conversion of Preferred
Stock. The corporation shall not, however, be required to pay any tax that may
be payable in respect of any transfer involved in the issuance and delivery of
shares of Common Stock in a name other than that in which the shares of
Preferred Stock to which such issuance relates were registered, and no such
issuance or delivery shall be made unless and until the person requesting such
issuance has paid to the corporation the amount of any such tax, or it is
established to the satisfaction of the corporation that such tax has been paid.

5.       CONVERSION TO COMMON STOCK.

         The Preferred Stock shall be convertible into Common Stock of the
corporation as follows:

         (a) DEFINITIONS. For purposes of this Section 5 the following
definitions shall apply:

                  (i) "COMMON STOCK EQUIVALENTS" shall mean Convertible
Securities and rights entitling the holder thereof to receive directly, or
indirectly, additional shares of Common Stock without the payment of any
consideration by such holder for such additional shares of Common Stock or
Common Stock Equivalents.

                  (ii) "COMMON STOCK OUTSTANDING" shall mean the aggregate of
all Common Stock outstanding and all Common Stock issuable upon exercise of all
outstanding Options and conversion of all outstanding Convertible Securities.

                  (iii) "CONVERSION PRICE" with respect to a series of Preferred
Stock, shall mean the price, determined pursuant to this Section 5, at which
shares of Common Stock shall be deliverable upon conversion of such series of
Preferred Stock.

                  (iv) "CONVERTIBLE SECURITIES" shall mean any indebtedness or
shares of stock or other securities convertible into or exchangeable for Common
Stock, including without limitation Preferred Stock.


                                       22.
<PAGE>

                  (v) "CURRENT CONVERSION PRICE" with respect to a series of
Preferred Stock, shall mean the Conversion Price immediately before the
occurrence of any event, which, pursuant to Section 5(c), causes an adjustment
to the Conversion Price of such series of Preferred Stock.

                  (vi) "ISSUANCE DATE" shall mean the first date on which this
Amended and Restated Certificate of incorporation is filed with the Secretary of
State of the State of Delaware.

                  (vii) "OPTIONS" shall mean any rights, warrants or options to
subscribe for or purchase or otherwise acquire Common Stock or Convertible
Securities.

         (b) RIGHT TO CONVERT; INITIAL CONVERSION PRICE. Each holder of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock may, at any time, convert
any or all shares of such Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock,
as the case may be, into fully-paid and non-assessable shares of Common Stock at
the Conversion Price for such series of Preferred Stock. Each share of Series A
Preferred Stock shall be convertible into the number of shares of Common Stock
that results from dividing the Conversion Price in effect at the time of
conversion for Series A Preferred Stock into $0.39 for each share of Series A
Preferred Stock being converted; the Conversion Price of the Series A Preferred
Stock shall initially be $0.39 per share of Common Stock. Each share of Series B
Preferred Stock shall be convertible into the number of shares of Common Stock
that results from dividing the Conversion Price in effect at the time of
conversion for Series B Preferred Stock into $0.78 for each share of Series B
Preferred Stock being converted; the Conversion Price of the Series B Preferred
Stock shall initially be $0.78 per share of Common Stock. Each share of Series C
Preferred Stock shall be convertible into the number of shares of Common Stock
that results from dividing the Conversion Price in effect at the time of
conversion for Series C Preferred Stock into $1.00 for each share of Series C
Preferred Stock being converted; the Conversion Price of the Series C Preferred
Stock shall initially be $1.00 per share of Common Stock. Each share of Series D
Preferred Stock shall be convertible into the number of shares of Common Stock
that results from dividing the Conversion Price in effect at the time of
conversion for Series D Preferred Stock into $1.75 for each share of Series D
Preferred Stock being converted; the Conversion Price of the Series D Preferred
Stock shall initially be $1.75 per share of Common Stock. Each share of Series E
Preferred Stock shall be convertible into the number of shares of Common Stock
that results from dividing the Conversion Price in effect at the time of
conversion for Series E Preferred Stock into $2.60 for each share of Series E
Preferred Stock being converted; the Conversion Price of the Series E Preferred
Stock shall initially be $2.60 per share of Common Stock. The initial Conversion
Price of each series of Preferred Stock shall be subject to adjustment from time
to time in certain instances as hereinafter provided. No adjustments with
respect to conversion shall be made on account of any dividends that may be
accrued but unpaid on the Preferred Stock surrendered for conversion, but no
dividends shall thereafter be paid on the Common Stock unless such unpaid
dividends have first been paid to the holders entitled to payment at the time of
conversion of the Preferred Stock.

         Before any holder of Preferred Stock shall be entitled to convert the
same into Common Stock, such holder shall surrender the certificate or
certificates therefor, duly endorsed, to the


                                       23.
<PAGE>

office of the corporation or any transfer agent for such Preferred Stock and
shall give written notice to the corporation at such office that such holder
elects to convert the same. The corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred Stock,
or to such holder's nominee or nominees, certificates for the number of full
shares of Common Stock to which such nominee shall be entitled, together with
cash in lieu of any fraction of a share as hereinafter provided, and, if less
than all of the shares of Preferred Stock represented by such certificate are
converted, a certificate representing the shares of Preferred Stock not
converted. Such conversion shall be deemed to have been made as of the date of
such surrender of the certificate for the Preferred Stock to be converted, and
the person or persons entitled to receive the Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such Common Stock on such date. If the conversion is in connection with an offer
of securities registered pursuant to the Securities Act of 1933, as amended, the
conversion may, at the option of any holder tendering Preferred Stock for
conversion, be conditioned upon the closing of the sale of securities pursuant
to such offering, in which event the person(s) entitled to receive the Common
Stock issuable upon such conversion of the Preferred Stock shall not be deemed
to have converted such Preferred Stock until immediately prior to the closing of
such sale of securities.

         (c) ADJUSTMENTS TO CONVERSION PRICE. Subject to Section 5(c)(5), the
Conversion Price in effect from time to time for the Preferred Stock shall be
subject to adjustment in certain cases as follows below. Notwithstanding
anything else herein, Sections 5(c)(i), 5(c)(ii) and 5(c)(iii) below shall not
apply to holders of Series E Preferred Stock.

                  (i) ISSUANCE OF SECURITIES. In the event the corporation shall
at any time after the Issuance Date issue or sell any Common Stock (or shall be
deemed to have issued Common Stock pursuant to Section 5(c)(i)(c) below) for a
consideration per share less than the Current Conversion Price with respect to a
series of Preferred Stock, then, and thereafter successively upon each such
issuance or sale, the Current Conversion Price of such series of Preferred Stock
shall simultaneously with such issuance or sale be adjusted (downward only) to a
Conversion Price (calculated to the nearest cent) determined by dividing

                           (1) an amount equal to (x) the total number of shares
of Common Stock Outstanding when the Current Conversion Price for such series of
Preferred Stock became effective multiplied by the Current Conversion Price for
such series of Preferred Stock, plus (y) the aggregate of the amount of all
consideration, if any, received by the corporation for the issuance or sale of
Common Stock since the Current Conversion Price for such series of Preferred
Stock became effective, including the aggregate consideration received by the
corporation for the Common Stock giving rise to such adjustment, by

                           (2) the total number of shares of Common Stock
Outstanding immediately after such issuance or sale.

         Notwithstanding the previous sentence, in the event that the
corporation shall at any time within one year after the Issuance Date issue or
sell any additional shares of Common Stock (or be deemed to have issued Common
Stock) for consideration per share less than the Current Conversion Price of the
Series D Referred Stock, then, and thereafter successively upon each such
issuance or sale within such one year period, the Current Conversion Price of
the Series D


                                       24.
<PAGE>

Preferred Stock shall simultaneously with such issuance or sale be reduced, in
order to increase the number of shares of Common Stock into which the Series D
Preferred Stock is convertible, to a Conversion Price equal to the consideration
per share at which such additional shares of Common Stock are issued or deemed
issued; provided, however, that if and to the extent any adjustment made in
accordance with the formula contained in this sentence would reduce the
Conversion Price of the Series D Preferred Stock to less than $1.00 per share of
Common Stock, then, to the extent the Conversion Price of the Series D Preferred
Stock is reduced below $1.00, the Conversion Price of the Series D Preferred
Stock shall be adjusted in accordance with the formula contained in the
immediately preceding sentence except that the addend contained in subsection
5(c)(i)(1) shall be the total number of shares of Common Stock Outstanding when
the Current Conversion Price for the Series D Preferred Stock became effective
multiplied by the lesser of $1.00 or the Current Conversion Price for the Series
D Preferred Stock.

         For the purposes of this Section 5(c), the following provisions shall
also be applicable:

                  (a) CASH CONSIDERATION. In the event of the issuance or sale
of additional Common Stock. Options or Convertible Securities for cash, the
consideration received by the corporation therefor shall be deemed to be the
amount of cash received by the corporation for such shares (or, if such
securities are offered by the corporation for subscription, the subscription
price, or, if such securities are sold to underwriters or dealers for public
offering without a subscription offering, the initial public offering price),
without deducting therefrom any compensation or discount paid or allowed to
underwriters or dealers or others performing similar services or for any
expenses incurred in connection therewith.

                  (b) NON-CASH CONSIDERATION. In the event of the issuance
(otherwise than upon conversion or exchange of Convertible Securities) or sale
of additional Common Stock, Options or Convertible Securities for a
consideration other than cash or a consideration a part of which shall be other
than cash, the fair value of such consideration as determined by the Board of
Directors of the corporation in the good faith exercise of its business
judgment, irrespective of the accounting treatment thereof, shall be deemed to
be the value, for purposes of this Section 5, of the consideration other than
cash received by the corporation for such securities.

                  (c) OPTIONS AND CONVERTIBLE SECURITIES. In the event the
corporation shall in any manner issue or grant any Options or any Convertible
Securities, the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the total maximum
amount of such Convertible Securities at the time such Convertible Securities
first become convertible or exchangeable shall (as of the date of issue or grant
of such Options or, in the case of the issue or sale of Convertible Securities
other than where the same are issuable upon the exercise of Options, as of the
date of such issue or sale) be deemed to be issued and to be outstanding for the
purpose of this Section 5(c)(i) and to have been issued for the sum of the
amount (if any) paid for such Options or Convertible Securities and the amount
(if any) payable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities at the time such Convertible Securities
first become convertible or exchangeable: provided that, subject to the
provisions of Section 5(c)(ii), no further adjustment of the Conversion Price of
a series of Preferred Stock shall be made upon the actual issuance of any such
Common Stock or Convertible Securities or upon the conversion or exchange of any
such Convertible Securities.


                                       25.
<PAGE>

                  (ii) CHANGE IN OPTION PRICE OR CONVERSION RATE. In the event
that the purchase price provided for in any Option referred to in subsection
5(c)(i)(c), or the rate at which any Convertible Securities referred to in
subsection 5(c)(i)(c) are convertible into or exchangeable for shares of Common
Stock shall change at any time (other than under or by reason of provisions
designed to protect against dilution), the Current Conversion Price of each
series of Preferred Stock in effect at the time of such event shall forthwith be
readjusted to the Conversion Price that would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or conversion rate, as the case
may be, at the time initially granted, issued or sold. In the event that the
purchase price provided for in any such Option referred to in subsection
5(c)(i)(c), or the additional consideration (if any) payable upon the conversion
or exchange of any Convertible Securities referred to in subsection 5(c)(i)(c),
or the rate at which any Convertible Securities referred to in subsection
5(c)(i)(c) are convertible into or exchangeable for shares of Common Stock,
shall be reduced at any time under or by reason of provisions with respect
thereto designed to protect against dilution, then in case of the delivery of
shares of Common Stock upon the exercise of any such Option or upon conversion
or exchange of any such Convertible Security, the Current Conversion Price of a
series of Preferred Stock then in effect hereunder shall, upon issuance of such
shares of Common Stock, be adjusted to such amount as would have obtained had
such Option or Convertible Security never been issued and had adjustments been
made only upon the issuance of the shares of Common Stock delivered as aforesaid
and for the consideration actually received for such Option or Convertible
Security and the Common Stock.

                  (iii) TERMINATION OF OPTION OR CONVERSION RIGHT. In the event
of the termination or expiration of any right to purchase Common Stock under any
Option or of any right to convert or exchange Convertible Securities, the
Current Conversion Price of a series of Preferred Stock shall, upon such
termination, be changed to the Conversion Price of such series of Preferred
Stock that would have been in effect at the time of such expiration or
termination had such Option or Convertible Security, to the extent outstanding
immediately prior to such expiration or termination, never been issued, and the
shares of Common Stock issuable thereunder shall no longer be deemed to be
Common Stock Outstanding.

                  (iv) STOCK SPLITS. Dividends, Distributions and Combinations.
In the event the corporation should at any time or from time to time after the
Issuance Date fix a record date for the effectuation of a split or subdivision
of the outstanding shares of Common Stock or the determination of holders of
Common Stock entitled to receive ally other distribution payable in additional
shares of Common Stock or Common Stock Equivalents, then, as of such record date
(or the date of such distribution, split or subdivision if no record date is
fixed), the Conversion Price of each series of Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of each series of Preferred Stock shall be increased in
proportion to such increase in the number of outstanding shares of Common Stock
(including for this purpose, Common Stock Equivalents). If the number of shares
of Common Stock outstanding at any time after the Issuance Date is decreased by
a combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price of each series of
Preferred Stock shall be appropriately increased so that the number of shares of
Common Stock issuable on conversion of each share of Preferred Stock shall be
decreased in proportion to such decrease in the number of outstanding shares of
Common Stock.


                                       26.
<PAGE>

                  (v) OTHER EVENTS ALTERING CONVERSION PRICE. Upon the
occurrence of any event not specifically denominated in this Section 4 as
reducing the Conversion Price of a series of Preferred Stock that, in the
reasonable exercise of the business judgment of the Board of Directors of the
corporation requires, on equitable principles, the reduction of the Conversion
Price of such series of Preferred Stock, such Conversion Price will be equitably
reduced.

                  (vi) MISCELLANEOUS CONVERSION PRICE MATTERS. The corporation
shall at all times reserve and keep available out of its authorized but unissued
Common Stock the full number of shares of Common Stock deliverable upon
conversion of all the then outstanding Preferred Stock and shall, at its own
expense, take all such actions and obtain all such permits and orders as may be
necessary to enable the corporation lawfully to issue such Common Stock upon the
conversion of such Preferred Stock.

                  (vii) EXCLUDED EVENTS. Notwithstanding anything in this
Section 5 to the contrary, the Conversion Price of a series of Preferred Stock
shall not be adjusted by virtue of (i) the conversion of shares of Preferred
Stock into shares of Common Stock, (ii) the repurchase of shares from the
corporation's employees, consultants, officers or directors at such person's
cost (or at such other price as may be agreed to by the corporation's Board of
Directors), or (iii) the issuance and sale of, or the grant of Options to
purchase, up to an aggregate of 7,837,500 shares, net of repurchases and the
lapse of options, of Common Stock (including the 5,141,471 shares and grants for
shares outstanding on the date hereof), to employees, advisors, directors,
officers or consultants of the corporation or its subsidiaries (including shares
issued or sold pursuant to the exercise of any stock option or purchase pursuant
to a grant under the corporation's stock option plan or stock purchase plan) at
any time after the initial issuance of Series D Preferred Stock at a price which
is less than the Conversion Price of such series of Preferred Stock at the time
of such issuance or sale (all as determined in accordance with this Section 5)
as may be approved by the Board of Directors, and none of such shares referenced
in clause (iii) shall be included in any manner in the computation from time to
time of such Conversion Price under Subsection 5(c)(i) or in Common Stock
Outstanding for purposes of such computation.

                  (viii) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of the Conversion Price of a series of Preferred
Stock pursuant to this Section 5, the corporation, at its expense upon request
by any holder of such series of Preferred Stock, shall compute such adjustment
or readjustment in accordance with the terms hereof and prepare and furnish to
each holder of such series of Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The corporation shall, upon the written
request at any time of any holder of a series of Preferred Stock, furnish or
cause to be furnished to such holder a like certificate setting forth (A) such
adjustment and readjustment, (B) the Current Conversion Price of such series of
Preferred Stock at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of a share of such series of Preferred Stock.

         (d) OTHER DIVIDENDS. In the event this corporation shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by this corporation or other persons, assets (excluding cash dividends)
or options or rights not referred to in subsection 5(c)(i)(c), then, in each
such case for the purpose of this Section 5(d), the holders of such series


                                       27.
<PAGE>

of Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the corporation into which their shares of such series of Preferred
Stock axe convertible as of the record date fixed for the determination of the
holders of Common Stock of the corporation entitled to receive such
distribution.

         (e) RECAPITALIZATIONS. If at any time or from time to time there shall
be a recapitalization of the Common Stock (other than a subdivision, combination
or merger or a sale of assets transaction provided for elsewhere in the Section
5), provision shall be made so that the holders of Preferred Stock shall
thereafter be entitled to receive upon conversion of shares of Preferred Stock
the number of shares of stock or other securities or property of the corporation
or otherwise, to which a holder of Common Stock deliverable upon conversion
would have been entitled on such recapitalization. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 5
with respect to the rights of the holders of Preferred Stock after the
recapitalization to the end that the provisions of this Section 5 (including
adjustment of the Conversion Price then in effect and the number of shares
purchasable upon conversion of shares of Preferred Stock) shall be applicable
after that event as nearly equivalent as may be practicable.

         (f) SUCCESSIVE CHANGES. The above provisions of this Section 5 shall
similarly apply to successive issuances, sales or other distributions,
subdivisions and combinations on or of the Common Stock after the Issuance Date.

         (g) NO IMPAIRMENT. The corporation will not, by amendment of this
Certificate of Incorporation or through any reorganization, recapitalization,
transfer or assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action. avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 5 and in the taking of all such action as may
be necessary or appropriate in order to protect the conversion rights of the
holders of Preferred Stock against impairment.

         (h) NO FRACTIONAL SHARES. No fractional shares shall be issued upon
conversion of shares of Preferred Stock and the number of shares of Common Stock
to be issued shall be rounded to the next smaller whole share. Whether or not
fractional shares are issuable upon such conversion shall be determined on the
basis of the total number of shares of Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock issuable
upon such aggregate conversion. The value of any fractional share issuable upon
conversion shall be paid in cash by the corporation.

         (i) AUTOMATIC CONVERSION. Immediately upon (a) the effectiveness of the
corporation's registration statement on Form S-1 pursuant to which Common Stock
is sold to the public by the corporation (or selling stockholders, if any) in a
public offering registered under the Securities Act of 1933, as amended, at a
per share public offering price of not less than $3.50 (equitably adjusted for
any stock split, combination or similar event) and an aggregate public offering
price not less than $15,000,000, or (b) the conversion of at least fifty percent
(50%) of the then outstanding shares of Preferred Stock, each share of Preferred
Stock shall automatically


                                      28.
<PAGE>

be converted into shares of Common Stock at the Conversion Price for such
Preferred Stock then in effect. On and after said conversion date,
notwithstanding that any certificates for the shares of Preferred Stock shall
not have been surrendered for conversion, the shares of Preferred Stock
evidenced thereby shall be deemed to be no longer outstanding, and all rights
with respect thereto shall forthwith cease and terminate, except only the rights
of the holder (i) to receive the shares of Common Stock to which such holder
shall be entitled upon conversion thereof, (ii) to receive the amount of cash
payable in respect of any fractional share of Common Stock to which such holder
shall be entitled, and (iii) with respect to dividends declared but unpaid on
Preferred Stock prior to such conversion date, In the event that any holder of
Preferred Stock presents such holder's certificate therefor for surrender to the
Company or its transfer agent upon such conversion, a certificate for the number
of shares of Common Stock into which the shares of Preferred Stock surrendered
were convertible on such conversion date promptly will be issued and delivered
to such holder.

         (j) MERGER: SALE OF CORPORATION. In the event, after the Issuance Date
of any proposed consolidation of the corporation with, or merger of the
corporation with or into another corporation (other than a consolidation or
merger in which the corporation is the continuing corporation and which does not
result in any reclassification of, or change in, the outstanding shares of
Common Stock), or in the event of any proposed sale or transfer to another
corporation of all or substantially all of the assets of the corporation, or in
the event of a sale or transfer of a majority of the voting power of the
corporation, any holder of Preferred Stock may, by delivery of election pursuant
to Section 2 above, elect to have each share of Preferred Stock held by such
holder treated for all purposes as if it had been converted into Common Stock on
the earlier of (i) the record date, if any, for voting by holders of Common
Stock on such event and (ii) the date of such event.

6.       REDEMPTION.  The Preferred Stock is not redeemable.

7.       COVENANTS. In addition to any other rights provided by law, the
corporation shall not take any of the following actions.

         (a) HOLDERS OF PREFERRED STOCK. So long as any shares of Preferred
Stock shall be outstanding, the corporation shall not without first obtaining
the affirmative vote or written consent of the holders of not less than fifty
percent (50%) of the outstanding shares of Preferred Stock voting together as a
class:

                  (i) amend or repeal any provision of, or add any provision to,
this Certificate of Incorporation or the corporation's By-laws if such action
would alter or change the preferences, rights, privileges or powers of or the
restrictions provided for the benefit of, the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock, or increase or decrease the number of shares of Preferred Stock
authorized hereby, provided that any such amendment or repeal of, or addition
to, this Certificate of Incorporation or the corporation's By-laws which affects
the preferences, rights, privileges or powers of one series of Preferred Stock
shall affect each other series of Preferred Stock in a like manner and on a
proportionate basis;


                                      29.
<PAGE>

                  (ii) authorize or issue shares of any class or series of stock
not authorized herein having any preference or priority as to dividends or
assets superior to or on a parity with any such preference or priority of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock; or authorize or issue
shares of stock of any class or series of any bonds, debentures, notes or other
obligations convertible into or exchangeable for, or having option rights to
purchase, any shares of stock of this corporation having any preference or
priority as to dividends or assets superior to or on a parity with any such
preference or priority of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, or Series E Preferred
Stock;

                  (iii) reclassify any class or series of any Common Stock into
shares having any preference or priority as to dividends or assets superior to
or on a parity with any such preference or priority of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock;

                  (iv) apply any of its assets to the redemption, retirement,
purchase or acquisition, directly or indirectly, through subsidiaries (as
defined in Section 425 of the Internal Revenue Code of 1986, as amended (the
"Code") or otherwise, of any shares of any class or series of Common Stock,
except from employees, advisors, officers, directors and consultants of, and
persons performing services for this corporation or its subsidiaries on terms
approved by the Board of Directors upon termination of employment or
association;

                  (v) do any act or thing which would result in taxation of the
holders of shares of the Preferred Stock under Section 305 of the Code (or any
comparable provision of the Code as hereafter from time to time amended);

                  (vi) If (i) sell, convey or otherwise dispose of all or
substantially all of its property or business, or (ii) merge into or consolidate
with any other corporation (other than a wholly owned subsidiary corporation) or
effect any other transaction or series of related transactions disposing of more
than 50% of the voting power of the corporation;

                  (vii) authorize, declare or pay any dividend on the Common
Stock before March 31, 1999; or

                  (viii) increase or decrease the authorized number of shares of
Preferred Stock.

         (b) HOLDERS OF SERIES D PREFERRED STOCK. So long as any shares of
Series D Preferred Stock shall be outstanding, the corporation shall not without
first obtaining the affirmative vote or written consent of the holders of not
less than a majority of the outstanding shares of Series D Preferred Stock
voting together as a class, apply any of its assets to the purchase of any
shares of any class or series of the corporation's stock having any preference
or priority junior to or on a parity with the Series D Preferred Stock, except
from employees, advisors, officers, directors and consultants of, and persons
performing services for, this corporation or its subsidiaries on terms approved
by the Board of Directors upon termination of employment or association.

         (c)      DIRECTORS.


                                      30.
<PAGE>

         Without first obtaining the approval of at least a majority of the
Board of Directors, the corporation shall not enter into any contracts with, or
make any investments in, persons not resident within North America.

                  (ix) Without first obtaining the approval of a majority of the
directors elected by the holders of Preferred Stock, the corporation shall not:

                           (1) increase the number of shares reserved for
issuance to employees, consultants and directors of the corporation pursuant to
incentive plans or agreements;

                           (2) incur indebtedness in principal amount in excess
of $1,000,000; or

                           (3) commit or make any capital expenditures in excess
of $200,000 in the aggregate.

         C.       COMMON STOCK.

8. DIVIDEND RIGHTS. Subject to the prior rights of holders of all classes of
stock at the time outstanding having prior rights as to dividends, the holders
of the Common Stock shall be entitled to receive, when and as declared by the
Board of Directors, out of any assets of the corporation legally available
therefor, such dividends as may be declared from time to time by the Board of
Directors.

9. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding up of the
corporation, the assets, of the corporation shall be distributed as provided in
Section 2 of Division B of this Article IV.

10. REDEMPTION. The Common Stock is not redeemable.

11. VOTING RIGHTS. The holder of each share of Common Stock shall have the right
to one vote. and shall be entitled to notice of any stockholders' meeting in
accordance with the By-laws of this corporation, and shall be entitled to vote
upon such matters and in such manner as may be provided by law.

12. NO PREEMPTIVE RIGHTS. The holders of the Common Stock shall not by virtue of
this Certificate of Incorporation have any preemptive rights.

                                    ARTICLE 5

         The corporation is to have perpetual existence.

                                    ARTICLE 6

         In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware:


                                      31.
<PAGE>

                  A. The board of directors of the corporation is expressly
authorized to adapt, amend or repeal the By-laws of the corporation; provided,
however, that the By-laws may only be amended in accordance with the provisions
thereof.

                  B. Elections of directors need not be by written ballot unless
the By-laws of the corporation shall so provide.

                  C. The books of the corporation may be kept at such place
within or without the State of Delaware as the By-laws of the corporation may
provide or as may be designated from time to time by the board of directors of
the corporation.

                                    ARTICLE 7

         Whenever a compromise or arrangement is proposed between the
corporation and its creditors or any class of them and/or between the
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the corporation or of any creditor or stockholder thereof or on the
application of any receivers appointed for the corporation under the provisions
of section 291 of Title 8 of the Delaware Code or on the application of trustees
in dissolution or of any receiver or receivers appointed for the corporation
under the provisions of ruction 279 of Title 8 of the Delaware Code order a
meeting of the creditors or class of creditors, and/or the stockholders or class
of stockholders of the corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority, in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall if sanctioned by the
court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the corporation, as the case may be, and also on the
corporation.

                  A. NO PERSONAL LIABILITY. A director of the corporation shall
not be personally liable to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (1) for
any breach of the director's duty of loyalty to the corporation and its
stockholders; (2) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law; (3) under section 174 of
the Delaware General Corporation law, or (4) for any transaction from which the
director derived an improper personal benefit.

                  B. INDEMNIFICATION. Each person who is or is made a party or
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held


                                      32.
<PAGE>

harmless by the corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the corporation to provide broader indemnification rights than said law
permitted the corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in the
second paragraph hereof, the corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof), was authorized by the
Board of Directors of the corporation. The right to indemnification conferred in
this section shall be a contract right and shall include the right to be paid by
the corporation for any expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the Delaware
General Corporation Law requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this section or otherwise. The corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.

         If a claim under the first paragraph of this section is not paid in
full by the corporation within thirty (30) days after a written claim has been
received by the corporation, the claimant may at any time thereafter bring suit
against the corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense in any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the corporation) that the
claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law for the corporation to indemnity the
claimant for the amount claimed, but the burden of proving such defense shall be
on the corporation. Neither the failure of the corporation (including its Board
of Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.

         The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
section shall not be exclusive of


                                      33.
<PAGE>

any other right which any person may have or hereafter acquire under any
statute, provision of this Certificate of Incorporation, by-law, agreement, vote
of stockholders or disinterested directors or otherwise.

                  C. INSURANCE. The corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.

                  D. REPEAL AND MODIFICATION. Any repeal or modification of the
foregoing provisions of this Article VIII shall not adversely affect any right
or protection of an director, officer, employee or agent of the corporation
existing at the time of such repeal or modification.

                  E. VOTE REQUIRED TO AMEND OR REPEAL. The amendment or repeal
of this Article VII shall require the approval of the holders of shares
representing at least sixty six and two-thirds percent (66-2/3%) of the shares
of the corporation entitled to vote in the election of directors, voting as one
class.

                                    ARTICLE 8

         Subject to the express provisions hereof, this corporation reserves the
right to amend or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon a stockholder herein are granted subject to this
reservation.

                                      *****

         FOURTH: This Amended and Restated Certificate of Incorporation was duly
adopted by the Board of Directors of the corporation.

         FIFTH: This Amended and Restated Certificate of Incorporation was duly
adopted by the written consent of a majority of the stockholders of the
corporation in accordance with Sections 242 and 245 of the General Corporation
Law of the State of Delaware and written notice of such action has been given as
provided in Section 228.

         IN WITNESS WHEREOF, AeroGen, Inc. has caused this certificate to be
signed by the undersigned officer, thereunto duly authorized, this 1 day of
March, 2000.



                                                By:  /s/  Jane Shaw
                                                   -----------------------------
                                                    Jane Shaw
                                                    Chairman and CEO


                                      34.
<PAGE>


                                    EXHIBIT B
                              SHEDULE OF EXCEPTIONS
                                  AEROGEN, INC.
                            STOCK PURCHASE AGREEMENT

         In connection with that certain Stock Purchase Agreement dated as of
February __, 2000 by and among AEROGEN, INC. (the "Company") and PATHOGENESIS
CORPORATION (the "Agreement"), the Company hereby delivers this Disclosure
Schedule to the Company's representations and warranties given in the Agreement.
The section numbers in this Schedule correspond to the section numbers in the
Agreement; PROVIDED, HOWEVER, that any information disclosed herein under any
section number shall be deemed to be disclosed and incorporated in any other
section of the Agreement where such disclosure would be appropriate. Disclosure
of any information or document herein is not a statement or admission that it is
material or required to be disclosed herein. References to any document do not
purport to be complete and are qualified in their entirety by the document
itself. Capitalized terms used but not defined herein shall have the same
meanings given them in the Agreement.

3.1      Organization, Good Standing and Qualification.
         The Company represents that it sent in its Delaware Annual Corporate
         Report which is due March 1, 2000. However, as of March 1, 2000,
         Delaware does not recognize receipt of the report. As a result, as of
         March 1, 2000, the Company is not in good standing.

3.2      Capitalization
         c)       The Company has offered or intends to offer employment or
                  consulting opportunities to various individuals. These
                  compensation packages will include options, which will require
                  an action by the Board of Directors and Shareholders to
                  increase the number of shares reserved for issuance under the
                  1996 Stock Option Plan by an additional 2,600,000.

         Shares owned directly or indirectly by officers, directors or 5%
         shareholders are as follows (prior to the addition of 2,600,000 shares
         to the employee reserve):

                  Shares owned directly or indirectly by officers, directors or
         5% shareholders are as follows:
<TABLE>
<S>                                                                <C>
                  CMEA (Tom  Baruch - Director )                    10.5%       3,897,437
                  USVP (Phil Young - Director )                     15.6%       5,808,427
                  Advent                                             6.8%       2,546,584
                  Interwest Partners                                 9.6%       3,571,429
                  Ell &Co.                                           6.1%       2,276,326
                  Gerlach & Co. (Manufacturers Life )                7.3%       2,714,286
                  Jane Shaw (Officer and Director)                   4.2%       1,542,858
                  Ehud Ivri (Officer and Director                   10.2%       3,780,000
                  Casper de Clercq (Officer)                          .7%         270,000
</TABLE>
3.7      Litigation
                  On April 30, 1998, a complaint was filed in the Superior Court
         of California, a County of Santa Clara (Werber vs. AeroGen, Inc. and
         Yehuda Ivri, CV 773704). The Company has denied each and every
         allegation made in the complaint. The case has


                                       35.
<PAGE>

         gone to arbitration. Reference is made to the Agreement Regarding
         Litigation dated July 21, 1998 between the Company and Yehuda Ivri.

3.8      Employee Agreement
                  It is part of the hiring process for each employee and officer
         of the Company to execute an agreement with the Company regarding
         confidentiality and proprietary information.

3.9      Patents and Trademarks
                  The Company has licensed its aerosol generator technology
         world-wide to a consumer company in the fields of air fresheners and
         insect repellants.

                  Reference is made to Exhibit C, Section 14 of the
         AeroGen/PathoGenesis Development and Supply agreement, and to Bespak
         licenses.

3.11     Agreements; Action
         a)   The Company has entered into an indemnification agreement with its
              directors.

                  Yehuda Ivri has executed promissory notes in favor of the
         Company in the amounts of $60,009 and $200,000. The latter note is
         secured by a pledge of 500,000 shares of the Company's common stock.
         The Company has agreed to reimburse Mr. Ivri's travel and lodging
         expenses up to $25,000 per annum.

                  Dr. Shaw and Casper de Clercq have executed promissory notes
         in favor of the Company in connection with purchases of the Company's
         common stock. Shares sold to these officers are subject to repurchase
         (four year vesting schedule) if the individual ceases to be employed by
         the Company.

         b)   The Company has entered into and anticipates spending significant
              additional amounts, in excess of $50,000 individually, on capital
              equipment, consultants, design and tooling firms, clinicians,
              medical and other facilities , research organizations etc., all of
              which it considers to be in the ordinary course of its business.

                  The Company is considering a small European acquisition.

                  The Company has entered into and anticipates entering into
         additional licensing and/or development arrangements whereby it
         receives amounts in excess of $50,000, all of which it considers to be
         in the ordinary course of its business.

         c)   In conjunction with the Company's facility lease, the Company is
              obligated to return the lab space to shell condition at the end of
              the lease term at an estimated cost of $100,000. The Company has
              issued a letter of credit to its lessor for $90,000 in conjunction
              with this liability.


                                       36.
<PAGE>

                  The Company has borrowed approximately $1,113,000 (original
         principal) against now expired term loan facilities. Specific assets
         secure the outstanding borrowings.

3.12     Disclosure
                  Certain agreements requested by Pathogenesis were not provided
         because the Company believes the contents of those agreements are
         confidential or proprietary in nature or the Company is under an
         obligation not to disclose. Such agreements primarily relate to details
         of licensing and business development activity at the Company. In
         addition, the Company has not provided agreements that the Company
         believes contain nonessential details of the interference settlement.

3.13     Rights of Registration and First Offer
                  The Company has granted certain registration rights to the
         holders of warrants, given in connection with equipment financing.

3.15     Title to Property and Assets
                  See item 3.11(c)

3.16     Financial Statements
                  The Company provided unaudited financial statements for the 11
         month period ended November 30, 1999.
                  In addition, the Company provided preliminary unaudited income
         statement for the month and twelve months ended December 31, 1999.

3.17     Employee Benefit Plans
                  Reference is made to the Company's medical, dental, life
         insurance, long and short term disability, Section 125 (flexible
         spending and premium), and non-contributory 401(k) employee benefit
         plans, as well as the Company's stock option plan, PTO policy and
         standard employment offer letter. Reference is made to a summary of the
         Company's employee benefits and policies as provided in a summary
         handout for applicants and in the AeroGen Employee Handbook.

3.19     Insurance
                  The Company currently holds $5 million of product liability
         insurance ($1 million basic and $4 million excess) in addition to its
         $6 million ($2 million aggregate and $4 million umbrella) of general
         liability coverage which specifically excludes product liability.
         Reference is made to the individual policies for specifics of coverage.

3.21     Absence of Changes
         b)       All employees, including officers, received raises effective
         the first pay period in 2000.
         f)       See 3.11


                                       37.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.7
<SEQUENCE>11
<FILENAME>ex-4_7.txt
<DESCRIPTION>EXHIBIT 4.7
<TEXT>

<PAGE>

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

                                                                     EXHIBIT 4.7






                                  AEROGEN, INC.

                                       AND

                          BECTON, DICKINSON AND COMPANY

                            STOCK PURCHASE AGREEMENT


                                  MAY 10, 2000


<PAGE>

                            STOCK PURCHASE AGREEMENT

         THIS AGREEMENT is made effective as of the 10th day of May, 2000, by
and between AEROGEN, INC., a Delaware corporation with its principal place of
business at 1310 Orleans Drive, Sunnyvale, California 94089 (the "Company"), and
BECTON, DICKINSON AND COMPANY a New Jersey corporation with its principal office
at 1 Becton Drive, Franklin Lakes, New Jersey 07417-1866 ("BD"). AeroGen and BD
are sometimes referred to herein individually as a "Party" and collectively as
the "Parties."

                                    RECITALS

         WHEREAS, the Company and BD have entered into that certain Insulin
Inhaler Development Agreement of even date herewith (the "Development
Agreement", and together with this Agreement, the "Transactional Agreements");
and

         WHEREAS, in connection with the Development Agreement, the Company
desires to sell to BD and BD desires to purchase from the Company an aggregate
of 961,539 shares of Series E Convertible Preferred Stock of the Company
("Series E Stock"), having the rights and preferences as set forth in the
Company's Amended and Restated Certificate of Incorporation (attached as Exhibit
A) (the "Restated Certificate"), for an aggregate price of two million five
hundred thousand one dollars and forty cents ($2,500,001.40) on the terms and
subject to the conditions set forth in this Agreement, and to give the Company
an option, under certain circumstances, to require BD to purchase another three
million dollars ($3,000,000) of stock on the terms set forth below. For the
purposes of this Agreement "Series E Stock" will include the Series E
Convertible Preferred Stock purchased by BD hereunder and any Common Stock
issued upon conversion thereof, and "Financing Stock" (as hereinafter defined)
shall also include any Common Stock into which such stock may be convertible.

         NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements contained herein, the parties hereto, intending
to be legally bound, do hereby agree as follows:

         1.       PURCHASE OF SERIES E STOCK.

                  1.1      INITIAL PURCHASE OF SERIES E STOCK. Subject to the
terms and conditions of this Agreement at the Closing (as hereinafter defined)
the Company agrees to sell to BD and BD agrees to purchase from the Company, for
a price of two million five hundred thousand one dollars and forty cents
($2,500,001.40), an aggregate of 961,539 shares of Series E Stock, free and
clear of all liens and encumbrances, at the purchase price per share of $2.60.
The Company shall have thirty (30) days following the later of the closing of
the Next Financing (as hereinafter defined) and the achievement of the First
Milestone (as hereinafter defined) to exercise its option under Section 1.2 by
giving written notice thereof to BD on or prior to such thirtieth (30th) day.

                  1.2      ADDITIONAL STOCK PURCHASE UPON THE ACHIEVEMENT OF A
MILESTONE.

                           (a)      Subject to the terms and conditions of this
Agreement and in reliance on the representations and warranties contained
herein, BD agrees to purchase from the

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


                                       2
<PAGE>

Company, at the Company's option, at the later of the achievement of the First
Milestone (as hereinafter defined) by the Company, or upon the closing of the
Company's Next Financing (as hereinafter defined), an aggregate of three million
dollars ($3,000,000) of the same series or class of stock sold in the Next
Financing (the "Financing Stock") at the same price per share and upon the same
terms (i.e., receiving the same representations, warranties, covenants, legal
opinions, etc.) as sold to purchasers in such financing, provided that both the
achievement of the First Milestone and the closing of the Next Financing shall
have occurred on or prior to December 31, 2000. The closing of such sale shall
occur at such time and place as shall be agreed by the Company and BD, but in no
event more than five business days following written notice to BD from the
Company that it is exercising its option. The Financing Stock purchased by BD
shall have the same rights, preferences and privileges as given by the Company
to purchasers of Financing Stock in the Next Financing.

                           (b)      For purposes of this Section 1.2, the "First
Milestone" shall mean [ * ].

                           (c)      For purposes of this Section 1.2, the "Next
Financing" shall mean a transaction or series of related transactions in which
convertible preferred stock or Common Stock of the Company is sold (other than
the sale to BD contemplated hereby) after the date hereof resulting in aggregate
gross proceeds to the Company (excluding the sale to BD contemplated hereby) of
not less than $5,000,000 with not less than $3,000,000 of such proceeds
resulting from the purchase of such stock from an institutional investor or
investors which is (are) neither an equity investor(s) in the Company as of the
date hereof nor "strategic investors" or "corporate partners"(as those terms are
commonly used) with the Company.

                  1.3      HART-SCOTT-RODINO COMPLIANCE. Notwithstanding
anything else in this Section 1, it shall also be a condition to the Initial
Closing, and any Milestone Closing (as hereinafter defined), as applicable, that
the waiting period under the premerger notification requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")
applicable to the aforementioned transactions shall have expired or been
terminated and any approvals required thereunder shall have been obtained. The
parties shall cooperate in promptly filing premerger reports and in taking all
steps necessary to obtain early termination of any applicable HSR Act waiting
periods.

         2.       CLOSING DATE; DELIVERY.

                  2.1      CLOSING; CLOSING DATE. Subject to the terms of
Section 5, the closing of the sale and purchase of shares of Series E Stock (or
Financing Stock, as the case may be) under Sections 1.1 and 1.2 of this
Agreement (the "Initial Closing," or the "Milestone Closing," each of which may
be referred to individually as "Closing") shall be held at 9:00 a.m. (Pacific
Time on the applicable closing date at the offices of Cooley Godward, 5 Palo
Alto Square, 8th Floor, Palo Alto, California, or at such other time and place
as the Company and BD may agree. The date of the Initial Closing ("Initial
Closing Date") shall be the day of the signing of this Agreement. The date of
the Milestone Closing, shall be as set forth in Section 1.2 above.

                  2.2      DELIVERY. At the Initial Closing and at the Milestone
Closing, subject to the terms and conditions hereof, the Company will deliver to
BD a stock certificate, in the name

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


                                       3
<PAGE>

of BD or its designee, representing, respectively, the shares of Series E Stock
(or Financing Stock, as the case may be) deliverable at such Closing, dated as
of the Initial Closing or the Milestone Closing, as applicable, against payment
of the purchase price therefor by wire transfer, unless other means of payment
shall have been agreed upon by BD and the Company.

         3.       REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

         The Company hereby represents and warrants to BD that, except as set
forth on a Schedule of Exceptions attached as Exhibit B (the "Schedule of
Exceptions"), specifically identifying the relevant subsection hereof, which
exceptions shall be deemed to be representations and warranties as if made
hereunder:

                  3.1      ORGANIZATION, GOOD STANDING AND QUALIFICATION. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate power
and authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure so to qualify would have a
material adverse effect on its business or properties.

                  3.2      CAPITALIZATION. The authorized capital of the Company
immediately prior to the Closing will consist of:

                           (a)      PREFERRED STOCK. 31,642,430 shares of
Preferred Stock (the "Preferred Stock"), of which 3,846,156 shares have been
designated Series A Preferred Stock, all of which are issued and outstanding
immediately prior to the Closing; of which 4,487,182 shares have been designated
Series B Preferred Stock, all of which are issued and outstanding immediately
prior to the Closing; of which 9,375,300 shares have been designated Series C
Preferred Stock, 9,245,300 of which are issued and outstanding immediately prior
to the Closing; of which 10,285,714 shares have been designated Series D
Preferred Stock, all of which are issued and outstanding immediately prior to
the Closing; and of which 3,648,078 shares have been designated Series E
Preferred Stock, of which 961,539 shares are issued and outstanding immediately
prior to the Closing. The rights, privileges and preferences of the Preferred
Stock and Common Stock are as stated in the Restated Certificate.

                           (b)      COMMON STOCK. 53,000,000 shares of Common
Stock ("Common Stock"), of which 6,928,821 shares are issued and outstanding
immediately prior to the Closing and 31,642,430 shares are reserved for issuance
upon conversion of Preferred Stock.

                           (c)      Except for the conversion privileges of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock outstanding, the Series E
Stock to be issued under this Agreement (and the conversion privileges thereof),
outstanding options to purchase 3,930,202 shares of Common Stock, warrants to
purchase 32,051 shares of Common Stock and warrants to purchase 65,000 shares of
Series C Preferred Stock, as of the date of this Agreement, (i) no person will
have any right to subscribe for or to purchase (including conversion or
preemptive rights), or any options for the purchase of, or any agreements
providing for the issuance (contingent or otherwise) of, or any calls,
commitments or other claims of any character relating to, any capital stock or
any

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


                                       4
<PAGE>

stock or securities convertible into or exchangeable for any capital stock of
the Company; (ii) except as set forth in this Section 3.2, the Company will not
have any capital stock, equity interests or other securities reserved for
issuance for any purpose; and (iii) the Company will not be subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock or any convertible securities, rights or
options of the type described in the preceding clause (i). No outstanding
option, warrant or other security directly or indirectly exercisable for or
convertible into any class or series of the Company's capital stock requires
anti-dilution adjustment by reason of the transactions contemplated by this
Agreement. To the best knowledge of the Company, there are no agreements among
the Company's stockholders with respect to the voting or transfer of the
Company's capital stock, other than the agreements regarding voting contained in
the Amended and Restated Voting Agreement dated August 25, 1998, (the "Voting
Agreement") and the agreements regarding transfer contained in the Co-Sale
Agreement, dated August 25, 1998, (the "Co-Sale Agreement"). Schedule 3.2(c)
sets forth a complete and correct list of the name of each of the Directors,
Officers and five percent shareholders of the Company and the amount of stock
each owns in the Company. The Company has reserved 5,800,000 shares of Common
Stock under its 1994 and 1996 Stock Option Plans, for issuance upon the exercise
of options to be granted under such stock plans. 819,029 shares of Common Stock
remain in the employee reserve pool.

                  3.3      SUBSIDIARIES. The Company does not currently own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity.

                  3.4      AUTHORIZATION. All corporate action on the part of
the Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company under this Agreement and the authorization, issuance
and delivery of the Series E Stock (and the Common Stock issuable upon
conversion of the Stock) has been taken or will be taken prior to the Closing,
and this Agreement constitutes a valid and legally binding obligation of the
Company, enforceable against the Company in accordance with its terms.

                  3.5      VALID ISSUANCE OF SECURITIES.

                           (a)      The Series E Stock that is being issued to
BD hereunder, when issued, sold and delivered in accordance with the terms
hereof for the consideration expressed herein, (i) will be duly and validly
issued, fully paid and nonassessable and (ii) will be free of any pledges,
liens, security interests, claims or encumbrances of any kind. Based in part
upon the representations of BD in this Agreement, the Series E Stock will be
issued in compliance with all applicable federal and state securities laws. The
Common Stock issuable upon conversion of the Series E Stock has been duly and
validly reserved for issuance, and upon issuance in accordance with the terms of
the Restated Certificate (i) will be duly and validly issued, fully paid and
non-assessable, (ii) will be issued in compliance with all applicable federal
and state securities laws and (iii) will be free of any pledges, security
interests, claims or encumbrances of any kind.

                           (b)      The outstanding shares of Common Stock,
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E

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


                                       5
<PAGE>

Preferred Stock are all duly and validly authorized and issued, fully paid and
nonassessable, and were issued in compliance with all applicable federal and
state securities laws.

                  3.6      GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for the filings pursuant to (i) Section
25102(f) of the California Corporate Securities Law of 1968, as amended, and the
rules thereunder, (ii) Rule 506 of Regulation D promulgated under the Securities
Act of 1933, as amended (the "Act"), and (iii) any other post-Closing filings
with any other jurisdictions required under applicable state securities laws,
which filings will be timely effected in accordance with such sections and/or
rules.

                  3.7      LITIGATION. There is no action, suit, proceeding or
investigation pending or currently threatened against the Company that questions
the validity of the Transaction Agreements or the right of the Company to enter
into them, or to consummate the transactions contemplated thereby, or that might
result, either individually or in the aggregate, in any material adverse changes
in the assets, condition or affairs of the Company, financially or otherwise, or
any change in the current equity ownership of the Company, nor is the Company
aware that there is any basis for the foregoing. The foregoing includes, without
limitation, actions pending or threatened (or any basis therefor known to the
Company) involving the prior employment of any of the Company's employees, their
use in connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. The Company is not a party or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company intends to initiate.

                  3.8      EMPLOYEE AGREEMENT. Each employee and officer of the
Company and each consultant to the Company has executed an agreement with the
Company regarding confidentiality and proprietary information. The Company,
after reasonable investigation, is not aware that any of its employees are in
violation thereof, and the Company will use its best efforts to prevent any such
violation.

                  3.9      PATENTS AND TRADEMARKS. The Company has sufficient
title to and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
necessary for its business as now conducted and as proposed to be conducted
without any conflict with or infringement upon the rights of others. The
patents, patent applications, trademarks, service marks, trade names and
copyrights owned by the Company and that the Company has rights to use are set
forth on the Schedule of the Exceptions. There are no outstanding options,
licenses, or agreements of any kind relating to the foregoing, nor is the
Company bound by or a party to any options, licenses or agreements of any kind
with respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information, proprietary rights and processes of any
other person or entity. The Company has not received any communications alleging
that the Company has violated or, by conducting its business as proposed, would
violate any of the patents, trademarks, service marks, trade names, copyrights
or trade secrets or other proprietary rights of any other person or entity.

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


                                       6
<PAGE>

The Company is not aware that any of its employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of the employee's best
efforts to promote the interests of the Company or that would conflict with the
Company's business as proposed to be conducted. Neither the execution nor
delivery of this Agreement, nor the carrying on of the Company's business by the
employees of the Company, nor the conduct of the Company's business as proposed,
will, to the Company's knowledge, conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. The
Company does not believe it is or will be necessary to utilize any inventions of
any of its employees (or people it currently intends to hire) made prior to
their employment by the Company.

                  3.10     COMPLIANCE WITH OTHER INSTRUMENTS.

                           (a)      The Company is not in violation or default
of any provisions of its Restated Certificate or Bylaws or of any instrument,
judgment, order, writ, decree or contract to which it is a party or by which it
is bound or of any material provision of any federal or state statute, rule or
regulation applicable to the Company. Without limiting the generality of the
foregoing, the Company is in compliance with all material federal, state and
local laws, rules and regulations relating to the development, manufacture,
safety, sale, labeling, marketing and, if required, governmental approval of its
products. The execution, delivery and performance of this Agreement and the
consummation of the transaction contemplated hereby will not result in any such
violation or be in conflict with or constitute, with or without the, passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event which results
in the creation of any lien, charge or encumbrance upon any assets of the
Company.

                           (b)      The Company has avoided every condition, and
has not performed any act, the occurrence of which would result in the Company's
loss of any right granted under any license, distribution or other agreement.

                  3.11     AGREEMENTS; ACTION.

                           (a)      There are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors,
affiliates, or any affiliate thereof.

                           (b)      Except for the Transactional Agreements,
there are no agreements, understandings, instruments, contracts or proposed
transactions to which the Company is a party or by which it is bound that
involve (i) obligations of, or payments to the Company in excess of $50,000, or
(ii) the license of any patent, copyright, trade secret or other proprietary
right to or from the Company, or (iii) obligations of, or payments by, the
Company to any officer, director, employee or family member of any such
individual.

                           (c)      The Company has not (i) declared or paid any
dividends, or authorized or made distribution upon or with respect to any class
or series of its capital stock, (ii) incurred any indebtedness for money
borrowed or incurred any other liabilities individually in


                                       7
<PAGE>

excess of $50,000 or in excess of $100,000 in the aggregate, (iii) made any
loans or advances to any person, or (iv) sold, exchanged or otherwise disposed
of any of its assets or rights, other than the sale of its inventory in the
ordinary course of business.

                           (d)      The Company is not a party to and is not
bound by any contract, agreement or instrument, or subject to any restriction
under its Restated Certificate or Bylaws, that adversely affects its business as
now conducted or as proposed to be conducted, its properties or its financial
condition.

                           (e)      The Company has not engaged in the past
three (3) months in any discussion (i) with any representative of any
corporation or corporations regarding the merger of the Company with or into any
such corporation or corporations, (ii) with any corporation, partnership,
association or other business entity or any individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the
Company or a transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company is disposed of, or (iii)
regarding any other form of liquidation, dissolution or winding up of the
Company.

                           (f)      All contracts to which the Company is a
party or by which its assets may be bound are valid, binding and in full force
and effect, and no material breach or default, or event which, with notice or
lapse of time or both, would constitute any such material breach or default by
the Company (or, to the best knowledge of the Company, by any other party
thereto), exists with respect thereto. The Company has received no notice of
cancellation or non-renewal of any material contract.

                  3.12     DISCLOSURE. Except for certain agreements that the
Company considers to be confidential or proprietary in nature, agreements which
the Company is under an obligation not to disclose, and agreements that the
Company believes contain nonessential details of the interference settlement,
the Company has provided BD or its counsel with all the information which BD has
requested for deciding whether to acquire the Series E Stock. No representation
or warranty of the Company contained in this Agreement and the Exhibits attached
hereto, or, any other written statement or certificate furnished or to be
furnished to BD in connection herewith contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances under which they were made. The Company has provided counsel to BD
access to complete and accurate copies of each agreement, except for the
agreements stated above, to which the Company is a party or to which it, its
assets or its properties are subject.

                  3.13     RIGHTS OF REGISTRATION AND FIRST OFFER. Except for
registration rights granted to the holders of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock and to be
granted to BD, in each case pursuant to the Third Amended and Restated
Information and Registration Rights Agreement dated August 25, 1998 (the
"Registration Rights Agreement"), the Company has not granted or agreed to grant
any registration rights, including piggyback rights, to any person or entity.
All rights of first offer granted by the Company related to its securities have
been satisfied or will be waived prior to the Closing.

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


                                       8
<PAGE>

                  3.14     CORPORATE DOCUMENTS. The Restated Certificate and
By-laws of the Company are in the form provided to counsel to BD.

                  3.15     TITLE TO PROPERTY AND ASSETS. The Company owns its
property and assets free and clear of all mortgages, liens, loans and
encumbrances, except such encumbrances and liens which arise in the ordinary
course of business and do not materially impair the Company`s ownership or use
of such property or assets. With respect to the property and assets it leases,
the Company is in compliance with such leases and, to the best of its knowledge,
holds a valid leasehold interest free of any liens, claims or encumbrances.

                  3.16     FINANCIAL STATEMENTS. The Company has delivered to BD
its audited financial statements (balance sheet, profit and loss statement, cash
flows statement and statement of stockholder equity) for the year ended December
31, 1998 and its unaudited financial statements (balance sheet, profit and loss
statement, cash flows statement and statement of stockholder equity) for the
twelve months ended December 31, 1999 (collectively, the "Financial
Statements"). The Financial Statements have been prepared in accordance with
generally accepted accounting principles and on a consistent basis throughout
the periods indicated and with each other. The Financial Statements fairly
present the financial condition and operating results of the Company as of the
dates, and for the periods, indicated therein, subject, in the case of the
unaudited financial statements, to normal year-end audit adjustments, which are
neither individually nor in the aggregate material. Except as set forth in the
Financial Statements, the Company has no material liabilities, contingent or
otherwise.

                  3.17     EMPLOYEE BENEFIT PLANS; ERISA.

                           (a)      Item 3.17 of the Schedule of Exceptions
contains a true and complete list of all "employee benefit plans," within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and any other bonus, profit sharing, compensation,
severance, deferred compensation, fringe benefit, insurance, welfare, medical,
post-retirement health or welfare benefit, life, stock option, stock purchase,
disability, termination, retention or other plan, agreement, trust fund or
arrangement (whether written or unwritten), maintained, sponsored or contributed
to by the Company or any entity that would be deemed a "single employer" with
the Company under Section 414(b), (c), (m) or (o) of the Internal Revenue Code
of 1986, as amended (the "Code") or Section 4001 of ERISA (an "ERISA Affiliate")
on behalf of any employee of the Company or any ERISA Affiliate (whether
current, former or retired) or their beneficiaries or with respect to which the
Company or any ERISA Affiliate has or has had any obligation on behalf of any
such employee or beneficiary (each a "Plan" and, collectively, the "Plans").

                           (b)      None of the ERISA Affiliates or the Company
has ever contributed to or contributes to, been required to contribute to, or
otherwise participated in or participates in (i) any "multiemployer plan"
(within the meaning of Section 4001(a)(3) of ERISA or Section 414(f) of the
Code), (ii) any single employer pension plan (within the meaning of Section
4001(a)(15) of ERISA) which is subject to Sections 4063 and 4064 of ERISA or
(iii) any plan subject to Title IV of ERISA or Section 412 of the Code.

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


                                       9
<PAGE>

                           (c)      The Company, each ERISA Affiliate, each Plan
and each "plan sponsor" (within the meaning of Section 3(16) of ERISA) and each
"employee benefit plan" (within the of section 3(3) of ERISA) has complied in
all material respects with applicable law including, without limitation, the
Code and ERISA and each Plan complies with and has been maintained and operated
in all material respects in accordance with its terms.

                           (d)      With respect to each of the Plans referenced
in item 3.17 of the Schedule of Exceptions: (i) all payments required by any
Plan or by law with respect to all periods through the date of the Closing have
been made prior to the Closing; (ii) no "prohibited transaction," within the
meaning of Section 4975 of the Code and Section 406 of ERISA, has occurred, or
to the best of the Company's knowledge is expected to occur, with respect to any
Plan which has subjected or could subject the Company, any officer, director or
employee thereof or any trustee, administrator or other fiduciary, to a tax or
penalty on prohibited transactions imposed by either Section 502 of ERISA or
Section 4975 of the Code, or any other liability with respect thereto; and (iii)
no Plan is under audit or investigation by the Internal Revenue Service or the
Department of Labor or any other governmental authority and no such completed
audit, if any, has resulted in the imposition of any tax or penalty.

                  3.18     TAX RETURNS AND PAYMENTS. The Company has filed all
tax returns and reports as required by law. These returns and reports are true
and correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith which are listed in
the Schedule of Exceptions. The provision for taxes of the Company as shown in
the Financial Statements is adequate for taxes due or accrued as of the date
thereof. The Company has not elected pursuant to the Internal Revenue Code of
1986, as amended (the "Code"), to be treated as a Subchapter S corporation or a
collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the
Code, nor has it made any other elections pursuant to the Code (other than
elections which relate solely to methods of accounting, depreciation or
amortization) which would have a material adverse effect on the Company, its
financial condition, its business as currently conducted or as proposed to be
conducted or any of its properties or material assets.

                  3.19     INSURANCE. The Company has in full force and effect
fire and casualty insurance policies, with extended coverage, sufficient in
amount (subject to reasonable deductibles) to allow it to replace any of its
properties that might be damaged or destroyed. The Company also has in full
force and effect product liability insurance and comprehensive general liability
insurance in amounts and with such coverages as are generally maintained by
responsible companies in the same industry.

                  3.20     LABOR AGREEMENTS AND ACTIONS. The Company is not
bound by or subject to (and none of its assets or properties is bound by or
subject to) any written or oral, express or implied, contract, commitment or
arrangement with any labor union, and no labor union has requested or, to the
knowledge of the Company, has sought to represent any of the employees,
representatives or agents of the Company. There is no strike or other labor
dispute involving the Company pending, or to the knowledge of the Company
threatened, which could have a material adverse effect on the assets,
properties, financial condition, operating results, prospects or business of the
Company (as such business is currently conducted and as it is proposed to be
conducted), nor is the Company aware of any labor organization activity

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


                                       10
<PAGE>

involving its employees. The Company is not aware that any officer or key
employee, or that any group of key employees, intends to terminate their
employment, with the Company, nor does the Company have a present intention to
terminate the employment of any of the foregoing. The employment of each officer
and employee of the Company is terminable at the will of the Company.

                  3.21     ABSENCE OF CHANGES. Except as specifically set forth
in this Agreement, since December 31, 1999, (a) the Company has not entered into
any transaction other than in the ordinary course of business and which is not,
individually or in the aggregate, material to the assets, properties, financial
condition, operating results or business of the Company (as such business is
currently conducted and as it is proposed to be conducted), (b) the Company has
not changed any compensation arrangement or agreement with any of its key
employees or executive officers, or changed the rate of pay of its employees as
a group, (c) the Company has not changed or amended any contract by which the
Company or any of its respective assets are bound or subject which would have a
material adverse effect on the business of the Company, (d) there has been no
waiver by the Company of a valuable right or of a debt owing to the Company
which would have a material and adverse effect on the business of the Company,
(e) there has not been any satisfaction or discharge of any lien, claim or
encumbrance or any payment of any obligation by the Company except in the
ordinary course of business and which is not, individually or in the aggregate,
material to the assets, properties, financial condition, operating results or
business of the Company (as such business is currently conducted and as it is
proposed to be conducted), and (f) except as set forth in the Financial
Statements, the Company has no material liabilities, contingent or otherwise,
other than obligations under contracts and commitments incurred in the ordinary
course of business not in excess of $50,000 individually and $100,000 in the
aggregate.

                  3.22     BROKERS. The Company has retained no finder, broker,
agent, financial adviser or other intermediary in connection with the
transactions contemplated by this Agreement and the Company agrees to indemnify
and hold harmless BD from liability for any compensation to any such
intermediary and the fees and expenses of defending against such liability or
alleged liability.

                  4.       REPRESENTATIONS AND WARRANTIES OF BD.

         BD hereby represents and warrants to the Company as follows:

                  4.1      LEGAL POWER. BD has the requisite corporate power to
enter into this Agreement and to carry out and perform its obligations under the
terms of this Agreement.

                  4.2      DUE EXECUTION. This Agreement has been duly
authorized, executed and delivered by BD, and, upon due execution and delivery
by the Company, this Agreement will be a valid and binding agreement of BD,
enforceable against BD in accordance with its terms.

                  4.3      INVESTMENT REPRESENTATIONS. In connection with any
sale of shares under this Agreement, BD makes the following representations:

                           (a)      BD is acquiring the shares of Series E Stock
under this Agreement for its own account, not as nominee or agent, for
investment and not with a view to, or for resale

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


                                       11
<PAGE>

in connection with, any distribution or public offering thereof within the
meaning of the Securities Act of 1933, as amended (the "Securities Act").

                           (b)      BD understands that (i) the shares of Series
E Stock to be purchased under this Agreement have not been registered under the
Securities Act by reason of a specific exemption therefrom, that such securities
must be held by BD, and that BD must, therefore, bear the economic risk of such
investment, until a subsequent disposition thereof is registered under the
Securities Act or is exempt from such registration; (ii) each certificate
representing such shares will be endorsed with the following legends:

                                    A.       THE SECURITIES REPRESENTED HEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE
SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY
TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN
COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

                                    B.       THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS, INCLUDING RESTRICTIONS ON
TRANSFERABILITY, OF THAT CERTAIN STOCK PURCHASE AGREEMENT, DATED ________, 2000.
A COPY OF SUCH STOCK PURCHASE AGREEMENT WILL BE FURNISHED TO THE RECORD HOLDER
OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO AEROGEN, INC. AT ITS
PRINCIPAL PLACE OF BUSINESS."

                                    C.       Any legend currently required to be
placed thereon under applicable state securities laws.

and (iii) the Company will instruct any transfer agent not to register the
transfer of the shares of Series E Stock purchased pursuant to this Agreement
(or any portion thereof) unless the conditions specified in the foregoing
legends are satisfied, until such time as a transfer is made, pursuant to the
terms of this Agreement, and in compliance with Rule 144 or pursuant to a
registration statement or, if the opinion of counsel referred to above is to the
further effect that such legend is not required in order to establish compliance
with any provisions of the Securities Act or this Agreement.

                           (c)      BD has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the shares of Series E Stock purchased hereunder.

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


                                       12
<PAGE>

                           (d)      BD is an "accredited investor" as such term
is defined in Rule 501(a) of Regulation D of the General Rules and Regulations
prescribed by the Securities and Exchange Commission pursuant to the Securities
Act.

                  4.4      BROKERS. BD has retained no finder, broker, agent,
financial advisor or other intermediary in connection with the transactions
contemplated by this Agreement and BD agrees to indemnify and hold harmless the
Company from liability for any compensation to any such intermediary and the
fees and expenses of defending against such liability or alleged liability.

         5.       CONDITIONS TO CLOSING.

                  5.1      CONDITIONS TO OBLIGATIONS OF BD AT INITIAL CLOSING.
BD's obligation to purchase the shares of the Company's Series E Stock at the
Closing is subject to the fulfillment to BD's satisfaction, on or prior to the
Closing, of all of the following conditions, any of which may be waived by BD:

                           (a)      REPRESENTATIONS AND WARRANTIES TRUE;
PERFORMANCE OF OBLIGATIONS. The representations and warranties made by the
Company in Section 3 hereof shall be true and correct in all material respects
on the date of the Agreement and the Company shall have performed and complied
with all obligations and conditions herein required to be performed or complied
with by it on or prior to the Closing, and a Certificate duly executed by an
officer of the Company, to the effect of the foregoing, shall be delivered to
BD.

                           (b)      PROCEEDINGS AND DOCUMENTS. All corporate and
other proceedings in connection with the transactions contemplated at the
Closing and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to counsel to BD, and counsel to
BD shall have received all such counterpart originals or certified or other
copies of such documents as they may reasonably request.

                           (c)      QUALIFICATIONS, LEGAL INVESTMENT. All
authorizations, approvals, or permits, if any, of any governmental authority or
regulatory body of the United States or of any state that are required in
connection with the lawful sale and issuance of the shares to be issued pursuant
to this Agreement shall have been duly obtained and shall be effective on and as
of the Closing. No stop order or other order enjoining the sale of the shares to
be sold at such Closing shall have been issued and no proceedings for such
purpose shall be pending or, to the best knowledge of the Company, threatened by
the Securities and Exchange Commission, or any commissioner of corporations or
similar officer of any state having jurisdiction over this transaction. At the
time of the Closing, the sale and issuance of the shares of Series E Stock to be
sold thereat shall be legally permitted by all laws and regulations to which BD
and the Company are subject.

                           (d)      NO PENDING LITIGATION. There shall not be
any proceeding, hearing action, suit, arbitration or any investigation pending
or threatened or any legal requirement (including any federal, state, local,
municipal, foreign, international law, statute, rule or regulation) in effect
that would prevent the consummation of any of the transactions contemplated by
this Agreement.

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


                                       13
<PAGE>

                           (e)      OPINION OF COMPANY COUNSEL. BD shall have
received from Cooley Godward LLP, counsel for the Company, an opinion, dated as
of the Closing, in the form attached hereto as Exhibit C.

                           (f)      NECESSARY CONSENTS. The Company shall have
obtained, and shown by written evidence satisfactory to BD, all required
consents and approvals of third parties necessary to convey to BD all of the
shares of Series E Preferred Stock and to consummate the other transactions
contemplated by this Agreement.

                  5.2      CONDITIONS PRECEDENT TO BD'S INVESTMENT AT THE
MILESTONE CLOSING. In addition to the conditions provided for under Sections 1.2
and 1.3 hereof, the obligation of BD on the Milestone Closing to purchase the
Financing Stock as provided in Section 1.2(a) shall be subject to the
satisfaction, on or prior to the Milestone Closing, of each of the following
conditions precedent, any one or more of which may be waived by BD:

                           (a)      PERFORMANCE. The Company shall have
performed and complied in all material respects with all agreements and
conditions contained herein or in other ancillary documents incident to the
transactions contemplated by this Agreement required to be performed or complied
with by it prior to or at the Milestone Closing. No condition or event
constituting a breach under the Agreement or an event which, with notice or
lapse of time, or both, would constitute such a breach shall have occurred and
be continuing, or will result from the proceedings to be undertaken at the
Milestone Closing.

                           (b)      COMPLIANCE CERTIFICATES. The Company shall
have delivered to BD or its representative at the Milestone Closing an Officer's
Certificate to the effect that all conditions specified in Section 5.2(a) and
(d) that relate to the Company, have been fulfilled.

                           (c)      PROCEEDINGS AND DOCUMENTS; PRIOR CONDITIONS.
All corporate and other proceedings in connection with the Milestone Closing
contemplated by this Agreement and all documents and instruments incident to
such transactions shall be reasonably satisfactory in substance and form to BD
and its counsel, and BD and its counsel shall have received all such counterpart
originals or certified or other copies of such documents as they may reasonably
request.

                           (d)      MILESTONE. The Company shall have achieved
the First Milestone.

                           (e)      OPINION OF COMPANY'S COUNSEL. BD shall have
received from Cooley Godward LLP, counsel for the Company, a favorable opinion,
dated as of the Milestone Closing and satisfactory in form and substance to BD
and its counsel, confirming and restating (except as to any changes thereto
since the Initial Closing, including changes in applicable law) such portions of
the opinion rendered on the Initial Closing Date pursuant to Section 5.1(d) as
relate to the issuance and sale of Financing Stock pursuant to Section 1.2(a).

                           (f)      NO NOTICE OF TERMINATION UNDER THE
DEVELOPMENT AGREEMENT. The Development Agreement shall not have been terminated
by BD for breach of such agreement by the Company.

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


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                  5.3      CONDITIONS TO OBLIGATIONS OF THE COMPANY AT CLOSING.
The Company's obligation to issue and sell the shares of its Series E Stock at
the Closing is subject to the fulfillment to the Company's satisfaction, on or
prior to the Closing, of the following conditions, any of which may be waived by
the Company:

                           (a)      REPRESENTATIONS AND WARRANTIES TRUE. The
representations and warranties made by BD in Section 4 hereof shall be true and
correct in all material respects at the date of the Closing.

                           (b)      PERFORMANCE OF OBLIGATIONS. BD shall have
performed and complied with all agreements and conditions herein required to be
performed or complied with by it on or before the Closing, and a Certificate
duly executed by an officer of BD, to the effect of the foregoing, shall be
delivered to the Company.

                           (c)      QUALIFICATIONS, LEGAL INVESTMENT. All
authorizations, approvals, or permits, if any, of any governmental authority or
regulatory body of the United States or of any state that are required in
connection with the lawful sale and issuance of the shares of Series E Stock to
be sold and issued pursuant to this Agreement shall have been duly obtained and
shall be effective on and as of the Closing. No stop order or other order
enjoining the sale of such shares shall have been issued and no proceedings for
such purpose shall be pending or, to the best knowledge of the Company,
threatened by the Securities and Exchange Commission, or any commissioner of
corporations or similar officer of any state having jurisdiction over this
transaction. At the time of the Closing, the sale and issuance of the shares of
Series E Stock to be sold and issued at the Closing shall be legally permitted
by all laws and regulations to which BD and the Company are subject.

                           (d)      NO PENDING LITIGATION. There shall not be
any proceeding, hearing, action, suit, arbitration or any investigation pending
or threatened or any legal requirement (including any federal, state, local,
municipal, foreign, international law, statute, rule or regulation) in effect
that would prevent the consummation of any of the transactions contemplated by
this Agreement.

         6.       COVENANTS AND RIGHTS OF BD.

                  6.1      SALE RESTRICTION. BD hereby covenants and agrees that
it will not contract to sell, or otherwise transfer, loan, pledge or grant any
rights to acquire any shares of the Company's Series E Stock acquired pursuant
to this Agreement, or Common Stock issued on conversion thereof (or purchase or
sell any derivative security that has a similar effect or enter into any
contract that has a similar effect), without the prior written consent of the
Company until the earlier of (a) one year following the Closing of the initial
public offering of securities of the Company pursuant to an underwritten
registration under the Securities Act, as amended (the "IPO"), or (b) four years
after the date of this Agreement. Notwithstanding anything in this Section 6.1
to the contrary, if the Company sells its equity securities to another corporate
partner (defined as a corporation which is purchasing equity securities of the
Company in connection with entering into a commercial relationship with the
Company) and such corporate partner does not agree to a restriction on the sale
of equity securities of the Company for at least one year following the
Company's IPO, then subsection (a) above shall be modified to provide that BD'S

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


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sale restriction shall extend only for that length of time following an IPO as
the sale restriction of such corporate partner. Following the expiration of the
sale restriction set forth in this Section 6.1, BD agrees that it will give the
Company at least five (5) business days' advance notice of its intention to sell
the Company's equity securities, and will use commercially reasonable efforts to
cooperate with the Company and its designated market makers to find a buyer or
buyers for the Company's stock and conclude its sale of such stock in an orderly
manner. The Company agrees that, following its IPO, it will not make any public
announcement of BD's intention to sell the Company's securities prior to the
time such sale is commenced unless, on advice of counsel, it is legally required
to do so.

                  6.2      RIGHT OF FIRST OFFER.

                           (a)      Prior to the Company's IPO, BD shall not
transfer any shares of the Company's Series E Stock (or Common Stock issued on
conversion thereof) purchased pursuant to this Agreement, whether or not for
consideration, to a third party, without complying with the provisions of this
Section 6.2. The right of first offer herein shall be freely assignable by the
Company.

                           (b)      Prior to the Company's IPO, in the event BD
desires to transfer any shares of the Company then held by it, BD shall give
written notice to the Secretary of the Company of its intention to transfer the
shares (the "Company Notice"). The Company Notice must name the number of shares
of Series E Stock (or Common Stock issued on conversion thereof) involved in the
proposed transfer, the proposed purchase price per share, and any other terms
and conditions of the proposed transfer. Within fifteen (15) days after delivery
of the Company Notice, the Company shall have the right to elect to purchase all
(but not less than all) of the shares proposed to be transferred (the "Option
Shares") on substantially the same terms and conditions specified in the Company
Notice, by delivery to BD of a written notice.

                           (c)      In the event that the Company fails to
exercise the right to purchase set forth in foregoing paragraph (b) as to all
the Option Shares within the period specified above, BD shall have sixty (60)
days thereafter to sell the Option Shares at a price and upon terms no more
favorable to the purchaser thereof than specified in the Company Notice. In the
event that BD has not sold such shares within such sixty (60) day period, BD
shall not thereafter sell any of such shares without first offering such shares
to the Company in the manner provided above.

                           (d)      Anything in this Agreement to the contrary
notwithstanding, BD shall be permitted to transfer shares of Series E Stock,
Financing Stock or the Common Stock into which it may be converted owned by it
without complying with the provisions of Section 6.2 to any of its Affiliates;
provided that any permitted transferee referred to above shall have delivered to
the Company the written agreement of such transferee to be bound by all of the
provisions of this Agreement to the same extent as its transferor, and until
such delivery is made no such transferee shall, with respect to the shares being
transferred, be a stockholder and the Company shall not recognize any such
transferee as a stockholder for any purpose.

                  6.3      STANDSTILL AGREEMENT. Other than shares of Series E
Stock, which it is purchasing pursuant to this Agreement, and the Common Stock
issued upon conversion thereof,

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


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BD hereby covenants and agrees that it will not, nor will it permit any of its
direct or indirect majority-owned subsidiaries, to purchase or otherwise
acquire, directly or indirectly, any equity securities of the Company (or rights
or options to purchase such securities) without the prior written approval of
the Company. This provision shall terminate and be of no further force or effect
five years from the date hereof or such earlier date as shall be agreed to by
the Company; provided, that the undertaking of this Section 6.3 shall
automatically terminate upon the occurrence of any of the following events: (a)
the filing with the SEC of a Schedule 13D by any person or entity indicating
that a person or entity has acquired (x) more than 20% of any class of the
Company's voting equity securities, or (y) has acquired at least 5% of any class
of the Company's voting equity securities which Schedule 13D expresses the
filing party's intention to assume control of the Company, whether by tender
offer, merger, proxy contest or otherwise; (b) the commencement of a tender
offer by any person or entity to acquire 20% or more of the Company's
outstanding voting equity securities; or (c) the solicitation of proxies by any
party other than the Company to which Rule 14a-11 of the rules and regulations
under the Securities and Exchange Act of 1934, as amended, applies and is
intended to effect a change in the majority of members of the Company's Board of
Directors.

                  6.4      REGISTRATION. BD shall become a party to, and shall
be deemed a "Holder" under, the Registration Rights Agreement for all purposes
except Section 2 and Section 16 thereof.

         7.       COVENANTS OF THE COMPANY

                  7.1      INFORMATION RIGHTS. Until the closing of an IPO by
the Company, the Company covenants and agrees that for so long as BD owns,
beneficially or of record, at least 500,000 shares of the Company's Series E
Stock (or Common Stock issued on conversion thereof) (in each case as adjusted
for stock splits or combinations, stock dividends or similar events), the
Company shall furnish to BD the following reports:

                           (a)      ANNUAL REPORTS. As soon as available and in
any event within 90 days after the end of each fiscal year, consolidated and
consolidating financial statements of the Company including a balance sheet as
of the end of such fiscal year and statements of income and retained earnings
and of sources and applications of funds for such fiscal year, prepared in
reasonable detail and in accordance with generally accepted accounting
principles consistently applied and accompanied by the opinion thereon of a
recognized firm of independent certified public accountants as may be selected
by the Board of Directors of the Company.

                           (b)      INTERIM REPORTS. As soon as available, and
in any event within 45 days after the end of each of the first three quarters of
each of the Company's fiscal years beginning with the quarter ending March 31,
2000, consolidated and consolidating financial statements of the Company
including a cash flow statement, a balance sheet as of the end of such
accounting period and statements of income and retained earnings and of sources
and applications of funds for such accounting period and for the period from the
beginning of such fiscal year to the end of such accounting period, and setting
forth in comparative form the figures for the corresponding periods of the
preceding fiscal year, prepared in reasonable detail and in accordance with
generally accepted accounting principles consistently applied and certified as
correct by the chief executive officer and chief financial officer of the
Company.

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


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                  7.2      PRESS RELEASES. Except as provided by law, each party
will secure advanced written approval from the other party of the decision to
issue and the content of any statement regarding or mentioning the transactions
contemplated hereby, whether in writing or otherwise to the public or press.
This provision shall not be deemed to have been breached if the disclosing party
acting on the advice of its securities or other regulatory counsel makes
disclosures to investors and potential investors or to any governmental or other
regulatory agency or organization.

         8.       MISCELLANEOUS.

                  8.1      GOVERNING LAW. This Agreement shall be governed by
and interpreted in accordance with the substantive laws of Delaware and the
United States of America, without regard to choice of law rules.

                  8.2      SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, and permitted assigns of the parties hereto.

                  8.3      ENTIRE AGREEMENT. This Agreement, the Development
Agreement and the Exhibits and Schedules hereto and thereto, and the other
documents delivered pursuant hereto, constitutes the full and entire
understanding and agreement among the parties with regard to the subjects hereof
and thereof and no party shall be liable or bound to any other party in any
manner by any representations, warranties, covenants, or agreements except as
specifically set forth herein or therein. Nothing in this Agreement, express or
implied, is intended to confer upon any party, other than the parties hereto and
their respective successors and assigns, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
herein.

                  8.4      SEVERABILITY. Whenever possible, each provision of
the Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of the Agreement is held to be
prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of the Agreement in the event of such invalidity, the
parties shall seek to agree on an alternative enforceable provision that
preserves the original purpose of this Agreement.

                  8.5      AMENDMENT AND WAIVER. Except as otherwise provided
herein, any term of this Agreement may be amended and the observance of any term
of this Agreement may be waived (either generally or in a particular instance,
either retroactively or prospectively, and either for a specified period of time
or indefinitely), with the written consent of the Company and BD. Any amendment
or waiver effected in accordance with this Section shall be binding upon any
holder of any securities purchased under this Agreement (including securities
into which such securities have been convened), each future holder of all such
securities, and the Company.

                  8.6      NOTICES. All notices and other communications
required or permitted hereunder shall be in writing and shall be deemed
effectively given and received (a) upon personal delivery, (b) on the fifth day
following mailing by registered or certified mail, return

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


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receipt requested, postage prepaid, addressed to the Company and BD at their
respective addresses first above written, (c) upon transmission of telegram or
facsimile (with telephonic notice), or (d) upon confirmed delivery by overnight
commercial courier service.

                  8.7      FEES AND EXPENSES. The Company and BD shall bear
their own expenses and legal fees incurred on their behalf with respect to this
Agreement and the transactions contemplated hereby.

                  8.8      TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.

                  8.9      COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one instrument.

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


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         IN WITNESS WHEREOF, the foregoing Stock Purchase Agreement is hereby
executed as of the date first above written.

                                    AEROGEN, INC.


                                    By:  /s/          Jane E. Shaw
                                       -----------------------------------------
                                    Name:    Jane E. Shaw
                                         ---------------------------------------
                                    Title:  Chairman & CEO
                                          --------------------------------------

                                    BECTON, DICKINSON AND COMPANY


                                    By:  /s/          Gary M. Cohen
                                       -----------------------------------------
                                    Name:    Gary M. Cohen
                                         ---------------------------------------
                                    Title: President-Worldwide Medical Systems
                                          --------------------------------------






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


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                                    EXHIBIT A

                AMENDED AND RESTATED CERTIFICATE OF INCORPORATION




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


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                              AMENDED AND RESTATED
                          CERTIFICATE OF INCORPORATION
                                OF AEROGEN, INC.

         AeroGen, Inc., a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:

         ONE:  The name of the corporation is AeroGen, Inc.

         TWO: The original Certificate of Incorporation of the corporation was
filed with the Secretary of State of the State of Delaware on March 12, 1998
under the name AeroGen (Delaware), Inc.

         THREE: The Certificate of Incorporation of said corporation shall be
amended and restated to read in full as follows:

                                    ARTICLE 1

         The name of this corporation is AEROGEN, INC.

                                    ARTICLE 2

         The address of the registered office of the corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is The Corporation Trust
Company.

                                    ARTICLE 3

         The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.

                                    ARTICLE 4

         The total number of shares of stock and the classes of stock which the
corporation shall have authority to issue is as follows:

         A.       CLASSES OF STOCK. This corporation is authorized to issue two
classes of stock to be designated "Common Stock" and "Preferred Stock." The
total number of shares which this corporation is authorized to issue is
Eighty-Four Million Six Hundred Forty-Two Thousand Four Hundred Thirty
(84,642,430) shares, of which Fifty Three Million (53,000,000) shares of the par
value of One-Tenth of One Cent ($.001) shall be Common Stock and Thirty-One
Million Six Hundred Forty-Two Thousand Four Hundred Thirty (31,642,430) shares
of the par value of One-Tenth of One Cent ($.001) shall be Preferred Stock. The
Preferred Stock authorized by this Certificate of Incorporation shall be issued
by series as set forth hereto. The first series of Preferred Stock shall be
designated "Series A Preferred Stock" and shall consist of Three Million Eight
Hundred Forty-Six Thousand One Hundred Fifty-Six (3,846,156) shares. The second
series of Preferred Stock shall be designated "Series B Preferred Stock" and
shall consist of Four

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


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Million Four Hundred Eighty-Seven Thousand One Hundred Eighty-Two (4,487,182)
shares. The third series of Preferred Stock shall be designated "Series C
Preferred Stock" and shall consist of Nine Million Three Hundred Seventy-Five
Thousand Three Hundred (9,375,300) shares. The fourth series of Preferred Stock
shall be designated "Series D Preferred Stock" and shall consist of Ten Million
Two Hundred Eighty-Five Thousand Seven Hundred Fourteen (10,285,714) shares. The
fifth series of Preferred Stock shall be designated "Series E Preferred Stock"
and shall consist of three million six hundred forty-eight thousand
seventy-eight (3,648,078) shares.

         B.       POWERS, PREFERENCES AND RIGHTS, AND QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS OF PREFERRED STOCK. The Preferred Stock authorized
by this Certificate of Incorporation may be issued from time to time in series.
The powers, preferences and rights, and the qualifications, limitations and
restrictions granted to and imposed on the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock are as set forth below in this Division B of Article 4. The
Board of Directors is hereby authorized to fix or alter the powers, preferences
and rights, and the qualifications, limitations and restrictions granted to or
imposed upon additional series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or of any of them.
Subject to compliance with applicable protective voting rights which have been
or may be granted to the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, or
other series of Preferred Stock in certificate(s) of designation or this
Certificate of Incorporation, as amended from time to time ("Protective
Provisions"), but notwithstanding any other right of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock or any other series of Preferred Stock, the
powers, preferences and rights of and the qualifications, limitations and
restrictions on, any such additional series may be subordinated to, pari passu
with (including, without limitation, inclusion in provisions with respect to
liquidation and acquisition preferences and/or approval of matters by vote or
written consent), or senior to any of those of any present or future class or
series of Preferred or Common Stock. Subject to compliance with applicable
Protective Provisions, the Board of Directors is also authorized to increase or
decrease the number of shares of any series (other than the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock), prior or subsequent to the issue of any
shares of that series, but not below the number of shares of such series then
outstanding, in case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.

1.       DIVIDEND RIGHTS.

         The holders of the Preferred Stock shall be entitled to receive, out of
any funds legally available therefor, dividends on each outstanding share of
Preferred Stock payable in preference and priority to any payment of any
dividend on any shares of Common Stock of the corporation at an annual rate of
$.0312 per share of Series A Preferred Stock, $.0624 per share of Series B
Preferred Stock, $.08 per share of Series C Preferred Stock, $.14 per share of
Series D Preferred Stock, and $.208 per share of Series E Preferred Stock, when
and as declared by the Board of Directors. Dividends on the shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock shall be paid ratably to

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


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holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, based on
the number of shares held. The right to such dividends on the Preferred Stock
shall be noncumulative. No right shall accrue to holders of shares of Preferred
Stock by reason of the fact that dividends on said shares are not declared in
any prior year, nor shall any undeclared or unpaid dividend bear or accrue any
interest. Dividends, if paid, or if declared and set apart for payment, must be
paid or declared and set apart for payment on all outstanding Preferred Stock
contemporaneously. Dividends shall be paid in cash. No shares of Common Stock
shall receive any dividend at a rate which is greater than the rate at which
dividends are simultaneously paid in respect of the Preferred Stock (based on
the number of shares of Common Stock into which the Preferred Stock is
convertible on the date of dividend).

         Dividends shall be paid by forwarding a check, postage prepaid, to the
address of each holder (or, in the case of joint holders, to the address of any
such holder) of Preferred Stock as shown on the books of the corporation, or to
such other address as such holder specifies for such purpose by written notice
to the corporation. The forwarding of such check shall satisfy all obligations
of the corporation with respect to such dividends, unless such check is not paid
upon timely presentation.

2.       LIQUIDATION RIGHTS

         In the event of any liquidation, dissolution or winding up of the
corporation, whether voluntary or not, each holder of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
and Series E Preferred Stock shall be entitled to receive, before any amount
shall be paid to holders of Common Stock, an amount per share equal to $0.39,
$.78, $1.00, $1.75, and $2.60, respectively (each, as adjusted for stock splits,
combinations or similar events and hereafter referred to as the "Original Issue
Price" of such series) plus all declared and unpaid dividends, if any. If upon
the occurrence of a liquidation, dissolution or winding up, the assets and
surplus funds distributed among the holders of Preferred Stock shall be
insufficient to permit the payment to such holders of the full preferential
amount, then the entire assets and surplus funds of the corporation legally
available for distribution shall be distributed ratably among the holders of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock, in proportion to the
aggregate amount payable to each of such holders pursuant to the immediately
preceding sentence. If upon the occurrence of a liquidation, dissolution or
winding up, after the payment to the holders of Preferred Stock of the
preferential amount, assets or surplus funds remain in the corporation, the
holders of Preferred Stock and Common Stock shall be entitled to receive all
such remaining assets and surplus funds pro rata on an as-if-converted basis.

         No later than 20 days before any event that, pursuant to Section 5(a),
permits a holder of Preferred Stock to have each share of Preferred Stock held
by such holder treated for all purposes as if it had been converted into Common
Stock (for purposes of this Section 2, a "Merger or Sale of Corporation"), the
corporation shall deliver a notice to each holder of Preferred Stock setting
forth the principal terms of such Merger or Sale of Corporation. Such notice
shall be deemed delivered upon personal delivery or five days after deposit in
the United States mail, by registered or certified mail, addressed to a party at
its address as shown on the stock records of

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


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the corporation. Such notice shall include a description of the amounts that
would be paid to holders of Preferred Stock under this Section 2 and of the
consideration that such holders would receive if they exercised their rights
under Section 5(a) to have shares of Preferred Stock treated as if they had been
converted into Common Stock. No later than ten days after delivery of the
notice, each holder of Preferred Stock may deliver an election to the
corporation notifying the corporation that the holder desires that such holder's
shares of Preferred Stock be treated, pursuant to Section 5, as if they had been
converted into shares of Common Stock and, if no such notice is delivered, such
holder shall receive such amounts as are provided for under this Section 2 as
any Merger or Sale of Corporation shall be deemed a liquidation, dissolution or
winding up of the corporation for the purposes of this Section 2.

3.       VOTING RIGHTS.

         (a)      VOTE OTHER THAN FOR DIRECTORS. Except as otherwise required by
law, the holders of Preferred Stock and the holders of Common Stock shall be
entitled to notice of any stockholders' meeting and to vote upon any matter
submitted to the stockholders for a vote, other than the election of directors,
as follows: (i) the holders of Preferred Stock shall have one vote for each full
share of Common Stock into which their respective shares of Preferred Stock are
convertible on the record date for the vote and (ii) the holders of Common Stock
shall have one vote per share of Common Stock.

         (b)      VOTING FOR DIRECTORS.

                  (i)      The holders of shares of Preferred Stock voting as a
class shall be entitled to elect two (2) directors. The holders of shares of
Common Stock voting as a class shall be entitled to elect two (2) directors. The
holders of shares of Series D Preferred Stock voting as a class shall be
entitled to elect one (1) director. The remaining director or directors shall be
elected by the affirmative vote of the holders of the Preferred Stock and of the
holders the Common Stock, voting together as a class with the holders of
Preferred Stock having one vote for each full share of Common Stock into which
their respective shares of Preferred Stock are convertible on the record date
for the vote. If no shares of Preferred Stock remain outstanding, then the
directors otherwise elected by the Preferred Stock as provided above in this
Section 3(b), shall be elected by the holders of Common Stock. In the case of
any vacancy in the office of a director elected by a specified group of
stockholders, a successor shall be elected to hold office for the unexpired term
of such director by the affirmative vote of a majority of the shares of such
specified group given at a special meeting of such stockholders duly called or
by an action by written consent for that purpose. Any director who shall have
been elected by a specified group of stockholders may be removed during the
aforesaid term of office, either for or without cause by, and only by, the
affirmative vote of the holders of a majority of the shares of such specified
group, given at a special meeting of such stockholders duly called or by an
action by written consent for that purpose, and any such vacancy thereby created
may be filled by the vote of the holders of a majority of the shares of such
specified group represented at such meeting or in such consent.

                  (ii)     No person entitled to vote at an election for
directors may cumulate votes to which such person is entitled, unless, at the
time of such election, the corporation is subject to Section 2115(b) of the
California General Corporation Law (" CGCL"). During such time or

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


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times that the corporation is subject to Section 2115(b) of the CGCL, every
stockholder entitled to vote at an election for directors may cumulate such
stockholder's votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which
such stockholder's shares are otherwise entitled, or distribute the
stockholder's votes on the same principle among as many candidates as such
stockholder thinks fit. No stockholder, however, shall be entitled to so
cumulate such stockholder's votes unless (a) the names of such candidate or
candidates have been placed in nomination prior to the voting and (b) the
stockholder has given notice at the meeting, prior to the voting, of such
stockholder's intention to cumulate such stockholder's votes. If any
stockholder has given proper notice to cumulate votes, all stockholders may
cumulate their votes for any candidates who have been properly placed in
nomination. Under cumulative voting, the candidates receiving the highest
number of votes, up to the number of directors to be elected, are elected.

4.       CERTAIN TAXES.

         The corporation shall pay any and all issuance and other taxes
(excluding any federal or state income taxes) that may be payable in respect of
any issuance or delivery of shares of Common Stock on conversion of Preferred
Stock. The corporation shall not, however, be required to pay any tax that may
be payable in respect of any transfer involved in the issuance and delivery of
shares of Common Stock in a name other than that in which the shares of
Preferred Stock to which such issuance relates were registered, and no such
issuance or delivery shall be made unless and until the person requesting such
issuance has paid to the corporation the amount of any such tax, or it is
established to the satisfaction of the corporation that such tax has been paid.

5.       CONVERSION TO COMMON STOCK.

         The Preferred Stock shall be convertible into Common Stock of the
corporation as follows:

         (a)      DEFINITIONS. For purposes of this Section 5 the following
definitions shall apply:

                  (i)      "COMMON STOCK EQUIVALENTS" shall mean Convertible
Securities and rights entitling the holder thereof to receive directly, or
indirectly, additional shares of Common Stock without the payment of any
consideration by such holder for such additional shares of Common Stock or
Common Stock Equivalents.

                  (ii)     "COMMON STOCK OUTSTANDING" shall mean the aggregate
of all Common Stock outstanding and all Common Stock issuable upon exercise of
all outstanding Options and conversion of all outstanding Convertible
Securities.

                  (iii)    "CONVERSION PRICE" with respect to a series of
Preferred Stock, shall mean the price, determined pursuant to this Section 5, at
which shares of Common Stock shall be deliverable upon conversion of such series
of Preferred Stock.

                  (iv)     "CONVERTIBLE SECURITIES" shall mean any indebtedness
or shares of stock or other securities convertible into or exchangeable for
Common Stock, including without limitation Preferred Stock.

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


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                  (v)      "CURRENT CONVERSION PRICE" with respect to a series
of Preferred Stock, shall mean the Conversion Price immediately before the
occurrence of any event, which, pursuant to Section 5(c), causes an adjustment
to the Conversion Price of such series of Preferred Stock.

                  (vi)     "ISSUANCE DATE" shall mean the first date on which
this Amended and Restated Certificate of Incorporation is filed with the
Secretary of State of the State of Delaware.

                  (vii)    "OPTIONS" shall mean any rights, warrants or options
to subscribe for or purchase or otherwise acquire Common Stock or Convertible
Securities.

         (b)      RIGHT TO CONVERT; INITIAL CONVERSION PRICE. Each holder of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock may, at any time, convert
any or all shares of such Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock,
as the case may be, into fully-paid and non-assessable shares of Common Stock at
the Conversion Price for such series of Preferred Stock. Each share of Series A
Preferred Stock shall be convertible into the number of shares of Common Stock
that results from dividing the Conversion Price in effect at the time of
conversion for Series A Preferred Stock into $0.39 for each share of Series A
Preferred Stock being converted; the Conversion Price of the Series A Preferred
Stock shall initially be $0.39 per share of Common Stock. Each share of Series B
Preferred Stock shall be convertible into the number of shares of Common Stock
that results from dividing the Conversion Price in effect at the time of
conversion for Series B Preferred Stock into $0.78 for each share of Series B
Preferred Stock being converted; the Conversion Price of the Series B Preferred
Stock shall initially be $0.78 per share of Common Stock. Each share of Series C
Preferred Stock shall be convertible into the number of shares of Common Stock
that results from dividing the Conversion Price in effect at the time of
conversion for Series C Preferred Stock into $1.00 for each share of Series C
Preferred Stock being converted; the Conversion Price of the Series C Preferred
Stock shall initially be $1.00 per share of Common Stock. Each share of Series D
Preferred Stock shall be convertible into the number of shares of Common Stock
that results from dividing the Conversion Price in effect at the time of
conversion for Series D Preferred Stock into $1.75 for each share of Series D
Preferred Stock being converted; the Conversion Price of the Series D Preferred
Stock shall initially be $1.75 per share of Common Stock. Each share of Series E
Preferred Stock shall be convertible into the number of shares of Common Stock
that results from dividing the Conversion Price in effect at the time of
conversion for Series E Preferred Stock into $2.60 for each share of Series E
Preferred Stock being converted; the Conversion Price of the Series E Preferred
Stock shall initially be $2.60 per share of Common Stock. The initial Conversion
Price of each series of Preferred Stock shall be subject to adjustment from time
to time in certain instances as hereinafter provided. No adjustments with
respect to conversion shall be made on account of any dividends that may be
accrued but unpaid on the Preferred Stock surrendered for conversion, but no
dividends shall thereafter be paid on the Common Stock unless such unpaid
dividends have first been paid to the holders entitled to payment at the time of
conversion of the Preferred Stock.

         Before any holder of Preferred Stock shall be entitled to convert the
same into Common Stock, such holder shall surrender the certificate or
certificates therefor, duly endorsed, to the

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


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office of the corporation or any transfer agent for such Preferred Stock and
shall give written notice to the corporation at such office that such holder
elects to convert the same. The corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred Stock,
or to such holder's nominee or nominees, certificates for the number of full
shares of Common Stock to which such nominee shall be entitled, together with
cash in lieu of any fraction of a share as hereinafter provided, and, if less
than all of the shares of Preferred Stock represented by such certificate are
converted, a certificate representing the shares of Preferred Stock not
converted. Such conversion shall be deemed to have been made as of the date of
such surrender of the certificate for the Preferred Stock to be converted, and
the person or persons entitled to receive the Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such Common Stock on such date. If the conversion is in connection with an offer
of securities registered pursuant to the Securities Act of 1933, as amended, the
conversion may, at the option of any holder tendering Preferred Stock for
conversion, be conditioned upon the closing of the sale of securities pursuant
to such offering, in which event the person(s) entitled to receive the Common
Stock issuable upon such conversion of the Preferred Stock shall not be deemed
to have converted such Preferred Stock until immediately prior to the closing of
such sale of securities.

         (c)      ADJUSTMENTS TO CONVERSION PRICE. Subject to Section 5(c)(5),
the Conversion Price in effect from time to time for the Preferred Stock shall
be subject to adjustment in certain cases as follows below. Notwithstanding
anything else herein, Sections 5(c)(i), 5(c)(ii) and 5(c)(iii) below shall not
apply to holders of Series E Preferred Stock.

                  (i)      ISSUANCE OF SECURITIES. In the event the corporation
shall at any time after the Issuance Date issue or sell any Common Stock (or
shall be deemed to have issued Common Stock pursuant to Section 5(c)(i)(c)
below) for a consideration per share less than the Current Conversion Price with
respect to a series of Preferred Stock, then, and thereafter successively upon
each such issuance or sale, the Current Conversion Price of such series of
Preferred Stock shall simultaneously with such issuance or sale be adjusted
(downward only) to a Conversion Price (calculated to the nearest cent)
determined by dividing

                           (1)      an amount equal to (x) the total number of
shares of Common Stock Outstanding when the Current Conversion Price for such
series of Preferred Stock became effective multiplied by the Current Conversion
Price for such series of Preferred Stock, plus (y) the aggregate of the amount
of all consideration, if any, received by the corporation for the issuance or
sale of Common Stock since the Current Conversion Price for such series of
Preferred Stock became effective, including the aggregate consideration received
by the corporation for the Common Stock giving rise to such adjustment, by

                           (2)      the total number of shares of Common Stock
Outstanding immediately after such issuance or sale.

         Notwithstanding the previous sentence, in the event that the
corporation shall at any time within one year after the Issuance Date issue or
sell any additional shares of Common Stock (or be deemed to have issued Common
Stock) for consideration per share less than the Current Conversion Price of the
Series D Preferred Stock, then, and thereafter successively upon each such
issuance or sale within such one year period, the Current Conversion Price of
the Series D

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


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Preferred Stock shall simultaneously with such issuance or sale be reduced, in
order to increase the number of shares of Common Stock into which the Series D
Preferred Stock is convertible, to a Conversion Price equal to the consideration
per share at which such additional shares of Common Stock are issued or deemed
issued; provided, however, that if and to the extent any adjustment made in
accordance with the formula contained in this sentence would reduce the
Conversion Price of the Series D Preferred Stock to less than $1.00 per share of
Common Stock, then, to the extent the Conversion Price of the Series D Preferred
Stock is reduced below $1.00, the Conversion Price of the Series D Preferred
Stock shall be adjusted in accordance with the formula contained in the
immediately preceding sentence except that the addend contained in subsection
5(c)(i)(1) shall be the total number of shares of Common Stock Outstanding when
the Current Conversion Price for the Series D Preferred Stock became effective
multiplied by the lesser of $1.00 or the Current Conversion Price for the Series
D Preferred Stock.

         For the purposes of this Section 5(c), the following provisions shall
also be applicable:

                  (a)      CASH CONSIDERATION. In the event of the issuance or
sale of additional Common Stock, Options or Convertible Securities for cash, the
consideration received by the corporation therefor shall be deemed to be the
amount of cash received by the corporation for such shares (or, if such
securities are offered by the corporation for subscription, the subscription
price, or, if such securities are sold to underwriters or dealers for public
offering without a subscription offering, the initial public offering price),
without deducting therefrom any compensation or discount paid or allowed to
underwriters or dealers or others performing similar services or for any
expenses incurred in connection therewith.

                  (b)      NON-CASH CONSIDERATION. In the event of the issuance
(otherwise than upon conversion or exchange of Convertible Securities) or sale
of additional Common Stock, Options or Convertible Securities for a
consideration other than cash or a consideration a part of which shall be other
than cash, the fair value of such consideration as determined by the Board of
Directors of the corporation in the good faith exercise of its business
judgment, irrespective of the accounting treatment thereof, shall be deemed to
be the value, for purposes of this Section 5, of the consideration other than
cash received by the corporation for such securities.

                  (c)      OPTIONS AND CONVERTIBLE SECURITIES. In the event the
corporation shall in any manner issue or grant any Options or any Convertible
Securities, the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the total maximum
amount of such Convertible Securities at the time such Convertible Securities
first become convertible or exchangeable shall (as of the date of issue or grant
of such Options or, in the case of the issue or sale of Convertible Securities
other than where the same are issuable upon the exercise of Options, as of the
date of such issue or sale) be deemed to be issued and to be outstanding for the
purpose of this Section 5(c)(i) and to have been issued for the sum of the
amount (if any) paid for such Options or Convertible Securities and the amount
(if any) payable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities at the time such Convertible Securities
first become convertible or exchangeable: provided that, subject to the
provisions of Section 5(c)(ii), no further adjustment of the Conversion Price of
a series of Preferred Stock shall be made upon the actual issuance of any such
Common Stock or Convertible Securities or upon the conversion or exchange of any
such Convertible Securities.

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


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                  (ii)     CHANGE IN OPTION PRICE OR CONVERSION RATE. In the
event that the purchase price provided for in any Option referred to in
subsection 5(c)(i)(c), or the rate at which any Convertible Securities referred
to in subsection 5(c)(i)(c) are convertible into or exchangeable for shares of
Common Stock shall change at any time (other than under or by reason of
provisions designed to protect against dilution), the Current Conversion Price
of each series of Preferred Stock in effect at the time of such event shall
forthwith be readjusted to the Conversion Price that would have been in effect
at such time had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or conversion
rate, as the case may be, at the time initially granted, issued or sold. In the
event that the purchase price provided for in any such Option referred to in
subsection 5(c)(i)(c), or the additional consideration (if any) payable upon the
conversion or exchange of any Convertible Securities referred to in subsection
5(c)(i)(c), or the rate at which any Convertible Securities referred to in
subsection 5(c)(i)(c) are convertible into or exchangeable for shares of Common
Stock, shall be reduced at any time under or by reason of provisions with
respect thereto designed to protect against dilution, then in case of the
delivery of shares of Common Stock upon the exercise of any such Option or upon
conversion or exchange of any such Convertible Security, the Current Conversion
Price of a series of Preferred Stock then in effect hereunder shall, upon
issuance of such shares of Common Stock, be adjusted to such amount as would
have obtained had such Option or Convertible Security never been issued and had
adjustments been made only upon the issuance of the shares of Common Stock
delivered as aforesaid and for the consideration actually received for such
Option or Convertible Security and the Common Stock.

                  (iii)    TERMINATION OF OPTION OR CONVERSION RIGHT. In the
event of the termination or expiration of any right to purchase Common Stock
under any Option or of any right to convert or exchange Convertible Securities,
the Current Conversion Price of a series of Preferred Stock shall, upon such
termination, be changed to the Conversion Price of such series of Preferred
Stock that would have been in effect at the time of such expiration or
termination had such Option or Convertible Security, to the extent outstanding
immediately prior to such expiration or termination, never been issued, and the
shares of Common Stock issuable thereunder shall no longer be deemed to be
Common Stock Outstanding.

                  (iv)     STOCK SPLITS, DIVIDENDS, DISTRIBUTIONS AND
COMBINATIONS. In the event the corporation should at any time or from time to
time after the Issuance Date fix a record date for the effectuation of a split
or subdivision of the outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive any other distribution payable in
additional shares of Common Stock or Common Stock Equivalents, then, as of such
record date (or the date of such distribution, split or subdivision if no record
date is fixed), the Conversion Price of each series of Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of each series of Preferred Stock shall be increased in
proportion to such increase in the number of outstanding shares of Common Stock
(including for this purpose, Common Stock Equivalents). If the number of shares
of Common Stock outstanding at any time after the Issuance Date is decreased by
a combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price of each series of
Preferred Stock shall be appropriately increased so that the number of shares of
Common Stock issuable on conversion of each share of Preferred Stock shall be
decreased in proportion to such decrease in the number of outstanding shares of
Common Stock.

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


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                  (v)      OTHER EVENTS ALTERING CONVERSION PRICE. Upon the
occurrence of any event not specifically denominated in this Section 5 as
reducing the Conversion Price of a series of Preferred Stock that, in the
reasonable exercise of the business judgment of the Board of Directors of the
corporation requires, on equitable principles, the reduction of the Conversion
Price of such series of Preferred Stock, such Conversion Price will be equitably
reduced.

                  (vi)     MISCELLANEOUS CONVERSION PRICE MATTERS. The
corporation shall at all times reserve and keep available out of its authorized
but unissued Common Stock the full number of shares of Common Stock deliverable
upon conversion of all the then outstanding Preferred Stock and shall, at its
own expense, take all such actions and obtain all such permits and orders as may
be necessary to enable the corporation lawfully to issue such Common Stock upon
the conversion of such Preferred Stock.

                  (vii)    EXCLUDED EVENTS. Notwithstanding anything in this
Section 5 to the contrary, the Conversion Price of a series of Preferred Stock
shall not be adjusted by virtue of (i) the conversion of shares of Preferred
Stock into shares of Common Stock, (ii) the repurchase of shares from the
corporation's employees, consultants, officers or directors at such person's
cost (or at such other price as may be agreed to by the corporation's Board of
Directors), or (iii) the issuance and sale of, or the grant of Options to
purchase, up to an aggregate of 7,837,500 shares, net of repurchases and the
lapse of options, of Common Stock (including the 5,141,471 shares and grants for
shares outstanding on the date hereof), to employees, advisors, directors,
officers or consultants of the corporation or its subsidiaries (including shares
issued or sold pursuant to the exercise of any stock option or purchase pursuant
to a grant under the corporation's stock option plan or stock purchase plan) at
any time after the initial issuance of Series D Preferred Stock at a price which
is less than the Conversion Price of such series of Preferred Stock at the time
of such issuance or sale (all as determined in accordance with this Section 5)
as may be approved by the Board of Directors, and none of such shares referenced
in clause (iii) shall be included in any manner in the computation from time to
time of such Conversion Price under Subsection 5(c)(i) or in Common Stock
Outstanding for purposes of such computation.

                  (viii)   CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of the Conversion Price of a series of Preferred
Stock pursuant to this Section 5, the corporation, at its expense upon request
by any holder of such series of Preferred Stock, shall compute such adjustment
or readjustment in accordance with the terms hereof and prepare and furnish to
each holder of such series of Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The corporation shall, upon the written
request at any time of any holder of a series of Preferred Stock, furnish or
cause to be furnished to such holder a like certificate setting forth (a) such
adjustment and readjustment, (b) the Current Conversion Price of such series of
Preferred Stock at the time in effect, and (c) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of a share of such series of Preferred Stock.

         (d)      OTHER DIVIDENDS. In the event this corporation shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by this corporation or other persons, assets (excluding cash dividends)
or options or rights for which such series of Preferred Stock are not entitled
to adjustment pursuant to subsection 5(c)(i)(c), then, in each such

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


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case for the purpose of this Section 5(d), the holders of such series of
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the corporation into which their shares of such series of Preferred
Stock are convertible as of the record date fixed for the determination of the
holders of Common Stock of the corporation entitled to receive such
distribution.

         (e)      RECAPITALIZATIONS. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or a sale of assets transaction for which each series of
Preferred Stock (including, without limitation, the Series E Preferred Stock) is
entitled to adjustment pursuant to this Section 5), provision shall be made so
that the holders of Preferred Stock shall thereafter be entitled to receive upon
conversion of shares of Preferred Stock the number of shares of stock or other
securities or property of the corporation or otherwise, to which a holder of
Common Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 5 with respect to the rights of
the holders of Preferred Stock after the recapitalization to the end that the
provisions of this Section 5 (including adjustment of the Conversion Price then
in effect and the number of shares purchasable upon conversion of shares of
Preferred Stock) shall be applicable after that event as nearly equivalent as
may be practicable.

         (f)      SUCCESSIVE CHANGES. The above provisions of this Section 5
shall similarly apply to successive issuances, sales or other distributions,
subdivisions and combinations on or of the Common Stock after the Issuance Date.

         (g)      NO IMPAIRMENT. The corporation will not, by amendment of this
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 5 and in the taking of all such action as may
be necessary or appropriate in order to protect the conversion rights of the
holders of Preferred Stock against impairment.

         (h)      NO FRACTIONAL SHARES. No fractional shares shall be issued
upon conversion of shares of Preferred Stock and the number of shares of Common
Stock to be issued shall be rounded to the next smaller whole share. Whether or
not fractional shares are issuable upon such conversion shall be determined on
the basis of the total number of shares of Preferred Stock the holder is at the
time converting into Common Stock and the number of shares of Common Stock
issuable upon such aggregate conversion. The value of any fractional share
issuable upon conversion shall be paid in cash by the corporation.

         (i)      AUTOMATIC CONVERSION. Immediately upon (a) the effectiveness
of the corporation's registration statement on Form S-1 pursuant to which Common
Stock is sold to the public by the corporation (or selling stockholders, if any)
in a public offering registered under the Securities Act of 1933, as amended, at
a per share public offering price of not less than $3.50 (equitably adjusted for
any stock split, combination or similar event) and an aggregate public offering
price not less than $15,000,000, or (b) the conversion of at least fifty percent
(50%) of

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


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the then outstanding shares of Preferred Stock, each share of Preferred Stock
shall automatically be converted into shares of Common Stock at the Conversion
Price for such Preferred Stock then in effect. On and after said conversion
date, notwithstanding that any certificates for the shares of Preferred Stock
shall not have been surrendered for conversion, the shares of Preferred Stock
evidenced thereby shall be deemed to be no longer outstanding, and all rights
with respect thereto shall forthwith cease and terminate, except only the rights
of the holder (i) to receive the shares of Common Stock to which such holder
shall be entitled upon conversion thereof, (ii) to receive the amount of cash
payable in respect of any fractional share of Common Stock to which such holder
shall be entitled, and (iii) with respect to dividends declared but unpaid on
Preferred Stock prior to such conversion date, in the event that any holder of
Preferred Stock presents such holder's certificate therefor for surrender to the
Company or its transfer agent upon such conversion, a certificate for the number
of shares of Common Stock into which the shares of Preferred Stock surrendered
were convertible on such conversion date promptly will be issued and delivered
to such holder.

         (j)      MERGER: SALE OF CORPORATION. In the event, after the Issuance
Date of any proposed consolidation of the corporation with, or merger of the
corporation with or into another corporation (other than a consolidation or
merger in which the corporation is the continuing corporation and which does not
result in any reclassification of, or change in, the outstanding shares of
Common Stock), or in the event of any proposed sale or transfer to another
corporation of all or substantially all of the assets of the corporation, or in
the event of a sale or transfer of a majority of the voting power of the
corporation, any holder of Preferred Stock may, by delivery of election pursuant
to Section 2 above, elect to have each share of Preferred Stock held by such
holder treated for all purposes as if it had been converted into Common Stock on
the earlier of (i) the record date, if any, for voting by holders of Common
Stock on such event and (ii) the date of such event.

6.       REDEMPTION.  The Preferred Stock is not redeemable.

7.       COVENANTS. In addition to any other rights provided by law, the
corporation shall not take any of the following actions.

         (a)      HOLDERS OF PREFERRED STOCK. So long as any shares of Preferred
Stock shall be outstanding, the corporation shall not without first obtaining
the affirmative vote or written consent of the holders of not less than fifty
percent (50%) of the outstanding shares of Preferred Stock voting together as a
class:

                  (i)      amend or repeal any provision of, or add any
provision to, this Certificate of Incorporation or the corporation's By-laws if
such action would alter or change the preferences, rights, privileges or powers
of or the restrictions provided for the benefit of, the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock, or increase or decrease the number of shares
of Preferred Stock authorized hereby, provided that any such amendment or repeal
of, or addition to, this Certificate of Incorporation or the corporation's
By-laws which affects the preferences, rights, privileges or powers of one
series of Preferred Stock shall affect each other series of Preferred Stock in a
like manner and on a proportionate basis:

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


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                  (ii)     authorize or issue shares of any class or series of
stock not authorized herein having any preference or priority as to dividends or
assets superior to or on a parity with any such preference or priority of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock; or authorize or issue
shares of stock of any class or series of any bonds, debentures, notes or other
obligations convertible into or exchangeable for, or having option rights to
purchase, any shares of stock of this corporation having any preference or
priority as to dividends or assets superior to or on a parity with any such
preference or priority of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, or Series E Preferred
Stock;

                  (iii)    reclassify any class or series of any Common Stock
into shares having any preference or priority as to dividends or assets superior
to or on a parity with any such preference or priority of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock;

                  (iv)     apply any of its assets to the redemption,
retirement, purchase or acquisition, directly or indirectly, through
subsidiaries (as defined in Section 425 of the Internal Revenue Code of 1986, as
amended (the "Code") or otherwise, of any shares of any class or series of
Common Stock, except from employees, advisors, officers, directors and
consultants of, and persons performing services for this corporation or its
subsidiaries on terms approved by the Board of Directors upon termination of
employment or association;

                  (v)      do any act or thing which would result in taxation of
the holders of shares of the Preferred Stock under Section 305 of the Code (or
any comparable provision of the Code as hereafter from time to time amended);

                  (vi)     If (i) sell, convey or otherwise dispose of all or
substantially all of its property or business, or (ii) merge into or consolidate
with any other corporation (other than a wholly owned subsidiary corporation) or
effect any other transaction or series of related transactions disposing of more
than 50% of the voting power of the corporation;

                  (vii)    authorize, declare or pay any dividend on the Common
Stock before March 31, 1999; or

                  (viii)   increase or decrease the authorized number of shares
of Preferred Stock.

         (b)      HOLDERS OF SERIES D PREFERRED STOCK. So long as any shares of
Series D Preferred Stock shall be outstanding, the corporation shall not without
first obtaining the affirmative vote or written consent of the holders of not
less than a majority of the outstanding shares of Series D Preferred Stock
voting together as a class, apply any of its assets to the purchase of any
shares of any class or series of the corporation's stock having any preference
or priority junior to or on a parity with the Series D Preferred Stock, except
from employees, advisors, officers, directors and consultants of, and persons
performing services for, this corporation or its subsidiaries on terms approved
by the Board of Directors upon termination of employment or association.

         (c)      DIRECTORS.

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


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         Without first obtaining the approval of at least a majority of the
Board of Directors, the corporation shall not enter into any contracts with, or
make any investments in, persons not resident within North America.

                  (ix)     Without first obtaining the approval of a majority of
the directors elected by the holders of Preferred Stock, the corporation shall
not:

                           (1)      increase the number of shares reserved for
issuance to employees, consultants and directors of the corporation pursuant to
incentive plans or agreements;

                           (2)      incur indebtedness in principal amount in
excess of $1,000,000; or

                           (3)      commit or make any capital expenditures in
excess of $200,000 in the aggregate.

         C.       COMMON STOCK.

8.       DIVIDEND RIGHTS. Subject to the prior rights of holders of all classes
of stock at the time outstanding having prior rights as to dividends, the
holders of the Common Stock shall be entitled to receive, when and as declared
by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.

9.       LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding up of
the corporation, the assets, of the corporation shall be distributed as provided
in Section 2 of Division B of this Article 4.

10.      REDEMPTION.  The Common Stock is not redeemable.

11.      VOTING RIGHTS. The holder of each share of Common Stock shall have the
right to one vote and shall be entitled to notice of any stockholders' meeting
in accordance with the By-laws of this corporation, and shall be entitled to
vote upon such matters and in such manner as may be provided by law.

12.      NO PREEMPTIVE RIGHTS. The holders of the Common Stock shall not by
virtue of this Certificate of Incorporation have any preemptive rights.

                                    ARTICLE 5

         The corporation is to have perpetual existence.

                                    ARTICLE 6

         In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware:

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


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         A.       The board of directors of the corporation is expressly
                  authorized to adopt, amend or repeal the By-laws of the
                  corporation; provided, however, that the By-laws may only be
                  amended in accordance with the provisions thereof.

         B.       Elections of directors need not be by written ballot unless
                  the By-laws of the corporation shall so provide.

         C.       The books of the corporation may be kept at such place within
                  or without the State of Delaware as the By-laws of the
                  corporation may provide or as may be designated from time to
                  time by the board of directors of the corporation.

                                    ARTICLE 7

         Whenever a compromise or arrangement is proposed between the
corporation and its creditors or any class of them and/or between the
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the corporation or of any creditor or stockholder thereof or on the
application of any receivers appointed for the corporation under the provisions
of section 291 of Title 8 of the Delaware Code or on the application of trustees
in dissolution or of any receiver or receivers appointed for the corporation
under the provisions of section 279 of Title 8 of the Delaware Code order a
meeting of the creditors or class of creditors, and/or the stockholders or class
of stockholders of the corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority, in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall if sanctioned by the
court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the corporation, as the case may be, and also on the
corporation.

         A.       NO PERSONAL LIABILITY. A director of the corporation shall not
be personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (1) for any
breach of the director's duty of loyalty to the corporation and its
stockholders; (2) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law; (3) under section 174 of
the Delaware General Corporation law, or (4) for any transaction from which the
director derived an improper personal benefit.

         B.       INDEMNIFICATION. Each person who is or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held

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


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harmless by the corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the corporation to provide broader indemnification rights than said law
permitted the corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in the
second paragraph hereof, the corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof), was authorized by the
Board of Directors of the corporation. The right to indemnification conferred in
this section shall be a contract right and shall include the right to be paid by
the corporation for any expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the Delaware
General Corporation Law requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this section or otherwise. The corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.

         If a claim under the first paragraph of this section is not paid in
full by the corporation within thirty (30) days after a written claim has been
received by the corporation, the claimant may at any time thereafter bring suit
against the corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense in any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the corporation) that the
claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law for the corporation to indemnity the
claimant for the amount claimed, but the burden of proving such defense shall be
on the corporation. Neither the failure of the corporation (including its Board
of Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.

         The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
section shall not be exclusive of

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


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any other right which any person may have or hereafter acquire under any
statute, provision of this Certificate of Incorporation, by-law, agreement, vote
of stockholders or disinterested directors or otherwise.

         C.       INSURANCE. The corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.

         D.       REPEAL AND MODIFICATION. Any repeal or modification of the
foregoing provisions of this Article 7 shall not adversely affect any right or
protection of a director, officer, employee or agent of the corporation existing
at the time of such repeal or modification.

         E.       VOTE REQUIRED TO AMEND OR REPEAL. The amendment or repeal of
this Article 7 shall require the approval of the holders of shares representing
at least sixty six and two-thirds percent (66-2/3%) of the shares of the
corporation entitled to vote in the election of directors, voting as one class.

                                    ARTICLE 8

         Subject to the express provisions hereof, this corporation reserves the
right to amend or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon a stockholder herein are granted subject to this
reservation.

                                      *****
         FOURTH: This Amended and Restated Certificate of Incorporation was duly
adopted by the Board of Directors of the corporation.

         FIFTH: This Amended and Restated Certificate of Incorporation was duly
adopted by the written consent of a majority of the stockholders of the
corporation in accordance with Sections 242 and 245 of the General Corporation
Law of the State of Delaware and written notice of such action has been given as
provided in Section 228.

         IN WITNESS WHEREOF, AeroGen, Inc. has caused this certificate to be
signed by the undersigned officer, thereunto duly authorized, this 4TH day of
May, 2000.



                                     By:  /s/     Jane E. Shaw
                                        ----------------------------------------
                                         Jane Shaw
                                         Chairman and CEO



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


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                                    EXHIBIT B

                             SCHEDULE OF EXCEPTIONS





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


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                                    EXHIBIT B
                             SCHEDULE OF EXCEPTIONS
                                  AEROGEN, INC.
                            STOCK PURCHASE AGREEMENT

         In connection with that certain Stock Purchase Agreement dated as of
May 10, 2000 by and among AEROGEN, INC. (the "Company") and BECTON, DICKINSON
AND COMPANY (the "Agreement"), the Company hereby delivers this Disclosure
Schedule to the Company's representations and warranties given in the Agreement.
The section numbers in this Schedule correspond to the section numbers in the
Agreement; PROVIDED, HOWEVER, that any information disclosed herein under any
section number with sufficient particularity shall be deemed to be disclosed and
incorporated in any other section of the Agreement where such disclosure would
be appropriate. Disclosure of any information or document herein is not a
statement or admission that it is material or required to be disclosed herein.
Capitalized terms used but not defined herein shall have the same meanings given
them in the Agreement.

3.2      Capitalization

         c)       The Company has offered or intends to offer employment or
                  consulting opportunities to various individuals. These
                  compensation packages will include options, which resulted in
                  an action by the Board of Directors and Shareholders to
                  increase the number of shares reserved for issuance under the
                  1996 Stock Option Plan by an additional 2,600,000 shares as of
                  March 10, 2000.

         Shares owned directly or indirectly by officers, directors or 5%
         shareholders are as follows:

                  Shares owned directly or indirectly by officers, directors or
         5% shareholders are as follows:


<TABLE>
                  <S>                                <C>
                  CMEA (Tom  Baruch - Director)      3,897,437
                  USVP (Phil Young - Director)       5,808,427
                  Advent                             2,546,584
                  Interwest Partners                 3,571,429
                  Ell &Co.                           2,276,326
                  Gerlach & Co. (Manufacturers Life) 2,714,286
                  Ehud Ivri (Officer and Director    3,780,000
                  Jane Shaw (Officer and Director)   1,542,858
                  Casper de Clercq (Officer)         270,000
                  Deborah Karlson                    270,000
                  Michael Klimowicz                  270,000
</TABLE>

3.7      Litigation

                  The Company is a defendant in an action for breach of contract
         and specific performance entitled ALEX WERBER V. AEROGEN, INC. AND EHUD
         IVRI, ET AL., Civil Action No. CV 773704, filed in California Superior
         Court for the County of Santa Clara in April, 1998. The litigation has
         been tentatively settled and in connection with settlement Mr.

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


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<PAGE>

         Ivri agreed to transfer 70,000 shares of his Common Stock to Mr.
         Werber. There is no payment by the Company in connection with the
         tentative settlement of the litigation.

                  The Company was party to an Interference, commenced following
         the filing of a request by a predecessor in interest to AeroGen,
         between U.S. Patent Application Serial No. 08/163,850 assigned to the
         Company, and U.S. Patent No. 5,261,601 assigned to Bespak plc
         ("Bespak"). The Interference has been settled.


3.8  Employee Agreement

                  It is part of the hiring process for each employee and officer
         of the Company to execute an agreement with the Company regarding
         confidentiality and proprietary information.

3.9  Patents and Trademarks

                  Aerogen Patent Rights - See Attachment A

         ITEMS a-d BELOW REPRESENT EXCEPTIONS TO THE COMPANY'S REPRESENTATION
THAT THERE ARE NO LICENSES OR AGREEMENTS OF ANY KIND RELATING TO ITS
INTELLECTUAL PROPERTY, OR LICENSES OR AGREEMENTS BY WHICH ITS IS BOUND RELATING
TO THE INTELLECTUAL PROPERTY OF ANY OTHER PERSON OR ENTITY:

                  a. The Company has licensed its aerosol generator technology
         world-wide to a consumer company in the fields of air fresheners and
         insect repellants.

                  b. Reference is made to the Technology License and Supply
         Agreement, dated December 18, 1998, between the Company and Cerus Ltd.,
         an Irish corporation.

                  c. The Company entered into a Product Development and Supply
         Agreement with PathoGenesis Corporation, dated as of March 13, 2000.

                  d. In connection with the settlement of the Interference with
         Bespak, the Company and Bespak have entered into cross-licenses with
         respect to portions of the subject patent claims.


3.11     Agreements; Action

         a)   The Company has entered into or plans to enter into
              indemnification agreements with each of its directors.

                  Yehuda Ivri has executed promissory notes in favor of the
         Company in the amounts of $69,009 and $200,000. The first note was
         issued in connection with relocation expenses and allowances. The
         latter note is secured by a pledge of 500,000 shares of the Company's
         common stock and the purpose of the loan was to provide financing for
         the purchase of a residence near the Company's headquarters. The

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


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         Company has agreed to reimburse Mr. Ivri's travel and lodging expenses
         up to $25,000 per annum.

                  Dr. Shaw, Casper de Clercq, Deborah Karlson and Michael
         Klimowicz have executed promissory notes in favor of the Company in
         connection with purchases of the Company's common stock. Shares sold to
         these officers which have not yet vested (pursuant to a four-year
         vesting schedule) are subject to repurchase if the individual ceases to
         be employed by the Company.

         b)       The Company has entered into and anticipates spending
         significant additional amounts, in excess of $50,000 individually, on
         capital equipment, consultants, design and tooling firms, clinicians,
         medical and other facilities, research organizations etc., all of which
         it considers to be in the ordinary course of its business.

                  The Company has entered into a non-binding term sheet
         involving a small European acquisition. The Company is currently
         conducting its diligence review of the potential target.

                  The Company entered into a Product Development and Supply
         Agreement with PathoGenesis Corporation, dated as of March 13, 2000.

                  The Company has entered into and anticipates entering into
         additional licensing and/or development arrangements whereby it
         receives amounts in excess of $50,000, all of which it considers to be
         in the ordinary course of its business.

         c)   In conjunction with the Company's facility lease, the Company is
              obligated to return the lab space to shell condition at the end of
              the lease term at an estimated cost of $100,000. The Company has
              issued a letter of credit to its lessor for $90,000 in conjunction
              with this liability.

                  The Company has borrowed approximately $1,113,000 (original
         principal) against term loan facilities. Specific assets secure the
         outstanding borrowings.

3.12     Rights of Registration and First Offer

                  The holders of warrants issued in connection with equipment
         financing were added as parties to the Company's Information and
         Registration Rights Agreement and are deemed holders of Registrable
         Securities thereunder with respect to the registration rights granted
         therein.

3.15     Title to Property and Assets

                  See item 3.11(c)

3.17     Employee Benefit Plans

                  Reference is made to the Company's medical, dental, life
         insurance, long and short term disability, Section 125 (flexible
         spending and premium), and non-contributory 401(k) employee benefit
         plans, as well as the Company's stock option plan, PTO policy

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


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         and standard employment offer letter. Reference is made to a summary of
         the Company's employee benefits and policies as provided in a summary
         handout for applicants and in the AeroGen Employee Handbook.

3.19     Insurance

                  The Company currently holds $5million of product liability
         insurance ($1million basic and $4million excess) in addition to its $6
         million ($2million aggregate and $4 million umbrella) of general
         liability coverage which specifically excludes product liability.
         Reference is made to the individual policies for specifics of coverage.

3.21     Absence of Changes

         b)       All employees, including officers, received raises effective
         the first pay period in 2000.

         f)       See 3.11

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


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                                  ATTACHMENT A




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


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                              AEROGEN PATENT RIGHTS


ISSUED U.S. PATENTS AND FOREIGN COUNTERPARTS

U.S. PATENT NO. 5,164,740, Issued Nov. 17, 1992
Filed April 24, 1991

         FOREIGN COUNTERPARTS:

         Argentine Patent No. 247,686
         Brazilian Patent No. PI9201487
         Canadian Patent No. 2066838
         France 0510648
         Mexican Patent No. 179906
         EPC Patent No. 510648B1 (French and UK issued)
         German Patent No. DE 692 12 688.0-08
         Japan: pending

U.S. PATENT NO. 5,938,117, Issued August 17, 1999
Filed April 5, 1995

         FOREIGN COUNTERPARTS:

         Pending in Great Britain, France and Germany

U.S. PATENT NO. 5,586,550, Issued December 24, 1996
Filed August 13, 1995

         FOREIGN COUNTERPARTS:

         Pending in Australia, Brazil, Canada, Germany, France, Great Britain,
Netherlands, Sweden and Japan

U.S. PATENT NO. 5,758,637, Issued June 2, 1998
Filed February 21, 1996

         FOREIGN COUNTERPARTS:

         Pending in nine foreign counterparts of U.S. Patent No. 5,586,550

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


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U.S. PATENT NO. 6,014,970, Issued January 18, 2000
Filed June 11, 1998

         FOREIGN COUNTERPARTS:

         Pending in Australia, Brazil, Canada, China, Europe (all designated
states), India, Japan, Mexico, New Zealand and Russia

PENDING U.S. PATENT APPLICATIONS

ULTRASONIC FLUID EJECTOR, filed May 20, 1997
Serial No. 08/859,525

         FOREIGN COUNTERPARTS:

         Covered by eight foreign patents for U.S. Patent No. 5,164,740

METHODS AND APPARATUS FOR DISPENSING LIQUIDS, filed May 27, 1999
Serial No. 09/318,552

         FOREIGN COUNTERPARTS:

         Pending in three foreign counterparts of U.S. Patent No. 5,938,117

DROPLET EJECTOR WITH OSCILATING TAPERED APERTURE, filed December 11, 1995
Serial No. 08/570,072

         FOREIGN COUNTERPARTS:

         None

LIQUID DISPENSING APPARATUS AND METHODS, filed April 10, 1998
Serial No. 09/058,344

         FOREIGN COUNTERPARTS:

         Pending in nine foreign counterparts of U.S. Patent No. 5,758,637

METHOD AND APPARATUS FOR STORING CHEMICAL COMPOUNDS, filed September 8, 1998
Serial No. 09/149,426

         FOREIGN COUNTERPARTS:

         Pending in nine foreign counterparts (and all designated states in
Europe) of U.S. Patent No. 6,014,970

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


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METHOD AND APPARATUS FOR STORING CHEMICAL COMPOUNDS, filed May 18, 1999
Serial No. 09/313,914

         Will file foreign applications before May 18, 2000 deadline.

APERTURE PLATE AND METHOD OF CONSTRUCTION, filed September 9, 1999
Serial No. 09/392,180

         Will file foreign applications before September 9, 2000 deadline.

PENDING U.S. PATENT APPLICATIONS

METHOD AND APPARATUS FOR AEROSOLIZING A LIQUID, filed January 15, 2000
Serial No. 09/483,096

         Will file foreign applications before January 15, 2001 deadline.





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


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                                    EXHIBIT C

                       LEGAL OPINION OF COOLEY GODWARD LLP




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


                                       48
<PAGE>

May 10, 2000

Becton, Dickinson and Company
1Becton Drive
Franklin Lakes, NJ  07417-1880


Ladies and Gentlemen:

We have acted as counsel for AeroGen, Inc., a Delaware corporation (the
"Company"), in connection with the issuance and sale of the Company's Series E
Preferred Stock, as defined in the Agreement (the "Shares"), to Becton,
Dickinson and Company ("BD") under the Stock Purchase Agreement dated as of May
10, 2000 (the "Agreement") between the Company and BD. We are rendering this
opinion pursuant to Section 5.1(e) of the Agreement. Except as otherwise defined
herein, capitalized terms used but not defined herein have the respective
meanings given to them in the Agreement.

In connection with this opinion, we have examined and relied upon the
representations and warranties as to factual matters contained in and made
pursuant to the Agreement by the various parties and originals or copies
certified to our satisfaction of such records, documents, certificates,
opinions, memoranda and other instruments as in our judgment are necessary or
appropriate to enable us to render the opinion expressed below. Where we render
an opinion "to the best of our knowledge" or concerning an item "known to us" or
our opinion otherwise refers to our knowledge, it is based solely upon (i) an
inquiry of attorneys within this firm who perform legal services for the
Company, (ii) receipt of a certificate executed by an officer of the Company
covering such matters, and (iii) such other investigation, if any, that we
specifically set forth herein.

In rendering this opinion, we have assumed: the genuineness and authenticity of
all signatures on original documents; the authenticity of all documents
submitted to us as originals; the conformity to originals of all documents
submitted to us as copies; the accuracy, completeness and authenticity of
certificates of public officials; and the due authorization, execution and
delivery of all documents (except the due authorization, execution and delivery
by the Company of the Agreement), where authorization, execution and delivery
are prerequisites to the effectiveness of such documents. We have also assumed:
that all individuals executing and delivering documents had the legal capacity
to so execute and deliver; that you have received all documents you were to
receive under the Agreement; that the Agreement is an obligation binding upon
you; if you are a corporation or other entity, that you have filed any required
California franchise or income tax returns and have paid any required California
franchise or income taxes; and that there are no extrinsic agreements or
understandings among the parties to the Agreement that would modify or interpret
the terms of the Agreement or the respective rights or obligations of the
parties thereunder.

Our opinion is expressed only with respect to the federal laws of the United
States of America, the laws of the State of California, the securities laws of
the State of New Jersey and, as to corporate matters, the General Corporation
Law of the State of Delaware. We express no

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


                                       49
<PAGE>

opinion as to whether the laws of any other jurisdiction apply, and we express
no opinion to the extent that the laws of any jurisdiction other than those
identified above are applicable to the subject matter hereof. With respect to
the securities laws of New Jersey, we have based our opinion solely upon our
examination of such laws and the rules and regulations of the authorities
administering such laws, all as reported in unofficial compilations. Neither
special rulings of such authorities nor opinions of counsel in said jurisdiction
have been obtained. We are not rendering any opinion as to compliance with any
antifraud law, rule or regulation relating to securities, or to the sale or
issuance thereof.

With regard to our opinion in paragraph 4 below, we have examined and relied
upon a certificate executed by an officer of the Company, to the effect that the
consideration for all outstanding shares of capital stock of the Company was
received by the Company in accordance with the provisions of the applicable
Board of Directors resolutions and any plan or agreement relating to the
issuance of such shares, and we have undertaken no independent verification with
respect thereto.

On the basis of the foregoing, in reliance thereon and with the foregoing
qualifications, we are of the opinion that:

1.       The Company has been duly incorporated and is a validly existing
         corporation in good standing under the laws of the State of Delaware.

2.       The Company has the requisite corporate power to own or lease its
         property and assets and to conduct its business as it is currently
         being conducted, is qualified as a foreign corporation to do business
         in California and, to the best of our knowledge, is not required to
         qualify as a foreign corporation to do business in any other
         jurisdiction in the United States where the failure to do so would have
         a material adverse effect.

3.       The Agreement has been duly and validly authorized, executed and
         delivered by the Company and constitutes a valid and binding agreement
         of the Company enforceable against the Company in accordance with its
         terms, except as enforcement may be limited by applicable bankruptcy,
         insolvency, reorganization, arrangement, moratorium or other similar
         laws affecting creditors' rights, and subject to general equity
         principles and to limitations on availability of equitable relief,
         including specific performance.

4.       The Company's authorized capital stock consists of: (a) fifty-three
         million (53,000,000) shares of Common Stock, with a par value of $.001,
         of which six million nine hundred twenty-eight thousand eight hundred
         twenty-one (6,928,821) shares are issued and outstanding and (b)
         thirty-one million six hundred and forty-two thousand four hundred
         thirty (31,642,430) shares of Preferred Stock, with a par value of
         $.001, of which three million eight hundred forty-six thousand one
         hundred fifty-six (3,846,156) shares have been designated Series A
         Preferred Stock, all of which are issued and outstanding; four million
         four hundred eighty-seven thousand one hundred and eighty-two
         (4,487,182) shares have been designated Series B Preferred Stock, all
         of which are issued and outstanding; nine million three hundred
         seventy-five thousand three hundred (9,375,300) shares have been
         designated Series C Preferred Stock, of which nine million two hundred
         forty-five thousand three hundred (9,245,300) are issued and
         outstanding; ten million two

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


                                       50
<PAGE>

         hundred eighty-five thousand seven hundred fourteen (10,285,714) shares
         have been designated Series D Preferred Stock, all of which are issued
         and outstanding; and three million six hundred forty-eight thousand
         seventy-eight (3,648,078) shares have been designated Series E
         Preferred Stock, of which nine hundred sixty-one thousand five hundred
         thirty-nine (961,539) shares are issued and outstanding. The
         outstanding shares of Common Stock and of Preferred Stock have been
         duly authorized and validly issued and are fully paid and
         nonassessable. The rights, preferences and privileges of the Series A
         Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
         Series D Preferred Stock and Series E Preferred Stock are as stated in
         the Amended and Restated Certificate of Incorporation. The Shares have
         been duly authorized, and upon issuance and delivery against payment
         therefor in accordance with the terms of the Agreement, the Shares will
         be validly issued, outstanding, fully paid and nonassessable. The
         shares of Common Stock issuable upon conversion of the Shares have been
         duly authorized, duly and validly reserved for issuance, and upon
         issuance and delivery against payment therefor in accordance with the
         terms of the Amended and Restated Certificate of Incorporation, will be
         validly issued, outstanding, fully paid and nonassessable. To the best
         of our knowledge, there are no options, warrants, conversion
         privileges, preemptive rights or other rights currently outstanding to
         purchase or otherwise acquire any of the authorized but unissued
         capital stock of the Company, other than the conversion privileges of
         the Series A Preferred Stock, Series B Preferred Stock, Series C
         Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and
         rights set forth in the Agreement, options to purchase 3,930,202 shares
         of Common Stock pursuant to the Company's 1994 and 1996 Stock Option
         Plans, 819,029 shares reserved for issuance of additional options under
         the Company's 1994 and 1996 Stock Option Plans, and warrants to
         purchase 65,000 shares of Series C Preferred Stock and 32,051 shares of
         Common Stock.

5.       The execution, delivery and performance of the Agreement by the Company
         and the issuance of the Shares pursuant thereto do not violate any
         provision of the Company's Amended and Restated Certificate of
         Incorporation or Bylaws, and do not violate or contravene (a) any
         governmental statute, rule or regulation applicable to the Company or
         (b) any order, writ, judgment, injunction, decree, determination or
         award which has been entered against the Company and of which we are
         aware, the violation or contravention of which would materially and
         adversely affect the Company, its assets, financial condition or
         operations.

6.       To our knowledge, there is no action, proceeding or investigation
         pending or overtly threatened against or by the Company before any
         court or administrative agency that questions the validity of the
         Agreement or might result, either individually or in the aggregate, in
         any material adverse change in the assets, financial condition, or
         operations of the Company.

7.       All consents, approvals, authorizations, or orders of, and filings,
         registrations, and qualifications with any regulatory authority or
         governmental body in the United States required for the consummation by
         the Company of the transactions contemplated by the Agreement, have
         been made or obtained including the filing the Amended and Restated
         Certificate of Incorporation in the Office of the Secretary of State of
         the State of

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


                                       51
<PAGE>

         Delaware, except (a) for the filing of a Form D pursuant to Securities
         and Exchange Commission Regulation D and (b) other Blue Sky filings
         that may be required.

8.       The offer and sale of the Shares is exempt from the registration
         requirements of the Securities Act of 1933, as amended subject to the
         timely filing of a Form D pursuant to Securities and Exchange
         Commission Regulation D.

This opinion is intended solely for your benefit and is not to be made available
to or be relied upon by any other person, firm, or entity without our prior
written consent.

Very truly yours,

Cooley Godward LLP


By:      /s/      Robert J. Brigham
   -----------------------------------------
         Robert J. Brigham

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


                                       52
<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                               PAGE

<S>                                                                                                            <C>
1.       PURCHASE OF SERIES E STOCK...............................................................................2

         1.1      Initial Purchase of Series E Stock..............................................................2

         1.2      Additional Stock Purchase upon the Achievement of a Milestone...................................2

         1.3      Hart-Scott-Rodino Compliance....................................................................3

2.       CLOSING DATE; DELIVERY...................................................................................3

         2.1      Closing; Closing Date...........................................................................3

         2.2      Delivery........................................................................................4

3.       REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................4

         3.1      Organization, Good Standing and Qualification...................................................4

         3.2      Capitalization..................................................................................4

         3.3      Subsidiaries....................................................................................5

         3.4      Authorization...................................................................................5

         3.5      Valid Issuance of Securities....................................................................5

         3.6      Governmental Consents...........................................................................6

         3.7      Litigation......................................................................................6

         3.8      Employee Agreement..............................................................................6

         3.9      Patents and Trademarks..........................................................................6

         3.10     Compliance with Other Instruments...............................................................7

         3.11     Agreements; Action..............................................................................7

         3.12     Disclosure......................................................................................8

         3.13     Rights of Registration and First Offer..........................................................8

         3.14     Corporate Documents.............................................................................9

         3.15     Title to Property and Assets....................................................................9

         3.16     Financial Statements............................................................................9

         3.17     Employee Benefit Plans; ERISA...................................................................9

         3.18     Tax Returns and Payments.......................................................................10

         3.19     Insurance......................................................................................10

         3.20     Labor Agreements and Actions...................................................................10

         3.21     Absence of Changes.............................................................................11

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


                                       i.
<PAGE>

                                TABLE OF CONTENTS
                                   (CONTINUED)

<CAPTION>
                                                                                                               PAGE
<S>                                                                                                            <C>
         3.22     Brokers........................................................................................11

4.       REPRESENTATIONS AND WARRANTIES OF BD....................................................................11

         4.1      Legal Power....................................................................................11

         4.2      Due Execution..................................................................................11

         4.3      Investment Representations.....................................................................12

         4.4      Brokers........................................................................................13

5.       CONDITIONS TO CLOSING...................................................................................13

         5.1      Conditions to Obligations of BD at Initial Closing.............................................13

         5.2      Conditions Precedent to BD's Investment at the Milestone Closing...............................14

         5.3      Conditions to Obligations of the Company at Closing............................................15

6.       COVENANTS AND RIGHTS  OF BD.............................................................................15

         6.1      Sale Restriction...............................................................................15

         6.2      Right of First Offer...........................................................................16

         6.3      Standstill Agreement...........................................................................17

         6.4      Registration...................................................................................17

7.       COVENANTS OF THE COMPANY................................................................................17

         7.1      Information Rights.............................................................................17

         7.2      Press Releases.................................................................................18

8.       MISCELLANEOUS...........................................................................................18

         8.1      Governing Law..................................................................................18

         8.2      Successors and Assigns.........................................................................18

         8.3      Entire Agreement...............................................................................18

         8.4      Severability...................................................................................18

         8.5      Amendment and Waiver...........................................................................18

         8.6      Notices........................................................................................19

         8.7      Fees and Expenses..............................................................................19

         8.8      Titles and Subtitles...........................................................................19

         8.9      Counterparts...................................................................................19
</TABLE>

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


                                      ii.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>12
<FILENAME>ex-10_1.txt
<DESCRIPTION>EXHIBIT 10.1
<TEXT>

<PAGE>

                                                                    EXHIBIT 10.1


                               INDEMNITY AGREEMENT


         THIS AGREEMENT is made and entered into this _____ day of ______,
200__ by and between AEROGEN, INC., a Delaware corporation (the
"Corporation"), and __________ ("Agent").



                                    RECITALS


         WHEREAS, Agent performs a valuable service to the Corporation in his
capacity as _______ of the Corporation;

         WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at
the request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");

         WHEREAS, the Bylaws and the Code, by their non-exclusive nature,
permit contracts between the Corporation and its agents, officers, employees
and other agents with respect to indemnification of such persons; and

         WHEREAS, in order to induce Agent to continue to serve as _________
of the Corporation, the Corporation has determined and agreed to enter into
this Agreement with Agent;

         NOW, THEREFORE, in consideration of Agent's continued service as
________ after the date hereof, the parties hereto agree as follows:


                                    AGREEMENT


         1.   SERVICES TO THE CORPORATION. Agent will serve, at the will of
the Corporation or under separate contract, if any such contract exists, as
__________ of the Corporation or as a director, officer or other fiduciary of
an affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; PROVIDED,
HOWEVER, that Agent may at any time and for any reason resign from such
position (subject to any contractual obligation that Agent may have assumed
apart from this Agreement) and that the Corporation or any affiliate shall
have no obligation under this Agreement to continue Agent in any such position.

         2.   INDEMNITY OF AGENT. The Corporation hereby agrees to hold
harmless and indemnify Agent to the fullest extent authorized or permitted by
the provisions of the Bylaws and the Code, as the same may be amended from
time to time (but, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than the Bylaws or the
Code permitted prior to adoption of such amendment).

                                        1
<PAGE>

         3.   ADDITIONAL INDEMNITY. In addition to and not in limitation of
the indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further
agrees to hold harmless and indemnify Agent:

              (a)    against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement and any
other amounts that Agent becomes legally obligated to pay because of any claim
or claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation,
or is or was serving or at any time serves at the request of the Corporation
as a director, officer, employee or other agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise;
and

              (b)    otherwise to the fullest extent as may be provided to
Agent by the Corporation under the non-exclusivity provisions of the Code and
the Bylaws.

         4.   LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:

              (a)    on account of any claim against Agent solely for an
accounting of profits made from the purchase or sale by Agent of securities of
the Corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law;

              (b)    on account of Agent's conduct that is established by a
final judgment as knowingly fraudulent or deliberately dishonest or that
constituted willful misconduct;

              (c)    on account of Agent's conduct that is established by a
final judgment as constituting a breach of Agent's duty of loyalty to the
Corporation or resulting in any personal profit or advantage to which Agent
was not legally entitled;

              (d)    for which payment is actually made to Agent under a valid
and collectible insurance policy or under a valid and enforceable indemnity
clause, bylaw or agreement, except in respect of any excess beyond payment
under such insurance, clause, bylaw or agreement;

              (e)    if indemnification is not lawful (and, in this respect,
both the Corporation and Agent have been advised that the Securities and
Exchange Commission believes that indemnification for liabilities arising
under the federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or

              (f)    in connection with any proceeding (or part thereof)
initiated by Agent, or any proceeding by Agent against the Corporation or its
directors, officers, employees or other agents, unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding
was authorized by the Board of Directors of the Corporation, (iii) such
indemnification is provided by the Corporation, in its sole discretion,
pursuant to the powers

                                        2
<PAGE>

vested in the Corporation under the Code, or (iv) the proceeding is initiated
pursuant to Section 9 hereof.

         5.   CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise) and shall continue thereafter so
long as Agent shall be subject to any possible claim or threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving
in the capacity referred to herein.

         6.   PARTIAL INDEMNIFICATION. Agent shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and
amounts paid in settlement and any other amounts that Agent becomes legally
obligated to pay in connection with any action, suit or proceeding referred to
in Section 3 hereof even if not entitled hereunder to indemnification for the
total amount thereof, and the Corporation shall indemnify Agent for the
portion thereof to which Agent is entitled.

         7.   NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30)
days after receipt by Agent of notice of the commencement of any action, suit
or proceeding, Agent will, if a claim in respect thereof is to be made against
the Corporation under this Agreement, notify the Corporation of the
commencement thereof; but the omission so to notify the Corporation will not
relieve it from any liability which it may have to Agent otherwise than under
this Agreement. With respect to any such action, suit or proceeding as to
which Agent notifies the Corporation of the commencement thereof:

              (a)    the Corporation will be entitled to participate therein
at its own expense;

              (b)    except as otherwise provided below, the Corporation may,
at its option and jointly with any other indemnifying party similarly notified
and electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent
of its election to assume the defense thereof, the Corporation will not be
liable to Agent under this Agreement for any legal or other expenses
subsequently incurred by Agent in connection with the defense thereof except
for reasonable costs of investigation or otherwise as provided below. Agent
shall have the right to employ separate counsel in such action, suit or
proceeding but the fees and expenses of such counsel incurred after notice
from the Corporation of its assumption of the defense thereof shall be at the
expense of Agent unless (i) the employment of counsel by Agent has been
authorized by the Corporation, (ii) Agent shall have reasonably concluded, and
so notified the Corporation, that there is an actual conflict of interest
between the Corporation and Agent in the conduct of the defense of such action
or (iii) the Corporation shall not in fact have employed counsel to assume the
defense of such action, in each of which cases the fees and expenses of
Agent's separate counsel shall be at the expense of the Corporation. The
Corporation shall not be entitled to assume the defense of any action, suit or
proceeding brought by or on behalf of the Corporation or as to which Agent
shall have made the conclusion provided for in clause (ii) above; and

                                        3
<PAGE>

              (c)    the Corporation shall not be liable to indemnify Agent
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent, which shall not be unreasonably
withheld. The Corporation shall be permitted to settle any action except that
it shall not settle any action or claim in any manner which would impose any
penalty or limitation on Agent without Agent's written consent, which may be
given or withheld in Agent's sole discretion.

         8.   EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all
expenses incurred by Agent in connection with such proceeding upon receipt of
an undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.

         9.   ENFORCEMENT. Any right to indemnification or advances granted by
this Agreement to Agent shall be enforceable by or on behalf of Agent in any
court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim
is made within ninety (90) days of request therefor. Agent, in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. It shall be a defense to any
action for which a claim for indemnification is made under Section 3 hereof
(other than an action brought to enforce a claim for expenses pursuant to
Section 8 hereof, PROVIDED THAT the required undertaking has been tendered to
the Corporation) that Agent is not entitled to indemnification because of the
limitations set forth in Section 4 hereof. Neither the failure of the
Corporation (including its Board of Directors or its stockholders) to have
made a determination prior to the commencement of such enforcement action that
indemnification of Agent is proper in the circumstances, nor an actual
determination by the Corporation (including its Board of Directors or its
stockholders) that such indemnification is improper shall be a defense to the
action or create a presumption that Agent is not entitled to indemnification
under this Agreement or otherwise.

         10.  SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable
the Corporation effectively to bring suit to enforce such rights.

         11.  NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's
Certificate of Incorporation or Bylaws, agreement, vote of stockholders or
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office.

         12.  SURVIVAL OF RIGHTS.

              (a)    The rights conferred on Agent by this Agreement shall
continue after Agent has ceased to be a director, officer, employee or other
agent of the Corporation or to serve at the request of the Corporation as a
director, officer, employee or other agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
and shall inure to the benefit of Agent's heirs, executors and administrators.

                                        4
<PAGE>

              (b)    The Corporation shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.

         13.  SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid for any reason, such invalidity
or unenforceability shall not affect the validity or enforceability of the
other provisions hereof. Furthermore, if this Agreement shall be invalidated
in its entirety on any ground, then the Corporation shall nevertheless
indemnify Agent to the fullest extent provided by the Bylaws, the Code or any
other applicable law.

         14.  GOVERNING LAW. This Agreement shall be interpreted and enforced
in accordance with the laws of the State of Delaware.

         15.  AMENDMENT AND TERMINATION. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.

         16.  IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the
existence of this Agreement.

         17.  HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction hereof.

         18.  NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with
postage prepaid:

              (a)    If to Agent, at the address indicated on the signature
page hereof.

              (b)    If to the Corporation, to:

                     AEROGEN, INC.
                     1310 Orleans Drive
                     Sunnyvale, CA 94089

or to such other address as may have been furnished to Agent by the
Corporation.



                                        5

<PAGE>


         IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on and as of the day and year first above written.


                                  AEROGEN, INC.


                                  By:
                                     -------------------------------------------


                                  Print Name:
                                             -----------------------------------


                                  Title:
                                        ----------------------------------------


                                  AGENT

                                  By:
                                     -------------------------------------------

                                      Name:
                                           -------------------------------------

                                      Address:
                                              ----------------------------------

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


                                        6
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>13
<FILENAME>ex-10_2.txt
<DESCRIPTION>EXHIBIT 10.2
<TEXT>

<PAGE>


                                                                    EXHIBIT 10.2


                             1994 STOCK OPTION PLAN
                                       OF
                       FLUID PROPULSION TECHNOLOGIES, INC.


                  1.       PURPOSES OF THE PLAN. The purposes of the 1994
Stock Option Plan (the "Plan") of Fluid Propulsion Technologies, Inc., a
California corporation (the "Company"), are to:

                           (a) Encourage selected employees, directors and
consultants to improve operations and increase profits of the Company;

                           (b) Encourage selected employees, directors and
consultants to accept or continue employment or association with the Company or
its Affiliates; and

                           (c) Increase the interest of selected employees,
directors and consultants in the Company's welfare through participation in the
growth in value of the common stock of the Company (the "Common Stock").

                  Options granted under this plan ("Options") may be "incentive
stock options" ("ISOs") intended to satisfy the requirements of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), or "nonqualified
options" ("NQOs").

                  2.       ELIGIBLE PERSONS. Every person who at the date of
grant of an Option is a full-time employee of the Company or of any Affiliate
(as defined below) of the Company is eligible to receive NQOs or ISOs under
this Plan. Every person who at the date of grant is a consultant to, or
non-employee director of, the Company or any Affiliate (as defined below) of
the Company is eligible to receive NQOs under this Plan. The term "Affiliate"
as used in the Plan means a parent or subsidiary corporation as defined in
the applicable provisions (currently Sections 424(e) and (f), respectively)
of the Code. The term "employee" includes an officer or director who is an
employee, of the Company. The term "consultant" includes persons employed by,
or otherwise affiliated with, a consultant.

                  3.       STOCK SUBJECT TO THIS PLAN. Subject to the
provisions of Section 6.1.1 of the Plan, the total number of shares of stock
which may be issued under options granted pursuant to this Plan shall not
exceed 500,000 shares of Common Stock. The shares covered by the portion of
any grant under the Plan which expires unexercised shall become available
again for grants under the Plan.

                  4.       ADMINISTRATION.

                           4.1 GENERAL. This plan shall be administered by the
Board of Directors of the Company (the "Board") or, either in its entirety or
only insofar as required pursuant to Section 4.2 hereof, by a committee (the
"Committee") of at least two Board members to which administration of the Plan,
or of part of the Plan, is delegated (in either case, the "Administrator").


                                       1
<PAGE>

                           4.2 DISINTERESTED ADMINISTRATION. From and after such
time as the Company registers a class of equity securities under Section 12 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), it is
intended that this Plan shall be administered in accordance with the
disinterested administration requirements of Rule 16b-3 promulgated by the
Securities and Exchange Commission ("Rule 16b-3"), or any successor rule
thereto.

                           4.3 AUTHORITY OF ADMINISTRATOR. Subject to the other
provisions of this Plan, the Administrator shall have the authority, in its
discretion: (i) to grant Options; (ii) to determine the fair market value of the
Common Stock subject to Options; (iii) to determine the exercise price of
Options granted; (iv) to determine the persons to whom, and the time or times at
which, Options shall be granted, and the number of shares subject to each
Option; (v) to interpret this Plan; (vi) to prescribe, amend, and rescind rules
and regulations relating to this Plan; (vii) to determine the terms and
provisions of each Option granted (which need not be identical), including but
not limited to, the time or times at which Options shall be exercisable; (viii)
with the consent of the optionee, to modify or amend any Option; (ix) to
authorize any person to execute on behalf of the Company any instrument
evidencing the grant of an Option; and (x) to make all other determinations
deemed necessary or advisable for the administration of this Plan. The
Administrator may delegate nondiscretionary administrative duties to such
employees of the Company as it deems proper.

                           4.4 INTERPRETATION BY ADMINISTRATOR. All questions of
interpretation, implementation, and application of this Plan shall be determined
by the Administrator. Such determinations shall be final and binding on all
persons.

                           4.5 RULE 16b-3. With respect to persons subject to
Section 16 of the Exchange Act, if any, transactions under this Plan are
intended to comply with the applicable conditions of Rule 16b-3, or any
successor rule thereto. To the extent any provision of this Plan or action by
the Administrator fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Administrator.
Notwithstanding the above, it shall be the responsibility of such persons, not
of the Company or the Administrator, to comply with the requirements of Section
16 of the Exchange Act; and neither the Company nor the Administrator shall be
liable if this Plan or any transaction under this Plan fails to comply with the
applicable conditions of Rule 16b-3 or any successor rule thereto, or if any
such person incurs any liability under Section 16 of the Exchange Act.

                  5.       GRANTING OF OPTIONS; OPTION AGREEMENT. No Options
shall be granted under this Plan after ten years from the date of adoption of
this Plan by the Board. Each Option shall be evidenced by a written stock
option agreement, in form satisfactory to the Company, executed by the
Company and the person to whom such Option is granted; provided, however,
that the failure by the Company, the optionee, or both to execute such an
agreement shall not invalidate the granting of an Option, although the
exercise of each option shall be subject to Section 6.1.3. The stock option
agreement shall specify whether each Option it evidences is a NQO or an ISO.
Subject to Section 6.3.3 with respect to ISOs, the Administrator may approve
the grant of Options under this Plan to persons who are expected to become
employees, directors or consultants of the Company, but are not employees,
directors or consultants at the date of approval.

                                       2
<PAGE>

                  6.       TERMS AND CONDITIONS OF OPTIONS. Each Option
granted under this Plan shall be subject to the terms and conditions set
forth in Section 6.1. NQOs shall be also subject to the terms and conditions
set forth in Section 6.2, but not those set forth in Section 6.3. ISOs shall
also be subject to the terms and conditions set forth in Section 6.3, but not
those set forth in Section 6.2.

                           6.1 TERMS AND CONDITIONS TO WHICH ALL OPTIONS ARE
SUBJECT. All Options granted under this Plan shall be subject to the following
terms and conditions:

                               6.1.1 CHANGES IN CAPITAL STRUCTURE. Subject to
Section 6.1.2, if the stock of the Company is changed by reason of a stock
split, reverse stock split, stock dividend, or recapitalization, combination
or reclassification, appropriate adjustments shall be made by the Board in
(a) the number and class of shares of stock subject to this Plan and each
Option outstanding under this Plan, and (b) the exercise price of each
outstanding Option; provided, however, that the Company shall not be required
to issue fractional shares as a result of any such adjustments. Each such
adjustment shall be subject to approval by the Board in its sole discretion.

                               6.1.2 CORPORATE TRANSACTIONS. In the event
of the proposed dissolution or liquidation of the Company, the Administrator
shall notify each optionee at least 30 days prior to such proposed action. To
the extent not previously exercised, all Options will terminate immediately
prior to the consummation of such proposed action. In the event of a merger or
consolidation of the Company with or into another corporation or entity in which
the Company does not survive, or in the event of a sale of all or substantially
all of the assets of the Company in which the shareholders of the Company
receive securities of the acquiring entity or an affiliate thereof, all Options
shall be assumed or equivalent options shall be substituted by the successor
corporation (or other entity) or a parent or subsidiary of such successor
corporation (or other entity). If such successor does not agree to assume the
Options or to substitute equivalent options therefor, unless the Administrator
shall determine otherwise, the Options will expire upon such event.

                               6.1.3 TIME OF OPTION EXERCISE. Subject to
Section 5 and Section 6.3.4, Options granted under this Plan shall be
exercisable (a) immediately as of the effective date of the stock option
agreement granting the Option, or (b) in accordance with a schedule related to
the date of the grant of the Option, the date of first employment, or such other
date as may be set by the Administrator (in any case, the "Vesting Base Date")
and specified in the written stock option agreement relating to such Option;
provided, however, that the right to exercise an Option must vest at the rate of
at least 20% per year over five years from the date the option was granted. In
any case, no Option shall be exercisable until a written stock option agreement
in form satisfactory to the Company is executed by the Company and the optionee.

                               6.1.4 OPTION GRANT DATE. Except in the case
of advance approvals described in Section 5(d), the date of grant of an Option
under this Plan shall be the date as of which the Administrator approves the
grant.

                               6.1.5 NONASSIGNABILITY OF OPTION RIGHTS. No
Option granted under this Plan shall be assignable or otherwise transferable by
the optionee except by will or by


                                       3
<PAGE>

the laws of descent and distribution. During the life of the optionee, an Option
shall be exercisable only by the optionee.

                               6.1.6 PAYMENT. Except as provided below,
payment in full, in cash, shall be made for all stock purchased at the time
written notice of exercise of an Option is given to the Company, and proceeds of
any payment shall constitute general funds of the Company. At the time an Option
is granted or exercised, the Administrator, in the exercise of its absolute
discretion after considering any tax or accounting consequences, may authorize
any one or more of the following additional methods of payment:

                                     (a) Acceptance of the optionee's full
recourse promissory note for all or part of the Option price, payable on such
terms and bearing such interest rate as determined by the Administrator (but
in no event less than the minimum interest rate specified under the Code at
which no additional interest would be imputed), which promissory note may be
either secured or unsecured in such manner as the Administrator shall approve
(including, without limitation, by a security interest in the shares of the
Company); and

                                     (b) Delivery by the optionee of Common
Stock already owned by the optionee for all or part of the Option price,
provided the value (determined as set forth in Section 6.1.11) of such Common
Stock is equal on the date of exercise to the Option price, or such portion
thereof as the optionee is authorized to pay by delivery of such stock;
provided, however, that if an optionee has exercised any portion of any
Option granted by the Company by delivery of Common Stock, the optionee may
not, within six months following such exercise, exercise any Option granted
under this Plan by delivery of Common Stock without the consent of the
Administrator.

                                6.1.7 TERMINATION OF EMPLOYMENT. If for any
reason other than death or permanent and total disability, an optionee ceases to
be employed by the Company or any of its Affiliates (such event being called a
"Termination"), Options held at the date of Termination (to the extent then
exercisable) may be exercised in whole or in part at any time within three
months of the date of such Termination, or such other period of not less than
thirty days after the date of such Termination as is specified in the Option
Agreement (but in no event after the Expiration Date); PROVIDED, that if such
exercise of the Option would result in liability for the optionee under Section
16(b) of the Exchange Act, then such three-month period automatically shall be
extended until the tenth day following the last date upon which optionee has any
liability under Section 16(b) (but in no event after the Expiration Date). If an
optionee dies or becomes permanently and totally disabled while employed by the
Company or an Affiliate or within the period that the Option remains exercisable
after Termination, Options then held (to the extent then exercisable) may be
exercised, in whole or in part, by the optionee, by the optionee's personal
representative or by the person to whom the Option is transferred by devise or
the laws of descent and distribution, at any time within twelve months after the
death or eighteen months after the permanent and total disability of the
optionee, or such other period of not less than six months from the date of
Termination as is specified in the Option Agreement (but in no event after the
Expiration Date). For purposes of this Section 6.1.7, "employment" includes
service as a director or as a consultant. For purposes of this Section 6.1.7, an
optionee's employment shall not be deemed to terminate by reason of sick leave,
military leave or other leave of absence approved by the Administrator, if the
period of any such leave does not exceed


                                       4
<PAGE>

90 days or, if longer, if the optionee's right to reemployment by the Company or
any Affiliate is guaranteed either contractually or by statute.

                               6.1.8 REPURCHASE OF STOCK. At the option of
the Administrator, the stock to be delivered pursuant to the exercise of any
Option granted to an employee, director or consultant under this Plan may be
subject to a right of repurchase in favor of the Company with respect to any
employee, or director or consultant whose employment, or director or consulting
relationship with the Company is terminated. Such right of repurchase either:

                                     (a) shall be at the Option exercise
price and (i) shall lapse at the rate of at least 20% per year over five
years from the date the Option is granted (without regard to the date it
becomes exercisable), and must be exercised for cash or cancellation of
purchase money indebtedness within 90 days of such termination and (ii) if
the right is assignable by the Company, the assignee must pay the Company
upon assignment of the right (unless the assignee is a 100% owned subsidiary
of the Company or is an Affiliate) cash equal to the difference between the
Option exercise price and the value (determined as set forth in Section
6.1.11) of the stock to be purchased if the Option exercise price is less
than such value; or

                                     (b) shall be at the higher of the Option
exercise price or the value (determined as set forth in Section 6.1.11) of
the stock being purchased on the date of termination, and must be exercised
for cash or cancellation of purchase money indebtedness within 90 days of
termination of employment, and such right shall terminate when the Company's
securities become publicly traded.

                  Determination of the number of shares subject to any such
right of repurchase shall be made as of the date the employee's employment by,
director's director relationship with, or consultant's consulting relationship
with, the Company terminates, not as of the date that any Option granted to such
employee, director or consultant is thereafter exercised.

                               6.1.9 WITHHOLDING AND EMPLOYMENT TAXES. At
the time of exercise of an Option or at such other time as the amount of such
obligations becomes determinable (the "Tax Date"), the optionee shall remit to
the Company in cash all applicable federal and state withholding and employment
taxes. If authorized by the Administrator in its sole discretion after
considering any tax or accounting consequences, an optionee may elect to (a)
deliver a promissory note on such terms as the Administrator deems appropriate,
(b) tender to the Company previously owned shares of Stock or other securities
of the Company, or (c) have shares of Common Stock which are acquired upon
exercise of the Option withheld by the Company to pay some or all of the amount
of tax that is required by law to be withheld by the Company as a result of the
exercise of such Option, subject to the following limitations:

                                     (i) Any election pursuant to clause (c)
above by an optionee subject to Section 16 of the Exchange Act shall either
(x) be made at least six months before the Tax Date and shall be irrevocable;
or (y) shall be made in (or made earlier to take effect in) any ten-day
period beginning on the third business day following the date of release for
publication of the Company's quarterly or annual summary statements of
earnings and shall be subject to approval by the Administrator, which
approval may be given at any time after such

                                       5
<PAGE>

election has been made. In addition, in the case of (y), the Option shall be
held at least six months prior to the Tax Date.

                                     (ii) Any election pursuant to clause (b)
above, where the optionee is tendering Common Stock issued pursuant to the
exercise of an Option, shall require that such shares be held at least six
months prior to the Tax Date.

                  Any of the foregoing limitations may be waived (or additional
limitations may be imposed) by the Administrator, in its sole discretion, if the
Administrator determines that such foregoing limitations are not required (or
that such additional limitations are required) in order that the transaction
shall be exempt from Section 16(b) of the Exchange Act pursuant to Rule 16b-3,
or any successor rule thereto. In addition, any of the foregoing limitations may
be waived by the Administrator, in its sole discretion, if the Administrator
determines that Rule 16b-3, or any successor rule thereto, is not applicable to
the exercise of the Option by the optionee or for any other reason.

                  Any securities tendered or withheld in accordance with this
Section 6.1.9 shall be valued by the Company as of the Tax Date.

                               6.1.10 OTHER PROVISIONS. Each Option granted
under this Plan may contain such other terms, provisions, and conditions not
inconsistent with this Plan as may be determined by the Administrator, and each
ISO granted under this Plan shall include such provisions and conditions as are
necessary to qualify the Option as an "incentive stock option" within the
meaning of Section 422 of the Code. If Options provide for a right of first
refusal in favor of the Company with respect to stock acquired by employees,
directors or consultants, such Options shall provide that the right of first
refusal shall terminate upon the earlier of (a) the closing of the Company's
initial registered public offering to the public generally, or (b) the date ten
years after the grant date as set forth in Section 6.1.4.

                               6.1.11 DETERMINATION OF VALUE. For purposes of
the Plan, the value of Common Stock or other securities of the Company shall
be determined as follows:

                                     (a) If the stock of the Company is
listed on any established stock exchange or a national market system,
including without limitation the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotation System, its fair
market value shall be the closing sales price for such stock or the closing
bid if no sales were reported, as quoted on such system or exchange (or the
largest such exchange) for the date the value is to be determined (or if
there are no sales for such date, then for the last preceding business day on
which there were sales), as reported in the WALL STREET JOURNAL or similar
publication.

                                     (b) If the stock of the Company is
regularly quoted by a recognized securities dealer but selling prices are not
reported, its fair market value shall be the mean between the high bid and
low asked prices for the stock on the date the value is to be determined (or
if there are no quoted prices for the date of grant, then for the last
preceding business day on which there were quoted prices).

                                       6
<PAGE>

                                     (c) In the absence of an established
market for the stock, the fair market value thereof shall be determined in
good faith by the Administrator, with reference to the Company's net worth,
prospective earning power, dividend-paying capacity, and other relevant
factors, including the goodwill of the Company, the economic outlook in the
Company's industry, the Company's position in the industry and its
management, and the values of stock of other corporations in the same or a
similar line of business.

                               6.1.12 OPTION TERM. Subject to Section 6.3.5,
no Option shall be exercisable more than ten years after the date of grant,
or such lesser period of time as is set forth in the stock option agreement
(the end of the maximum exercise period stated in the stock option agreement
is referred to in this Plan as the "Expiration Date").

                               6.1.13 EXERCISE PRICE. The exercise price of
any Option granted to any person who owns, directly or by attribution under
the Code currently Section 424(d), stock possessing more than ten percent of
the total combined voting power of all classes of stock of the Company or of
any Affiliate (a "Ten Percent Stockholder") shall in no event be less than
110% of the fair market value (determined in accordance with Section 6.1.11)
of the stock covered by the Option at the time the Option is granted.

                           6.2 TERMS AND CONDITIONS TO WHICH ONLY NQOS ARE
SUBJECT. Except as set forth in Section 6.1.13, the exercise price of a NQO
shall be not less than 85 % of the fair market value (determined in accordance
with Section 6.1.11) of the stock subject to the Option on the date of grant.

                           6.3 TERMS AND CONDITIONS TO WHICH ONLY ISOS ARE
SUBJECT. Options granted under this Plan which are designated as ISOs shall be
subject to the following terms and conditions:

                               6.3.1 EXERCISE PRICE. Except as set forth in
Section 6.1.13, the exercise price of an ISO shall be determined in accordance
with the applicable provisions of the Code and shall in no event be less than
the fair market value (determined in accordance with Section 6.1.11) of the
stock covered by the Option at the time the Option is granted.

                               6.3.2 DISQUALIFYING DISPOSITIONS. If stock
acquired by exercise of an ISO granted pursuant to this Plan is disposed of in a
"disqualifying disposition" within the meaning of Section 422 of the Code, the
holder of the stock immediately before the disposition shall promptly notify the
Company in writing of the date and terms of the disposition and shall provide
such other information regarding the Option as the Company may reasonably
require.

                               6.3.3 GRANT DATE. If an ISO is granted in
anticipation of employment as provided in Section 5(d), the Option shall be
deemed granted, without further approval, on the date the grantee assumes the
employment relationship forming the basis for such grant, and, in addition,
satisfies all requirements of this Plan for Options granted on that date.

                               6.3.4 TERM. Notwithstanding Section 6.1.12,
no ISO granted to any Ten Percent Stockholder shall be exercisable more than
five years after the date of grant.


                                       7
<PAGE>

                  7. MANNER OF EXERCISE. An optionee wishing to exercise an
Option shall give written notice to the Company at its principal executive
office, to the attention of the officer of the Company designated by the
Administrator, accompanied by payment of the exercise price as provided in
Section 6.1.6. The date the Company receives written notice of an exercise
hereunder accompanied by payment of the exercise price will be considered as the
date such Option was exercised. Promptly after receipt of written notice of
exercise of an Option, the Company shall, without stock issue or transfer taxes
to the optionee or other person entitled to exercise the Option, deliver to the
optionee or such other person a certificate or certificates for the requisite
number of shares of stock. An optionee or permitted transferee of an optionee
shall not have any privileges as a shareholder with respect to any shares of
stock covered by the Option until the date of issuance (as evidenced by the
appropriate entry on the books of the Company or a duly authorized transfer
agent) of such shares.

                  8. EMPLOYMENT OR CONSULTING RELATIONSHIP. Nothing in this Plan
or any Option granted thereunder shall interfere with or limit in any way the
right of the Company or of any of its Affiliates to terminate any optionee's
employment or consulting at any time, nor confer upon any optionee any right to
continue in the employ of, or consult with, the Company or any of its
Affiliates.

                  9. FINANCIAL INFORMATION. The Company shall provide to each
optionee during the period such optionee holds an outstanding Option, and to
each holder of Common Stock acquired upon exercise of Options granted under the
Plan for so long as such person is a holder of such Common Stock, annual
financial statements of the Company as prepared either by the Company or
independent certified public accountants of the Company. Such financial
statements shall include, at a minimum, a balance sheet and an income statement,
and shall be delivered as soon as practicable following the end of the Company's
fiscal year.

                  10. CONDITIONS UPON ISSUANCE OF SHARES. Shares of Common Stock
shall not be issued pursuant to the exercise of an Option unless the exercise of
such Option and the issuance and delivery of such shares pursuant thereto shall
comply with all relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended (the "Securities Act").

                  11. NONEXCLUSIVITY OF THE PLAN. The adoption of the Plan shall
not be construed as creating any limitations on the power of the Company to
adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock options other than under the Plan.

                  12. MARKET STANDOFF. Each Optionee, if so requested by the
Company or any representative of the underwriters in connection with any
registration of the offering of any securities of the company under the
Securities Act shall not sell or otherwise transfer any shares of Common Stock
acquired upon exercise of Options during that period following the effective
date of a registration statement of the Company filed under the Securities Act
agreed to by the Company and the representative(s) of the underwriters;
provided, however, that such restriction shall apply only to the first two
registration statements of the Company to become effective under the Securities
Act which includes securities to be sold on behalf of the Company to the public
in an underwritten public offering under the Securities Act. The Company may
impose


                                       8
<PAGE>

stop-transfer instructions with respect to securities subject to the foregoing
restriction until the end of such period.

                  13. AMENDMENTS TO PLAN. The Board may at any time amend,
alter, suspend or discontinue this Plan. Without the consent of an optionee, no
amendment, alteration, suspension or discontinuance may adversely affect
outstanding Options except to conform this Plan and ISOs granted under this Plan
to the requirements of federal or other tax laws relating to incentive stock
options. No amendment, alteration, suspension or discontinuance shall require
shareholder approval unless (a) shareholder approval is required to preserve
incentive stock option treatment for federal income tax purposes, or (b) the
Board otherwise concludes that shareholder approval is advisable.

                  14. EFFECTIVE DATE OF PLAN. This Plan shall become effective
upon adoption by the Board provided, however, that no Option shall be
exercisable unless and until written consent of the shareholders of the Company,
or approval of shareholders of the Company voting at a validly called
shareholders' meeting, is obtained within 12 months after adoption by the Board.
If such shareholder approval is not obtained within such time, Options granted
hereunder shall terminate and be of no force and effect from and after
expiration of such 12-month period. Options may be granted and exercised under
this Plan only after there has been compliance with all applicable federal and
state securities laws.


Plan adopted by the Board of Directors on October 19, 1994.

Plan approved by Shareholders on _________________________________.


                                       9
<PAGE>




                                   EXHIBIT C-2

                        Incentive Stock Option Agreement



                                        10
<PAGE>


                       FLUID PROPULSION TECHNOLOGIES, INC.
                           1994 STOCK INCENTIIVE PLAN
                        INCENTIVE STOCK OPTION AGREEMENT


                  (A)    Name of Optionee:____________________________________
                  (B)    Grant Date:__________________________________________
                  (C)    Number of Shares:____________________________________
                  (D)    Exercise Price:______________________________________
                  (E)    Vesting Base Date:___________________________________
                  (F)    Effective Date:______________________________________


                  THIS INCENTIVE STOCK OPTION AGREEMENT (the "AGREEMENT"), is
made and entered into as of the date set forth in ITEM F above (the "EFFECTIVE
DATE") between Fluid Propulsion Technologies, Inc., a California corporation
(the "COMPANY") and the person named in ITEM A above (the "OPTIONEE").


                  THE PARTIES AGREE AS FOLLOWS:

                  1.       GRANT OF OPTION:  VESTING BASE DATE.

                           1.1 GRANT. The Company hereby grants to Optionee
pursuant to the Company's 1994 Stock Incentive Plan (the "PLAN"), a copy of
which is attached to this Agreement as EXHIBIT 1, an incentive stock option (the
"ISO") to purchase all or any part of an aggregate of the number of shares (the
"ISO SHARES") of the Company's Common Stock (as defined in the Plan) listed in
ITEM C above on the terms and conditions set forth herein and in the Plan, the
terms and conditions of the Plan being hereby incorporated into this Agreement
by reference.

                           1.2 VESTING BASE DATE. The parties hereby establish
the date set forth in ITEM E above as the Vesting Base Date (as defined in
Section 5.1 below).

                  2. EXERCISE PRICE. The exercise price for purchase of each
share of Common Stock covered by this ISO shall be the price set forth in ITEM D
above.

                  3. TERM. Unless otherwise specified on EXHIBIT 3 attached
hereto, if any (the absence of such exhibit indicating that no such exhibit was
intended), this ISO shall expire as provided in Section 6.1.11 of the Plan.

                  4. ADJUSTMENT OF ISOS. The Company shall adjust the number and
kind of shares and the exercise price thereof in certain circumstances in
accordance with the provisions of Section 6.1.1 of the Plan.


                                       11
<PAGE>

                  5.       EXERCISE OF OPTIONS.

                           5.1 VESTING; TIME OF EXERCISE. This ISO shall be
exercisable according to the schedule set forth on EXHIBIT 5.1 attached hereto.
Such schedule shall commence as of the date set forth in ITEM E above (the
"VESTING BASE DATE"). The absence of EXHIBIT 5.1 indicates that no such exhibit
was intended and that the ISO Shares shall be subject to the Company's rights
set forth in Section 7.

                           5.2 EXERCISE AFTER TERMINATION OF STATUS AS AN
EMPLOYEE, DIRECTOR OR CONSULTANT. In the event of termination of Optionee's
continuous status as an employee, director or consultant, this ISO may be
exercised only in accordance with the provisions of Section 6.1.7 of the Plan.

                           5.3 MANNER OF EXERCISE. Optionee may exercise this
ISO, or any portion of this ISO, by giving written notice to the Company at its
principal executive office, to the attention of the officer of the Company
designated by the Plan Administrator, accompanied by a copy of the Employee
Stock Option Plan Stock Purchase Agreement in substantially the form attached
hereto as EXHIBIT 5.3 executed by Optionee (or at the option of the Company such
other form of stock purchase agreement as shall then be acceptable to the
Company), payment of the exercise price and payment of any applicable
withholding or employment taxes. The date the Company receives written notice of
an exercise hereunder accompanied by payment will be considered as the date this
ISO was exercised.

                           5.4 PAYMENT. Except as provided in EXHIBIT 5.4
attached hereto, if any (the absence of such exhibit indicating that no exhibit
was intended), payment may be made for ISO Shares purchased at the time written
notice of exercise of the ISO is given to the Company, by delivery of cash,
check, previously owned shares of Common Stock (provided that delivery of
previously owned shares may not be made more than once in any six-month period),
or a full recourse promissory note equal to up to 90% of the exercise price and
payable over no more than five years. The proceeds of any payment shall
constitute general funds of the Company.

                           5.5 DELIVERY OF CERTIFICATE. Promptly after receipt
of written notice of exercise of the ISO, the Company shall, without stock issue
or transfer taxes to the Optionee or other person entitled to exercise, deliver
to the Optionee or other person a certificate or certificates for the requisite
number of ISO Shares. An Optionee or transferee of an Optionee shall not have
any privileges as a shareholder with respect to any ISO Shares covered by the
option until the date of issuance of a stock certificate.

                  6. NONASSIGNABILITY OF ISO. This ISO is not assignable or
transferable by Optionee except by will or by the laws of descent and
distribution. During the life of Optionee, the ISO is exercisable only by the
Optionee. Any attempt to assign, pledge, transfer, hypothecate or otherwise
dispose of this ISO in a manner not herein permitted, and any levy of execution,
attachment, or similar process on this ISO, shall be null and void.

                  7. COMPANY'S REPURCHASE RIGHTS. The ISO Shares arising from
exercise of this ISO shall be subject to a right of repurchase in favor of the
Company (the "RIGHT OF REPURCHASE") to the extent set forth on EXHIBIT 7
attached hereto (the absence of such exhibit


                                       12
<PAGE>

indicating that no such exhibit was intended and that the ISO shall be subject
to the limitations set forth on EXHIBIT 5.1). If the Optionee's employment with
the Company terminates before the Right of Repurchase lapses in accordance with
EXHIBIT 7, the Company may purchase ISO Shares subject to the Right of
Repurchase (either by payment of cash or by cancellation of purchase money
indebtedness) for an amount equal to the price the Optionee paid for such ISO
Shares (exclusive of any taxes paid upon acquisition of the stock) by giving
notice at any time within the later of (a) 30 days after the acquisition of the
ISO Shares upon option exercise, or (b) 90 days after such termination of
employment that the Company is exercising its right of repurchase. The Company
shall include with such notice payment in full in cash or by evidence of
cancellation of purchase money indebtedness. The Optionee may not dispose of or
transfer ISO Shares while such shares are subject to the Right of Repurchase and
any such attempted transfer shall be null and void. The Company's rights under
this Section 7 shall be fully assignable, in whole or in part; PROVIDED, that if
the Company assigns such rights, the assignee (other than an assignee that is a
wholly-owned subsidiary or the sole parent of the Company) shall pay to the
Company upon assignment cash equal to the difference, if any, between the then
fair market value of the ISO Shares and the aggregate exercise price thereof.

                  8.       COMPANY'S RIGHT OF FIRST REFUSAL.

                           8.1 RIGHT OF FIRST REFUSAL. In the event that the
Optionee proposes to sell, pledge, or otherwise transfer any ISO Shares or any
interest in such shares to any person or entity, the Company shall have a right
of first refusal (the "RIGHT OF FIRST REFUSAL") with respect to such ISO Shares.
If Optionee desires to transfer ISO Shares, Optionee shall give a written notice
(the "TRANSFER NOTICE") to the Company describing fully the proposed transfer,
including the number of ISO Shares proposed to be transferred, the proposed
transfer price, and the name and address of the proposed transferee. The
Transfer Notice shall be signed both by Optionee and by the proposed transferee
and must constitute a binding commitment of both such parties for the transfer
of such ISO Shares. The Company may elect to purchase all, but not less than
all, of the ISO Shares subject to the Transfer Notice by delivery of a notice of
exercise of the Company's Right of First Refusal within 30 days after the date
the Transfer Notice is delivered to the Company. The purchase price paid by the
Company shall be the price per share equal to the proposed per share transfer
price, and shall be paid to the Optionee within 60 days after the date the
Transfer Notice is received by the Company, unless a longer period for payment
was offered by the proposed transferee, in which case the Company shall pay the
purchase price within such longer period. The Company's rights under this
Section 8.1 shall be freely assignable, in whole or in part. Notwithstanding the
foregoing, the Right of First Refusal does not apply to a transfer of shares by
gift or devise to the Optionee's immediate family (i.e., parents, spouse or
children or to a trust for the benefit of the Optionee or any of the Optionee's
immediate family members), but does apply to any subsequent transfer of such
shares by such immediate family members.

                           8.2 TRANSFER OF ISO SHARES. If the Company fails to
exercise the Right of First Refusal within 30 days after the date the Transfer
Notice is delivered to the Company, the Optionee may, not later than 75 days
following delivery to the Company of the Transfer Notice, conclude a transfer of
the ISO Shares subject to the Transfer Notice on the terms and conditions
described in the Transfer Notice. Any proposed transfer on terms and conditions
different from those described in the Transfer Notice, as well as any subsequent
proposed


                                       13
<PAGE>

transfer by the Optionee, shall again be subject to the Right of First Refusal
and shall require compliance by the Optionee with the procedure described in
Section 8.1 of this Agreement. If the Company exercises the Right of First
Refusal, the parties shall consummate the sale of ISO Shares on the terms, other
than price, as applicable under Section 8.1, set forth in the Transfer Notice;
provided, however, in the event the Transfer Notice provides for payment for the
ISO Shares other than in cash, the Company shall have the option of paying for
the ISO Shares by paying in cash the present value of the consideration
described in the Transfer Notice; and further provided that if the value of
noncash consideration is to be paid, the Optionee disagrees with the value
determined by the Company, the Optionee may request an independent appraisal by
an appraiser acceptable to the Optionee and the Company, the costs of such
appraisal to be borne equally by the Optionee and the Company.

                           8.3 BINDING EFFECT. The Right of First Refusal shall
inure to the benefit of the successors and assigns of the Company and shall be
binding upon any transferee of ISO Shares other than a transferee acquiring ISO
Shares in a transaction where the Company failed to exercise the Right of First
Refusal (a "FREE TRANSFEREE") or a transferee of a Free Transferee.

                           8.4 TERMINATION OF COMPANY'S RIGHT OF FIRST REFUSAL.
Notwithstanding anything in this Section 8, the Company shall have no Right of
First Refusal, and Optionee shall have no obligation to comply with the
procedures in Sections 8.1 through 8.3 after the earlier of (i) the closing of
the Company's initial public offering to the public generally, or (ii) the date
ten years after the Effective Date.

                  9. MARKET STANDOFF. Optionee hereby agrees that if so
requested by the Company or any representative of the underwriters in connection
with any registration of the offering of the securities of the Company under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), Optionee shall not
sell or otherwise transfer the ISO Shares for that period following the
effective date of a Registration Statement filed under the Securities Act agreed
to by the Company and the representative(s) of the underwriters; provided that
such restrictions shall only apply to the first two registration statements of
the Company to become effective under the Securities Act which include
securities to be sold on behalf of the Company in an underwritten public
offering under the Securities Act. The Company may impose stop-transfer
instructions with respect to the ISO Shares subject to the foregoing
restrictions until the end of each such period.

                  10.      RESTRICTION ON ISSUANCE OF SHARES.

                           10.1 LEGALITY OF ISSUANCE. The Company shall not be
obligated to sell or issue any ISO Shares pursuant to this Agreement if such
sale or issuance, in the opinion of the Company and the Company's counsel, might
constitute a violation by the Company of any provision of law, including without
limitation the provisions of the Securities Act.

                           10.2 REGISTRATION OR QUALIFICATION OF SECURITIES. The
Company may, but shall not be required to, register or qualify the sale of this
ISO or any ISO Shares under the Securities Act or any other applicable law. The
Company shall not be obligated to take any


                                       14
<PAGE>

affirmative action in order to cause the grant or exercise of this option or the
issuance or sale of any ISO Shares pursuant thereto to comply with any law.

                  11. RESTRICTION ON TRANSFER. Regardless whether the sale of
the ISO Shares has been registered under the Securities Act or has been
registered or qualified under the securities laws of any state, the Company may
impose restrictions upon the sale, pledge or other transfer of ISO Shares
(including the placement of appropriate legends on stock certificates) if, in
the judgment of the Company and the Company's counsel, such restrictions are
necessary or desirable in order to achieve compliance with the provisions of the
Securities Act, the securities laws of any state, or any other law, or if the
Company does not desire to have a trading market develop for its securities.

                  12. STOCK CERTIFICATE. Stock certificate evidencing ISO Shares
may bear such restrictive legends as the Company and the Company's counsel deem
necessary or advisable under applicable law or pursuant to this Agreement.

                  13. DISQUALIFYING DISPOSITIONS. If stock acquired by exercise
of this ISO is disposed of within two years after the Effective Date or within
one year after date of such exercise (as determined under Section 5.3 of this
Agreement), the Optionee immediately prior to the disposition shall promptly
notify the Company in writing of the date and terms of the disposition and shall
provide such other information regarding the disposition as the Company may
reasonably require.

                  14. REPRESENTATIONS, WARRANTIES, COVENANTS, AND
ACKNOWLEDGMENTS OF OPTIONEE UPON EXERCISE OF ISO. Optionee hereby agrees that in
the event that the Company and the Company's counsel deem it necessary or
advisable in the exercise of their discretion, the issuance of ISO Shares may be
conditioned upon certain representations, warranties, and acknowledgments by the
person exercising the ISO.

                  15. ASSIGNMENT: BINDING EFFECT. Subject to the limitations set
forth in this Agreement, this Agreement shall be binding upon and inure to the
benefit of the executors, administrators, heirs, legal representatives, and
successors of the parties hereto; provided, however, that Optionee may not
assign any of Optionee's rights under this Agreement.

                  16. DAMAGES. Optionee shall be liable to the Company for all
costs and damages, including incidental and consequential damages, resulting
from a disposition of ISO Shares which is not in conformity with the provisions
of this Agreement.

                  17. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California excluding
those laws that direct the application of the laws of another jurisdiction.

                  18. NOTICES. All notices and other communications under this
Agreement shall be in writing. Unless and until the Optionee is notified in
writing to the contrary, all notices, communications, and documents directed to
the Company and related to the Agreement, if not delivered by hand, shall be
mailed, addressed as follows:


                                       15
<PAGE>

                   Fluid Propulsion Technologies, Inc.
                   3350 Scott Boulevard, Bldg. 33
                   Santa Clara, California 95054
                   Attn: President and Chief Executive Officer

Unless and until the Company is notified in writing to the contrary, all
notices, communications, and documents intended for the Optionee and related to
this Agreement, if not delivered by hand, shall be mailed to Optionee's last
known address as shown on the Company's books. Notices and communications shall
be mailed by first class mail, postage prepaid; documents shall be mailed by
registered mail, return receipt requested, postage prepaid. All mailings and
deliveries related to this Agreement shall be deemed received when actually
received, if by hand delivery, and two business days after mailing, if by mail.


                                       16
<PAGE>


                  IN WITNESS WHEREOF, the parties have executed this Agreement
as of the Effective Date.

                                     FLUID PROPULSION TECHNOLOGIES, INC.



                                     By:
                                        ---------------------------------------
                                     Title:
                                           ------------------------------------

The Optionee hereby accepts and agrees to be bound by all of the terms and
conditions of this Agreement and the Plan.



                                     ------------------------------------------
                                     Optionee


Optionee's spouse indicates by the execution of this Option Agreement his or her
consent to be bound by the terms thereof as to his or her interests, whether as
community property or otherwise, if any, in the option granted hereunder, and in
any ISO Shares purchased pursuant to this Agreement.



                                     ------------------------------------------
                                     Optionee's Spouse


                                       17
<PAGE>


                                    EXHIBITS

Exhibit 1                  1994 Stock Incentive Plan

Exhibit 3                  Expiration of Incentive Stock Options
(if applicable)

Exhibit 5.1                Time of Exercise
(if applicable)

Exhibit 5.3                1994 Stock Incentive Plan Stock Option
                           Exercise and Purchase Agreement

Exhibit 5.4                Payment
(if applicable)

Exhibit 7                  Right of Repurchase
(if applicable)


                                        18
<PAGE>


                               EXHIBIT 5.1 TO THE
                        INCENTIVE STOCK OPTION AGREEMENT


         The ISO shall be exercisable with respect to twenty five percent (25%)
of the total number of ISO Shares one year after the Vesting Base Date and,
thereafter, with respect to an additional 2.083% of such shares on the last day
of each calendar month after the first anniversary of the Vesting Base Date, so
that all of the ISO Shares may be purchased on and after the fourth anniversary
of the Vesting Base Date.


Initialled by:                       FLUID PROPULSION TECHNOLOGIES, INC.



                                     By:
                                        ---------------------------------------
                                     Title:
                                           ------------------------------------


                                     ------------------------------------------
                                     Optionee



                                        19
<PAGE>


                                   EXHIBIT C-3

                       Nonqualified Stock Option Agreement


                                        20
<PAGE>


                       FLUID PROPULSION TECHNOLOGIES, INC.
                            1994 STOCK INCENTIVE PLAN
                       NONQUALIFIED STOCK OPTION AGREEMENT
                       -----------------------------------


                  (A)  Name of Optionee:____________________________________
                  (B)  Grant Date:__________________________________________
                  (C)  Number of Shares:____________________________________
                  (D)  Exercise Price:______________________________________
                  (E)  Vesting Base Date:___________________________________
                  (F)  Effective Date:______________________________________


                  THIS NONQUALIFIED STOCK OPTION AGREEMENT (the "AGREEMENT"),
is made and entered into as of the date set forth in ITEM F above (the
"EFFECTIVE DATE") between Fluid Propulsion Technologies, Inc., a California
corporation (the "COMPANY") and the person named in ITEM A above (the
"OPTIONEE").

                  THE PARTIES AGREE AS FOLLOWS:

                  1.       GRANT OF OPTION; VESTING BASE DATE.

                           1.1 GRANT. The Company hereby grants to Optionee
pursuant to the Company's 1994 Stock Incentive Plan (the "PLAN"), a copy of
which is attached to this Agreement as Exhibit 1, a nonqualified stock option
(the "NQO") to purchase all or any part of an aggregate of the number of
shares (the "NQO Shares") of the Company's Common Stock (as defined in the
Plan) listed in ITEM C above on the terms and conditions set forth herein and
in the Plan, the terms and conditions of the Plan being hereby incorporated
into this Agreement by reference. This option does not constitute, and will
not be treated as, an "incentive stock option" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended.

                           1.2 VESTING BASE DATE. The parties hereby establish
the date set forth in ITEM E above as the Vesting Base Date (as defined in
Section 5.1 below).

                  2. EXERCISE PRICE. The exercise price for purchase of each
share of Common Stock covered by this NQO shall be the price set forth in ITEM
D above.

                  3. TERM. Unless otherwise specified on EXHIBIT 3 attached
hereto, if any (the absence of such exhibit indicating that no such exhibit
was intended), this NQO shall expire as provided in Section 6.1.12 of the Plan.

                  4. ADJUSTMENT OF NQOS. The Company shall adjust the number
and kind of shares and the exercise price thereof in certain circumstances in
accordance with the provisions of Section 6.1.1 of the Plan.


                                       21
<PAGE>

                  5.       EXERCISE OF OPTIONS.

                           5.1 VESTING; TIME OF EXERCISE. This NQO shall be
exercisable according to the schedule set forth on EXHIBIT 5.1 attached
hereto. Such schedule shall commence as of the date set forth in ITEM E above
(the "VESTING BASE DATE"). The absence of EXHIBIT 5.1 indicates that no such
exhibit was intended and that the ISO Shares shall be subject to the Company's
rights set forth in Section 7.

                           5.2 EXERCISE AFTER TERMINATION OF STATUS AS AN
EMPLOYEE, DIRECTOR OR CONSULTANT. In the event of termination of Optionee's
continuous status as an employee, director or consultant, this NQO may be
exercised only in accordance with the provisions of Section 6.1.7 of the Plan.

                           5.3 MANNER OF EXERCISE. Optionee may exercise this
NQO, or any portion of this NQO, by giving written notice to the Company at
its principal executive office, to the attention of the officer of the Company
designated by the Plan Administrator, accompanied by a copy of the Employee
Stock Option Plan Stock Purchase Agreement in substantially the form attached
hereto as EXHIBIT 5.3 executed by Optionee (or at the option of the Company
such other form of stock purchase agreement as shall then be acceptable to the
Company), payment of the exercise price and payment of any applicable
withholding or employment taxes. The date the Company receives written notice
of an exercise hereunder accompanied by payment will be considered as the date
this NQO was exercised.

                           5.4 PAYMENT. Except as provided in EXHIBIT 5.4
attached hereto, if any (the absence of such exhibit indicating that no
exhibit was intended), payment may be made for NQO Shares purchased at the
time written notice of exercise of the NQO is given to the Company, by
delivery of cash, check, previously owned shares of Common Stock (provided
that delivery of previously owned shares may not be made other than once in
any six-month period), or a full recourse promissory note equal to up to 90%
of the exercise price and payable over no more than five years. The proceeds
of any payment shall constitute general funds of the Company.

                           5.5 DELIVERY OF CERTIFICATE. Promptly after receipt
of written notice of exercise of the NQO, the Company shall, without stock
issue or transfer taxes to the Optionee or other person entitled to exercise,
deliver to the Optionee or other person a certificate or certificates for the
requisite number of NQO Shares. An Optionee or transferee of an Optionee shall
not have any privileges as a shareholder with respect to any NQO Shares
covered by the option until the date of issuance of a stock certificate.

                  6. NONASSIGNABILITY OF NQO. This NQO is not assignable or
transferable by Optionee except by will or by the laws of descent and
distribution. During the life of Optionee, the NQO is exercisable only by the
Optionee. Any attempt to assign, pledge, transfer, hypothecate or otherwise
dispose of this NQO in a manner not herein permitted, and any levy of
execution, attachment, or similar process on this NQO, shall be null and void.

                  7. COMPANY'S RIGHT OF REPURCHASE UPON TERMINATION OF
EMPLOYMENT. The NQO Shares arising from exercise of this NQO shall be subject
to a right of repurchase in favor


                                       22
<PAGE>

of the Company (the "RIGHT OF REPURCHASE") to the extent set forth on EXHIBIT
7 attached hereto (the absence of such exhibit indicating that no such exhibit
was intended and that the NQO shall be subject to the limitations set forth on
EXHIBIT 5.1). If the Optionee's employment with the Company terminates before
the Right of Repurchase lapses in accordance with EXHIBIT 7, the Company may
purchase NQO Shares subject to the Right of Repurchase (either by payment of
cash or by cancellation of purchase money indebtedness) for an amount equal to
the price the Optionee paid for such NQO Shares (exclusive of any taxes paid
upon acquisition of the stock) by giving notice at any time within the later
of (a) 30 days after the acquisition of the NQO Shares upon option exercise,
or (b) 90 days after such termination of employment that the Company is
exercising its right of repurchase. The Company shall include with such notice
payment in full in cash or by evidence of cancellation of purchase money
indebtedness. The Optionee may not dispose of or transfer NQO Shares while
such shares are subject to the Right of Repurchase and any such attempted
transfer shall be null and void. The Company's rights under this Section 7
shall be fully assignable, in whole or in part; PROVIDED, that if the Company
assigns such rights, the assignee (other than an assignee that is a
wholly-owned subsidiary or the sole parent of the Company) shall pay to the
Company upon assignment cash equal to the difference, if any, between the then
fair market value of the NQO Shares and the aggregate exercise price thereof.

                  8.       COMPANY'S RIGHT OF FIRST REFUSAL.

                           8.1 RIGHT OF FIRST REFUSAL. In the event that the
Optionee proposes to sell, pledge, or otherwise transfer any NQO Shares or any
interest in such shares to any person or entity, the Company shall have a
right of first refusal (the "RIGHT OF FIRST REFUSAL") with respect to such NQO
Shares. If Optionee desires to transfer NQO Shares, Optionee shall give a
written notice (the "TRANSFER NOTICE") to the Company describing fully the
proposed transfer, including the number of NQO Shares proposed to be
transferred, the proposed transfer price, and the name and address of the
proposed transferee. The Transfer Notice shall be signed both by Optionee and
by the proposed transferee and must constitute a binding commitment of both
such parties for the transfer of such NQO Shares. The Company may elect to
purchase all, but not less than all, of the NQO Shares subject to the Transfer
Notice by delivery of a notice of exercise of the Company's Right of First
Refusal within 30 days after the date the Transfer Notice is delivered to the
Company. The purchase price paid by the Company shall be the price per share
equal to the proposed per share transfer price, and shall be paid to the
Optionee within 60 days after the date the Transfer Notice is received by the
Company, unless a longer period for payment was offered by the proposed
transferee, in which case the Company shall pay the purchase price within such
longer period. The Company's rights under this Section 8.1 shall be freely
assignable, in whole or in part. Notwithstanding the foregoing, the Right of
First Refusal does not apply to a transfer of shares by gift or devise to the
Optionee's immediate family (i.e., parents, spouse or children or to a trust
for the benefit of the Optionee or any of the Optionee's immediate family
members), but does apply to any subsequent transfer of such shares by such
immediate family members.

                           8.2 TRANSFER OF NQO SHARES. If the Company fails to
exercise the Right of First Refusal within 30 days after the date the Transfer
Notice is delivered to the Company, the Optionee may, not later than 75 days
following delivery to the Company of the Transfer Notice, conclude a transfer
of the NQO Shares subject to the Transfer Notice on the


                                       23
<PAGE>

terms and conditions described in the Transfer Notice. Any proposed transfer
on terms and conditions different from those described in the Transfer Notice,
as well as any subsequent proposed transfer by the Optionee, shall again be
subject to the Right of First Refusal and shall require compliance by the
Optionee with the procedure described in Section 8.1 of this Agreement. If the
Company exercises the Right of First Refusal, the parties shall consummate the
sale of NQO Shares on the terms, other than price, as applicable under Section
8.1, set forth in the Transfer Notice; provided, however, in the event the
Transfer Notice provides for payment for the NQO Shares other than in cash,
the Company shall have the option of paying for the NQO Shares by paying in
cash the present value of the consideration described in the Transfer Notice;
and further provided that if the value of noncash consideration is to be paid,
and the Optionee disagrees with the value determine by the Company, the
Optionee may request an independent appraisal by an appraiser acceptable to
the Optionee and the Company, the costs of such appraisal to be home equally
by the Optionee and the Company.

                           8.3 BINDING EFFECT. The Right of First Refusal
shall inure to the benefit of the successors and assigns of the Company and
shall be binding upon any transferee of NQO Shares other than a transferee
acquiring NQO Shares in a transaction where the Company failed to exercise the
Right of First Refusal (a "FREE TRANSFEREE") or a transferee of a Free
Transferee.

                           8.4 TERMINATION OF COMPANY'S RIGHT OF FIRST
REFUSAL. Notwithstanding anything in this Section 8, the Company shall have no
Right of First Refusal, and Optionee shall have no obligation to comply with
the procedures in Sections 8.1 through 8.3 after the earlier of (i) the
closing of the Company's initial public offering to the public generally or
(ii) the date is 10 years after the Effective Date.

                  9. MARKET STANDOFF. Optionee hereby agrees that if so
requested by the Company or any representative of the underwriters in
connection with any registration of the offering of the securities of the
Company under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
Optionee shall not sell or otherwise transfer the NQO Shares for that period
following the effective date of a Registration Statement filed under the
Securities Act agreed to by the Company and the representative(s) of the
underwriters; provided that such restrictions shall apply only to the first
two registration statements of the Company to become effective under the
Securities Act which include securities to be sold on behalf of the Company in
an underwritten public offering under the Securities Act. The Company may
impose stop-transfer instructions with respect to the NQO Shares subject to
the foregoing restrictions until the end of each such period.

                  10.      RESTRICTION ON ISSUANCE OF SHARES.

                           10.1 LEGALITY OF ISSUANCE. The Company shall not be
obligated to sell or issue any NQO Shares pursuant to this Agreement if such
sale or issuance, in the opinion of the Company and the Company's counsel,
might constitute a violation by the Company of any provision of law, including
without limitation the provisions of the Securities Act.

                           10.2 REGISTRATION OR QUALIFICATION OF SECURITIES.
The Company may, but shall not be required to, register or qualify the sale of
this NQO or any NQO Shares under the


                                       24
<PAGE>

Securities Act or any other applicable law. The Company shall not be obligated
to take any affirmative action in order to cause the grant or exercise of this
option or the issuance or sale of any NQO Shares pursuant thereto to comply
with any law.

                  11. RESTRICTION ON TRANSFER. Regardless whether the sale of
the NQO Shares has been registered under the Securities Act or has been
registered or qualified under the securities laws of any state, the Company
may impose restrictions upon the sale, pledge or other transfer of NQO Shares
(including the placement of appropriate legends on stock certificates) if, in
the judgment of the Company and the Company's counsel, such restrictions are
necessary or desirable in order to achieve compliance with the provisions of
the Securities Act, the securities laws of any state, or any other law, or if
the Company does not desire to have a trading market develop for its
securities.

                  12. STOCK CERTIFICATE RESTRICTIVE LEGENDS. Stock
certificates evidencing NQO Shares may bear such restrictive legends as the
Company and the Company's counsel deem necessary or advisable under applicable
law or pursuant to this Agreement.

                  13. REPRESENTATIONS, WARRANTIES, COVENANTS, AND
ACKNOWLEDGMENTS OF OPTIONEE UPON EXERCISE OF NQO. Optionee hereby agrees that
in the event that the Company and the Company's counsel deem it necessary or
advisable in the exercise of their discretion, the issuance of NQO Shares may
be conditioned upon certain representations, warranties, and acknowledgments
by the person exercising the NQO.

                  14. ASSIGNMENT; BINDING EFFECT. Subject to the limitations
set forth in this Agreement, this Agreement shall be binding upon and inure to
the benefit of the executors, administrators, heirs, legal representatives,
and successors of the parties hereto; provided, however, that Optionee may not
assign any of Optionee's rights under this Agreement.

                  15. DAMAGES. Optionee shall be liable to the Company for all
costs and damages, including incidental and consequential damages, resulting
from a disposition of NQO Shares which is not in conformity with the
provisions of this Agreement.

                  16. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California excluding
those laws that direct the application of the laws of another jurisdiction.

                  17. NOTICES. All notices and other communications under this
Agreement shall be in writing. Unless and until the Optionee is notified in
writing to the contrary, all notices, communications, and documents directed
to the Company and related to the Agreement, if not delivered by hand, shall
be mailed, addressed as follows:

                       Fluid Propulsion Technologies, Inc.
                       3350 Scott Boulevard, Bldg. 33
                       Santa Clara, California 95054
                       Attn: President and Chief Executive Officer

Unless and until the Company is notified in writing to the contrary, all
notices, communications, and documents intended for the Optionee and related
to this Agreement, if not delivered by hand,


                                       25
<PAGE>

shall be mailed to Optionee's last known address as shown on the Company's
books. Notices and communications shall be mailed by first class mail, postage
prepaid; documents shall be mailed by registered mail, return receipt
requested, postage prepaid. All mailings and deliveries related to this
Agreement shall be deemed received when actually received, if by hand
delivery, and two business days after mailing, if by mail.




























                                       26
<PAGE>


                  IN WITNESS WHEREOF, the parties have executed this Agreement
as of the Effective Date.

                                            FLUID PROPULSION TECHNOLOGIES, INC.


                                            By:
                                               --------------------------------

                                            Title:
                                                  -----------------------------


The Optionee hereby accepts and agrees to be bound by all of the terms and
conditions of this Agreement and the Plan.


                                            -----------------------------------
                                            Optionee


Optionee's spouse indicates by the execution of this Agreement his or her
consent to be bound by the terms thereof as to his or her interests, whether
as community property or otherwise, if any, in the option granted hereunder,
and in any NQO Shares purchased pursuant to this Agreement.



                                            -----------------------------------
                                            Optionee's Spouse












                                       27
<PAGE>


                                    EXHIBITS
                                    --------

Exhibit 1                        1994 Stock Incentive Plan

Exhibit 3                        Expiration of Incentive Stock Option
(if applicable)

Exhibit 5.1                      Time of Exercise
(if applicable)

Exhibit 5.3                      1994 Stock Incentive Plan Stock Option
                                 Exercise and Purchase Agreement

Exhibit 5.4                      Payment
(if applicable)

Exhibit 7                        Right of Repurchase
(if applicable)



                                        28
<PAGE>


                               EXHIBIT 5.1 TO THE
                       NONQUALIFIED STOCK OPTION AGREEMENT
                       -----------------------------------

                  The NQO shall be exercisable with respect to twenty five
percent (25%) of total number of NQO Shares one year after the Vesting Base
Date and, thereafter, with respect to an additional 2.083% of such shares on
the last day of each calendar month after the first anniversary of the Vesting
Base Date, so that all of the NQO Shares may be purchased on and after the
fourth anniversary of the Vesting Base Date.

                  Initialed by:             FLUID PROPULSION TECHNOLOGIES, INC.


                                            By:
                                               --------------------------------

                                            Title:
                                                  -----------------------------


                                            -----------------------------------
                                            Optionee



                                        29
<PAGE>


                                   EXHIBIT C-4
                                   -----------

                    Stock Purchase and Restriction Agreement


                                        30
<PAGE>



                       FLUID PROPULSION TECHNOLOGIES, INC.
                            1994 STOCK INCENTIVE PLAN
                    STOCK PURCHASE AND RESTRICTION AGREEMENT



         THIS STOCK PURCHASE AND RESTRICTION AGREEMENT (the "Agreement") is
made and entered into as of this ______ day of ________, 19__ between Fluid
Propulsion Technologies, Inc., a California corporation (the "Company"), and
___________________ ("EMPLOYEE"), an employee of the Company.

         1. PURCHASE OF SHARES. Pursuant to the Company's 1994 Stock Incentive
Plan (the "Plan") and subject to the terms and conditions of the Plan and this
Agreement, the Company hereby offers to Employee the right to purchase AT ANY
TIME PRIOR TO DATE 30 DAYS AFTER THE DATE OF THIS AGREEMENT SET FORTH ABOVE
__________________ (____) shares of the Company's no par value Common Stock
(the "SHARES"). Upon execution and delivery of this Agreement with the
purchase price for the Shares, the Company shall sell the Shares to Employee
at a price of $ _______, per share, or an aggregate purchase price of $_____,
payable in cash.

         2. MARKET STANDOFF. Employee agrees upon request from the Company or
any representative of the underwriters in connection with any registration of
the offering of any securities of the Company under the Securities Act of
1933, as amended (the "SECURITIES ACT"), not to sell or otherwise transfer any
Shares or other securities of the Company during that period following the
effective date of a registration statement of the Company filed under the
Securities Act agreed to by the Company and the representative(s) of the
underwriters; provided, however, that such restriction shall apply only to the
first two registration statements of the Company to become effective under the
Securities Act which include securities to be sold on behalf of the Company to
the public in an underwritten public offering under the Securities Act. The
Company may impose stop-transfer instructions with respect to securities
subject to the foregoing restrictions until the end of such periods.

         3. RIGHT OF COMPANY TO REPURCHASE SHARES.

            3.1 REPURCHASE RIGHT. The Company shall have the right (but not
the obligation) to repurchase all of the shares with respect to which the
Right of Repurchase has not yet expired in accordance with Schedule 3.1, at a
price of $____ per share if Employee ceases to be employed by the Company for
any reason whatsoever ("EMPLOYMENT TERMINATION"). Employee may not dispose of
or transfer any Shares while the Shares are subject to the Right of Repurchase
and any such attempted disposition or transfer shall be null and void. The
Company's rights under this Section 3.1 shall be freely assignable, in whole
or in part.

            3.2 COMPANY REPURCHASE PROCEDURE. The Company's Right of
Repurchase shall terminate if not exercised by written notice from the Company
to Employee within 90 days after the date of the Employment Termination. If
the Company exercises its Right of Repurchase, Employee shall, if necessary,
endorse and deliver to the Company the stock certificates representing the
Shares being repurchased, and the Company shall then promptly pay to Employee,
a sum equal to the product of (i) the number of shares being repurchased, and


                                       31
<PAGE>

(ii) the price per share at which Employee acquired such shares (the
"REPURCHASE PRICE"). Employee shall cease to have any rights with respect to
such repurchased Shares immediately upon receipt of the Repurchase Price. The
Company's rights under this Section 3 shall be freely assignable, in whole or
in part; PROVIDED, that if the Company assigns such rights, the assignee
(other than an assignee that is a wholly-owned subsidiary or the sole parent
of the Company) shall pay to the Company upon assignment cash equal to the
difference, if any, between the then fair market value of the Shares and the
aggregate exercise price thereof.

            3.3 BINDING EFFECT. The Company's Right of Repurchase shall inure
to the benefit of the successors and assigns of the Company and shall be
binding upon any representative, executor, administrator, heir, or legatee of
Employee.

         4. RIGHT OF FIRST REFUSAL. The Shares shall be subject to a right of
first refusal by the Company in the event that Employee or any transferee of
the Shares proposes to sell, pledge, or otherwise transfer the Shares or any
interest in the Shares to any person or entity. Any holder of the Shares
desiring to transfer the Shares or any interest in the Shares shall give a
written notice to the Company describing the proposed transfer, including the
number of Shares proposed to be transferred, the price and terms at which such
Shares are proposed to be transferred, and the name and address of the
proposed transferee. Unless otherwise agreed by the Company and the holder of
such Shares, repurchases by the Company under this Section shall be at the
proposed price and terms, including the number of Shares to be repurchased,
specified in the notice to the Company. The Company's rights under this
Section shall be freely assignable. If the Company fails to exercise its right
of first refusal within 30 days from the date on which the Company receives
the shareholder's notice, the shareholder may, within the next 90 days,
conclude a transfer to the proposed transferee of the exact number of Shares
covered by that notice on terms not more favorable to the transferee than
those described in the notice. Any subsequent proposed transfer shall again be
subject to the Company's right of first refusal. If the Company exercises its
right of first refusal, the shareholder shall endorse and deliver to the
Company the stock certificates representing the Shares being repurchased
(unless such stock certificates are being held by the Company in pledge
pursuant to this Agreement) and the Company shall promptly pay the shareholder
the total repurchase price. The holder of the Shares being repurchased shall
cease to have any rights with respect to such Shares immediately upon receipt
of the repurchase price. The right of first refusal set forth in this Section
shall terminate upon the earlier of (i) consummation of an underwritten public
offering of the Company's Common Stock registered under the Securities Act, or
(ii) registration of the Company's Common Stock under the Securities Exchange
Act of 1934, as amended.

         5. REPRESENTATIONS AND ACKNOWLEDGEMENTS OF EMPLOYEE. Employee hereby
represents, warrants, acknowledges, and agrees that:

            5.1 INVESTMENT. Employee is acquiring the Shares for Employee's
own account and not with a view to or for sale in connection with any
distribution of the Shares. Employee understands that he or she must bear the
economic risk of the investment for an indefinite period of time because the
Shares have not been registered under the Act.


                                      32
<PAGE>

            5.2 PREEXISTING RELATIONSHIP.  Purchaser has either:

                (a) a preexisting personal or business relationship with the
Company or one or more of its directors that is of a nature and duration which
enable him or her to be aware of the character, business acumen, and general
business and financial circumstances of the Company or the director(s) with
whom such relationship exists, or

                (b) such business or financial experience as to be able to
protect his or her own interests in connection with the purchase of the Shares.

                  Purchaser has the financial capacity to bear the risk of
this investment.

            5.3 LIMITED OPERATING HISTORY. Employee is aware that the Company
has a limited operating history, has only recently begun realizing revenues
from the license or sale of its products or services, and has realized only
limited revenues therefrom.

            5.4 SPECULATIVE INVESTMENT. Employee's investment in the Company
represented by the Shares is highly speculative in nature and is subject to a
high degree of risk or loss in whole, or in part; the amount of such
investment is within Employee's risk, capital means and is not so great in
relation to Employee's total financial resources as would jeopardize the
personal financial needs of Employee or Employee's family in the event such
investment were lost in whole or in part.

            5.5 TAX ADVICE. THE COMPANY HAS MADE NO WARRANTIES OR
REPRESENTATIONS TO EMPLOYEE WITH RESPECT TO THE INCOME TAX CONSEQUENCES OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND EMPLOYEE IS IN NO MANNER
RELYING ON THE COMPANY OR ITS REPRESENTATIVES FOR AN ASSESSMENT OF ANY TAX
CONSEQUENCES RELATED TO THE OWNERSHIP, PURCHASE, OR DISPOSITION OF THE SHARES.
EMPLOYEE ASSUMES FULL RESPONSIBILITY FOR ALL SUCH CONSEQUENCES AND FOR THE
PREPARATION AND FILING OF ALL TAX RETURNS AND ELECTIONS WHICH MAY OR MUST BE
FILED IN CONNECTION WITH SUCH SHARES.

            5.6 UNREGISTERED SECURITIES. Employee must bear the economic risk
of investment for an indefinite period of time because the Shares have not
been registered under the Securities Act and therefore cannot and will not be
sold unless they are subsequently registered under the Securities Act or an
exemption from such registration is available. The Company has made no
agreements, covenants, or undertakings whatsoever to register any of the
Shares under the Securities Act. The Company has made no representations,
warranties, or covenants whatsoever as to whether any exemption from the
Securities Act, including without limitation any exemption for limited sales
in routine brokers' transactions pursuant to Rule 144 under the Securities
Act, will become available and any such exemption pursuant to Rule 144, if
available at all, will not be available unless: (i) a public trading market
then exists in the Company's Common Stock, (ii) adequate information as to the
Company's financial and other affairs and operations is then available to the
public, and (iii) all other terms and conditions of Rule 144 have been
satisfied. Employee understands that the resale provisions of Rule 701 will
not apply until 90 days after the Company becomes subject to the reporting
obligations of the Securities


                                      33
<PAGE>

Exchange Act of 1934 (typically upon the effective date of an initial public
offering). Transfer of the Shares has not been registered or qualified under
any applicable state law regulating securities and therefore the Shares cannot
and will not be sold unless they are subsequently registered or qualified
under any such law or an exemption therefrom is available. The Company has
made no agreements, covenants or undertakings whatsoever to register or
qualify any of the Shares under any such law. The Company has made no
representations, warranties or covenants whatsoever as to whether any
exemption from any such law will become available.

            5.7 PUBLIC TRADING. The Common Stock is not presently publicly
traded, and the Company has made no representation, covenant, or agreement as
to whether any such market for the Common Stock will develop.

         6. LEGENDS. Stock certificates evidencing the Shares may bear such
restrictive legends as the Company and the Company's counsel deem necessary or
advisable under applicable law or pursuant to this Agreement including,
without limitation, the following legends:

            "The securities represented hereby may be subject to a right of
         repurchase by the Company pursuant to the provisions of the Stock
         Purchase and Restriction Agreement between the Company and the
         original purchaser of such securities, should the person initially
         issued these securities cease to be employed by the Company or any
         affiliate thereof, and such securities may not be sold or otherwise
         transferred if such securities are subject to such right of
         repurchase."

            "The securities represented hereby are subject to a right of first
         refusal in favor of the Company pursuant to a Stock Purchase and
         Restriction Agreement between the Company and the original purchaser
         of such securities, and may not be sold or otherwise transferred
         except in compliance with the terms of such right of first refusal."

             "The securities represented hereby are subject to restrictions on
         transfer for a period following the effective date of a registration
         statement under the Securities Act of 1933, as amended (the "ACT"),
         for an offering of the Company's securities pursuant to the market
         standoff provisions of the Stock Purchase and Restriction Agreement
         between the Company and the original purchaser of such securities."

            "The securities represented hereby have not been registered under
         the Act. Such securities may not be transferred unless a Registration
         Statement under the Act is in effect as to such transfer, or in the
         opinion of counsel for the Company such transfer may be made pursuant
         to Rule 144, or registration under the Act is otherwise unnecessary
         for such transfer to comply with the Act."

         7. BINDING EFFECT. Subject to the limitations set forth in this
Agreement, this Agreement shall be binding upon, and inure to the benefit of,
the executors, administrators, heirs, legal representatives, successors, and
assigns of the parties hereto.

         8. TAXES. Employee shall execute and deliver to the Company with this
executed Agreement a copy of the Acknowledgement and Statement of Decision
Regarding Election Pursuant to Section 83(b) of the Internal Revenue Code (the
"ACKNOWLEDGEMENT") attached


                                      34
<PAGE>

hereto as Exhibit 8A and a copy of the Election pursuant to Section 83(b) of
the Code, attached hereto as Exhibit 8B, if Employee has indicated in the
Acknowledgement his or her decision to make such an election. Employee should
consult his or her tax advisor to determine if there is a comparable election
to file in the state of his or her residence and whether such filing is
desirable under the circumstances.

         9.  DAMAGES. Employee shall be liable to the Company for all costs
and damages, including incidental and consequential damages, resulting from a
disposition of Shares which is not in conformity with the provisions of this
Agreement.

         10. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California applicable to contracts
entered into and wholly to be performed within the State of California by
California residents.

         11. NOTICES. All notices and other communications under this
Agreement shall be in writing. Unless and until Employee is notified in
writing to the contrary, all notices, communications and documents directed to
the Company and related to this Agreement, if not delivered by hand, shall be
mailed, addressed as follows:

                  Fluid Propulsion Technologies, Inc.
                  3350 Scott Boulevard, Bldg. 33
                  Santa Clara, California 95054
                  Attn: President and Chief Executive Officer

         Unless and until the Company is notified in writing to the contrary,
all notices, communications and documents intended for Employee and related to
this Agreement, if not delivered by hand, shall be mailed to Employee's last
known address as shown on the Company's books. Notices and communications
shall be mailed by certified mail, return receipt requested, postage prepaid.
All mailings and deliveries related to this Agreement shall be deemed received
when actually received if by hand delivery, and four business days after
mailing if by mail.

         12. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties pertaining to the purchase of the Shares by Employee from the
Company, and supersedes all prior and contemporaneous agreements,
representations, and understandings of the parties.





                                      35
<PAGE>


         IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.

FLUID PROPULSION                               EMPLOYEE
TECHNOLOGIES, INC.


Date:                                          Date:
     ---------------------------                    ---------------------------

By:                                            By:
   -----------------------------                  -----------------------------

Title:                                         Name:
      --------------------------                    ---------------------------
















                                      36
<PAGE>


         Employee's spouse indicates by the execution of this Agreement his or
her consent to be bound by the terms herein as to his or her interests, whether
as community property or otherwise, if any, in the Shares hereby purchased.


Employee's Spouse:
                  ---------------------------------



The Certificate for the Shares is to be registered as follows:


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


Schedule 3.1               Right of Repurchase

Exhibit 8A                 Acknowledgement Regarding Election Pursuant to
                           Section 83(b)

Exhibit 813                Section 83(b) Election

















                                      37
<PAGE>


                       SCHEDULE 3.1 OF THE STOCK PURCHASE
                        PLEDGE, AND RESTRICTION AGREEMENT


         The Right of Repurchase shall expire with respect to 25% of the
Shares on __________________, 19___ and on the first day of each succeeding
month shall expire with respect to an additional 2.083% of the Shares.

Initialed by:

FLUID PROPULSION                                    EMPLOYEE
TECHNOLOGIES, INC.

By:                                                 By:
   --------------------------                          ------------------------









                                      38

<PAGE>

                                   EXHIBIT 8A

               ACKNOWLEDGEMENT AND STATEMENT OF DECISION REGARDING
                       ELECTION PURSUANT TO SECTION 83(b)
                          OF THE INTERNAL REVENUE CODE


         The undersigned (which term includes the undersigned's spouse), a
purchaser of _______ shares of Common Stock of Fluid Propulsion Technologies,
Inc., a California corporation (the "COMPANY"), and a party to a Stock
Purchase and Restriction Agreement with the Company (the "Agreement"), hereby
states as follows:

         1.       The undersigned acknowledges receipt of a copy of the
Agreement. The undersigned has carefully reviewed the Agreement.

         2.       The undersigned either [CHECK AS APPLICABLE]:

                  (a)      ______ has consulted, and has been fully advised by,
                           the undersigned's own tax advisor,
                           _______________________________, whose business
                           address is _________________________, regarding the
                           federal, state, and local tax consequences of
                           purchasing shares under the Agreement, and
                           particularly regarding the advisability of making
                           elections pursuant to Section 83(b) of the Internal
                           Revenue Code of 1986, as amended (the "Code"), and
                           pursuant to the corresponding provisions, if any, of
                           applicable state laws; or

                  (b)      ______ has knowingly chosen not to consult such a tax
                           advisor.

         3.       The undersigned hereby states that the undersigned has
decided [CHECK AS APPLICABLE]:

                  (a)      ______ to make an election pursuant to Section 83(b)
                           of the Code and is submitting to the Company,
                           together with the undersigned's executed Agreement,
                           an executed form which is attached as Exhibit 8B to
                           the Agreement, or

                  (b)      ______ not to make an election pursuant to Section
                           83(b) of the Code.

         4.       Neither the Company nor any subsidiary or representative of
the Company has made any warranty or representation to the undersigned with
respect to the tax consequences of the undersigned's purchase of shares and
execution of the Agreement in connection therewith or of the making or failure
to make an election pursuant to Section 83(b) of the Code or the corresponding
provisions, if any, of applicable state law.

         5.       The undersigned is also submitting to the Company, together
with the Agreement, an executed original of an election, if any is made, of
the undersigned pursuant to provisions of

                                      39

<PAGE>

state law corresponding to Section 83(b) of the Code, if any, which are
applicable to the undersigned's purchase of shares under the Agreement.



Date:                                       Employee:
     -----------------------------                   ---------------------

Date:                                       Spouse:
     -----------------------------                   ---------------------------






























                                      40

<PAGE>


                                   EXHIBIT 8B

                      ELECTION PURSUANT TO SECTION 83(b) OF
              THE INTERNAL REVENUE CODE TO INCLUDE IN GROSS INCOME
               THE EXCESS OVER THE PURCHASE PRICE, IF ANY, OF THE
            VALUE OF PROPERTY TRANSFERRED IN CONNECTION WITH SERVICES

         The undersigned hereby elects pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in the undersigned's
gross income for the ______ taxable year the excess (if any) of the fair
market value of the property described below, over the amount the undersigned
paid for such property, and supplies herewith the following information in
accordance with the Treasury regulations promulgated under Section 83(b).

         1.       The undersigned's name, address and taxpayer identification
(social security) number are:

                  Name:
                       ------------------------------------

                  Address:
                          ---------------------------------


                  TIN:
                      -------------------------------------

         2.       The property with respect to which the election is made
consists of _____________ common shares of Fluid Propulsion Technologies,
Inc., a California corporation (the "COMPANY").

         3.       The date on which the above property was transferred to the
undersigned was _________________,19___ and the taxable year to which this
election relates is ________.

         4.       The above property is subject to a right of repurchase by
the Company at the initial purchase price, if the undersigned ceases to be an
employee of, or a consultant to, the Company or an affiliate of the Company.

         5.       The fair market value of the above property at the time of
transfer (determined without regard to any restrictions other than those which
by their terms will never lapse) is $____ per share.

         6.       The amount paid for the above property by the undersigned
was $____ per share.









                                      41

<PAGE>

         7.       A copy of this election has been furnished to the Company,
and a copy will be filed with the income tax return of the undersigned to
which this election relates.



Date:
     ------------------------


Name:
     ------------------------






























                                      42
<PAGE>

                                   EXHIBIT C-5

                  Stock Option Exercise and Purchase Agreement


                                        43
<PAGE>

                       FLUID PROPULSION TECHNOLOGIES, INC.
                            1994 STOCK INCENTIVE PLAN
                  STOCK OPTION EXERCISE AND PURCHASE AGREEMENT


                  THIS STOCK OPTION EXERCISE AND PURCHASE AGREEMENT (the
"AGREEMENT") is made and entered into as of ______________, 19___, between
Fluid Propulsion Technologies, Inc., a California corporation (the "Company"),
and _________ ("Purchaser").

                  THE PARTIES AGREE AS FOLLOWS:

                  1.       PURCHASE OF SHARES. Pursuant to the Company's 1994
Stock Incentive Plan (the "Plan") and to a stock option agreement (the "OPTION
AGREEMENT") between the parties, the Company hereby sells to Purchaser, and
Purchaser hereby buys from the Company, _______ shares (the "PLAN SHARES") of
the Company's Common Stock, no par value ("COMMON STOCK") on the terms and
conditions set forth herein and in the Plan and the Option Agreement, the
terms and conditions of the Plan and the Option Agreement being hereby
incorporated into this Agreement by reference.

                  2.       PURCHASE PRICE. Purchaser shall purchase the Plan
Shares from the Company, and the Company shall sell the Plan Shares to
Purchaser, at a price of $_______ per share (the "EXERCISE PRICE"), for a
total purchase price of $_______ (the "PURCHASE PRICE").

                  3.       MANNER OF PAYMENT. Purchaser shall pay the Purchase
Price of the Plan Shares in cash (or in the manner set forth in Exhibit 3 to
this Agreement, the absence of any Exhibit 3 indicating that no such exhibit
was intended).

                  4.       RIGHT OF COMPANY TO REPURCHASE SHARES.

                           4.1    REPURCHASE RIGHT. If so provided in Section
7 of the Option Agreement, the Plan Shares shall be subject to a right (but
not an obligation) of repurchase by the Company (the "RIGHT TO REPURCHASE"),
at the Exercise Price of such shares, if Purchaser ceases to be employed by
the Company or an Affiliate (as defined in Section 2 of the Plan) for any
reason whatsoever ("EMPLOYMENT TERMINATION") prior to the expiration of the
Right of Repurchase in accordance with Schedule 7 of the Option Agreement.
Purchaser may not dispose of or transfer any Plan Shares while the Plan Shares
are subject to the Right of Repurchase and any such attempted disposition or
transfer shall be null and void. The Company's rights under this Section 4.1
shall be freely assignable, in whole or in part; PROVIDED, that if the Company
assigns such rights, the assignee (other than an assignee that is a
wholly-owned subsidiary or the sole parent of the Company) shall pay to the
Company upon assignment cash equal to the difference, if any, between the then
fair market value of the Plan Shares and the Purchase Price.

                           4.2    REPURCHASE PROCEDURE. The Company's Right of
Repurchase shall terminate if not exercised by written notice from the Company
to Purchaser within the later of (a) 30 days after the acquisition of the Plan
Shares by Purchaser, or (b) 90 days after Employment Termination. If the
Company exercises its Right of Repurchase, Purchaser shall endorse and deliver
to the Company the stock certificates representing the Plan Shares being

                                       44

<PAGE>

repurchased, and the Company shall then promptly pay, pursuant to the
provisions of Section 4.3 of this Agreement, the total repurchase price to
Purchaser.

                           4.3    REPURCHASE PAYMENT. If, at the time of
repurchase, any notes are outstanding which represent any portion of the
Purchase Price of the Plan Shares, the repurchase price shall be paid first by
cancellation of any obligation for accrued but unpaid interest under such
notes, next by cancellation of principal under such notes, and finally by
payment of cash.

                           4.4    BINDING EFFECT. The Company's Right of
Repurchase shall inure to the benefit of the successors and assigns of the
Company and shall be binding upon any transferee, representative, executor,
administrator, heir, or legatee of Purchaser.

                  5.       COMPANY'S RIGHT OF FIRST REFUSAL RESPECTING PLAN
SHARES.

                           5.1    RIGHT OF FIRST REFUSAL. In the event that
Purchaser proposes to sell, pledge, or otherwise transfer any Plan Shares or
any interest in such shares to any person or entity, the Company shall have a
right of first refusal (the "RIGHT OF FIRST REFUSAL") with respect to such
Plan Shares. If Purchaser desires to transfer Plan Shares, Purchaser shall
give a written notice (the "TRANSFER NOTICE") to the Company describing fully
the proposed transfer, including the number of Plan Shares proposed to be
transferred, the proposed transfer price and the name and address of the
proposed transferee. The Transfer Notice shall be signed both by Purchaser and
by the proposed transferee and must constitute a binding commitment of both
such parties for the transfer of such Plan Shares. The Company shall have the
right to purchase the Plan Shares subject to the Transfer Notice by delivery
of a notice of exercise of the Company's Right of First Refusal within 30 days
after the date the Transfer Notice is delivered to the Company. The purchase
price paid by the Company shall be at a price per share equal to the proposed
per share transfer price. The Company's rights under this Section 5.1 shall be
freely assignable, in whole or in part.

                           5.2    TRANSFER OF PLAN SHARES. If the Company
fails to exercise the Right of First Refusal within 30 days from the date the
Transfer Notice is delivered to the Company, Purchaser may, not later than 75
days following delivery to the Company of the Transfer Notice, conclude a
transfer of the Plan Shares subject to the Transfer Notice on the terms and
conditions described in the Transfer Notice. Any proposed transfer on terms
and conditions different from those described in the Transfer Notice, as well
as any subsequent proposed transfer by Purchaser, shall again be subject to
the Company's Right of First Refusal and shall require compliance by Purchaser
with the procedure described in Section 5.1 of this Agreement. If the Company
exercises the Right of First Refusal, the parties shall consummate the sale of
Plan Shares on the terms set forth in the Transfer Notice, subject to Section
5.1; provided, however, in the event the Transfer Notice provides for payment
for the Plan Shares other than in cash, the Company shall have the option of
paying for the Plan Shares by the discounted cash equivalent of the
consideration described in the Transfer Notice. Notwithstanding anything in
this Section to the contrary, any cash payment by the Company shall be made in
accordance with the payment provisions of Section 4.3 of this Agreement.

                           5.3    BINDING EFFECT OF RIGHT OF FIRST REFUSAL.
The Company's Right of First Refusal shall inure to the benefit of the
successors and assigns of the Company and shall be

                                       45

<PAGE>

binding upon any transferee of Plan Shares other than a transferee acquiring
Plan Shares in a transaction where the Company failed to exercise the Right of
First Refusal (a "FREE TRANSFEREE") or a transferee of a Free Transferee.

                           5.4    TERMINATION OF COMPANY'S RIGHT OF FIRST
REFUSAL. Notwithstanding anything in this Section 5, the Company shall have no
Right of First Refusal, and Purchaser shall have no obligation to comply with
the procedures in Sections 5.1 through 5.3 after the earlier of (a) the
Company's initial registered public offering to the public generally, or (b)
the date 10 years after the Effective Date (as defined in the Option
Agreement).

                  6.       STOCK CERTIFICATE RESTRICTIVE LEGENDS. Stock
certificates evidencing Plan Shares may bear such restrictive legends as the
Company and the Company's counsel deem necessary or advisable under applicable
law or pursuant to this Agreement, including without limitation, the following
legends:

                           "THE OFFERING AND SALE OF THE SECURITIES REPRESENTED
                  HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
                  1933, AS AMENDED (THE "ACT"). ANY TRANSFER OF SUCH SECURITIES
                  WILL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER THE ACT
                  IS IN EFFECT AS TO SUCH TRANSFER OR IN THE OPINION OF COUNSEL
                  FOR THE COMPANY SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR
                  SUCH TRANSFER TO COMPLY WITH THE ACT."

                           "THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO A
                  RIGHT OF FIRST REFUSAL BY THE COMPANY PURSUANT TO THE
                  PROVISIONS OF COMPANY'S STOCK OPTION PLAN AND A PURCHASE
                  AGREEMENT RELATING TO SUCH SECURITIES, AND MAY NOT BE SOLD OR
                  OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE TERMS OF
                  SUCH RIGHT OF FIRST REFUSAL."

                           "THE SECURITIES REPRESENTED HEREBY MAY BE SUBJECT TO
                  A RIGHT OF REPURCHASE BY THE COMPANY PURSUANT TO THE
                  PROVISIONS OF THE COMPANY'S EMPLOYEE STOCK OPTION PLAN AND THE
                  AGREEMENT RELATING TO THE ACQUISITION OF SUCH SECURITIES,
                  SHOULD THE PERSON INITIALLY ISSUED THESE SECURITIES CEASE TO
                  BE EMPLOYED BY THE COMPANY OR ANY AFFILIATE THEREOF, AND SUCH
                  SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IF SUCH
                  SECURITIES ARE SUBJECT TO SUCH RIGHT OF REPURCHASE."

                                       46

<PAGE>

                           "THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO
                  RESTRICTIONS ON TRANSFER FOR A PERIOD FOLLOWING THE EFFECTIVE
                  DATE OF A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
                  1933, AS AMENDED, FOR AN OFFERING OF THE COMPANY'S SECURITIES
                  AS MORE FULLY PROVIDED IN AN AGREEMENT RELATING TO THE OPTION
                  TO PURCHASE SUCH SECURITIES."

                  7.       REPRESENTATIONS, WARRANTIES, COVENANTS, AND
ACKNOWLEDGEMENTS OF PURCHASER. Purchaser hereby represents, warrants,
covenants, acknowledges and agrees that:

                           7.1    INVESTMENT. Purchaser is acquiring the Plan
Shares for Purchaser's own account, and not for the account of any other
person. Purchaser is acquiring the Plan Shares for investment and not with a
view to distribution or resale thereof except in compliance with applicable
laws regulating securities.

                           7.2    BUSINESS EXPERIENCE. Purchaser is capable of
evaluating the merits and risks of Purchaser's investment in the Company
evidenced by the purchase of the Plan Shares.

                           7.3    RELATION OF COMPANY. Purchaser is presently
an officer, director, or employee of, or consultant to, the Company and in
such capacity has become personally familiar with the business, affairs,
financial condition, and results of operations of the Company.

                           7.4    ACCESS TO INFORMATION. Purchaser has had the
opportunity to ask questions of, and to receive answers from, appropriate
executive officers of the Company with respect to the terms and conditions of
the transactions contemplated hereby and with respect to the business,
affairs, financial conditions, and results of operations of the Company.
Purchaser has had access to such financial and other information as is
necessary in order for Purchaser to make a fully-informed decision as to
investment in the Company by way of purchase of the Plan Shares, and has had
the opportunity to obtain any additional information necessary to verify any
of such information to which Purchaser has had access.

                           7.5    SPECULATIVE INVESTMENT. Purchaser's
investment in the Company o represented by the Plan Shares is highly
speculative in nature and is subject to a high degree of risk of loss in whole
or in part. The amount of such investment is within Purchaser's risk capital
means and is not so great in relation to Purchaser's total financial resources
as would jeopardize the personal financial needs of Purchaser or Purchaser's
family in the event such investment were lost in whole or in part.

                           7.6    REGISTRATION. Purchaser may bear the
economic risk of investment for an indefinite period of time because the sale
to Purchaser of the Plan Shares has not been registered under the Securities
Act of 1933, as amended (the "ACT") and the Plan Shares cannot be transferred
by Purchaser unless such transfer is registered under the Act or an exemption
from such registration is available. The Company has made

                                       47

<PAGE>

no agreements, covenants or undertakings whatsoever to register the transfer
of any of the Shares under the Act. The Company has made no representations,
warranties, or covenants whatsoever as to whether any exemption from the Act,
including without limitation any exemption for limited sales in routine
brokers' transactions pursuant to Rule 144, will be available; if the
exemption under Rule 144 is available at all, it will not be available until
at least two years after payment of cash for the Plan Shares and not then
unless: (a) a public trading market then exists in the Company's common stock;
(b) adequate information as to the Company's financial and other affairs and
operations is then available to the public; and (c) all other terms and
conditions of Rule 144 have been satisfied.

                           7.7    PUBLIC TRADING. None of the Company's
securities is presently publicly traded, and the Company has made no
representation, covenant or agreement as to whether there will be a public
market for any of its securities.

                           7.8    TAX ADVICE. THE COMPANY HAS MADE NO
WARRANTIES OR REPRESENTATIONS TO PURCHASER WITH RESPECT TO THE INCOME TAX
CONSEQUENCES OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND PURCHASER
IS IN NO MANNER RELYING ON THE COMPANY OR ITS REPRESENTATIVES FOR AN
ASSESSMENT OF SUCH TAX CONSEQUENCES.

                  8.       BINDING EFFECT. Subject to the limitations set
forth in this Agreement, this Agreement shall be binding upon, and inure to
the benefit of, the executors, administrators, heirs, legal representatives,
successors and assigns of the parties hereto.

                  9.       TAXES. Purchaser shall execute and deliver to the
Company with this executed Agreement a copy of the Acknowledgement and
Statement of Decision Regarding Election Pursuant to Section 83(b) of the
Internal Revenue Code (the "ACKNOWLEDGEMENT") attached hereto as EXHIBIT 9A.
Purchaser shall execute and submit with the Acknowledgement a copy of the
Election Pursuant to Section 83(b) of the Code (the "ELECTION"), attached
hereto as EXHIBIT 9B, if Purchaser has indicated in the Acknowledgement his
decision to make such an election. Purchaser should consult his tax advisor to
determine if there is a comparable election to file in the state of his
residence and whether such filing is desirable under the circumstances. The
Company may withhold from Purchaser's wages, or require Purchaser to pay to
the Company, any applicable withholding or employment taxes resulting from the
purchase of Plan Shares hereunder or from the lapse of any restrictions
imposed on the Plan Shares.

                  10.      DISQUALIFYING DISPOSITIONS OF ISO STOCK. If stock
acquired by exercise of an ISO (as defined in the Plan) is disposed of within
two years from the date of grant of the ISO or within one year after the
transfer of the stock to Purchaser, Purchaser immediately prior to the
disposition shall promptly notify the Company in writing of the date and terms
of the disposition and shall provide such other information regarding the
disposition as the Company may reasonably require.

                  11.      DAMAGES. Purchaser shall be liable to the Company
for all costs and damages, including incidental and consequential damages,
resulting from a disposition of Plan Shares which is not in conformity with
the provisions of this Agreement.

                                       48

<PAGE>

                  12.      GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of California
applicable to contracts entered into and wholly to be performed within the
State of California by California residents.

                  13.      NOTICES. All notices and other communications under
this Agreement shall be in writing. Unless and until Purchaser is notified in
writing to the contrary, all notices, communications and documents directed to
the Company and related to the Agreement, if not delivered by hand, shall be
mailed, addressed as follows:

                          Fluid Propulsion Technologies, Inc.
                          3350 Scott Boulevard, Bldg. 33
                          Santa Clara, California 95054
                          Attn: President and Chief Executive

Unless and until the Company is notified in writing to the contrary, all
notices, communications and documents intended for Purchaser and related to
this Agreement, if not delivered by hand, shall be mailed to Purchaser's last
known address as shown on the Company's books. Notices and communications
shall be mailed by registered mail, return receipt requested, postage prepaid.
All mailings and deliveries related to this Agreement shall be deemed received
only when actually received.


















                                       49

<PAGE>


                  IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.

                                             FLUID PROPULSION TECHNOLOGIES, INC.


                                             By:
                                                --------------------------------

                                             Title:
                                                   -----------------------------

                  Purchaser hereby accepts and agrees to be bound by all of
the terms and conditions of this Agreement and the Plan.




                                             -----------------------------------
                                             Purchaser


                  Purchaser's spouse indicates by the execution of this
Agreement his or her consent to be bound by the terms herein as to his or her
interests, whether as community property or otherwise, if any, in the Plan
Shares hereby purchased.



                                             -----------------------------------
                                             Purchaser's Spouse



<TABLE>
<CAPTION>
                                Exhibits
                                --------
<S>                        <C>
Exhibit 9A                 Acknowledgement Regarding Election Pursuant to Section 83(b)
Exhibit 9B                 Section 83(b) Election


</TABLE>









                                       50
<PAGE>

                                   EXHIBIT 9A

                        ACKNOWLEDGEMENT AND STATEMENT OF
                     DECISION REGARDING ELECTION PURSUANT TO
                   SECTION 83(b) OF THE INTERNAL REVENUE CODE


                  The undersigned (which term includes the undersigned's
spouse), a purchaser of ____ shares of Common Stock, no par value, of Fluid
Propulsion Technologies, Inc., a California corporation (the "COMPANY") by
exercise of an option (the "OPTION") granted pursuant to the Company's 1994
Stock Incentive Plan (the "PLAN"), hereby states as follows:

                  1.       The undersigned acknowledges receipt of a copy of
the Plan relating to the offering of such shares. The undersigned has
carefully reviewed the Plan and the option agreement pursuant to which the
Option was granted.

                  2.       The undersigned either [check and complete as
applicable]:

                  _________  (a) has consulted, and has been fully advised by,
                             the undersigned's own tax advisor, _______________,
                             whose business address is
                             _____________________________________________,
                             regarding the federal, state and local tax
                             consequences of purchasing shares under the Plan,
                             and particularly regarding the advisability of
                             making elections pursuant to Section 83(b) of the
                             Internal Revenue Code of 1986, as amended (the
                             "CODE") and pursuant to the corresponding
                             provisions, if any, of applicable state law; or

                  _________  (b) has knowingly chosen not to consult such a tax
                             advisor.

                  3.       The undersigned hereby states that the undersigned
has decided [check as applicable]:

                  _________  (a) to make an election pursuant to Section 83(b)
                             of the Code, and is submitting to the Company,
                             together with the undersigned's executed Stock
                             Purchase Agreement, an executed form entitled
                             "Election Pursuant to Section 83(b) of the Internal
                             Revenue Code With Respect to Property Acquired by
                             Exercise of a Stock Option; or

                  _________  (b) not to make an election pursuant to Section
                             83(b) of the Code.


                                        51
<PAGE>


                  4.       Neither the Company nor any subsidiary or
representative of the Company has made any warranty or representation to the
undersigned with respect to the tax consequences of the undersigned's purchase
of shares under the Plan or of the making or failure to make an election
pursuant to Section 83(b) of the Code or the corresponding provisions, if any,
of applicable state law.




Date:
     ------------------------                   --------------------------------
                                                Purchaser

Date:
     ------------------------                   --------------------------------
                                                Purchaser's Spouse


                                        52
<PAGE>

                                   EXHIBIT 9B

                    ELECTION PURSUANT TO SECTION 83(b) OF THE
                      INTERNAL REVENUE CODE WITH RESPECT TO
                 PROPERTY ACQUIRED BY EXERCISE OF A STOCK OPTION


                  The undersigned hereby elects pursuant to Section 830 of
the Internal Revenue Code of 1986, as amended (the "Code") to include in the
undersigned's gross income the excess (if any) of the fair market value of the
property described below over the sum of the amount the undersigned paid for
such property plus, if the shares to which this election relates were acquired
by exercise of an "incentive stock option" within the meaning of Section 422
of the Code, the amount excluded from the undersigned's income pursuant to
Sections 421 and 422 of the Code.

                  This election is made to the same effect, and with the same
limitations, with respect to the analogous provisions of Sections 83(b) (and,
if applicable, Sections 421 and 422) of the Code under any applicable state
statute.

                  Pursuant to Treasury Regulations, the following information
is provided:

                  1.       The undersigned's name, address and Social Security
Number are:

                           Name:
                                      ------------------------------------------

                           Address:
                                      ------------------------------------------
                                      ------------------------------------------

                           Social Security #:
                                              ----------------------------------

                  2.       The property with respect to which the election is
made consists of _____________ shares of Common Stock, no par value, of Fluid
Propulsion Technologies, Inc., a California corporation (the "COMPANY").

                  3.       The date on which the above property was
transferred to the undersigned was _____________,19 ___, and the taxable year
for which this election is made is 19___.

                  4.       The above property is subject to the following
restrictions checked below:

                  _____    a right of repurchase by the Company at the initial
                           purchase price, if the undersigned ceases to be an
                           employee of the Company or of an affiliate of the
                           Company within a specified period;



                                        53
<PAGE>

                  _____    a right of first refusal by the Company should the
                           undersigned wish to transfer the shares to a person
                           or entity other than the Company;

                  _____    restrictions as may be imposed by Section 16(b) of
                           the Securities Exchange Act of 1934, as amended, if
                           any.

                  5.       The fair market value of the above property at the
time of transfer (determined without regard to any lapse restrictions as
defined in Treasury Regulations ss. 1.83-3(i)) was $______ per share.

                  6.       The amount paid for the above property by the
undersigned was $_________ per share.

                  7.       Copies of this election have been furnished to the
Company and to the Internal Revenue Service Center to which the undersigned
submits his or her federal income tax return, and a copy will be filed with
the income tax return of the undersigned for the year to which this election
relates.

                  8.       If the shares to which this election relates were
acquired by exercise of an "incentive stock option" within the meaning of
Section 422 of the Code, except for purposes of Section 56(b)(3) of the Code
relating to the treatment of incentive stock options for purposes of the
alternative minimum tax or in the event of a "disqualifying disposition" of
the property, this election is protective only, is made solely to bar
application of Section 83(a) of the Code, and is not an election of the
undersigned actually to recognize income which apart from this election is
protected from recognition by Sections 421 and 422 of the Code. If the shares
to which this election relates were acquired by exercise of an incentive stock
option, the amount expressly excluded from income pursuant to Section 421 and
422 of the Code is $____ per share.



Date:
     ------------------------                   --------------------------------
                                                Purchaser


                                        54
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>14
<FILENAME>ex-10_3.txt
<DESCRIPTION>EXHIBIT 10.3
<TEXT>

<PAGE>

                                                                    EXHIBIT 10.3

                               1996 STOCK PLAN OF

                                  AEROGEN, INC.

                         AS ADOPTED ON OCTOBER 21, 1996

AMENDED ON JANUARY 23, 1998, DECEMBER 8, 1999, MARCH 10, 2000 AND JULY 21, 2000


SECTION 1.    ESTABLISHMENT AND PURPOSE.

         The Plan was established in 1996 to offer selected employees,
Directors, advisers and Consultants an opportunity to acquire a proprietary
interest in the success of the Company, or to increase such interest, by
purchasing Shares of the Company's Common Stock. The Plan was adopted by the
Board of Directors on October 21, 1996 and requires approval by the Company's
shareholders within twelve months of its adoption. The Plan provides both for
the direct award or sale of Shares and for the grant of Options to purchase
Shares. Options granted under the Plan may include Nonstatutory Options as well
as IS0s intended to qualify under section 422A of the Code.

SECTION 2.    DEFINITIONS.

                  (a)      "BOARD OF DIRECTORS" shall mean the Board of
Directors of the Company, as constituted from time to time.

                  (b)      "CODE" shall mean the Internal Revenue Code of 1986,
as amended.

                  (c)      "COMMITTEE" shall mean a committee of the Board of
Directors, as described in Section 3(a).

                  (d)      "COMPANY" shall mean AeroGen, Inc., a Delaware
corporation.

                  (e)      "CONSULTANT" means any person, including an advisor,
(i) engaged by the Company or an Affiliate to render consulting or advisory
services and who is compensated for such services or (ii) who is a member of the
Board of Directors of an Affiliate. However, the term "Consultant" shall not
include either Directors who are not compensated by the Company for their
services as Directors or Directors who are merely paid a director's fee by the
Company for their services as Directors.

                  (f)      "DIRECTOR" means a member of the Board of Directors
of the Company.

                  (g)      "EMPLOYEE" shall mean (i) any individual who is a
common-law employee of the Company or of a Subsidiary, (ii) a member of the
Board of Directors and (iii) an independent contractor who performs services for
the Company or a Subsidiary. Service as a


                                       1.
<PAGE>

member of the Board of Directors or as an independent contractor shall be
considered employment for all purposes of the Plan except the second sentence of
Section 4(a).

                  (h)      "EXERCISE PRICE" shall mean the amount for which one
Share may be purchased upon exercise of an Option, as specified by the Committee
in the applicable Stock Option Agreement.

                  (i)      "FAIR MARKET VALUE" shall mean the fair market value
of a Share, as determined by the Committee in good faith. Such determination
shall be conclusive and binding on all persons.

                  (j)      "ISO" shall mean an employee incentive stock option
described in section 422A(b) of the Code.

                  (k)      "LISTING DATE" means the first date upon which any
security of the Company is listed (or approved for listing) upon notice of
issuance on any securities exchange or designated (or approved for designation)
upon notice of issuance as a national market security on an interdealer
quotation system if such securities exchange or interdealer quotation system has
been certified in accordance with the provisions of Section 25100(o) of the
California Corporate Securities Law of 1968.

                  (l)      "NONSTATUTORY OPTION" shall mean an employee stock
option not described in section 422(b), 422A(b), 423(b) or 424(b) of the Code.

                  (m)      "OFFEREE" shall mean an individual to whom the
Committee has offered the right to acquire Shares under the Plan (other than
upon exercise of an Option).

                  (n)      "OFFICER" means (i) before the Listing Date, any
person designated by the Company as an officer and (ii) on and after the Listing
Date, a person who is an officer of the Company within the meaning of Section 16
of the Exchange Act and the rules and regulations promulgated thereunder.

                  (o)      "OPTION" shall mean an ISO or Nonstatutory Option
granted under the Plan and entitling the holder to purchase Shares.

                  (p)      "OPTIONEE" shall mean an individual who holds an
Option.

                  (q)      "PLAN" shall mean this 1996 Stock Plan of AeroGen,
Inc.

                  (r)      "PURCHASE PRICE" shall mean the consideration for
which one Share may be acquired under the Plan (other than upon exercise of an
Option), as specified by the Committee.

                  (s)      "SERVICE" shall mean service as an Employee.

                  (t)      "SHARE" shall mean one share of Stock, as adjusted in
accordance with Section 9 (if applicable).


                                       2.
<PAGE>

                  (u)      "STOCK" shall mean the Common Stock of the Company.

                  (v)      "STOCK OPTION AGREEMENT" shall mean the agreement
between the Company and an Optionee which contains the terms, conditions and
restrictions pertaining to such Optionee's Option.

                  (w)      "STOCK PURCHASE AGREEMENT" shall mean the agreement
between the Company and an Offeree who acquires Shares under the Plan which
contains the terms, conditions and restrictions pertaining to the acquisition of
such Shares.

                  (x)      "SUBSIDIARY" shall mean any corporation, if the
Company and/or one or more other Subsidiaries own not less than 50 percent of
the total combined voting power of all classes of outstanding stock of such
corporation. A corporation that attains the status of a Subsidiary on a date
after the adoption of the Plan shall be considered a Subsidiary commencing as of
such date.

                  (y)      "TOTAL AND PERMANENT DISABILITY" shall mean that the
Optionee is unable to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment which can be expected
to result in death or which has lasted, or can be expected to last, for a
continuous period of not less than one year.

SECTION 3. ADMINISTRATION.

                  (a)      COMMITTEE MEMBERSHIP. The Plan shall be administered
by the Committee, which shall consist of members of the Board of Directors. The
members of the Committee shall be appointed by the Board of Directors. If no
Committee has been appointed, the entire Board of Directors shall constitute the
Committee.

                  (b)      COMMITTEE PROCEDURES. The Board of Directors shall
designate one of the members of the Committee as chairman. The Committee may
hold meetings at such times and places as it shall determine. The acts of a
majority of the Committee members present at meetings at which a quorum exists,
or acts reduced to or approved in writing by all Committee members, shall be
valid acts of the Committee.

                  (c)      COMMITTEE RESPONSIBILITIES. Subject to the provisions
of the Plan, the Committee shall have full authority and discretion to take the
following actions:

                           (i)      To interpret the Plan and to apply its
provisions;

                           (ii)     To adopt, amend or rescind rules, procedures
and forms relating to the Plan;

                           (iii)    To authorize any person to execute, on
behalf of the Company, any instrument required to carry out the purposes of the
Plan;


                                       3.
<PAGE>

                           (iv)     To determine when Shares are to be awarded
or offered for sale and when Options are to be granted under the Plan;

                           (v)      To select the Offerees and Optionees;

                           (vi)     To determine the number of Shares to be
offered to each Offeree or to be made subject to each Option;

                           (vii)    To prescribe the terms and conditions of
each award or sale of Shares, including (without limitation) the Purchase Price,
and to specify the provisions of the Stock Purchase Agreement relating to such
award or sale;

                           (viii)   To prescribe the terms and conditions of
each Option, including (without limitation) the Exercise Price, to determine
whether such Option is to be classified as an ISO or as a Nonstatutory Option,
and to specify the provisions of the Stock Option Agreement relating to such
Option;

                           (ix)     To amend any outstanding Stock Purchase
Agreement or Stock Option Agreement, subject to applicable legal restrictions
and to the consent of the Offeree or Optionee who entered into such agreement;

                           (x)      To prescribe the consideration for the grant
of each Option or other right under the Plan and to determine the sufficiency of
such consideration; and

                           (xi)     To take any other actions deemed necessary
or advisable for the administration of the Plan. All decisions, interpretations
and other actions of the Committee shall be final and binding on all Offerees,
all Optionees, and all persons deriving their rights from an Offeree or
Optionee. No member of the Committee shall be liable for any action that he has
taken or has failed to take in good faith with respect to the Plan, any Option,
or any right to acquire Shares under the Plan.

                  (d)      FINANCIAL REPORTS. Not less often than annually, the
Company shall furnish to Optionees and Offerees reports of its financial
condition, unless such Optionees and Offerees have access to equivalent
information through their employment. Such reports need not be audited.

SECTION 4. ELIGIBILITY.

                  (a)      GENERAL RULE. Only Employees shall be eligible for
designation as Optionees or Offerees by the Committee. In addition, only
individuals who are employed as common-law employees by the Company or a
Subsidiary shall be eligible for the grant of ISOs.

                  (b)      TEN-PERCENT SHAREHOLDERS. An Employee who owns more
than 10 percent of the total combined voting power of all classes of outstanding
stock of the Company or any of its Subsidiaries shall not be eligible for
designation as an Optionee or Offeree unless (i) the Exercise Price or Purchase
Price (if any) is at least 110 percent of the Fair Market Value of a


                                       4.
<PAGE>

Share on the date of grant and (ii) in the case of an ISO, such ISO by its terms
is not exercisable after the expiration of five years from the date of grant.

                  (c)      ATTRIBUTION RULES. For purposes of Subsection (b)
above, in determining stock ownership, an Employee shall be deemed to own the
stock owned, directly or indirectly, by or for such Employee's brothers,
sisters, spouse, ancestors and lineal descendants. Stock owned, directly or
indirectly, by or for a corporation, partnership, estate or trust shall be
deemed to be owned proportionately by or for its shareholders, partners or
beneficiaries. Stock with respect to which such Employee holds an option shall
not be counted.

                  (d)      OUTSTANDING STOCK. For purposes of Subsection (b)
above, "outstanding stock" shall include all stock actually issued and
outstanding immediately after the grant. "Outstanding stock" shall not include
shares authorized for issuance under outstanding options held by the Employee or
by any other person.

SECTION 5. STOCK SUBJECT TO PLAN.

                  (a)      BASIC LIMITATION. Shares offered under the Plan
shall be authorized but unissued Shares or treasury Shares. The aggregate
number of Shares which may be issued under the Plan (upon exercise of Options
or other rights to acquire Shares) shall not exceed seven million eight
hundred thousand (7,800,000) Shares, subject to adjustment pursuant to
Section 9. The number of Shares which are subject to Options or other rights
outstanding at any time under the Plan shall not exceed the number of Shares
which then remain available for issuance under the Plan. The Company, during
the term of the Plan, shall at all times reserve and keep available
sufficient Shares to satisfy the requirements of the Plan.

                  (b)      ADDITIONAL SHARES. In the event that any outstanding
Option or other right for any reason expires or is canceled or otherwise
terminated, the Shares allocable to the unexercised portion of such Option or
other right shall again be available for the purposes of the Plan. In the event
that Shares issued under the Plan are reacquired by the Company pursuant to a
forfeiture provision, a right of repurchase or a right of first offer, such
Shares shall again be available for the purposes of the Plan.

SECTION 6. TERMS AND CONDITIONS OF AWARDS OR SALES.

                  (a)      STOCK PURCHASE AGREEMENT. Each award or sale of
Shares under the Plan (other than upon exercise of an Option) shall be evidenced
by a Stock Purchase Agreement between the Offeree and the Company. Such award or
sale shall be subject to all applicable terms and conditions of the Plan and may
be subject to any other terms and conditions which are not inconsistent, with
the Plan and which the Committee deems appropriate for inclusion in a Stock
Purchase Agreement. The provisions of the various Stock Purchase Agreements
entered into under the Plan need not be identical.

                  (b)      DURATION OF OFFERS AND NONTRANSFERABILITY OF RIGHTS.
Any right to acquire Shares under the Plan (other than an Option) shall
automatically expire if not exercised by the Offeree within 30 days after the
grant of such right was communicated to him by the


                                       5.
<PAGE>

Committee. Such right shall not be transferable and shall be exercisable only by
the Offeree to whom such right was granted.

                  (c)      PURCHASE PRICE. The Purchase Price of Shares to be
offered under the Plan shall not be less than 85 percent of the Fair Market
Value of such Shares, except as otherwise provided in Section 4(b). Subject to
the preceding sentence, the Purchase Price shall be determined by the Committee
at its sole discretion. The Purchase Price shall be payable in a form described
in Section 8.

                  (d)      WITHHOLDING TAXES. As a condition to the purchase of
Shares, the Offeree shall make such arrangements as the Committee may require
for the satisfaction of any federal, state or local withholding tax obligations
that may arise in connection with such purchase.

                  (e)      RESTRICTIONS ON TRANSFER OF SHARES. Any Shares
awarded or sold under the Plan shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first offer and other transfer
restrictions as the Committee may determine. Such restrictions shall be set
forth in the applicable Stock Purchase Agreement and shall apply in addition to
any general restrictions that may apply to all holders of Shares. Any
service-based vesting conditions shall not be less rapid than as set forth in
Section 7(e).

SECTION 7. TERMS AND CONDITIONS OF OPTIONS.

                  (a)      STOCK OPTION AGREEMENT. Each grant of an Option under
the Plan shall be evidenced by a Stock Option Agreement between the Optionee and
the Company. Such Option shall be subject to all applicable terms and conditions
of the Plan and may be subject to any other terms and conditions which are not
inconsistent with the Plan and which the Committee deems appropriate for
inclusion in a Stock Option Agreement. The provisions of the various Stock
Option Agreements entered into under the Plan need not be identical.

                  (b)      NUMBER OF SHARES. Each Stock Option Agreement shall
specify the number of Shares that are subject to the Option and shall provide
for the adjustment of such number in accordance with Section 9. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option.

                  (c)      EXERCISE PRICE. Each Stock Option Agreement shall
specify the Exercise Price. The Exercise Price of an ISO shall not be less than
100 percent of the Fair Market Value of a Share on the date of grant, except as
otherwise provided in Section 4(b). The Exercise Price of a Nonstatutory Option
shall not be less than 85 percent of the Fair Market Value of a Share on the
date of grant, except as otherwise provided in Section 4(b). Subject to the
pre-ceding two sentences, the Exercise Price under any Option shall be
determined by the Committee at its sole discretion. The Exercise Price shall be
payable in a form described in Section 8.

                  (d)      WITHHOLDING TAXES. As a condition to the exercise of
an Option, the Optionee shall make such arrangements as the Committee may
require for the satisfaction of any federal, state or local withholding tax
obligations that may arise in connection with such


                                       6.
<PAGE>

exercise. The Optionee shall also make such arrangements as the Committee may
require for the satisfaction of any federal, state or local withholding tax
obligations that may arise in connection with the disposition of Shares acquired
by exercising an Option.

                  (e)      EXERCISABILITY AND TERM.

                           (i)      Each Stock Option Agreement shall specify
the date when all or any installment of the Option is to become exercisable. The
vesting of any Option shall be determined by the Committee at its sole
discretion; provided, however, to the extent required by law, an Option shall
become exercisable at a rate no less than twenty percent per year over a five
year period.

                           (ii)     The Stock Option Agreement may, but need
not, include a provision whereby the Optionee may elect at any time before the
Optionee's Service terminates to exercise the Option as to any part or all of
the Shares of Stock subject to the Option prior to the full vesting of the
Option. Subject to the "Repurchase Limitation" in subsection 8(e), any unvested
Shares of Stock so purchased may be subject to a repurchase option in favor of
the Company or to any other restriction the Board determines to be appropriate.

                           (iii)    The Stock Option Agreement shall also
specify the term of the Option. The term shall not exceed 10 years from the date
of grant, except as otherwise provided in Section 4(b). Subject to the preceding
sentence, the Committee at its sole discretion shall determine when an Option is
to expire.

                  (f)      TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An
Incentive Stock Option shall not be transferable except by will or by the laws
of descent and distribution and shall be exercisable during the lifetime of the
Optionee only by the Optionee. Notwithstanding the foregoing, the Optionee may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the Optionee,
shall thereafter be entitled to exercise the Option.

                  (g)      TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A
Nonstatutory Stock Option shall be transferable to the extent provided in the
Stock Option Agreement. If the Nonstatutory Stock Option does not provide for
transferability, then the Nonstatutory Stock Option shall not be transferable
except by will or by the laws of descent and distribution and shall be
exercisable during the lifetime of the Optionee only by the Optionee.
Notwithstanding the foregoing, the Optionee may, by delivering written notice to
the Company, in a form satisfactory to the Company, designate a third party who,
in the event of the death of the Optionee, shall thereafter be entitled to
exercise the Option.

                  (h)      TERMINATION OF SERVICE (EXCEPT BY DEATH). If an
Optionee's Service terminates for any reason or other than such Optionee's
death, then Optionee's Option(s) shall expire on the earliest of the following
occasions:

                           (i)      The expiration date determined pursuant to
Subsection (e) above;


                                       7.
<PAGE>

                           (ii)     The date 30 days after the termination of
Optionee's Service for any reason other than Total and Permanent Disability; or

                           (iii)    The date six months after the termination of
Optionee's Service by reason of Total and Permanent Disability. The Optionee may
exercise all or part of such Optionee's Option(s) at any time before the
expiration of such Option(s) under the preceding sentence, but only to the
extent that such Option(s) had become exercisable before such Optionee's Service
terminated or became exercisable as a result of the termination. The balance of
such Option(s) shall lapse when the Optionee's Service terminates. In the event
that the Optionee dies after the termination of such Optionee's Service but
before the expiration of such Optionee's Option(s), all or part of such
Option(s) may be exercised (prior to expiration) by the executors or
administrators of the Optionee's estate or by any person who has acquired such
Option(s) directly from him by bequest or inheritance, but only to the extent
that such Option(s) had become exercisable before such Optionee's Service
terminated or became exercisable as a result of the termination.

                  (i)      LEAVES OF ABSENCE. For purposes of Subsection (g)
above, Service shall be deemed to continue while the Optionee is on military
leave, sick leave or other bona fide leave of absence (as determined by the
Committee). The foregoing notwithstanding, in the case of an ISO granted under
the Plan, Service shall not be deemed to continue beyond the first 90 days of
such leave, unless the Optionee's reemployment rights are guaranteed by statute
or by contract.

                  (j)      DEATH OF OPTIONEE. If an Optionee dies while he is in
Service, then such Optionee's Option(s) shall expire on the earlier of the
following dates:

                           (i)      The expiration date determined pursuant to
Subsection (e) above; or

                           (ii)     The date six months after such Optionee's
death.

         All or part of the Optionee's Option(s) may be exercised at any time
before the expiration of such Option(s) under the preceding sentence by the
executors or administrators of such Optionee's estate or by any person who has
acquired such Option(s) directly from him by bequest or inheritance, but only to
the extent that such Option(s) had become exercisable before such Optionee's
death or became exercisable as a result of such Optionee's death. The balance of
such Option(s) shall lapse when the Optionee dies.

                  (k)      NO RIGHTS AS A SHAREHOLDER. An Optionee, or a
transferee of an Optionee, shall have no rights as a shareholder with respect to
any Shares covered by such Optionee's Option until the date of the issuance of a
stock certificate for such Shares. No adjustments shall be made, except as
provided in Section 9.

                  (l)      MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS.
Within the limitations of the Plan, the Committee may modify, extend or renew
outstanding Options or may accept the cancellation of outstanding Options (to
the extent not previously exercised) in return


                                       8.
<PAGE>

for the grant of new Options at the same or a different price. The foregoing
notwithstanding, no modification of an Option shall, without the consent of the
Optionee, impair such Optionee's rights or increase such Optionee's obligations
under such Option.

                  (m)      RESTRICTIONS ON TRANSFER OF SHARES. Any Shares issued
upon exercise of an Option shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first offer and other transfer
restrictions as the Committee may determine. Such restrictions shall be set
forth in the applicable Stock Option Agreement and shall apply in addition to
any general restrictions that may apply to all holders of Shares. Any
service-based vesting conditions shall not be less rapid than as set forth in
Subsection (e) above.

SECTION 8. PAYMENT FOR SHARES.

                  (a)      GENERAL RULE. The entire Purchase Price or Exercise
Price of Shares issued under the Plan shall be payable in lawful money of the
United States of America at the time when such Shares are purchased, except as
follows:

                           (i)      In the case of Shares sold under the terms
of a Stock Purchase Agreement subject to the Plan, payment shall be made only
pursuant to the express provisions of such Stock Purchase Agreement. However,
the Committee (at its sole discretion) may specify in the Stock Purchase
Agreement that payment may be made in one or both of the forms described in
Subsections (c) and (d) below.

                           (ii)     In the case of an ISO granted under the
Plan, payment shall be made only pursuant to the express provisions of the
applicable Stock Option Agreement. However, the Committee (at its sole
discretion) may specify in the Stock Option Agreement that payment may be made
in one or both of the forms described in Subsections (b) and (d) below.

                           (iii)    In the case of a Nonstatutory Option granted
under the Plan, the Committee (at its sole discretion) may accept payment in one
or both of the forms described in Subsections (b) and (d) below.

                  (b)      SURRENDER OF STOCK. To the extent that this
Subsection (b) is applicable and allowed in the provisions of the applicable
Stock Option Agreement, payment may be made all or in part with Shares which
have already been owned by the Optionee or such Optionee's representative for
more than 12 months and which are surrendered to the Company in good form for
transfer. Such Shares shall be valued at their Fair Market Value on the date
when the new Shares are purchased under the Plan.

                  (c)      SERVICES RENDERED. To the extent that this Subsection
(c) is applicable, Shares may be awarded under the Plan in consideration of
services rendered to the Company or a Subsidiary prior to the award. If Shares
are awarded without the payment of a Purchase Price in cash, the Committee shall
make a determination (at the time of the award) of the value of the services
rendered by the Offeree and the sufficiency of the consideration to meet the
requirements of Section 6(c).


                                       9.
<PAGE>

                  (d)      PROMISSORY NOTE. To the extent that this Subsection
(d) is applicable, a portion of the Purchase Price or Exercise Price, as the
case may be, of Shares issued under the Plan may be payable by a full recourse
promissory note, provided that (i) the par value of such Shares must be paid in
lawful money of the United States of America at the time when such Shares are
purchased, (ii) the Shares are security for payment of the principal amount of
the promissory note and interest thereon, and (iii) the interest rate payable
under the terms of the promissory note shall be no less than the minimum rate
(if any) required to avoid the imputation of additional interest under the Code.
Subject to the foregoing, the Committee (at its sole discretion) shall specify
the term, interest rate, amortization requirements (if any), and other
provisions of such note.

                  (e)      REPURCHASE LIMITATION. The terms of any repurchase
option shall be specified in the Stock Option Agreement or the Stock Purchase
Agreement and may be either at Fair Market Value at the time of repurchase or at
not less than the original purchase price. To the extent required by Section
260.140.41 and Section 260.140.42 of Title 10 of the California Code of
Regulations at the time an Option is granted or at the time there is an award or
sale of Shares under the Plan, any repurchase option contained in a Stock Option
Agreement or Stock Purchase Award prior to the Listing Date to a person who is
not an Officer, Director or Consultant shall be upon the terms described below:

                           (i)      FAIR MARKET VALUE. If the repurchase option
gives the Company the right to repurchase the Shares of Stock upon termination
of employment at not less than the Fair Market Value of the Shares of Stock to
be purchased on the date of termination of Service, then (i) the right to
repurchase shall be exercised for cash or cancellation of purchase money
indebtedness for the Shares of Stock within ninety (90) days of termination of
Service (or in the case of Shares of Stock issued upon exercise of award or sale
of Shares after such date of termination, within ninety (90) days after the date
of the exercise) or such longer period as may be agreed to by the Company and
the Optionee or Offeree, as applicable, (for example, for purposes of satisfying
the requirements of Section 1202(c)(3) of the Code regarding "qualified small
business stock") and (ii) the right terminates when the Shares of Stock
following the listing date.

                           (ii)     ORIGINAL PURCHASE PRICE. If the repurchase
option gives the Company the right to repurchase the Shares of Stock upon
termination of Service at the original purchase price, then (i) the right to
repurchase at the original purchase price shall lapse at the rate of at least
twenty percent (20%) of the Shares of Stock per year over five (5) years from
the date the Option or award or sale of Shares is granted (without respect to
the date the Option or award or sale of Shares was exercised or became
exercisable) and (ii) the right to repurchase shall be exercised for cash or
cancellation of purchase money indebtedness for the Shares of Stock within
ninety (90) days of termination of Service (or in the case of Shares of Stock
issued upon exercise of Options after such date of termination, within ninety
(90) days after the date of the exercise) or such longer period as may be agreed
to by the Company and the Optionee or Offeree, as applicable, (for example, for
purposes of satisfying the requirements of Section 1202(c)(3) of the Code
regarding "qualified small business stock").


                                      10.
<PAGE>

SECTION 9. ADJUSTMENT OF SHARES.

                  (a)      GENERAL. In the event of a subdivision of the
outstanding Stock, a declaration of a dividend payable in Shares, a declaration
of a dividend payable in a form other than Shares in an amount that has a
material effect on the value of Shares, a combination or consolidation of the
outstanding Stock (by reclassification or otherwise) into a lesser number of
Shares, a recapitalization or a similar occurrence, the Committee shall make
appropriate adjustments in one or more of (i) the number of Shares available for
future grants under Section 5, (ii) the number of Shares covered by each
outstanding Option or (iii) the Exercise Price under each outstanding Option.

                  (b)      REORGANIZATIONS. In the event that the Company is a
party to a merger or other reorganization, outstanding Options shall be subject
to the agreement of merger or reorganization. Such agreement shall provide for
the assumption of outstanding Options by the surviving corporation or its
parent, for their continuation by the Company (if the Company is a surviving
corporation), for payment of a cash settlement equal to the difference between
the amount to be paid for one Share under such agreement and the Exercise Price,
or for the acceleration of their exercisability followed by the cancellation of
Options not exercised, in all cases without the Optionees' consent. Any
cancellation shall not occur earlier than 30 days after such acceleration is
effective and Optionees have been notified of such acceleration. In the case of
Options that have been outstanding for less than 12 months, a cancellation need
not be preceded by an acceleration.

                  (c)      RESERVATION OF RIGHTS. Except as provided in this
Section 9, an Optionee or Offeree shall have no rights by reason of any
subdivision or consolidation of shares of stock of any class, the payment of any
dividend or any other increase or decrease in the number of shares of stock of
any class. Any issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of Shares subject to an Option. The grant of an Option pursuant
to the Plan shall not affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure, to merge or consolidate or to dissolve, liquidate, sell
or transfer all or any part of its business or assets.

SECTION 10. SECURITIES LAWS.

         Shares shall not be issued under the Plan unless the issuance and
delivery of such Shares complies with (or is exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange on which the
Company's securities may then be listed.

SECTION 11. NO EMPLOYMENT RIGHTS.


                                      11.
<PAGE>

         No provision of the Plan, nor any right or Option granted under the
Plan, shall be construed to give any per-son any right to become, to be treated
as, or to remain an Employee. The Company and its Subsidiaries reserve the right
to terminate any person's Service at any time and for any reason.

SECTION 12.   DURATION AND AMENDMENTS.

                  (a)      TERM OF THE PLAN. The Plan, as set forth herein,
shall become effective on the date of its adoption by the Board of Directors. In
the event that the shareholders fail to approve the Plan within 12 months after
its initial adoption by the Board of Directors, any Option grants or Stock
awards already made shall be null and void, and no additional Option grants or
Stock awards shall be made after such date. The Plan shall terminate
automatically 10 years after its initial adoption by the Board of Directors and
may be terminated on any earlier date pursuant to Subsection (b) below.

                  (b)      RIGHT TO AMEND OR TERMINATE THE PLAN. The Board of
Directors may amend, suspend or terminate the Plan at any time and for any
reason; provided, however, that any amendment of the Plan which increases the
number of Shares available for issuance under the Plan (except as provided in
Section 9), or which materially changes the class of persons who are eligible
for the grant of IS0s, shall be subject to the approval of the Company's
shareholders. Shareholder approval shall not be required for any other amendment
of the Plan.

                  (c)      EFFECT OF AMENDMENT OR TERMINATION. No Shares shall
be issued or sold under the Plan after the termination thereof, except upon
exercise of an Option granted prior to such termination. The termination of the
Plan, or any amendment thereof, shall not affect any Share previously issued or
any Option previously granted under the Plan.

SECTION 13. EXECUTION.

         To record the adoption of the Plan by the Board of Directors on
December   , the Company has caused its authorized officer to execute the same.

                                  AEROGEN, INC.


                                  By:
                                      ------------------------------------------

                                           -------------------------
                                           President and CEO
                                           December
                                                    ----------------


                                      12.
<PAGE>

         THE OPTION GRANTED PURSUANT TO THIS NONSTATUTORY STOCK OPTION AGREEMENT
(THE "OPTION") AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE OPTION OR THE SHARES UNDER THE SECURITIES ACT, OR AN OPINION OF COUNSEL,
WHICH IS SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION
IS NOT REQUIRED.


                        1996 STOCK PLAN OF AEROGEN, INC.

                       NONSTATUTORY STOCK OPTION AGREEMENT

                (ALLOWING FOR TRANSFERABILITY AND EARLY EXERCISE)



         THIS AGREEMENT is entered into as of (DATE) between AEROGEN, INC., a
Delaware corporation (the "Company"), and (NAME) (the "Optionee").

                              W I T N E S S E T H:

         WHEREAS, the Company's Board of Directors has established the 1996
Stock Plan of AeroGen, Inc., in order to provide selected employees, directors,
consultants and advisors of the Company and its Subsidiaries with an opportunity
to acquire Common Stock of the Company; and

         WHEREAS, the Committee has determined that it would be in the best
interests of the Company and its stockholders to grant the Nonstatutory Stock
Option described in this Agreement to the Optionee as an inducement to enter
into or remain in the service of the Company and as an incentive for
extraordinary efforts during such service:

         NOW, THEREFORE, it is agreed as follows:


         1.   GRANT OF OPTION.

         (a) OPTION. On the terms and conditions stated below, the Company
hereby grants to the Optionee the option to purchase (AMOUNT) Shares for the sum
of $     ($0.20) per Share, which is agreed to be 100% of the fair market value
thereof on the Date of Grant. This option is not intended to be an Incentive
Stock Option.

         (b) STOCK PLAN. This option is granted pursuant to the Plan, a copy of
which the Optionee acknowledges having received and read. The provisions of the
Plan are incorporated into this Agreement by this reference.


                                       1.
<PAGE>

         (c) STOCKHOLDER APPROVAL. This option is granted subject to approval of
the Plan by the stockholders of the Company. Should the Plan not be approved by
the stockholders of the Company, this grant shall be null and void.

         2.   TRANSFERABILITY OF OPTION.

         Except as otherwise provided in this Agreement, this option is not
transferable, except (i) by will or by the laws of descent and distribution,
(ii) with the prior written approval of the Company, by instrument to an inter
vivos or testamentary trust, in a form accepted by the Company, in which the
option is to be passed to beneficiaries upon the death of the trustor (settlor)
and (iii) with the prior written approval of the Company, by gift, in a form
accepted by the Company, to Optionee's "family member" as that term is defined
in 17 CFR 230.701(c)(3). The term "family member" is defined in 17 C.F.R.
230.701(c)(3) to mean any child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, including adoptive
relationships, any person sharing in the employee's household (other than a
tenant or employee), a trust in which these persons have more than fifty percent
of the beneficial interest, a foundation in which these persons (or the
employee) control the management of assets, and any other entity in which these
persons (or the employee) own more than fifty percent of the voting interests.
This option is exercisable during the life of the Optionee, only by the
Optionee, or a transferee satisfying the above-stated conditions. The right of a
transferee to exercise the transferred portion of the option after the
Optionee's termination of Service shall terminate in accordance with the right
to exercise such option as specified in the option. In the event that the
Service of the Optionee terminates due to the death of the Optionee, the
Optionee's transferee will be treated as a person who acquired the right to
exercise such option by bequest or inheritance. In addition to the foregoing,
the Company may require, as a condition of the transfer of such option to a
trust, by gift, or otherwise, that Optionee's transferee enter into an option
transfer agreement provided by, or acceptable to, the Company. The terms of
option shall be binding upon your transferees, executors, administrators, heirs,
successors, and assigns. Notwithstanding the foregoing, by delivering written
notice to the Company, in a form satisfactory to the Company, Optionee may
designate a third party who, in the event of Optionee's death, shall thereafter
be entitled to exercise Optionee's option.


         3. VESTING/RIGHT TO EXERCISE.

         (a) VESTING. The option shall vest as to 25% of the Shares on the first
anniversary of the Vesting Commencement date which shall be         , 199  (the
"Vesting Commencement Date") and 1/48th of the Shares shall vest monthly
thereafter. The percentage of the total number of Shares subject to this option
with respect to which this option is vested at any time after the first
anniversary of the Vesting Commencement Date shall be equal to the product of
1/48 times the number of whole months that have elapsed since the Vesting
Commencement Date.


                                       2.
<PAGE>

         (b) PERIODS OF NONEXERCISABILITY. Any other provision of this Agreement
notwithstanding, the Company shall have the right to designate one or more
periods of time, each of which shall not exceed 18 consecutive months in length,
during which this option shall not be exercisable if the Company determines (in
its sole discretion) that such limitation on exercise could in any way
facilitate a lessening of any restriction on transfer pursuant to the Securities
Act or any state securities laws with respect to any issuance of securities by
the Company, facilitate the registration or qualification of any securities by
the Company under the Securities Act or any state securities laws, or facilitate
the perfection of any exemption from the registration or qualification
requirements of the Securities Act or any applicable state securities laws for
the issuance or transfer of any securities. Such limitation on exercise shall
not alter the vesting schedule set forth in Section 3(a) other than to limit the
periods during which this option shall be exercisable. The Optionee shall be
notified in writing in advance of any such designation by the Company.

         (c) STOCKHOLDER APPROVAL. Any other provision of this Agreement
notwithstanding, this option shall not be exercisable at any time prior to the
approval of the Plan by the holders of a majority of the outstanding stock of
the Company.

         4.   EXERCISE PROCEDURES.

         (a) NOTICE OF EXERCISE. The Optionee or the Optionee's representative
may exercise this option by giving written notice to the Chief Financial
Officer, Secretary, or an Assistant Secretary of the Company pursuant to Section
12(d). The notice shall specify the election to exercise this option, the number
of Shares for which it is being exercised and the form of payment. The notice
shall be signed by the person or persons exercising this option. In the event
that this option is being exercised by the representative of the Optionee, the
notice shall be accompanied by proof (satisfactory to the Company) of the
representative's right to exercise this option. The Optionee or the Optionee's
representative shall deliver to the Chief Financial Officer, Secretary or an
Assistant Secretary of the Company, at the time of giving the notice, payment in
a form permissible under Section 5 for the full amount of the Purchase Price.

         (b) ISSUANCE OF SHARES. After receiving a proper notice of exercise,
the Company shall cause to be issued a certificate or certificates for the
Shares as to which this option has been


                                       3.
<PAGE>

exercised, registered in the name of the person exercising this option (or in
the names of such person and his or her spouse as community property or as joint
tenants with right of survivorship). The Company shall cause such certificate or
certificates to be delivered to or upon the order of the person exercising this
option.

         (c) EARLY EXERCISE. Subject to the provisions of this Agreement,
Optionee may elect at any time that is both (A) during the period of Optionee's
Service and (B) during the term of Optionee's option, to exercise all or part of
such option, including the nonvested portion of such option; provided, however,
that:
                  (i)      a partial exercise of such option shall be deemed to
         cover first vested Shares of Stock and then the earliest vesting
         installment of unvested Shares of Stock;

                  (ii)     any Shares of Stock so purchased from installments
         that have not vested as of the date of exercise shall be subject to the
         purchase option in favor of the Company as described in the Company's
         form of Early Exercise Stock Purchase Agreement;

                  (iii)    Optionee shall enter into the Company's form of Early
         Exercise Stock Purchase Agreement with a vesting schedule that will
         result in the same vesting as if no early exercise had occurred.

         5.   PAYMENT FOR STOCK.

         The entire Purchase Price may be paid in lawful money of the United
States of America.


         6.   TERM AND EXPIRATION.

         (a) BASIC TERM. This option shall in any event expire on the date 10
years after the Date of Grant.

         (b) TERMINATION OF SERVICE (EXCEPT BY DEATH). If the Optionee's service
as an Employee terminates for any reason other than death, then this option
shall expire on the earliest of the following occasions:

                  (i)      The expiration date determined pursuant to subsection
         (a) above;

                  (ii)     The date 90 days after the termination of the
         Optionee's service as an Employee for any reason other than Total and
         Permanent Disability; or


                                       4.
<PAGE>

                  (iii)    The date six months after the termination of the
         Optionee's service as an Employee by reason of Total and Permanent
         Disability.

The Optionee may exercise all or part of this option at any time before its
expiration under the preceding sentence, but only to the extent that this option
had become exercisable before the Optionee's service terminated. The balance of
this option shall lapse when the Optionee's service as an Employee terminates.
In the event that the Optionee dies after the termination of service but before
the expiration of this option, all or part of this option may be exercised
(prior to expiration) by the executors or administrators of the Optionee's
estate or by any person who has acquired this option directly from the Optionee
by bequest or inheritance, but only to the extent that this option had become
exercisable before the Optionee's service terminated.

         (c) DEATH OF OPTIONEE. If the Optionee dies as an Employee, then this
option shall expire on the earlier of the following dates:

                  (i)      The expiration date determined pursuant to subsection
         (a) above; or

                  (ii)     The date six months after the Optionee's death.

All or part of this option may be exercised at any time before its expiration
under the preceding sentence by the executors or administrators of the
Optionee's estate or by any person who has acquired this option directly from
the Optionee by bequest or inheritance, but only to the extent that this option
had become exercisable before the Optionee's death. The balance of this option
shall lapse when the Optionee dies.

         (d) LEAVES OF ABSENCE. For purposes of this Section 6, the Employee
relationship shall be deemed to continue during any period when the Optionee is
on military leave, sick leave or other bona fide leave of absence (to be
determined in the sole discretion of the Committee). However, if the Optionee's
reemployment rights are not guaranteed by statute or by contract, then the
Employee relationship shall not be deemed to continue beyond the 90th day of
such period.

         7.   THE COMPANY'S RIGHT OF FIRST OFFER.

         In the event that the Optionee proposes to sell, pledge or otherwise
transfer to any person any Shares acquired under this Agreement, or any interest
in such Shares, such Shares shall first be offered to the Company as follows:

         (a) The Optionee shall promptly deliver a notice ("Notice") to the
Company stating (i) Optionee's bona fide intention to sell or transfer such
Shares, (ii) the number of such Shares to be sold or transferred, and the basic
terms and conditions of such sale or transfer, (iii) the price for which
Optionee proposes to sell or transfer such Shares, (iv) the name of the proposed
purchaser


                                       5.
<PAGE>

or transferee, and (v) proof satisfactory to the Company that the proposed sale
or transfer will not violate any applicable federal or state securities laws.
The Notice shall be signed by both Optionee and the proposed purchaser or
transferee and must constitute a binding commitment subject to the Company's
rights of first offer as set forth herein.

         (b) Within 30 days after receipt of the Notice, the Company may elect
to purchase all of the Shares to which the Notice refers, at the price per Share
specified in the Notice. If the Company elects not to purchase all such Shares,
the Company may assign its right to purchase all such Shares. The assignees may
elect within 30 days after receipt by the Company of the Notice to purchase all
Shares to which the Notice refers, at the price per Share specified in the
Notice. An election to purchase shall be made by written notice to Optionee.
Payment for all Shares elected to be purchased pursuant to this Section 7 shall
be made within 30 days of the receipt by the Company of the Notice.

         (c) If the Shares to which the Notice refers are not elected to be
purchased, as provided in subsection (b) above, the Optionee may sell the Shares
to any person named in the Notice at the price specified in the Notice, provided
that such sale or transfer is consummated within three months of the date of
said Notice to the Company, and provided, further, that any such sale is made in
compliance with applicable federal and state securities laws and not in
violation of any other contractual restrictions to which the Optionee is bound.
The third party Transferee shall acquire the Shares of Stock free and clear of
the Company's right of first offer.

         (d) Any proposed transfer on terms and conditions different from those
set forth in the notice of transfer, as well as any subsequent proposed
transfer, shall again be subject to the Company's right of first offer and shall
require compliance with the procedures described in this Section 7.

         (e) Optionee agrees to cooperate affirmatively with the Company, to the
extent reasonably requested by the Company, to enforce rights and obligations
pursuant to this Agreement.

         (f) Notwithstanding the above, neither the Company nor any assignee of
the Company under this Section 7 shall have any right under this Section 7 at
any time subsequent to the closing of a public offering of the common stock of
the Company pursuant to a registration statement declared effective under the
Securities Act of 1933.


                                       6.
<PAGE>

         (g) This Section 7 shall not apply to a transfer by will or intestate
succession, provided that the Transferee agrees in writing to be bound by the
terms of this Agreement.

         (h) If the Company makes available, at the time and place and in the
amount and form provided in this Agreement, the consideration for the Shares to
be purchased in accordance with the provisions of this Section 7, then from and
after such time the person from whom such Shares are to be purchased shall no
longer have any rights as a holder of such Shares (other than the right to
receive payment of such consideration in accordance with this Agreement). Such
Shares shall be deemed to have been purchased in accordance with the applicable
provisions hereof, whether or not the certificate(s) therefor have been
delivered as required by this Agreement.

         (i) The Optionee shall have the right to transfer all or any portion of
Optionee's interest in the Shares issued under this Agreement which have been
delivered to Optionee, to a trust established by the Optionee for the benefit of
Optionee, Optionee's spouse or children, without being subject to the provisions
of this Section 7, provided that the trustee on behalf of the trust shall agree
in writing to be bound by the terms and conditions of this Agreement. The
transferee shall execute a copy of the attached Exhibit A and file the same with
the Secretary of the Company.

         (j) All certificates representing the Shares issued upon exercise of
this Option shall, where applicable, have endorsed thereon the following legend:

                  "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
         CERTAIN RESTRICTIONS ON TRANSFER AND OPTIONS TO PURCHASE SUCH SHARES
         SET FORTH IN AN AGREEMENT BETWEEN AEROGEN, INC. AND THE REGISTERED
         HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST. SUCH AGREEMENT
         IMPOSES CERTAIN TRANSFER RESTRICTIONS AND GRANTS CERTAIN RIGHTS OF
         FIRST OFFER TO THE CORPORATION (OR ITS ASSIGNS) UPON THE SALE OF THE
         SHARES. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF
         THE CORPORATION AND WILL BE FURNISHED UPON WRITTEN REQUEST TO THE CHIEF
         FINANCIAL OFFICER, SECRETARY OR AN ASSISTANT SECRETARY OF THE
         CORPORATION BY THE HOLDER OF RECORD OF THE SHARES REPRESENTED BY THIS
         CERTIFICATE."


         8.   LEGALITY OF INITIAL ISSUANCE.


                                       7.
<PAGE>

         No Shares shall be issued upon the exercise of this option unless and
until the Company has determined that:

         (a) It and the Optionee have taken any actions required to register the
Shares under the Securities Act or to perfect an exemption from the registration
requirements thereof;

         (b) Any applicable listing requirement of any stock exchange on which
Stock is listed has been satisfied; and

         (c) Any other applicable provision of state or federal law has been
satisfied.

         9.   NO REGISTRATION RIGHTS.

         The Company may, but shall not be obligated to, register or qualify the
sale of Shares under the Securities Act or any other applicable law. The Company
shall not be obligated to take any affirmative action in order to cause the sale
of Shares under this Agreement to comply with any law.


         10. RESTRICTIONS ON TRANSFER OF SHARES.

         (a) RESTRICTIONS. Regardless of whether the offering and sale of Shares
under the Plan have been registered under the Securities Act or have been
registered or qualified under the securities laws of any state, the Company may
impose restrictions upon the sale, pledge or other transfer of such Shares
(including the placement of appropriate legends on stock certificates) if, in
the judgment of the Company and its counsel, such restrictions are necessary or
desirable in order to achieve compliance with the provisions of the Securities
Act, the securities laws of any state or any other law.

         (b) INVESTMENT INTENT AT GRANT. The Optionee represents and agrees that
the Shares to be acquired upon exercising this option will be acquired for
investment, and not with a view to the sale or distribution thereof.

         (c) INVESTMENT INTENT AT EXERCISE. In the event that the sale of Shares
under the Plan is not registered under the Securities Act but an exemption is
available which requires an investment representation or other representation,
the Optionee shall represent and agree at the time of exercise that the Shares
being acquired upon exercising this option are being acquired for investment,
and not with a view to the sale or distribution thereof, and shall make such
other representations as are deemed necessary or appropriate by the Company and
its counsel.


                                       8.
<PAGE>

         (d) LEGEND. All certificates evidencing Shares acquired under this
Agreement in an unregistered transaction shall bear the following restrictive
legend (and such other restrictive legends as are required or deemed advisable
under the provisions of any applicable law):

         "THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
         SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
         OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER
         SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS
         COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."

         (e) REMOVAL OF LEGENDS. If, in the opinion of the Company and its
counsel, any legend placed on a stock certificate representing Shares sold under
this Agreement is no longer required, the holder of such certificate shall be
entitled to exchange such certificate for a certificate representing the same
number of Shares but lacking such legend.

         (f) ADMINISTRATION. Any determination by the Company and its counsel in
connection with any of the matters set forth in this Section 10 shall be
conclusive and binding on the Optionee and all other persons.

         (g) MARKET STAND-OFF. Each Optionee hereby agrees that, if so requested
by the Company, such Optionee shall not sell or otherwise transfer any Shares of
the Company during such period following the effective date of a registration
statement of the Company filed under the Securities Act as agreed to between the
Company and the Underwriter's Representative(s); provided that such restriction
shall only apply to the first two registration statements of the Company to
become effective which include securities to be sold on behalf of the Company to
the public in an underwritten offering.

         11.  SHARES AND ADJUSTMENTS.

         (a) GENERAL. In the event of a subdivision of the outstanding Shares, a
declaration of a dividend payable in Shares, a declaration of a dividend payable
in a form other than Shares in an amount that has a material effect on the value
of Shares, a combination or consolidation of the outstanding Shares (by
reclassification or otherwise) into a lesser number of Shares, a
recapitalization or a similar occurrence, the Committee shall make appropriate
adjustments in one or both of (i) the number of Shares covered by this option or
(ii) the Exercise Price.


                                       9.
<PAGE>

         (b) MERGERS; CONSOLIDATIONS. In the event that the Company is a party
to a merger or consolidation, this option shall be subject to the agreement of
merger or consolidation. Such agreement shall provide for the assumption of this
option by the surviving corporation or its parent or for continuation thereof by
the Company (if the Company is a surviving corporation). In the event the
Company is not the surviving corporation and the surviving corporation will not
assume this option, the agreement of merger or consolidation will provide for
payment of a cash settlement equal to the difference between the amount to be
paid for one Share under this agreement and the Exercise Price or for the
acceleration of the exercisability of this option followed by its cancellation
if not exercised, in any case without the Optionee's consent. Any cancellation
shall not occur earlier than 30 days after such acceleration is effective and
the Optionee has been notified of such acceleration. If this option has been
outstanding for less than 12 months, a cancellation need not be preceded by an
acceleration.

         (c) RESERVATION OF RIGHTS. Except as provided in this Section 11, the
Optionee shall have no rights by reason of any subdivision or consolidation of
shares of stock of any class, the payment of any dividend or any other increase
or decrease in the number of shares of stock of any class. Any issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number or Exercise Price of the Shares
subject to this option. The grant of this option shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.

         12.  MISCELLANEOUS PROVISIONS.

         (a) WITHHOLDING TAXES. In the event that the Company determines that it
is required to withhold foreign, federal, state or local tax as a result of the
exercise of this option, the Optionee, as a condition to the exercise of this
option, shall make arrangements satisfactory to the Company to enable it to
satisfy all withholding requirements. The Optionee shall also make arrangements
satisfactory to the Company to enable it to satisfy any withholding requirements
that may arise in connection with the disposition of Shares purchased by
exercising this option.


                                      10.
<PAGE>

         (b) RIGHTS AS A STOCKHOLDER. Neither the Optionee nor the Optionee's
representative shall have any rights as a stockholder with respect to any Shares
subject to this option until such Shares have been issued in the name of the
Optionee or the Optionee's representative.

         (c) NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall be construed
as giving the Optionee the right to be retained as an Employee. The Company
reserves the right to terminate the Optionee's service at any time, with or
without cause.

         (d) NOTICE. Any notice required by the terms of this Agreement shall be
given in writing and shall be deemed effective upon personal delivery or upon
deposit with the United States Postal Service, by registered or certified mail
with postage and fees prepaid and addressed to the party entitled to such notice
at the address shown below such party's signature on this Agreement, or at such
other address as such party may designate by 10 days' written notice to the
other party to this Agreement.

         (e) ENTIRE AGREEMENT. This Agreement and the Plan constitute the entire
contract between the parties hereto with regard to the subject matter hereof.

         (f) CHOICE OF LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California, as such laws are
applied to contracts entered into and performed in such State. The parties agree
that any action brought by either party to interpret or enforce any provision of
this Agreement shall be brought in, and each party agrees to, and does hereby,
submit to the jurisdictional and venue of, the appropriate state or federal
court located in California.



         13.  DEFINITIONS.

         (a)  "AGREEMENT" shall mean this Nonstatutory Stock Option Agreement.

         (b) "BOARD" shall mean the Board of Directors of the Company, as
constituted from time to time.

         (c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.

         (d) "COMMITTEE" shall mean the committee of the Board described in
Section 3 of the Plan or, if none has been appointed, the full Board.


                                      11.
<PAGE>

         (e) "DATE OF GRANT" shall mean the date on which the Committee resolved
to grant this option, which is also the date as of which this Agreement is
entered into.

         (f) "EMPLOYEE" shall mean (i) any individual who is a common-law
employee of the Company or of a Subsidiary, (ii) a member of the Board of
Directors and (iii) an independent contractor who performs services for the
Company or a Subsidiary. Service as a member of the Board of Directors or as an
independent contractor shall be considered employment for all purposes of the
Plan except the second sentence of Section 4(a).

         (g) "EXERCISE PRICE" shall mean the amount for which one Share may be
purchased upon exercise of this option, as specified in Section 1(a).

         (h) "INCENTIVE STOCK OPTION" shall mean an employee incentive stock
option described in section 422A(b) of the Code.

         (i) "NONSTATUTORY STOCK OPTION" shall mean an employee stock option not
described in section 422(b), 422A(b), 432(b) or 424(b) of the Code.

         (j) "PLAN" shall mean the 1996 Stock Plan of AeroGen, Inc., as in
effect on the Date of Grant.

         (k) "PURCHASE PRICE" shall mean the Exercise Price multiplied by the
number of Shares with respect to which this option is being exercised.

         (l) "RIGHT OF FIRST OFFER" shall mean the Company's right of first
offer described in Section 7.

         (m) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.

         (n) "SHARE" shall mean one share of Stock, as adjusted in accordance
with Section 11 (if applicable).

         (o) "STOCK" shall mean the Common Stock of the Company.

         (p) "SUBSIDIARY" shall mean any corporation, if the Company and/or one
or more other Subsidiaries own not less than 50% of the total combined voting
power of all classes of outstanding stock of such corporation. A corporation
that attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.

         (q) "TOTAL AND PERMANENT DISABILITY" shall mean that the Optionee is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental


                                      12.
<PAGE>

impairment which can be expected to result in death or which has lasted, or
can be expected to last, for a continuous period of not less than one year.

         (r) "TRANSFEREE" shall mean any person to whom the Optionee has
directly or indirectly transferred any Share acquired under this Agreement.


                                      13.
<PAGE>

         IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf by its officer duly authorized to act on behalf of the
Committee, and the Optionee has personally executed this Agreement.

                                       AEROGEN, INC.


                                       By
                                          --------------------------------------
                                           Jane E. Shaw, Ph.D.

                                           Chairman and Chief Executive Officer

                                       Address:

                                           1310 Orleans Drive

                                           Sunnyvale, CA 94089


                                       OPTIONEE:

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


                                       Address:


                                      14.
<PAGE>

                                    EXHIBIT A

                   ACKNOWLEDGMENT OF AND AGREEMENT TO BE BOUND

                  BY THE NONSTATUTORY STOCK OPTION AGREEMENT OF

                                 AEROGEN, INC.,

                             A DELAWARE CORPORATION


         The undersigned, as transferee of shares of AEROGEN, INC., hereby
acknowledges that he has read and reviewed the terms of the Nonstatutory Stock
Option Agreement of AeroGen, Inc. and hereby agrees to be bound by the terms and
conditions thereof, as if the undersigned had executed said Agreement as an
original party thereto.

         Dated: ______________________, 19__.


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

                                      15.
<PAGE>

         THE OPTION GRANTED PURSUANT TO THIS INCENTIVE STOCK OPTION AGREEMENT
(THE "OPTION") AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE OPTION OR THE SHARES UNDER THE SECURITIES ACT, OR AN OPINION OF COUNSEL,
WHICH IS SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION
IS NOT REQUIRED.



                        1996 STOCK PLAN OF AEROGEN, INC.

                        INCENTIVE STOCK OPTION AGREEMENT

                          (ALLOWING FOR EARLY EXERCISE)


         THIS AGREEMENT is entered into as of __________, 199_ between AEROGEN,
INC., a Delaware corporation (the "Company"), and _______________ (the
"Optionee").

                              W I T N E S S E T H:

         WHEREAS, the Company's Board of Directors has established the 1996
Stock Plan of Aerogen, Inc., as amended, in order to provide selected Employees
of the Company and its Subsidiaries with an opportunity to acquire Common Stock
of the Company; and

         WHEREAS, the Committee has determined that it would be in the best
interests of the Company and its stockholders to grant the Incentive Stock
Option described in this Agreement to the Optionee as an inducement to enter
into or remain in the service of the Company and as an incentive for
extraordinary efforts during such service:

         NOW, THEREFORE, it is agreed as follows:

         1.   Grant of Option.

         (a) OPTION. On the terms and conditions stated below, the Company
hereby grants to the Optionee the option to purchase __________________ Shares
for the sum of $______ ($0.20) per Share, which is agreed to be 100% of the fair
market value thereof on the Date of Grant. This option is intended to be an
Incentive Stock Option.

         (b) STOCK PLAN. This option is granted pursuant to the Plan, a copy of
which the Optionee acknowledges having received and read. The provisions of the
Plan are incorporated into this Agreement by this reference.


                                       1.
<PAGE>

         (c) STOCKHOLDER APPROVAL. This option is granted subject to approval of
the Plan by the stockholders of the Company. Should the Plan not be approved by
the stockholders of the Company, this grant shall be null and void.

         2. NO TRANSFER OR ASSIGNMENT OF OPTION.

         Except as otherwise provided in this Agreement, this option and the
rights and privileges conferred hereby shall not be transferred, assigned,
pledged or hypothecated in any way (whether by operation of law or otherwise)
and shall not be subject to sale under execution, attachment or similar process.
Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose
of this option, or of any right or privilege conferred hereby, contrary to the
provisions hereof, or upon any attempted sale under any execution, attachment or
similar process upon the rights and privileges conferred hereby, this option and
the rights and privileges conferred hereby shall immediately become null and
void.


         3. VESTING/RIGHT TO EXERCISE.

         (a) VESTING. This option shall vest as to 25% of the Shares on the
first anniversary of the Vesting Commencement date which shall be ________, 199_
(the "Vesting Commencement Date") and 1/48th of the Shares shall vest monthly
thereafter. The percentage of the total number of Shares subject to this option
with respect to which this option is vested at any time after the first
anniversary of the Vesting Commencement Date shall be equal to the product of
1/48 times the number of whole months that have elapsed since the Vesting
Commencement Date.

         (b) PERIODS OF NONEXERCISABILITY. Any other provision of this Agreement
notwithstanding, the Company shall have the right to designate one or more
periods of time, each of which shall not exceed 18 consecutive months in length,
during which this option shall not be exercisable if the Company determines (in
its sole discretion) that such limitation on exercise could in any way
facilitate a lessening of any restriction on transfer pursuant to the Securities
Act or any state securities laws with respect to any issuance of securities by
the Company, facilitate the registration or qualification of any securities by
the Company under the Securities Act or any state securities laws, or facilitate
the perfection of any exemption from the registration or qualification
requirements of the Securities Act or any applicable state securities laws for
the issuance or transfer of any securities. Such limitation on exercise shall
not alter the vesting schedule set forth in Section 3(a) other than to limit the
periods during which this option shall be


                                       2.
<PAGE>

exercisable. The Optionee shall be notified in writing in advance of any such
designation by the Company.

         (c) STOCKHOLDER APPROVAL. Any other provision of this Agreement
notwithstanding, this option shall not be exercisable at any time prior to the
approval of the Plan by the holders of a majority of the outstanding stock of
the Company.

         4.   EXERCISE PROCEDURES.

         (a) NOTICE OF EXERCISE. The Optionee or the Optionee's representative
may exercise this option by giving written notice to the Chief Financial
Officer, Secretary or an Assistant Secretary of the Company pursuant to Section
12(d). The notice shall specify the election to exercise this option, the number
of Shares for which it is being exercised and the form of payment. The notice
shall be signed by the person or persons exercising this option. In the event
that this option is being exercised by the representative of the Optionee, the
notice shall be accompanied by proof (satisfactory to the Company) of the
representative's right to exercise this option. The Optionee or the Optionee's
representative shall deliver to the Chief Financial Officer, Secretary or
Assistant Secretary of the Company, at the time of giving the notice, payment in
a form permissible under Section 5 for the full amount of the Purchase Price.

         (b) ISSUANCE OF SHARES. After receiving a proper notice of exercise,
the Company shall cause to be issued a certificate or certificates for the
Shares as to which this option has been exercised, registered in the name of the
person exercising this option (or in the names of such person and his or her
spouse as community property or as joint tenants with right of survivorship).
The Company shall cause such certificate or certificates to be delivered to or
upon the order of the person exercising this option.

         (c) EARLY EXERCISE. Subject to the provisions of this Agreement,
Optionee may elect at any time that is both (A) during the period of Optionee's
Service and (B) during the term of Optionee's option, to exercise all or part of
such option, including the nonvested portion of such option; provided, however,
that:
                  (i)      a partial exercise of such option shall be deemed to
         cover first vested Shares of Stock and then the earliest vesting
         installment of unvested Shares of Stock;


                                       3.
<PAGE>

                  (ii)     any Shares of Stock so purchased from installments
         that have not vested as of the date of exercise shall be subject to the
         purchase option in favor of the Company as described in the Company's
         form of Early Exercise Stock Purchase Agreement;

                  (iii)    Optionee shall enter into the Company's form of Early
         Exercise Stock Purchase Agreement with a vesting schedule that will
         result in the same vesting as if no early exercise had occurred.

         5.   PAYMENT FOR STOCK.

         The entire Purchase Price may be paid in lawful money of the United
States of America.


         6.   TERM AND EXPIRATION.

         (a) BASIC TERM. This option shall in any event expire on the date 10
years after the Date of Grant.
         (b) TERMINATION OF SERVICE (EXCEPT BY DEATH). If the Optionee's service
as an Employee terminates for any reason other than death, then this option
shall expire on the earliest of the following occasions:

                  (i)      The expiration date determined pursuant to subsection
         (a) above;

                  (ii)     The date 90 days after the termination of the
         Optionee's service as an Employee for any reason other than Total and
         Permanent Disability; or

                  (iii)    The date six months after the termination of the
         Optionee's service as an Employee by reason of Total and Permanent
         Disability.

The Optionee may exercise all or part of this option at any time before its
expiration under the preceding sentence, but only to the extent that this option
had become exercisable before the Optionee's service terminated. The balance of
this option shall lapse when the Optionee's service as an Employee terminates.
In the event that the Optionee dies after the termination of service but before
the expiration of this option, all or part of this option may be exercised
(prior to expiration) by the executors or administrators of the Optionee's
estate or by any person who has acquired this option directly from the Optionee
by bequest or inheritance, but only to the extent that this option had become
exercisable before the Optionee's service terminated.

         (c) DEATH OF OPTIONEE. If the Optionee dies as an Employee, then this
option shall expire on the earlier of the following dates:


                                       4.
<PAGE>

         (i)      The expiration date determined pursuant to subsection (a)
                  above; or

         (ii)     The date six months after the Optionee's death.


All or part of this option may be exercised at any time before its expiration
under the preceding sentence by the executors or administrators of the
Optionee's estate or by any person who has acquired this option directly from
the Optionee by bequest or inheritance, but only to the extent that this option
had become exercisable before the Optionee's death. The balance of this option
shall lapse when the Optionee dies.

         (d) LEAVES OF ABSENCE. For purposes of this Section 6, the Employee
relationship shall be deemed to continue during any period when the Optionee is
on military leave, sick leave or other bona fide leave of absence (to be
determined in the sole discretion of the Committee). However, if the Optionee's
reemployment rights are not guaranteed by statute or by contract, then the
Employee relationship shall not be deemed to continue beyond the 90th day of
such period.

         7.   THE COMPANY'S RIGHT OF FIRST OFFER.

         In the event that the Optionee proposes to sell, pledge or otherwise
transfer to any person any Shares acquired under this Agreement, or any interest
in such Shares, such Shares shall first be offered to the Company as follows:

         (a) The Optionee shall promptly deliver a notice ("Notice") to the
Company stating (i) Optionee's bona fide intention to sell or transfer such
Shares, (ii) the number of such Shares to be sold or transferred, and the basic
terms and conditions of such sale or transfer, (iii) the price for which
Optionee proposes to sell or transfer such Shares, (iv) the name of the proposed
purchaser or transferee, and (v) proof satisfactory to the Company that the
proposed sale or transfer will not violate any applicable federal or state
securities laws. The Notice shall be signed by both Optionee and the proposed
purchaser or transferee and must constitute a binding commitment subject to the
Company's rights of first offer as set forth herein.
         (b) Within 30 days after receipt of the Notice, the Company may elect
to purchase all of the Shares to which the Notice refers, at the price per Share
specified in the Notice. If the Company elects not to purchase all such Shares,
the Company may assign its right to purchase all such Shares. The assignees may
elect within 30 days after receipt by the Company of the Notice to purchase all
Shares to which the Notice refers, at the price per Share specified in the
Notice. An election to purchase shall be made by written notice to Optionee.
Payment for all


                                       5.
<PAGE>

Shares elected to be purchased pursuant to this Section 7 shall be made within
30 days of the receipt by the Company of the Notice.
         (c) If the Shares to which the Notice refers are not elected to be
purchased, as provided in subsection 7(b) above, the Optionee may sell the
Shares to any person named in the Notice at the price specified in the Notice,
provided that such sale or transfer is consummated within three months of the
date of said Notice to the Company, and provided, further, that any such sale is
made in compliance with applicable federal and state securities laws and not in
violation of any other contractual restrictions to which the Optionee is bound.
The third-party Transferee shall acquire the Shares of Stock free and clear of
the Company's right of first offer.
         (d) Any proposed transfer on terms and conditions different from those
set forth in the notice of transfer, as well as any subsequent proposed
transfer, shall again be subject to the Company's right of first offer and shall
require compliance with the procedures described in this Section 7.
         (e) Optionee agrees to cooperate affirmatively with the Company, to the
extent reasonably requested by the Company, to enforce rights and obligations
pursuant to this Agreement.
         (f) Notwithstanding the above, neither the Company nor any assignee of
the Company under this Section 7 shall have any right under this Section 7 at
any time subsequent to the closing of a public offering of the common stock of
the Company pursuant to a registration statement declared effective under the
Securities Act of 1933.
         (g) This Section 7 shall not apply to a transfer by will or intestate
succession, provided that the Transferee agrees in writing to be bound by the
terms of this Agreement.
         (h) If the Company makes available, at the time and place and in the
amount and form provided in this Agreement, the consideration for the Shares to
be purchased in accordance with the provisions of this Section 7, then from and
after such time the person from whom such Shares are to be purchased shall no
longer have any rights as a holder of such Shares (other than the right to
receive payment of such consideration in accordance with this Agreement). Such
Shares shall be deemed to have been purchased in accordance with the applicable
provisions hereof, whether or not the certificate(s) therefor have been
delivered as required by this Agreement.


                                       6.
<PAGE>

         (i) The Optionee shall have the right to transfer all or any portion of
Optionee's interest in the Shares issued under this Agreement which have been
delivered to Optionee, to a trust established by the Optionee for the benefit of
Optionee, Optionee's spouse or children, without being subject to the provisions
of this Section 7, provided that the trustee on behalf of the trust shall agree
in writing to be bound by the terms and conditions of this Agreement. The
transferee shall execute a copy of the attached Exhibit A and file the same with
the Secretary of the Company.
         (j) All certificates representing the Shares issued upon exercise of
this Option shall, where applicable, have endorsed thereon the following legend:

                  "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
         CERTAIN RESTRICTIONS ON TRANSFER AND OPTIONS TO PURCHASE SUCH SHARES
         SET FORTH IN AN AGREEMENT BETWEEN AEROGEN, INC. AND THE REGISTERED
         HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST. SUCH AGREEMENT
         IMPOSES CERTAIN TRANSFER RESTRICTIONS AND GRANTS CERTAIN RIGHTS OF
         FIRST OFFER TO THE CORPORATION (OR ITS ASSIGNS) UPON THE SALE OF THE
         SHARES. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF
         THE CORPORATION AND WILL BE FURNISHED UPON WRITTEN REQUEST TO THE CHIEF
         FINANCIAL OFFICER, SECRETARY OR ASSISTANT SECRETARY OF THE CORPORATION
         BY THE HOLDER OF RECORD OF THE SHARES REPRESENTED BY THIS CERTIFICATE."


         8.   LEGALITY OF INITIAL ISSUANCE.

         No Shares shall be issued upon the exercise of this option unless and
until the Company has determined that:

         (a) It and the Optionee have taken any actions required to register the
Shares under the Securities Act or to perfect an exemption from the registration
requirements thereof;
         (b) Any applicable listing requirement of any stock exchange on which
Stock is listed has been satisfied; and
         (c) Any other applicable provision of state or federal law has been
satisfied.


                                       7.
<PAGE>

         9.   NO REGISTRATION RIGHTS.

         The Company may, but shall not be obligated to, register or qualify the
sale of Shares under the Securities Act or any other applicable law. The Company
shall not be obligated to take any affirmative action in order to cause the sale
of Shares under this Agreement to comply with any law.

         10. RESTRICTIONS ON TRANSFER OF SHARES.

         (a) RESTRICTIONS. Regardless of whether the offering and sale of Shares
under the Plan have been registered under the Securities Act or have been
registered or qualified under the securities laws of any state, the Company may
impose restrictions upon the sale, pledge or other transfer of such Shares
(including the placement of appropriate legends on stock certificates) if, in
the judgment of the Company and its counsel, such restrictions are necessary or
desirable in order to achieve compliance with the provisions of the Securities
Act, the securities laws of any state or any other law.
         (b) INVESTMENT INTENT AT GRANT. The Optionee represents and agrees that
the Shares to be acquired upon exercising this option will be acquired for
investment, and not with a view to the sale or distribution thereof.
         (c) INVESTMENT INTENT AT EXERCISE. In the event that the sale of Shares
under the Plan is not registered under the Securities Act but an exemption is
available which requires an investment representation or other representation,
the Optionee shall represent and agree at the time of exercise that the Shares
being acquired upon exercising this option are being acquired for investment,
and not with a view to the sale or distribution thereof, and shall make such
other representations as are deemed necessary or appropriate by the Company and
its counsel.
         (d) LEGEND. All certificates evidencing Shares acquired under this
Agreement in an unregistered transaction shall bear the following restrictive
legend (and such other restrictive legends as are required or deemed advisable
under the provisions of any applicable law):

         "THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
         SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
         OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER
         SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS
         COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."


                                       8.
<PAGE>

         (e) REMOVAL OF LEGENDS. If, in the opinion of the Company and its
counsel, any legend placed on a stock certificate representing Shares sold under
this Agreement is no longer required, the holder of such certificate shall be
entitled to exchange such certificate for a certificate representing the same
number of Shares but lacking such legend.
         (f) ADMINISTRATION. Any determination by the Company and its counsel in
connection with any of the matters set forth in this Section 10 shall be
conclusive and binding on the Optionee and all other persons.
         (g) MARKET STAND-OFF. Each Optionee hereby agrees that, if so requested
by the Company, such Optionee shall not sell or otherwise transfer any Shares of
the Company during such period following the effective date of a registration
statement of the Company filed under the Securities Act as agreed to between the
Company and the Underwriter's Representative(s); provided that such restriction
shall only apply to the first two registration statements of the Company to
become effective which include securities to be sold on behalf of the Company to
the public in an underwritten offering.

         11.  SHARES AND ADJUSTMENTS.

         (a) GENERAL. In the event of a subdivision of the outstanding Shares, a
declaration of a dividend payable in Shares, a declaration of a dividend payable
in a form other than Shares in an amount that has a material effect on the value
of Shares, a combination or consolidation of the outstanding Shares (by
reclassification or otherwise) into a lesser number of Shares, a
recapitalization or a similar occurrence, the Committee shall make appropriate
adjustments in one or both of (i) the number of Shares covered by this option or
(ii) the Exercise Price.
         (b) MERGERS; CONSOLIDATIONS. In the event that the Company is a party
to a merger or consolidation, this option shall be subject to the agreement of
merger or consolidation. Such agreement shall provide for the assumption of this
option by the surviving corporation or its parent or for continuation thereof by
the Company (if the Company is a surviving corporation). In the event the
Company is not the surviving corporation and the surviving corporation will not
assume this option, the agreement of merger or consolidation will provide for
payment of a cash settlement equal to the difference between the amount to be
paid for one Share under this agreement and the Exercise Price or for the
acceleration of the exercisability of this option


                                       9.
<PAGE>

followed by its cancellation if not exercised, in any case without the
Optionee's consent. Any cancellation shall not occur earlier than 30 days after
such acceleration is effective and the Optionee has been notified of such
acceleration. If this option has been outstanding for less than 12 months, a
cancellation need not be preceded by an acceleration.
         (c) RESERVATION OF RIGHTS. Except as provided in this Section 11, the
Optionee shall have no rights by reason of any subdivision or consolidation of
shares of stock of any class, the payment of any dividend or any other increase
or decrease in the number of shares of stock of any class. Any issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number or Exercise Price of the Shares
subject to this option. The grant of this option shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.

         12.  MISCELLANEOUS PROVISIONS.

         (a) WITHHOLDING TAXES. In the event that the Company determines that it
is required to withhold foreign, federal, state or local tax as a result of the
exercise of this option, the Optionee, as a condition to the exercise of this
option, shall make arrangements satisfactory to the Company to enable it to
satisfy all withholding requirements. The Optionee shall also make arrangements
satisfactory to the Company to enable it to satisfy any withholding requirements
that may arise in connection with the disposition of Shares purchased by
exercising this option.
         (b) RIGHTS AS A STOCKHOLDER. Neither the Optionee nor the Optionee's
representative shall have any rights as a stockholder with respect to any Shares
subject to this option until such Shares have been issued in the name of the
Optionee or the Optionee's representative.
         (c) NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall be construed
as giving the Optionee the right to be retained as an Employee. The Company
reserves the right to terminate the Optionee's service at any time, for any
reason.
         (d) NOTICE. Any notice required by the terms of this Agreement shall be
given in writing and shall be deemed effective upon personal delivery or upon
deposit with the United States


                                      10.
<PAGE>

Postal Service, by registered or certified mail with postage and fees prepaid
and addressed to the party entitled to such notice at the address shown below
such party's signature on this Agreement, or at such other address as such party
may designate by 10 days' written notice to the other party to this Agreement.
         (e) ENTIRE AGREEMENT. This Agreement and the Plan constitute the entire
contract between the parties hereto with regard to the subject matter hereof.
         (f) CHOICE OF LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California, as such laws are
applied to contracts entered into and performed in such State. The parties agree
that any action brought by either party to interpret or enforce any provision of
this Agreement shall be brought in, and each party agrees to, and does hereby,
submit to the jurisdictional and venue of, the appropriate state or federal
court located in California.

         13.  DEFINITIONS.

         (a)  "AGREEMENT" shall mean this Incentive Stock Option Agreement.
         (b) "BOARD" shall mean the Board of Directors of the Company, as
constituted from time to time.
         (c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
         (d) "COMMITTEE" shall mean the committee of the Board described in
Section 3 of the Plan or, if none has been appointed, the full Board.
         (e) "DATE OF GRANT" shall mean the date on which the Committee resolved
to grant this option, which is also the date as of which this Agreement is
entered into.
         (f) "EMPLOYEE" shall mean any individual who is a common-law employee
of the Company or of a Subsidiary.
         (g) "EXERCISE PRICE" shall mean the amount for which one Share may
be purchased upon exercise of this option, as specified in Section 1(a).
         (h) "INCENTIVE STOCK OPTION" shall mean an employee incentive stock
option described in section 422A(b) of the Code.
         (i) "PLAN" shall mean the 1996 Stock Plan of Aerogen, Inc., as in
effect on the Date of Grant.


                                      11.
<PAGE>

         (j) "PURCHASE PRICE" shall mean the Exercise Price multiplied by the
number of Shares with respect to which this option is being exercised.
         (k) "RIGHT OF FIRST OFFER" shall mean the Company's right of first
         offer described in Section 7.
         (l) "SECURITIES ACT" shall mean the Securities Act of 1933, as amended
         (m) "SHARE" shall mean one share of Stock, as adjusted in accordance
with Section 11 (if applicable).
         (n) "STOCK" shall mean the Common Stock of the Company.
         (o) "SUBSIDIARY" shall mean any corporation, if the Company and/or one
or more other Subsidiaries own not less than 50% of the total combined voting
power of all classes of outstanding stock of such corporation. A corporation
that attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
         (p) "TOTAL AND PERMANENT DISABILITY" shall mean that the Optionee is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted, or can be expected to last, for a continuous period
of not less than one year.
         (q) "TRANSFEREE" shall mean any person to whom the Optionee has
directly or indirectly transferred any Share acquired under this Agreement.
         IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf by its officer duly authorized to act on behalf of the
Committee, and the Optionee has personally executed this Agreement.

                                  AEROGEN, INC.





                                  By
                                     ------------------------------------------

                                          Jane E. Shaw, Ph.D.

                                          Chairman and Chief Executive Officer

                                  Address:

                                          1310 Orleans Drive


                                      12.
<PAGE>

                                          Sunnyvale, CA 94089



                                  OPTIONEE:



                                  By
                                    --------------------------------------------

                                  Address:

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

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


                                      13.
<PAGE>

                                    EXHIBIT A

                   ACKNOWLEDGMENT OF AND AGREEMENT TO BE BOUND

                   BY THE INCENTIVE STOCK OPTION AGREEMENT OF

                                  AEROGEN, INC.

                             A DELAWARE CORPORATION


         The undersigned, as transferee of shares of AEROGEN, INC., hereby
acknowledges that he has read and reviewed the terms of the Incentive Stock
Option Agreement of Aerogen, Inc. and hereby agrees to be bound by the terms and
conditions thereof, as if the undersigned had executed said Agreement as an
original party thereto.


         Dated: ______________________, 19___.


                                      14.
<PAGE>

                                  AEROGEN INC.

                     EARLY EXERCISE STOCK PURCHASE AGREEMENT
                            UNDER THE 1996 STOCK PLAN


         THIS AGREEMENT is made by and between AeroGen Inc., a Delaware
corporation (the "Company"), and _______________ ("Purchaser").

                                   WITNESSETH:

         WHEREAS, Purchaser holds a stock option dated _______________ to
purchase shares of common stock ("Common Stock") of the Company (the "Option")
pursuant to the Company's 1996 Stock Plan (the "Plan"); and

         WHEREAS, the Option consists of a Stock Option Agreement; and

         WHEREAS, Purchaser desires to exercise the Option on the terms and
conditions contained herein; and

         WHEREAS, Purchaser wishes to take advantage of the early exercise
provision of the Purchaser's Option and therefore to enter into this Agreement;

         NOW, THEREFORE, IT IS AGREED between the parties as follows:

         1. INCORPORATION OF PLAN AND OPTION BY REFERENCE. This Agreement is
subject to all of the terms and conditions as set forth in the Plan and the
Option. If there is a conflict between the terms of this Agreement and/or the
Option and the terms of the Plan, the terms of the Plan shall control. If there
is a conflict between the terms of this Agreement and the terms of the Option,
the terms of the Option shall control. Defined terms not explicitly defined in
this Agreement but defined in the Plan shall have the same definitions as in the
Plan. Defined terms not explicitly defined in this Agreement or the Plan but
defined in the Option shall have the same definitions as in the Option.

         2. PURCHASE AND SALE OF COMMON STOCK.

         (a) AGREEMENT TO PURCHASE AND SELL COMMON STOCK. Purchaser hereby
agrees to purchase from the Company, and the Company hereby agrees to sell to
Purchaser, shares of the common stock of the Company (the "Common Stock") in
accordance with the Notice of Exercise duly executed by Purchaser and attached
hereto as Exhibit A.

         (b) CLOSING. The closing hereunder, including payment for and delivery
of the Common Stock, shall occur at the offices of the Company immediately
following the execution of this Agreement, or at such other time and place as
the parties may mutually agree; PROVIDED,


                                       1.
<PAGE>

HOWEVER, that if stockholder approval of the Plan is required before the Option
may be exercised, then the Option may not be exercised, and the closing shall be
delayed, until such stockholder approval is obtained. If such stockholder
approval is not obtained within the time limit specified in the Plan, then this
Agreement shall be null and void.

         3.   UNVESTED SHARE REPURCHASE OPTION

         (a) REPURCHASE OPTION. In the event Purchaser's Service terminates,
then the Company shall have an irrevocable option (the "Repurchase Option") for
a period of ninety (90) days after said termination (or in the case of shares
issued upon exercise of the Option after such date of termination, within ninety
(90) days after the date of the exercise), or such longer period as may be
agreed to by the Company and the Purchaser, to repurchase from Purchaser or
Purchaser's personal representative, as the case may be, those shares that
Purchaser received pursuant to the exercise of the Option that have not as yet
vested as of such termination date in accordance with the Vesting Schedule
indicated on Purchaser's Stock Option Agreement (the "Unvested Shares").

         (b) SHARES REPURCHASABLE AT PURCHASER'S ORIGINAL EXERCISE PRICE. The
Company may repurchase all or any of the Unvested Shares at a price ("Option
Price") equal to the Purchaser's Exercise Price for such shares as indicated on
Purchaser's Stock Option Agreement.

         4. EXERCISE OF REPURCHASE OPTION. The Repurchase Option shall be
exercised by written notice signed by an Officer of the Company and delivered or
mailed as provided herein. Such notice shall identify the number of shares of
Common Stock to be purchased and shall notify Purchaser of the time, place and
date for settlement of such purchase, which shall be scheduled by the Company
within the term of the Repurchase Option set forth above. The Company shall be
entitled to pay for any shares of Common Stock purchased pursuant to its
Repurchase Option at the Company's option in cash or by offset against any
indebtedness owing to the Company by Purchaser (including without limitation any
Note given in payment for the Common Stock), or by a combination of both. Upon
delivery of such notice and payment of the purchase price in any of the ways
described above, the Company shall become the legal and beneficial owner of the
Common Stock being repurchased and all rights and interest therein or related
thereto, and the Company shall have the right to transfer to its own name the
Common Stock being repurchased by the Company, without further action by
Purchaser.

         5. CAPITALIZATION ADJUSTMENTS TO COMMON STOCK. In the event of a
"capitalization adjustment" affecting the Company's outstanding Common Stock as
a class as designated in Section 9(a) of the Plan, then any and all new,
substituted or additional securities or other property to which Purchaser is
entitled by reason of Purchaser's ownership of Common Stock shall be immediately
subject to the Repurchase Option and be included in the word


                                       2.
<PAGE>

"Common Stock" for all purposes of the Repurchase Option with the same force and
effect as the shares of the Common Stock presently subject to the Repurchase
Option, but only to the extent the Common Stock is, at the time, covered by such
Repurchase Option. While the total Option Price shall remain the same after each
such event, the Option Price per share of Common Stock upon exercise of the
Repurchase Option shall be appropriately adjusted.

         6. REORGANIZATION. In the event of a "Reorganization" as designated in
Section 9(b) of the Plan, then the Repurchase Option may be assigned by the
Company to the successor of the Company (or such successor's parent company), if
any, in connection with such Reorganization. To the extent the Repurchase Option
remains in effect following such Reorganization, it shall apply to the new
capital stock or other property received in exchange for the Common Stock in
consummation of the Reorganization, but only to the extent the Common Stock was
at the time covered by such right. Appropriate adjustments shall be made to the
price per share payable upon exercise of the Repurchase Option to reflect the
Reorganization upon the Company's capital structure; provided, however, that the
aggregate Option Price shall remain the same.

         7. ESCROW OF UNVESTED COMMON STOCK. As security for Purchaser's
faithful performance of the terms of this Agreement and to insure the
availability for delivery of Purchaser's Common Stock upon exercise of the
Repurchase Option herein provided for, Purchaser agrees, at the closing
hereunder, to deliver to and deposit with the Secretary of the Company or the
Secretary's designee ("Escrow Agent"), as Escrow Agent in this transaction,
three (3) stock assignments duly endorsed (with date and number of shares blank)
in the form attached hereto as Exhibit B, together with a certificate or
certificates evidencing all of the Common Stock subject to the Repurchase
Option; said documents are to be held by the Escrow Agent and delivered by said
Escrow Agent pursuant to the Joint Escrow Instructions of the Company and
Purchaser set forth in Exhibit C, attached hereto and incorporated by this
reference, which instructions also shall be delivered to the Escrow Agent at the
closing hereunder.

         8. RIGHTS OF PURCHASER. Subject to the provisions of the Option,
Purchaser shall exercise all rights and privileges of a stockholder of the
Company with respect to the shares deposited in escrow. Purchaser shall be
deemed to be the holder of the shares for purposes of receiving any dividends
that may be paid with respect to such shares and for purposes of exercising any
voting rights relating to such shares, even if some or all of such shares have
not yet vested and been released from the Company's Repurchase Option.

         9. LIMITATIONS ON TRANSFER. In addition to any other limitation on
transfer created by applicable securities laws, Purchaser shall not sell,
assign, hypothecate, donate, encumber or otherwise dispose of any interest in
the Common Stock while the Common Stock is subject to the Repurchase Option.
After any Common Stock has been released from the Repurchase Option, Purchaser
shall not sell, assign, hypothecate, donate, encumber or otherwise dispose of
any interest in the Common Stock except in compliance with the provisions herein
and applicable securities laws. Furthermore, the Common Stock shall be subject
to any right of first refusal in favor of the Company or its assignees that may
be contained in the Company's Bylaws.


                                       3.
<PAGE>

         10. RESTRICTIVE LEGENDS. All certificates representing the Common Stock
shall have endorsed thereon legends in substantially the following forms (in
addition to any other legend which may be required by other agreements between
the parties hereto):

         (a) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
OPTION SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER,
OR SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THIS COMPANY. ANY TRANSFER OR ATTEMPTED TRANSFER OF ANY
SHARES SUBJECT TO SUCH OPTION IS VOID WITHOUT THE PRIOR EXPRESS WRITTEN CONSENT
OF THE COMPANY."

         (b) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."

         (c) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT
OF FIRST REFUSAL OPTION IN FAVOR OF THE COMPANY AND/OR ITS ASSIGNEE(S) AS
PROVIDED IN THE BYLAWS OF THE COMPANY."

         (d) Any legend required by appropriate blue sky officials.

         11. INVESTMENT REPRESENTATIONS. In connection with the purchase of the
Common Stock, Purchaser represents to the Company the following:

         (a) Purchaser is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Common Stock. Purchaser is
acquiring the Common Stock for investment for Purchaser's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933.

         (b) Purchaser understands that the Common Stock has not been registered
under the Securities Act of 1933 by reason of a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of
Purchaser's investment intent as expressed herein.


                                       4.
<PAGE>

         (c) Purchaser further acknowledges and understands that the Common
Stock must be held indefinitely unless the Common Stock is subsequently
registered under the Securities Act of 1933 or an exemption from such
registration is available. Purchaser further acknowledges and understands that
the Company is under no obligation to register the Common Stock. Purchaser
understands that the certificate evidencing the Common Stock will be imprinted
with a legend that prohibits the transfer of the Common Stock unless the Common
Stock is registered or such registration is not required in the opinion of
counsel for the Company.

         (d) Purchaser is familiar with the provisions of Rules 144 and 701,
under the Securities Act of 1933, as in effect from time to time, which, in
substance, permit limited public resale of "restricted securities" acquired,
directly or indirectly, from the issuer thereof (or from an affiliate of such
issuer), in a non-public offering subject to the satisfaction of certain
conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the
time of issuance of the securities, such issuance will be exempt from
registration under the Securities Act of 1933. In the event the Company becomes
subject to the reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the securities exempt under Rule 701 may be sold by
Purchaser ninety (90) days thereafter, subject to the satisfaction of certain of
the conditions specified by Rule 144 and the market stand-off provision
described in Section 12 below.

         (e) In the event that the sale of the Common Stock does not qualify
under Rule 701 at the time of purchase, then the Common Stock may be resold by
Purchaser in certain limited circumstances subject to the provisions of Rule
144, which requires, among other things: (i) the availability of certain public
information about the Company and (ii) the resale occurring following the
required holding period under Rule 144 after the Purchaser has purchased, and
made full payment of (within the meaning of Rule 144), the securities to be
sold.

         (f) Purchaser further understands that at the time Purchaser wishes to
sell the Common Stock there may be no public market upon which to make such a
sale, and that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144 or 701, and
that, in such event, Purchaser would be precluded from selling the Common Stock
under Rule 144 or 701 even if the minimum holding period requirement had been
satisfied.


                                       5.
<PAGE>

         12. MARKET STAND-OFF AGREEMENT. By exercising the Option Purchaser
agrees that the Company (or a representative of the underwriters) may, in
connection with any underwritten registration of the offering of any securities
of the Company under the Securities Act of 1933, require that the Purchaser not
sell, dispose of, transfer, make any short sale of, grant any option for the
purchase of, or enter into any hedging or similar transaction with the same
economic effect as a sale, any shares of Common Stock or other securities of the
Company held by Purchaser, for a period of time specified by the underwriter(s)
(not to exceed one hundred eighty (180) days) following the effective date of
the registration statement of the Company filed under the Securities Act of
1933. Purchaser further agrees to execute and deliver such other agreements as
may be reasonably requested by the Company and/or the underwriter(s) that are
consistent with the foregoing or that are necessary to give further effect
thereto. In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to Purchaser's Common Stock until the
end of such period.

         13. SECTION 83(b) ELECTION. Purchaser understands that Section 83(a) of
the Code, taxes as ordinary income the difference between the amount paid for
the Common Stock and the fair market value of the Common Stock as of the date
any restrictions on the Common Stock lapse. In this context, "restriction"
includes the right of the Company to buy back the Common Stock pursuant to the
Repurchase Option set forth above. Purchaser understands that Purchaser may
elect to be taxed at the time the Common Stock is purchased, rather than when
and as the Repurchase Option expires, by filing an election under Section 83(b)
(an "83(b) Election") of the Code with the Internal Revenue Service within
thirty (30) days from the date of purchase. Even if the fair market value of the
Common Stock at the time of the execution of this Agreement equals the amount
paid for the Common Stock, the 83(b) Election must be made to avoid income under
Section 83(a) in the future. Purchaser understands that failure to file such an
83(b) Election in a timely manner may result in adverse tax consequences for
Purchaser. Purchaser further understands that Purchaser must file an additional
copy of such 83(b) Election with his or her federal income tax return for the
calendar year in which the date of this Agreement falls. Purchaser acknowledges
that the foregoing is only a summary of the effect of United States federal
income taxation with respect to purchase of the Common Stock hereunder, and does
not purport to be complete. Purchaser further acknowledges that the Company has
directed Purchaser to seek independent advice regarding the applicable
provisions of the Code, the income tax laws of any municipality, state or
foreign country in which Purchaser may reside, and the tax consequences of
Purchaser's death. Purchaser assumes all responsibility for filing an 83(b)
Election and paying all taxes resulting from such election or the lapse of the
restrictions on the Common Stock.

         14. REFUSAL TO TRANSFER. The Company shall not be required (a) to
transfer on its books any shares of Common Stock of the Company which shall have
been transferred in violation of any of the provisions set forth in this
Agreement or (b) to treat as owner of such shares or to accord the right to vote
as such owner or to pay dividends to any transferee to whom such shares shall
have been so transferred.

         15. NO EMPLOYMENT RIGHTS. This Agreement is not an employment contract
and nothing in this Agreement shall affect in any manner whatsoever the right or
power of the


                                       6.
<PAGE>

Company (or a parent or subsidiary of the Company) to terminate Purchaser's
employment for any reason at any time, with or without cause and with or without
notice.

         16.  MISCELLANEOUS.

         (a) NOTICES. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or sent
by telegram or fax or upon deposit in the United States Post Office, by
registered or certified mail with postage and fees prepaid, addressed to the
other party hereto at such party's address hereinafter shown below its signature
or at such other address as such party may designate by ten (10) days' advance
written notice to the other party hereto.

         (b) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of the successors and assigns of the Company and, subject to the restrictions on
transfer herein set forth, be binding upon Purchaser, Purchaser's successors,
and assigns. The Company may assign the Repurchase Option hereunder at any time
or from time to time, in whole or in part.

         (c) ATTORNEYS' FEES; SPECIFIC PERFORMANCE. Purchaser shall reimburse
the Company for all costs incurred by the Company in enforcing the performance
of, or protecting its rights under, any part of this Agreement, including
reasonable costs of investigation and attorneys' fees. It is the intention of
the parties that the Company, upon exercise of the Repurchase Option and payment
of the Option Price, pursuant to the terms of this Agreement, shall be entitled
to receive the Common Stock, in specie, in order to have such Common Stock
available for future issuance without dilution of the holdings of other
stockholders. Furthermore, it is expressly agreed between the parties that money
damages are inadequate to compensate the Company for the Common Stock and that
the Company shall, upon proper exercise of the Repurchase Option, be entitled to
specific enforcement of its rights to purchase and receive said Common Stock.

         (d) GOVERNING LAW; VENUE. This Agreement shall be governed by and
construed in accordance with the laws of the State of California. The parties
agree that any action brought by either party to interpret or enforce any
provision of this Agreement shall be brought in, and each party agrees to, and
does hereby, submit to the jurisdiction and venue of, the appropriate state or
federal court for the district encompassing the Company's principal place of
business.

         (e) FURTHER EXECUTION. The parties agree to take all such further
action(s) as may reasonably be necessary to carry out and consummate this
Agreement as soon as practicable, and


                                       7.
<PAGE>

to take whatever steps may be necessary to obtain any governmental approval in
connection with or otherwise qualify the issuance of the securities that are the
subject of this Agreement.

         (f) INDEPENDENT COUNSEL. Purchaser acknowledges that this Agreement has
been prepared on behalf of the Company by Cooley Godward LLP, counsel to the
Company and that Cooley Godward LLP does not represent, and is not acting on
behalf of, Purchaser. Purchaser has been provided with an opportunity to consult
with Purchaser's own counsel with respect to this Agreement.

         (g) ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes and merges all prior agreements or understandings, whether written or
oral. This Agreement may not be amended, modified or revoked, in whole or in
part, except by an agreement in writing signed by each of the parties hereto.

         (h) SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.

         (i) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of _______________.

                                  AEROGEN INC.



                                  By
                                     -------------------------------------------

                                  Title
                                       -----------------------------------------

                                  Address: 1310 Orleans Drive
                                           Sunnyvale, California 94089


                                       8.
<PAGE>

                                                 -------------------------------
                                                 Purchaser

                                  Address:
                                                 -------------------------------

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

ATTACHMENTS:

Exhibit A                  Notice of Exercise
Exhibit B                  Assignment Separate from Certificate
Exhibit C                  Joint Escrow Instructions


                                       9.
<PAGE>

                                    EXHIBIT A

                               NOTICE OF EXERCISE

<PAGE>

                                    EXHIBIT B

                   STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE

<PAGE>

                   STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE



         FOR VALUE RECEIVED, _______________________ hereby sells, assigns and
transfers unto AeroGen Inc., a Delaware corporation (the "Company"), pursuant to
the Repurchase Option under that certain Early Exercise Stock Purchase
Agreement, dated _______________ by and between the undersigned and the Company
(the "Agreement"), _______________ (_______________) shares of Common Stock of
the Company standing in the undersigned's name on the books of the Company
represented by Certificate No(s). _______________ and does hereby irrevocably
constitute and appoint the Company's Secretary attorney to transfer said Common
Stock on the books of the Company with full power of substitution in the
premises. This Assignment may be used only in accordance with and subject to the
terms and conditions of the Agreement, in connection with the repurchase of
shares of Common Stock issued to the undersigned pursuant to the Agreement, and
only to the extent that such shares remain subject to the Company's Repurchase
Option under the Agreement.


Dated: _______________


                                   ---------------------------------------------
                                   (Signature)


                                   ---------------------------------------------
                                  (Print Name)

(INSTRUCTION: Please do not fill in any blanks other than the "Signature" line
and the "Print Name" line.)

<PAGE>

                                    EXHIBIT C

                            JOINT ESCROW INSTRUCTIONS

<PAGE>

                            JOINT ESCROW INSTRUCTIONS


Secretary
AeroGen Inc.
1310 Orleans Drive
Sunnyvale, CA 94089

Dear Sir or Madam:

         As Escrow Agent for both AeroGen Inc., a Delaware corporation
("Company"), and the undersigned purchaser of Common Stock of the Company
("Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Early Exercise Stock
Purchase Agreement ("Agreement"), dated _______________ to which a copy of these
Joint Escrow Instructions is attached as Exhibit C, in accordance with the
following instructions:

         1. In the event the Company or an assignee shall elect to exercise the
Repurchase Option set forth in the Agreement, the Company or its assignee will
give to Purchaser and you a written notice specifying the number of shares of
Common Stock to be purchased, the purchase price, and the time for a closing
hereunder at the principal office of the Company. Purchaser and the Company
hereby irrevocably authorize and direct you to close the transaction
contemplated by such notice in accordance with the terms of said notice.

         2. At the closing you are directed (a) to date any stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of Common Stock to be transferred, to the Company against
the simultaneous delivery to you of the purchase price (which may include
suitable acknowledgment of cancellation of indebtedness) of the number of shares
of Common Stock being purchased pursuant to the exercise of the Repurchase
Option.

         3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of Common Stock to be held by you hereunder and
any additions and substitutions to said shares as specified in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as the Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities and other property all documents of assignment and/or
transfer and all stock certificates necessary or appropriate to make all
securities negotiable and complete any transaction herein contemplated.

         4. This escrow shall terminate upon expiration or exercise in full of
the Repurchase Option, whichever occurs first.

         5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of same to Purchaser and shall be discharged of all
further obligations hereunder; PROVIDED, HOWEVER, that if at the time of
termination of this escrow you are advised by the Company that the property


                                       1.
<PAGE>

subject to this escrow is the subject of a pledge or other security agreement,
you shall deliver all such property to the pledgeholder or other person
designated by the Company.

         6. Except as otherwise provided in these Joint Escrow Instructions,
your duties hereunder may be altered, amended, modified or revoked only by a
writing signed by all of the parties hereto.

         7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties or
their assignees. You shall not be personally liable for any act you may do or
omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while
acting in good faith and any act done or omitted by you pursuant to the advice
of your own attorneys shall be conclusive evidence of such good faith.

         8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree of any
court, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.

         9. You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.

         10. You shall not be liable for the outlawing of any rights under any
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.

         11. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be Secretary of the Company or if you shall resign by written
notice to each party. In the event of any such termination, the Company may
appoint any officer or assistant officer of the Company as successor Escrow
Agent and Purchaser hereby confirms the appointment of such successor or
successors as the Purchaser's attorney-in-fact and agent to the full extent of
your appointment.

         12. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.

         13. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities, you are authorized and directed to retain in your possession without
liability to anyone all or any part of said securities until such dispute shall
have been settled either by mutual written agreement of the parties concerned or
by


                                       2.
<PAGE>

a final order, decree or judgment of a court of competent jurisdiction after the
time for appeal has expired and no appeal has been perfected, but you shall be
under no duty whatsoever to institute or defend any such proceedings.

         14. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, including
delivery by express courier or five days after deposit in the United States Post
Office, by registered or certified mail with postage and fees prepaid, addressed
to each of the other parties hereunto entitled at the following addresses, or at
such other addresses as a party may designate by ten days' advance written
notice to each of the other parties hereto:

         COMPANY:          AeroGen Inc.
                           1310 Orleans Drive
                           Sunnyvale, CA 94089

         PURCHASER:
                           ------------------------------------
                           ------------------------------------
                           ------------------------------------

         ESCROW AGENT:     Secretary
                           AeroGen Inc.
                           1310 Orleans Drive
                           Sunnyvale, CA 94089

         15. By signing these Joint Escrow Instructions you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.

         16. You shall be entitled to employ such legal counsel and other
experts (including without limitation the firm of Cooley Godward LLP) as you may
deem necessary properly to advise you in connection with your obligations
hereunder. You may rely upon the advice of such counsel, and may pay such
counsel reasonable compensation therefor. The Company shall be responsible for
all fees generated by such legal counsel in connection with your obligations
hereunder.

         17. This instrument shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns. It is
understood and agreed that references to "you" or "your" herein refer to the
original Escrow Agent and to any and all successor Escrow Agents. It is
understood and agreed that the Company may at any time or from time to time
assign its rights under the Agreement and these Joint Escrow Instructions in
whole or in part.


                                       3.
<PAGE>

         18. This Agreement shall be governed by and interpreted and
determined in accordance with the laws of the State of California, as such
laws are applied by California courts to contracts made and to be performed
entirely in California by residents of that state.

                                  Very truly yours,

                                  AEROGEN INC.



                                  By
                                    --------------------------------------------

                                  Title
                                       -----------------------------------------


                                  PURCHASER:


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


ESCROW AGENT:


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


                                      4.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>15
<FILENAME>ex-10_4.txt
<DESCRIPTION>EXHIBIT 10.4
<TEXT>

<PAGE>

                                                                    EXHIBIT 10.4

                                  AEROGEN, INC.

                           2000 EQUITY INCENTIVE PLAN


                            ADOPTED AUGUST 24, 2000
                 APPROVED BY STOCKHOLDERS _______________, 2000
                     TERMINATION DATE: _______________, 2010


1.       PURPOSES.

         (a)      ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to
receive Stock Awards are the Employees, Directors and Consultants of the Company
and its Affiliates.

         (b)      AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide
a means by which eligible recipients of Stock Awards may be given an opportunity
to benefit from increases in value of the Common Stock through the granting of
the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock bonuses and (iv) rights to acquire restricted stock.

         (c)      GENERAL PURPOSE. The Company, by means of the Plan, seeks to
retain the services of the group of persons eligible to receive Stock Awards, to
secure and retain the services of new members of this group and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.

2.       DEFINITIONS.

         (a)      "AFFILIATE" means any parent corporation or subsidiary
corporation of the Company, whether now or hereafter existing, as those terms
are defined in Sections 424(e) and (f), respectively, of the Code.

         (b)      "BOARD" means the Board of Directors of the Company.

         (c)      "CODE" means the Internal Revenue Code of 1986, as amended.

         (d)      "COMMITTEE" means a committee of one or more members of the
Board appointed by the Board in accordance with subsection 3(c).

         (e)      "COMMON STOCK" means the common stock of the Company.

         (f)      "COMPANY" means AeroGen, Inc., a Delaware corporation.

         (g)      "CONSULTANT" means any person, including an advisor, (i)
engaged by the Company or an Affiliate to render consulting or advisory services
and who is compensated for such services or (ii) who is a member of the Board of
Directors of an Affiliate. However, the


                                       1.
<PAGE>

term "Consultant" shall not include either Directors who are not compensated by
the Company for their services as Directors or Directors who are merely paid a
director's fee by the Company for their services as Directors.

         (h)      "CONTINUOUS SERVICE" means that the Participant's service with
the Company or an Affiliate, whether as an Employee, Director or Consultant, is
not interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director will not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave.

         (i)      "COVERED EMPLOYEE" means the chief executive officer and the
four (4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.

         (j)      "DIRECTOR" means a member of the Board of Directors of the
Company.

         (k)      "DISABILITY" means the permanent and total disability of a
person within the meaning of Section 22(e)(3) of the Code.

         (l)      "EMPLOYEE" means any person employed by the Company or an
Affiliate. Mere service as a Director or payment of a director's fee by the
Company or an Affiliate shall not be sufficient to constitute "employment" by
the Company or an Affiliate.

         (m)      "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

         (n)      "FAIR MARKET VALUE" means, as of any date, the value of the
Common Stock determined as follows:

                  (i)      If the Common Stock is listed on any established
stock exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap
Market, the Fair Market Value of a share of Common Stock shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such exchange or market (or the exchange or market with the greatest
volume of trading in the Common Stock) on the last market trading day prior to
the day of determination, as reported in THE WALL STREET JOURNAL or such other
source as the Board deems reliable.

                  (ii)     In the absence of such markets for the Common Stock,
the Fair Market Value shall be determined in good faith by the Board.


                                       2.
<PAGE>

         (o)      "INCENTIVE STOCK OPTION" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.

         (p)      "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not
a current Employee or Officer of the Company or its parent or a subsidiary, does
not receive compensation (directly or indirectly) from the Company or its parent
or a subsidiary for services rendered as a consultant or in any capacity other
than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.

         (q)      "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.

         (r)      "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.

         (s)      "OPTION" means an Incentive Stock Option or a Nonstatutory
Stock Option granted pursuant to the Plan.

         (t)      "OPTION AGREEMENT" means a written agreement between the
Company and an Optionholder evidencing the terms and conditions of an individual
Option grant. Each Option Agreement shall be subject to the terms and conditions
of the Plan.

         (u)      "OPTIONHOLDER" means a person to whom an Option is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Option.

         (v)      "OUTSIDE DIRECTOR" means a Director who either (i) is not a
current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury Regulations promulgated under Section 162(m) of the Code),
is not a former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.

         (w)      "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.

         (x)      "PLAN" means this AeroGen, Inc. 2000 Equity Incentive Plan.

         (y)      "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange
Act or any successor to Rule 16b-3, as in effect from time to time.

         (z)      "SECURITIES ACT" means the Securities Act of 1933, as amended.


                                       3.
<PAGE>

         (aa)     "STOCK AWARD" means any right granted under the Plan,
including an Option, a stock bonus and a right to acquire restricted stock.

         (bb)     "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.

         (cc)     "TEN PERCENT STOCKHOLDER" means a person who owns (or is
deemed to own pursuant to Section 424(d) of the Code) stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or of any of its Affiliates.

3.       ADMINISTRATION.

         (a)      ADMINISTRATION BY BOARD. The Board shall administer the Plan
unless and until the Board delegates administration to a Committee, as provided
in subsection 3(c).

         (b)      POWERS OF BOARD. The Board shall have the power, subject to,
and within the limitations of, the express provisions of the Plan:

                  (i)      To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each Stock
Award shall be granted; what type or combination of types of Stock Award shall
be granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive Common Stock pursuant to a Stock Award; and the number of shares of
Common Stock with respect to which a Stock Award shall be granted to each such
person.

                  (ii)     To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.

                  (iii)    To amend the Plan or a Stock Award as provided in
Section 12.

                  (iv)     Generally, to exercise such powers and to perform
such acts as the Board deems necessary or expedient to promote the best
interests of the Company which are not in conflict with the provisions of the
Plan.

         (c)      DELEGATION TO COMMITTEE.

                  (i)      GENERAL. The Board may delegate administration of the
Plan to a Committee or Committees of one (1) or more members of the Board, and
the term "Committee" shall apply to any person or persons to whom such authority
has been delegated. If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers
theretofore possessed by the Board, including the power to delegate to a
subcommittee any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to the
Committee or subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the


                                       4.
<PAGE>

Plan, as may be adopted from time to time by the Board. The Board may abolish
the Committee at any time and revest in the Board the administration of the
Plan.

                  (ii)     COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY
TRADED. At such time as the Common Stock is publicly traded, in the discretion
of the Board, a Committee may consist solely of two or more Outside Directors,
in accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (1) delegate to a committee of one or
more members of the Board who are not Outside Directors the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or (2)
delegate to a committee of one or more members of the Board who are not
Non-Employee Directors the authority to grant Stock Awards to eligible persons
who are not then subject to Section 16 of the Exchange Act.

         (d)      EFFECT OF BOARD'S DECISION. All determinations,
interpretations and constructions made by the Board in good faith shall not be
subject to review by any person and shall be final, binding and conclusive on
all persons.

4.       SHARES SUBJECT TO THE PLAN.

         (a)      SHARE RESERVE. Subject to the provisions of Section 11
relating to adjustments upon changes in Common Stock, the Common Stock that may
be issued pursuant to Stock Awards shall not exceed in the aggregate three
million (3,000,000) shares of Common Stock.

         (b)      EVERGREEN SHARE RESERVE INCREASE.

                  (i)      Notwithstanding subsection 4(a) hereof, on the day
of each annual meeting of stockholders of the Company (the "Calculation
Date") for a period of ten (10) years, commencing with the annual meeting of
stockholders in 2001, the aggregate number of shares of Common Stock that is
available for issuance under the Plan shall automatically be increased by
that number of shares equal to the least of (1) four and one-half percent
(4.5%) of the Diluted Shares Outstanding; (2) six million (6,000,000) number
of shares of Common Stock; or (3) such lesser number of shares as determined
by the Board.

                  (ii)     "Diluted Shares Outstanding" shall mean, as of any
date, (1) the number of outstanding shares of Common Stock of the Company on
such Calculation Date, plus (2) the number of shares of Common Stock issuable
upon such Calculation Date assuming the conversion of all outstanding Preferred
Stock and convertible notes, plus (3) the additional number of dilutive Common
Stock equivalent shares outstanding as the result of any options or warrants
outstanding during the fiscal year, calculated using the treasury stock method.

         (c)      REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award
shall for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the shares of Common Stock not acquired under
such Stock Award shall revert to and again become available for issuance under
the Plan. If any shares are repurchased, such repurchased


                                       5.
<PAGE>

shares shall revert back to and again become available for issuance under the
Plan for all Stock Awards other than Incentive Stock Options.

         (d)      SOURCE OF SHARES. The shares of Common Stock subject to the
Plan may be unissued shares or reacquired shares, bought on the market or
otherwise.

5.       ELIGIBILITY.

         (a)      ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options
may be granted only to Employees. Stock Awards other than Incentive Stock
Options may be granted to Employees, Directors and Consultants.

         (b)      TEN PERCENT STOCKHOLDERS. A Ten Percent Stockholder shall not
be granted an Incentive Stock Option unless the exercise price of such Option is
at least one hundred ten percent (110%) of the Fair Market Value of the Common
Stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.

         (c)      SECTION 162(M) LIMITATION. Subject to the provisions of
Section 11 relating to adjustments upon changes in the shares of Common
Stock, no Employee shall be eligible to be granted Options covering more than
three million (3,000,000) shares of Common Stock during any calendar year.

         (d)      CONSULTANTS.

                  (i)      A Consultant shall not be eligible for the grant of a
Stock Award if, at the time of grant, a Form S-8 Registration Statement under
the Securities Act ("Form S-8") is not available to register either the offer or
the sale of the Company's securities to such Consultant because of the nature of
the services that the Consultant is providing to the Company, or because the
Consultant is not a natural person, or as otherwise provided by the rules
governing the use of Form S-8, unless the Company determines both (i) that such
grant (A) shall be registered in another manner under the Securities Act (E.G.,
on a Form S-3 Registration Statement) or (B) does not require registration under
the Securities Act in order to comply with the requirements of the Securities
Act, if applicable, and (ii) that such grant complies with the securities laws
of all other relevant jurisdictions.

                  (ii)     Form S-8 generally is available to consultants and
advisors only if (i) they are natural persons; (ii) they provide bona fide
services to the issuer, its parents, its majority-owned subsidiaries or
majority-owned subsidiaries of the issuer's parent; and (iii) the services are
not in connection with the offer or sale of securities in a capital-raising
transaction, and do not directly or indirectly promote or maintain a market for
the issuer's securities.

6.       OPTION PROVISIONS.

         Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
will be issued for shares of Common Stock purchased on exercise of each type of
Option. The provisions of separate Options need not be identical, but


                                       6.
<PAGE>

each Option shall include (through incorporation of provisions hereof by
reference in the Option or otherwise) the substance of each of the following
provisions:

         (a)      TERM. Subject to the provisions of subsection 5(b) regarding
Ten Percent Stockholders, no Incentive Stock Option shall be exercisable after
the expiration of ten (10) years from the date it was granted.

         (b)      EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of the Common Stock subject to the Option on the
date the Option is granted. Notwithstanding the foregoing, an Incentive Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.

         (c)      EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. The exercise
price of each Nonstatutory Stock Option shall be not less than eighty-five
percent (85%) of the Fair Market Value of the Common Stock subject to the Option
on the date the Option is granted. Notwithstanding the foregoing, a Nonstatutory
Stock Option may be granted with an exercise price lower than that set forth in
the preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.

         (d)      CONSIDERATION. The purchase price of Common Stock acquired
pursuant to an Option shall be paid, to the extent permitted by applicable
statutes and regulations, either (i) in cash at the time the Option is exercised
or (ii) at the discretion of the Board at the time of the grant of the Option
(or subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to
the Company of other Common Stock, (2) according to a deferred payment or other
similar arrangement with the Optionholder or (3) in any other form of legal
consideration that may be acceptable to the Board. Unless otherwise specifically
provided in the Option, the purchase price of Common Stock acquired pursuant to
an Option that is paid by delivery to the Company of other Common Stock
acquired, directly or indirectly from the Company, shall be paid only by shares
of the Common Stock of the Company that have been held for more than six (6)
months (or such longer or shorter period of time required to avoid a charge to
earnings for financial accounting purposes). At any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par value," as defined
in the Delaware General Corporation Law, shall not be made by deferred payment.

         In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.

         (e)      TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive
Stock Option shall not be transferable except by will or by the laws of descent
and distribution and shall be exercisable during the lifetime of the
Optionholder only by the Optionholder. Notwithstanding


                                       7.
<PAGE>

the foregoing, the Optionholder may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who, in
the event of the death of the Optionholder, shall thereafter be entitled to
exercise the Option.

         (f)      TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory
Stock Option shall be transferable to the extent provided in the Option
Agreement. If the Nonstatutory Stock Option does not provide for
transferability, then the Nonstatutory Stock Option shall not be transferable
except by will or by the laws of descent and distribution and shall be
exercisable during the lifetime of the Optionholder only by the Optionholder.
Notwithstanding the foregoing, the Optionholder may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionholder, shall thereafter be
entitled to exercise the Option.

         (g)      VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares of Common Stock as to which an Option may
be exercised.

         (h)      TERMINATION OF CONTINUOUS SERVICE. In the event an
Optionholder's Continuous Service terminates (other than upon the Optionholder's
death or Disability), the Optionholder may exercise his or her Option (to the
extent that the Optionholder was entitled to exercise such Option as of the date
of termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service (or such longer or shorter period specified in the Option
Agreement), or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionholder does not exercise his
or her Option within the time specified in the Option Agreement, the Option
shall terminate.

         (i)      EXTENSION OF TERMINATION DATE. An Optionholder's Option
Agreement may also provide that if the exercise of the Option following the
termination of the Optionholder's Continuous Service (other than upon the
Optionholder's death or Disability) would be prohibited at any time solely
because the issuance of shares of Common Stock would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option set forth in subsection
6(a) or (ii) the expiration of a period of three (3) months after the
termination of the Optionholder's Continuous Service during which the exercise
of the Option would not be in violation of such registration requirements.

         (j)      DISABILITY OF OPTIONHOLDER. In the event that an
Optionholder's Continuous Service terminates as a result of the Optionholder's
Disability, the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the date of
termination), but only within such period of time ending on the earlier of (i)
the date twelve (12) months following such termination (or such longer or
shorter period specified in the Option Agreement) or (ii) the expiration of the
term of the Option as set forth in the Option


                                       8.
<PAGE>

Agreement. If, after termination, the Optionholder does not exercise his or her
Option within the time specified herein, the Option shall terminate.

         (k)      DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death or (ii)
the Optionholder dies within the period (if any) specified in the Option
Agreement after the termination of the Optionholder's Continuous Service for a
reason other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
Option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but
only within the period ending on the earlier of (1) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement) or (2) the expiration of the term of such Option as set
forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.

         (l)      EARLY EXERCISE. The Option may, but need not, include a
provision whereby the Optionholder may elect at any time before the
Optionholder's Continuous Service terminates to exercise the Option as to any
part or all of the shares of Common Stock subject to the Option prior to the
full vesting of the Option. Any unvested shares of Common Stock so purchased may
be subject to a repurchase option in favor of the Company or to any other
restriction the Board determines to be appropriate.

7.       PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.

         (a)      STOCK BONUS AWARDS. Each stock bonus agreement shall be in
such form and shall contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of stock bonus agreements may change from
time to time, and the terms and conditions of separate stock bonus agreements
need not be identical, but each stock bonus agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions:

                  (i)      CONSIDERATION. A stock bonus may be awarded in
consideration for past services actually rendered to the Company or an Affiliate
for its benefit.

                  (ii)     VESTING. Shares of Common Stock awarded under the
stock bonus agreement may, but need not, be subject to a share reacquisition
option in favor of the Company in accordance with a vesting schedule to be
determined by the Board.

                  (iii)    TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In
the event a Participant's Continuous Service terminates, the Company may
reacquire any or all of the shares of Common Stock held by the Participant which
have not vested as of the date of termination under the terms of the stock bonus
agreement.

                  (iv)     TRANSFERABILITY. Rights to acquire shares of Common
Stock under the stock bonus agreement shall be transferable by the Participant
only upon such terms and conditions as are set forth in the stock bonus
agreement, as the Board shall determine in its


                                       9.
<PAGE>

discretion, so long as Common Stock awarded under the stock bonus agreement
remains subject to the terms of the stock bonus agreement.

         (b)      RESTRICTED STOCK PURCHASE AWARDS. Each restricted stock
purchase agreement shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The terms and conditions of the
restricted stock purchase agreements may change from time to time, and the terms
and conditions of separate restricted stock purchase agreements need not be
identical, but each restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions:

                  (i)      PURCHASE PRICE. The purchase price under each
restricted stock purchase agreement shall be such amount as the Board shall
determine and designate in such restricted stock purchase agreement. The
purchase price shall not be less than eighty-five percent (85%) of the Common
Stock's Fair Market Value on the date such award is made or at the time the
purchase is consummated.

                  (ii)     CONSIDERATION. The purchase price of Common Stock
acquired pursuant to the restricted stock purchase agreement shall be paid
either: (i) in cash at the time of purchase; (ii) at the discretion of the
Board, according to a deferred payment or other similar arrangement with the
Participant; or (iii) in any other form of legal consideration that may be
acceptable to the Board in its discretion; provided, however, that at any time
that the Company is incorporated in Delaware, then payment of the Common Stock's
"par value," as defined in the Delaware General Corporation Law, shall not be
made by deferred payment.

                  (iii)    VESTING. Shares of Common Stock acquired under the
restricted stock purchase agreement may, but need not, be subject to a share
repurchase option in favor of the Company in accordance with a vesting schedule
to be determined by the Board.

                  (iv)     TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In
the event a Participant's Continuous Service terminates, the Company may
repurchase or otherwise reacquire any or all of the shares of Common Stock held
by the Participant which have not vested as of the date of termination under the
terms of the restricted stock purchase agreement.

                  (v)      TRANSFERABILITY. Rights to acquire shares of Common
Stock under the restricted stock purchase agreement shall be transferable by the
Participant only upon such terms and conditions as are set forth in the
restricted stock purchase agreement, as the Board shall determine in its
discretion, so long as Common Stock awarded under the restricted stock purchase
agreement remains subject to the terms of the restricted stock purchase
agreement.

8.       COVENANTS OF THE COMPANY.

         (a)      AVAILABILITY OF SHARES. During the terms of the Stock Awards,
the Company shall keep available at all times the number of shares of Common
Stock required to satisfy such Stock Awards.

         (b)      SECURITIES LAW COMPLIANCE. The Company shall seek to obtain
from each regulatory commission or agency having jurisdiction over the Plan such
authority as may be


                                      10.
<PAGE>

required to grant Stock Awards and to issue and sell shares of Common Stock upon
exercise of the Stock Awards; provided, however, that this undertaking shall not
require the Company to register under the Securities Act the Plan, any Stock
Award or any Common Stock issued or issuable pursuant to any such Stock Award.
If, after reasonable efforts, the Company is unable to obtain from any such
regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of Common Stock under the Plan,
the Company shall be relieved from any liability for failure to issue and sell
Common Stock upon exercise of such Stock Awards unless and until such authority
is obtained.

9.       USE OF PROCEEDS FROM STOCK.

         Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.

10.      MISCELLANEOUS.

         (a)      ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall
have the power to accelerate the time at which a Stock Award may first be
exercised or the time during which a Stock Award or any part thereof will vest
in accordance with the Plan, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which it
will vest.

         (b)      STOCKHOLDER RIGHTS. No Participant shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
of Common Stock subject to such Stock Award unless and until such Participant
has satisfied all requirements for exercise of the Stock Award pursuant to its
terms.

         (c)      NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or
any instrument executed or Stock Award granted pursuant thereto shall confer
upon any Participant any right to continue to serve the Company or an Affiliate
in the capacity in effect at the time the Stock Award was granted or shall
affect the right of the Company or an Affiliate to terminate (i) the employment
of an Employee with or without notice and with or without cause, (ii) the
service of a Consultant pursuant to the terms of such Consultant's agreement
with the Company or an Affiliate or (iii) the service of a Director pursuant to
the Bylaws of the Company or an Affiliate, and any applicable provisions of the
corporate law of the state in which the Company or the Affiliate is
incorporated, as the case may be.

         (d)      INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that
the aggregate Fair Market Value (determined at the time of grant) of Common
Stock with respect to which Incentive Stock Options are exercisable for the
first time by any Optionholder during any calendar year (under all plans of the
Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), the
Options or portions thereof which exceed such limit (according to the order in
which they were granted) shall be treated as Nonstatutory Stock Options.

         (e)      INVESTMENT ASSURANCES. The Company may require a Participant,
as a condition of exercising or acquiring Common Stock under any Stock Award,
(i) to give written assurances satisfactory to the Company as to the
Participant's knowledge and experience in financial and business matters and/or
to employ a purchaser representative reasonably satisfactory to the


                                      11.
<PAGE>

Company who is knowledgeable and experienced in financial and business matters
and that he or she is capable of evaluating, alone or together with the
purchaser representative, the merits and risks of exercising the Stock Award;
and (ii) to give written assurances satisfactory to the Company stating that the
Participant is acquiring Common Stock subject to the Stock Award for the
Participant's own account and not with any present intention of selling or
otherwise distributing the Common Stock. The foregoing requirements, and any
assurances given pursuant to such requirements, shall be inoperative if (1) the
issuance of the shares of Common Stock upon the exercise or acquisition of
Common Stock under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act or (2) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the Common
Stock.

         (f)      WITHHOLDING OBLIGATIONS. To the extent provided by the terms
of a Stock Award Agreement, the Participant may satisfy any federal, state or
local tax withholding obligation relating to the exercise or acquisition of
Common Stock under a Stock Award by any of the following means (in addition to
the Company's right to withhold from any compensation paid to the Participant by
the Company) or by a combination of such means: (i) tendering a cash payment;
(ii) authorizing the Company to withhold shares of Common Stock from the shares
of Common Stock otherwise issuable to the Participant as a result of the
exercise or acquisition of Common Stock under the Stock Award, provided,
however, that no shares of Common Stock are withheld with a value exceeding the
minimum amount of tax required to be withheld by law; or (iii) delivering to the
Company owned and unencumbered shares of Common Stock.

11.      ADJUSTMENTS UPON CHANGES IN COMMON STOCK.

         (a)      CAPITALIZATION ADJUSTMENTS. If any change is made in the
Common Stock subject to the Plan, or subject to any Stock Award, without the
receipt of consideration by the Company (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or other transaction
not involving the receipt of consideration by the Company), the Plan will be
appropriately adjusted in the nature, class(es) and maximum number of securities
subject to the Plan pursuant to Section 4 and the maximum number of securities
subject to award to any person pursuant to subsection 5(c), and the outstanding
Stock Awards will be appropriately adjusted in the nature, class(es) and number
of securities and price per share of Common Stock subject to such outstanding
Stock Awards. The Board shall make such adjustments, and its determination shall
be final, binding and conclusive. (The conversion of any convertible securities
of the Company shall not be treated as a transaction "without receipt of
consideration" by the Company.)

         (b)      DISSOLUTION OR LIQUIDATION. In the event of a dissolution or
liquidation of the Company, then all outstanding Stock Awards shall terminate
immediately prior to such event.


                                      12.
<PAGE>

         (c)      ASSET SALE, MERGER, CONSOLIDATION OR REVERSE MERGER. In the
event of (i) a sale, lease or other disposition of all or substantially all of
the assets of the Company; (ii) a merger or consolidation in which the Company
is not the surviving corporation and in which beneficial ownership of securities
of the Company representing at least fifty percent (50%) of the combined voting
power entitled to vote in the election of the members of the Board of Directors
has changed; (iii) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise, and in which beneficial
ownership of securities of the Company representing at least fifty percent (50%)
of the combined voting power entitled to vote in the election of the member of
the Board of Directors has changed; (iv) an acquisition by any entity (other
than (A) a controlled affiliate of the Company, (B) any employee benefit plan,
or related trust, sponsored or maintained by the Company or subsidiary of the
Company or other entity controlled by the Company, or (C) any company owned
directly or indirectly by stockholders of the Company in substantially the same
proportions as their ownership of Common Stock interest of the Company,
immediately prior to the occurrence with respect to which the evaluation of the
Change in Control is being made) of the beneficial ownership, directly or
indirectly, of securities of the Company representing at least fifty percent
(50%) of the combined voting power of the Company's then outstanding securities;
or (v) in the event that the individuals who, as of the date of adoption of the
Plan, are members of the Company's Board of Directors (the "Incumbent Board"),
cease for any reason to constitute at least fifty percent (50%) of the Board of
Directors (if the election, or nomination for election by the Company's
stockholders, of any new Director is approved by a vote of at least fifty
percent (50%) of the Incumbent Board, such new Director shall be considered to
be a member of the Incumbent Board in the future), then any surviving
corporation or acquiring corporation shall assume any Stock Awards outstanding
under the Plan or shall substitute similar stock awards (including an award to
acquire the same consideration paid to the stockholders in the transaction
described in this subsection 11(c) for those outstanding under the Plan). In the
event any surviving corporation or acquiring corporation refuses to assume such
Stock Awards or to substitute similar stock awards for those outstanding under
the Plan, then with respect to Stock Awards held by Participants whose
Continuous Service has not terminated, the vesting of such Stock Awards (and, if
applicable, the time during which such Stock Awards may be exercised) shall be
accelerated in full, and the Stock Awards shall terminate if not exercised (if
applicable) at or prior to such event. With respect to any other Stock Awards
outstanding under the Plan, such Stock Awards shall terminate if not exercised
(if applicable) prior to such event.

12.      AMENDMENT OF THE PLAN AND STOCK AWARDS.

         (a)      AMENDMENT OF PLAN. The Board at any time, and from time to
time, may amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in Common Stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.

         (b)      STOCKHOLDER APPROVAL. The Board may, in its sole discretion,
submit any other amendment to the Plan for stockholder approval, including, but
not limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations


                                      13.
<PAGE>

thereunder regarding the exclusion of performance-based compensation from the
limit on corporate deductibility of compensation paid to certain executive
officers.

         (c)      CONTEMPLATED AMENDMENTS. It is expressly contemplated that the
Board may amend the Plan in any respect the Board deems necessary or advisable
to provide eligible Employees with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.

         (d)      NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted
before amendment of the Plan shall not be impaired by any amendment of the Plan
unless (i) the Company requests the consent of the Participant and (ii) the
Participant consents in writing.

         (e)      AMENDMENT OF STOCK AWARDS. The Board at any time, and from
time to time, may amend the terms of any one or more Stock Awards; provided,
however, that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.

13.      TERMINATION OR SUSPENSION OF THE PLAN.

         (a)      PLAN TERM. The Board may suspend or terminate the Plan at
any time. Unless sooner terminated, the Plan shall terminate on the day
before the tenth (10th) anniversary of the date the Plan is adopted by the
Board or approved by the stockholders of the Company, whichever is earlier.
No Stock Awards may be granted under the Plan while the Plan is suspended or
after it is terminated.

         (b)      NO IMPAIRMENT OF RIGHTS. Suspension or termination of the
Plan shall not impair rights and obligations under any Stock Award granted
while the Plan is in effect except with the written consent of the
Participant.

14.      EFFECTIVE DATE OF PLAN.

         The Plan shall become effective upon the effective date of the initial
public offering of the Company's Common Stock, but no Stock Award shall be
exercised (or, in the case of a stock bonus, shall be granted) unless and until
the Plan has been approved by the stockholders of the Company, which approval
shall be within twelve (12) months before or after the date the Plan is adopted
by the Board.

15.      CHOICE OF LAW.

         The law of the State of California shall govern all questions
concerning the construction, validity and interpretation of this Plan, without
regard to such state's conflict of laws rules.


                                      14.
<PAGE>


                                  AEROGEN, INC.
                           2000 EQUITY INCENTIVE PLAN

                             STOCK OPTION AGREEMENT
              (INCENTIVE STOCK OPTION OR NONSTATUTORY STOCK OPTION)


         Pursuant to your Stock Option Grant Notice ("Grant Notice") and this
Stock Option Agreement, AeroGen, Inc. (the "Company") has granted you an option
under its 2000 Equity Incentive Plan (the "Plan") to purchase the number of
shares of the Company's Common Stock indicated in your Grant Notice at the
exercise price indicated in your Grant Notice. Defined terms not explicitly
defined in this Stock Option Agreement but defined in the Plan shall have the
same definitions as in the Plan.

         The details of your option are as follows:

         1.       VESTING. Subject to the limitations contained herein, your
option will vest as provided in your Grant Notice, provided that vesting will
cease upon the termination of your Continuous Service.

         2.       NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of
Common Stock subject to your option and your exercise price per share referenced
in your Grant Notice may be adjusted from time to time for Capitalization
Adjustments, as provided in the Plan.

         3.       EXERCISE PRIOR TO VESTING ("EARLY EXERCISE"). If permitted in
your Grant Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise"
of your option is permitted) and subject to the provisions of your option, you
may elect at any time that is both (i) during the period of your Continuous
Service and (ii) during the term of your option, to exercise all or part of your
option, including the nonvested portion of your option; provided, however, that:

         a.       a partial exercise of your option shall be deemed to cover
first vested shares of Common Stock and then the earliest vesting installment of
unvested shares of Common Stock;

         b.       any shares of Common Stock so purchased from installments that
have not vested as of the date of exercise shall be subject to the purchase
option in favor of the Company as described in the Company's form of Early
Exercise Stock Purchase Agreement;

         c.       you shall enter into the Company's form of Early Exercise
Stock Purchase Agreement with a vesting schedule that will result in the same
vesting as if no early exercise had occurred; and

         d.       if your option is an incentive stock option, then, as provided
in the Plan, to the extent that the aggregate Fair Market Value (determined at
the time of grant) of the shares of Common Stock with respect to which your
option plus all other incentive stock options you hold are exercisable for the
first time by you during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), your option(s)
or


                                      1.
<PAGE>

portions thereof that exceed such limit (according to the order in which they
were granted) shall be treated as nonstatutory stock options.

         4.       METHOD OF PAYMENT. Payment of the exercise price is due in
full upon exercise of all or any part of your option. You may elect to make
payment of the exercise price in cash or by check or in any other manner
PERMITTED BY YOUR GRANT NOTICE, which may include one or more of the following:

         a.       In the Company's sole discretion at the time your option is
exercised and provided that at the time of exercise the Common Stock is publicly
traded and quoted regularly in THE WALL STREET JOURNAL, pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board that,
prior to the issuance of Common Stock, results in either the receipt of cash (or
check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds.

         b.       Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in THE WALL STREET JOURNAL, by delivery of
already-owned shares of Common Stock either that you have held for the period
required to avoid a charge to the Company's reported earnings (generally six
months) or that you did not acquire, directly or indirectly from the Company,
that are owned free and clear of any liens, claims, encumbrances or security
interests, and that are valued at Fair Market Value on the date of exercise.
"Delivery" for these purposes, in the sole discretion of the Company at the time
you exercise your option, shall include delivery to the Company of your
attestation of ownership of such shares of Common Stock in a form approved by
the Company. Notwithstanding the foregoing, you may not exercise your option by
tender to the Company of Common Stock to the extent such tender would violate
the provisions of any law, regulation or agreement restricting the redemption of
the Company's stock.

         c.       Pursuant to the following deferred payment alternative:

            1)          Not less than one hundred percent (100%) of the
aggregate exercise price, plus accrued interest, shall be due four (4) years
from date of exercise or, at the Company's election, upon termination of your
Continuous Service.

            2)          Interest shall be compounded at least annually and shall
be charged at the minimum rate of interest necessary to avoid the treatment as
interest, under any applicable provisions of the Code, of any portion of any
amounts other than amounts stated to be interest under the deferred payment
arrangement.

            3)          At any time that the Company is incorporated in
Delaware, payment of the Common Stock's "par value," as defined in the Delaware
General Corporation Law, shall be made in cash and not by deferred payment.

            4)          In order to elect the deferred payment alternative, you
must, as a part of your written notice of exercise, give notice of the election
of this payment alternative and, in order to secure the payment of the deferred
exercise price to the Company hereunder, if the Company so requests, you must
tender to the Company a promissory note and a security agreement covering the
purchased shares of Common Stock, both in form and substance


                                       2.
<PAGE>

satisfactory to the Company, or such other or additional documentation as the
Company may request.

         5.       WHOLE SHARES. You may exercise your option only for whole
shares of Common Stock.

         6.       SECURITIES LAW COMPLIANCE. Notwithstanding anything to the
contrary contained herein, you may not exercise your option unless the shares of
Common Stock issuable upon such exercise are then registered under the
Securities Act or, if such shares of Common Stock are not then so registered,
the Company has determined that such exercise and issuance would be exempt from
the registration requirements of the Securities Act. The exercise of your option
must also comply with other applicable laws and regulations governing your
option, and you may not exercise your option if the Company determines that such
exercise would not be in material compliance with such laws and regulations.

         7.       TERM. You may not exercise your option before the commencement
of its term or after its term expires. The term of your option commences on the
Date of Grant and expires upon the EARLIEST of the following:

         a.       three (3) months after the termination of your Continuous
Service for any reason other than your Disability or death, provided that if
during any part of such three (3) month period your option is not exercisable
solely because of the condition set forth in the preceding paragraph relating to
"Securities Law Compliance," your option shall not expire until the earlier of
the Expiration Date or until it shall have been exercisable for an aggregate
period of three (3) months after the termination of your Continuous Service;

         b.       twelve (12) months after the termination of your Continuous
Service due to your Disability;

         c.       eighteen (18) months after your death if you die either during
your Continuous Service or within three (3) months after your Continuous Service
terminates;

         d.       the Expiration Date indicated in your Grant Notice; or

         e.       the day before the tenth (10th) anniversary of the Date of
Grant.

         If your option is an incentive stock option, note that, to obtain the
federal income tax advantages associated with an "incentive stock option," the
Code requires that at all times beginning on the date of grant of your option
and ending on the day three (3) months before the date of your option's
exercise, you must be an employee of the Company or an Affiliate, except in the
event of your death or Disability. The Company has provided for extended
exercisability of your option under certain circumstances for your benefit but
cannot guarantee that your option will necessarily be treated as an "incentive
stock option" if you continue to provide services to the Company or an Affiliate
as a Consultant or Director after your employment terminates or if you otherwise
exercise your option more than three (3) months after the date your employment
terminates.


                                       3.
<PAGE>

         8.       EXERCISE.

         a.       You may exercise the vested portion of your option (and the
unvested portion of your option if your Grant Notice so permits) during its term
by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.

         b.       By exercising your option you agree that, as a condition to
any exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
your option, (2) the lapse of any substantial risk of forfeiture to which the
shares of Common Stock are subject at the time of exercise, or (3) the
disposition of shares of Common Stock acquired upon such exercise.

         c.       If your option is an incentive stock option, by exercising
your option you agree that you will notify the Company in writing within fifteen
(15) days after the date of any disposition of any of the shares of the Common
Stock issued upon exercise of your option that occurs within two (2) years after
the date of your option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of your option.

         9.       TRANSFERABILITY. Your option is not transferable, except by
will or by the laws of descent and distribution, and is exercisable during your
life only by you. Notwithstanding the foregoing, by delivering written notice to
the Company, in a form satisfactory to the Company, you may designate a third
party who, in the event of your death, shall thereafter be entitled to exercise
your option.

         10.      RIGHT OF REPURCHASE. To the extent provided in the Company's
bylaws as amended from time to time, the Company shall have the right to
repurchase all or any part of the shares of Common Stock you acquire pursuant to
the exercise of your option.

         11.      OPTION NOT A SERVICE CONTRACT. Your option is not an
employment or service contract, and nothing in your option shall be deemed to
create in any way whatsoever any obligation on your part to continue in the
employ of the Company or an Affiliate, or of the Company or an Affiliate to
continue your employment. In addition, nothing in your option shall obligate the
Company or an Affiliate, their respective stockholders, Boards of Directors,
Officers or Employees to continue any relationship that you might have as a
Director or Consultant for the Company or an Affiliate.

         12.      WITHHOLDING OBLIGATIONS.

         a.       At the time you exercise your option, in whole or in part, or
at any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "cashless
exercise" pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with your option.


                                       4.
<PAGE>

         b.       Upon your request and subject to approval by the Company, in
its sole discretion, and compliance with any applicable conditions or
restrictions of law, the Company may withhold from fully vested shares of Common
Stock otherwise issuable to you upon the exercise of your option a number of
whole shares of Common Stock having a Fair Market Value, determined by the
Company as of the date of exercise, not in excess of the minimum amount of tax
required to be withheld by law. If the date of determination of any tax
withholding obligation is deferred to a date later than the date of exercise of
your option, share withholding pursuant to the preceding sentence shall not be
permitted unless you make a proper and timely election under Section 83(b) of
the Code, covering the aggregate number of shares of Common Stock acquired upon
such exercise with respect to which such determination is otherwise deferred, to
accelerate the determination of such tax withholding obligation to the date of
exercise of your option. Notwithstanding the filing of such election, shares of
Common Stock shall be withheld solely from fully vested shares of Common Stock
determined as of the date of exercise of your option that are otherwise issuable
to you upon such exercise. Any adverse consequences to you arising in connection
with such share withholding procedure shall be your sole responsibility.

         c.       You may not exercise your option unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested, and the Company shall have no obligation to issue a certificate for such
shares of Common Stock or release such shares of Common Stock from any escrow
provided for herein.

         13.      NOTICES. Any notices provided for in your option or the Plan
shall be given in writing and shall be deemed effectively given upon receipt or,
in the case of notices delivered by mail by the Company to you, five (5) days
after deposit in the United States mail, postage prepaid, addressed to you at
the last address you provided to the Company.

         14.      GOVERNING PLAN DOCUMENT. Your option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of your
option, and is further subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated and adopted pursuant to
the Plan. In the event of any conflict between the provisions of your option and
those of the Plan, the provisions of the Plan shall control.


                                       5.
<PAGE>

                                  AEROGEN, INC.
                            STOCK OPTION GRANT NOTICE
                          (2000 EQUITY INCENTIVE PLAN)


AeroGen, Inc. (the "Company"), pursuant to its 2000 Equity Incentive Plan (the
"Plan"), hereby grants to Optionholder an option to purchase the number of
shares of the Company's Common Stock set forth below. This option is subject to
all of the terms and conditions as set forth herein and in the Stock Option
Agreement, the Plan and the Notice of Exercise, all of which are attached hereto
and incorporated herein in their entirety.

<TABLE>

<S><C>
Optionholder:                         ________________________________________
Date of Grant:                        ________________________________________
Vesting Commencement Date:            ________________________________________
Number of Shares Subject to Option:   ________________________________________
Exercise Price (Per Share):           ________________________________________
Total Exercise Price:                 ________________________________________
Expiration Date:                      ________________________________________

TYPE OF GRANT:       / / Incentive Stock Option      / / Nonstatutory Stock Option

EXERCISE SCHEDULE:   / / Same as Vesting Schedule    / / Early Exercise Permitted

VESTING SCHEDULE:    1/4th  of the shares vest one year after the Vesting Commencement Date.
                     1/48th of the shares vest monthly thereafter over the next three years.

PAYMENT:             By one or a combination of the following items (described in the Stock Option Agreement):
</TABLE>

                               By cash or check
                               Pursuant to a Regulation T Program if the Shares
                               are publicly traded
                               By delivery of already-owned shares if the Shares
                               are publicly traded

ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionholder acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionholder further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between Optionholder and the Company regarding the
acquisition of stock in the Company and supersede all prior oral and written
agreements on that subject with the exception of (i) options previously granted
and delivered to Optionholder under the Plan, and (ii) the following agreements
only:

         OTHER AGREEMENTS:            _________________________________________
                                      _________________________________________

AEROGEN, INC.                                     OPTIONHOLDER:

By:_____________________________                  _____________________________
            Signature                                      Signature

Title                                             Date:
       -------------------------                       ------------------------
Date:
       -------------------------

ATTACHMENTS: Stock Option Agreement, 2000 Equity Incentive Plan and Notice of
Exercise


                                       1.
<PAGE>

                               NOTICE OF EXERCISE




AeroGen, Inc
1310 Orleans Drive
Sunnyvale, California  94089                  Date of Exercise: _______________

Ladies and Gentlemen:

         This constitutes notice under my stock option that I elect to purchase
the number of shares for the price set forth below.

<TABLE>

<S>                                                  <C>                        <C>
         Type of option (check one):                 Incentive  / /             Nonstatutory  / /

         Stock option dated:                         _______________

         Number of shares as
         to which option is
         exercised:                                  _______________

         Certificates to be
         issued in name of:                          _______________

         Total exercise price:                       $______________


         Cash payment delivered
         herewith:                                   $______________

         Value of ________ shares of
         AeroGen, Inc. common
         stock delivered herewith(1):                $______________

</TABLE>

--------------------------------
(1) Shares must meet the public trading requirements set forth in the option.
Shares must be valued in accordance with the terms of the option being
exercised, must have been owned for the minimum period required in the option,
and must be owned free and clear of any liens, claims, encumbrances or security
interests. Certificates must be endorsed or accompanied by an executed
assignment separate from certificate.

                                       2.
<PAGE>

         By this exercise, I agree (i) to provide such additional documents as
you may require pursuant to the terms of the 2000 Equity Incentive Plan, (ii) to
provide for the payment by me to you (in the manner designated by you) of your
withholding obligation, if any, relating to the exercise of this option, and
(iii) if this exercise relates to an incentive stock option, to notify you in
writing within fifteen (15) days after the date of any disposition of any of the
shares of Common Stock issued upon exercise of this option that occurs within
two (2) years after the date of grant of this option or within one (1) year
after such shares of Common Stock are issued upon exercise of this option.

                                       Very truly yours,



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




                                       2.




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>16
<FILENAME>ex-10_5.txt
<DESCRIPTION>EXHIBIT 10.5
<TEXT>

<PAGE>

                                                                    EXHIBIT 10.5

                                  AEROGEN, INC.

                 2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

                           ADOPTED [AUGUST 24, 2000]
                  APPROVED BY STOCKHOLDERS [_______ ___, 2000]

                      EFFECTIVE DATE: [_________ ___, 2000]
                             TERMINATION DATE: NONE

1.       PURPOSES.

         (a)      ELIGIBLE OPTION RECIPIENTS. The persons eligible to receive
Options are the Non-Employee Directors of the Company.

         (b)      AVAILABLE OPTIONS. The purpose of the Plan is to provide a
means by which Non-Employee Directors may be given an opportunity to benefit
from increases in value of the Common Stock through the granting of Nonstatutory
Stock Options.

         (c)      GENERAL PURPOSE. The Company, by means of the Plan, seeks to
retain the services of its Non-Employee Directors, to secure and retain the
services of new Non-Employee Directors and to provide incentives for such
persons to exert maximum efforts for the success of the Company and its
Affiliates.

2.       DEFINITIONS.

         (a)      "ACCOUNTANT" means the independent public accountants of the
Company.

         (b)      "AFFILIATE" means any parent corporation or subsidiary
corporation of the Company, whether now or hereafter existing, as those terms
are defined in Sections 424(e) and (f), respectively, of the Code.

         (c)      "ANNUAL GRANT" means an Option granted annually to all
Non-Employee Directors who meet the specified criteria pursuant to subsection
6(b) of the Plan.

         (d)      "ANNUAL MEETING" means the annual meeting of the stockholders
of the Company.

         (e)      "BOARD" means the Board of Directors of the Company.

         (f)      "CODE" means the Internal Revenue Code of 1986, as amended.

         (g)      "COMMON STOCK" means the common stock of the Company.

         (h)      "COMPANY" means AeroGen, Inc., a Delaware corporation.


                                       1.
<PAGE>

         (i)      "CONSULTANT" means any person, including an advisor, (i)
engaged by the Company or an Affiliate to render consulting or advisory services
and who is compensated for such services or (ii) who is a member of the Board of
Directors of an Affiliate. However, the term "Consultant" shall not include
either Directors of the Company who are not compensated by the Company for their
services as Directors or Directors of the Company who are merely paid a
director's fee by the Company for their services as Directors.

         (j)      "CONTINUOUS SERVICE" means that the Optionholder's service
with the Company or an Affiliate, whether as an Employee, Director or
Consultant, is not interrupted or terminated. The Optionholder's Continuous
Service shall not be deemed to have terminated merely because of a change in the
capacity in which the Optionholder renders service to the Company or an
Affiliate as an Employee, Consultant or Director or a change in the entity for
which the Optionholder renders such service, provided that there is no
interruption or termination of the Optionholder's Continuous Service. For
example, a change in status from a Non-Employee Director of the Company to a
Consultant of an Affiliate or an Employee of the Company will not constitute an
interruption of Continuous Service. The Board or the chief executive officer of
the Company, in that party's sole discretion, may determine whether Continuous
Service shall be considered interrupted in the case of any leave of absence
approved by that party, including sick leave, military leave or any other
personal leave.

         (k)      "DIRECTOR" means a member of the Board of Directors of the
Company.

         (l)      "DISABILITY" means the inability of a person, in the opinion
of a qualified physician acceptable to the Company, to perform the major duties
of that person's position with the Company or an Affiliate of the Company
because of the sickness or injury of the person.

         (m)      "EMPLOYEE" means any person employed by the Company or an
Affiliate. Mere service as a Director or payment of a director's fee by the
Company or an Affiliate shall not be sufficient to constitute "employment" by
the Company or an Affiliate.

         (n)      "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

         (o)      "FAIR MARKET VALUE" means, as of any date, the value of the
Common Stock determined as follows:

                  (i)      If the Common Stock is listed on any established
stock exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap
Market, the Fair Market Value of a share of Common Stock shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such exchange or market (or the exchange or market with the greatest
volume of trading in the Common Stock) on the last market trading day prior to
the day of determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable.

                  (ii)     In the absence of such markets for the Common Stock,
the Fair Market Value shall be determined in good faith by the Board.


                                       2.
<PAGE>

         (p)      "INITIAL GRANT" means an Option granted to a Non-Employee
Director who meets the specified criteria pursuant to subsection 6(a) of the
Plan.

         (q)      "IPO DATE" means the effective date of the initial public
offering of the Common Stock.

         (r)      "NON-EMPLOYEE DIRECTOR" means a Director who is not an
Employee.

         (s)      "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.

         (t)      "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.

         (u)      "OPTION" means a Nonstatutory Stock Option granted pursuant to
the Plan.

         (v)      "OPTION AGREEMENT" means a written agreement between the
Company and an Optionholder evidencing the terms and conditions of an individual
Option grant. Each Option Agreement shall be subject to the terms and conditions
of the Plan.

         (w)      "OPTIONHOLDER" means a person to whom an Option is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Option.

         (x)      "PLAN" means this AeroGen, Inc. 2000 Non-Employee Directors'
Stock Option Plan.

         (y)      "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange
Act or any successor to Rule 16b-3, as in effect from time to time.

         (z)      "SECURITIES ACT" means the Securities Act of 1933, as amended.

3.       ADMINISTRATION.

         (a)      ADMINISTRATION BY BOARD. The Board shall administer the Plan.
The Board may not delegate administration of the Plan to a committee.

         (b)      POWERS OF BOARD. The Board shall have the power, subject to,
and within the limitations of, the express provisions of the Plan:

                  (i)      To determine the provisions of each Option to the
extent not specified in the Plan.

                  (ii)     To construe and interpret the Plan and Options
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any


                                       3.
<PAGE>

Option Agreement, in a manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective.

                  (iii)    To amend the Plan or an Option as provided in Section
12.

                  (iv)     Generally, to exercise such powers and to perform
such acts as the Board deems necessary or expedient to promote the best
interests of the Company that are not in conflict with the provisions of the
Plan.

         (c)      EFFECT OF BOARD'S DECISION. All determinations,
interpretations and constructions made by the Board in good faith shall not be
subject to review by any person and shall be final, binding and conclusive on
all persons.

4.       SHARES SUBJECT TO THE PLAN.


         (a)      SHARE RESERVE. Subject to the provisions of Section 11
relating to adjustments upon changes in the Common Stock, the Common Stock that
may be issued pursuant to Options shall not exceed in the aggregate seven
hundred fifty thousand (750,000) shares of Common Stock.

         (b)      REVERSION OF SHARES TO THE SHARE RESERVE. If any Option shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the shares of Common Stock not acquired under
such Option shall revert to and again become available for issuance under the
Plan.

         (c)      SOURCE OF SHARES. The shares of Common Stock subject to the
Plan may be unissued shares or reacquired shares, bought on the market or
otherwise.

5.       ELIGIBILITY.

         The Options as set forth in section 6 automatically shall be granted
under the Plan to all Non-Employee Directors.

6.       NON-DISCRETIONARY GRANTS.

         (a)      INITIAL GRANTS. Without any further action of the Board,
each person who after the IPO Date is elected or appointed for the first time
to be a Non-Employee Director automatically shall, upon the date of his or
her initial election or appointment to be a Non-Employee Director, be granted
an Initial Grant to purchase forty five thousand (45,000) shares of Common
Stock on the terms and conditions set forth herein.

         (b)      ANNUAL GRANTS. Without any further action of the Board, on
the day of each Annual Meeting, commencing with the Annual Meeting in 2001,
each person who is then a Non-Employee Director, automatically shall be
granted an Annual Grant to purchase fifteen thousand (15,000) shares of
Common Stock on the terms and conditions set forth herein.


                                       4.
<PAGE>

7.       OPTION PROVISIONS.

         Each Option shall be in such form and shall contain such terms and
conditions as required by the Plan. Each Option shall contain such additional
terms and conditions, not inconsistent with the Plan, as the Board shall deem
appropriate. Each Option shall include (through incorporation of provisions
hereof by reference in the Option or otherwise) the substance of each of the
following provisions:

         (a)      TERM. No Option shall be exercisable after the expiration of
ten (10) years from the date it was granted.

         (b)      EXERCISE PRICE. The exercise price of each Option shall be one
hundred percent (100%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the foregoing, an
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.

         (c)      CONSIDERATION. The purchase price of stock acquired pursuant
to an Option may be paid, to the extent permitted by applicable statutes and
regulations, in any combination of (i) cash or check, (ii) delivery to the
Company of other Common Stock or (iii) pursuant to a program developed under
Regulation T as promulgated by the Federal Reserve Board that, prior to the
issuance of Common Stock, results in either the receipt of cash (or check) by
the Company or the receipt of irrevocable instructions to pay the aggregate
exercise price to the Company from the sales proceeds. The purchase price of
Common Stock acquired pursuant to an Option that is paid by delivery to the
Company of other Common Stock acquired, directly or indirectly from the Company,
shall be paid only by shares of the Common Stock of the Company that have been
held for more than six (6) months (or such longer or shorter period of time
required to avoid a charge to earnings for financial accounting purposes).

         (d)      TRANSFERABILITY. An Option is transferable by will or by the
laws of descent and distribution. An Option also may be transferable upon
written consent of the Company if, at the time of transfer, a Form S-8
registration statement under the Securities Act is available for the exercise of
the Option and the subsequent resale of the underlying securities. In addition,
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.

         (e)      VESTING. Options shall vest as follows:

                  (i)      Initial Grants: 1/3rd of the shares shall vest on
the first anniversary of the date of grant and 1/36th of the shares shall
vest monthly for two (2) years thereafter.

                  (ii)     Annual Grants: 1/36th of the shares shall vest
monthly for three (3) years thereafter.

                                       5.
<PAGE>

         (f)      EARLY EXERCISE. The Option may, but need not, include a
provision where by the Optionholder may elect at any time before the
Optionholder's Continuous Service terminates to exercise the Option as to any
part or all of the shares of Common Stock subject to the Option prior to the
full vesting of the Option. Any unvested shared of Common Stock so purchased may
be subject to a repurchase option in favor of the Company or to any other
restriction the Board determines to be appropriate.

         (g)      TERMINATION OF CONTINUOUS SERVICE. In the event an
Optionholder's Continuous Service terminates (other than upon the Optionholder's
death or Disability), the Optionholder may exercise his or her Option (to the
extent that the Optionholder was entitled to exercise it as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service, or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified in the Option Agreement,
the Option shall terminate.

         (h)      EXTENSION OF TERMINATION DATE. If the exercise of the Option
following the termination of the Optionholder's Continuous Service (other than
upon the Optionholder's death or Disability) would be prohibited at any time
solely because the issuance of shares would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option set forth in subsection
7(a) or (ii) the expiration of a period of three (3) months after the
termination of the Optionholder's Continuous Service during which the exercise
of the Option would not be in violation of such registration requirements.

         (i)      DISABILITY OF OPTIONHOLDER. In the event an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, after termination, the Optionholder does
not exercise his or her Option within the time specified herein, the Option
shall terminate.

         (j)      DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death or (ii)
the Optionholder dies within the three-month period after the termination of the
Optionholder's Continuous Service for a reason other than death, then the Option
may be exercised (to the extent the Optionholder was entitled to exercise the
Option as of the date of death) by the Optionholder's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the Option upon the Optionholder's death, but only
within the period ending on the earlier of (1) the date eighteen (18) months
following the date of death or (2) the expiration of the term of such Option as
set forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.


                                       6.
<PAGE>

8.       COVENANTS OF THE COMPANY.

         (a)      AVAILABILITY OF SHARES. During the terms of the Options, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Options.

         (b)      SECURITIES LAW COMPLIANCE. The Company shall seek to obtain
from each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Options and to issue and sell shares of
Common Stock upon exercise of the Options; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Option or any stock issued or issuable pursuant to any such
Option. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Options unless and until such authority is obtained.

9.       USE OF PROCEEDS FROM STOCK.

         Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.

10.      MISCELLANEOUS.

         (a)      STOCKHOLDER RIGHTS. No Optionholder shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
subject to such Option unless and until such Optionholder has satisfied all
requirements for exercise of the Option pursuant to its terms.

         (b)      NO SERVICE RIGHTS. Nothing in the Plan or any instrument
executed or Option granted pursuant thereto shall confer upon any Optionholder
any right to continue to serve the Company as a Non-Employee Director or shall
affect the right of the Company or an Affiliate to terminate (i) the employment
of an Employee with or without notice and with or without cause, (ii) the
service of a Consultant pursuant to the terms of such Consultant's agreement
with the Company or an Affiliate or (iii) the service of a Director pursuant to
the Bylaws of the Company or an Affiliate, and any applicable provisions of the
corporate law of the state in which the Company or the Affiliate is
incorporated, as the case may be.

         (c)      INVESTMENT ASSURANCES. The Company may require an
Optionholder, as a condition of exercising or acquiring stock under any Option,
(i) to give written assurances satisfactory to the Company as to the
Optionholder's knowledge and experience in financial and business matters and/or
to employ a purchaser representative reasonably satisfactory to the Company who
is knowledgeable and experienced in financial and business matters and that he
or she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Option; and (ii) to give
written assurances satisfactory to the Company stating that the Optionholder is
acquiring the stock subject to the Option for the Optionholder's own account and
not with any present intention of selling or otherwise distributing the stock.


                                       7.
<PAGE>

The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (1) the issuance of the shares upon the
exercise or acquisition of stock under the Option has been registered under a
then currently effective registration statement under the Securities Act or (2)
as to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.

         (d)      WITHHOLDING OBLIGATIONS. The Optionholder may satisfy any
federal, state or local tax withholding obligation relating to the exercise or
acquisition of stock under an Option by any of the following means (in addition
to the Company's right to withhold from any compensation paid to the
Optionholder by the Company) or by a combination of such means: (i) tendering a
cash payment; (ii) authorizing the Company to withhold shares from the shares of
the Common Stock otherwise issuable to the Optionholder as a result of the
exercise or acquisition of stock under the Option, provided, however, that no
shares of Common Stock are withheld with a value exceeding the minimum amount of
tax required to be withheld by law; or (iii) delivering to the Company owned and
unencumbered shares of the Common Stock.

11.      ADJUSTMENTS UPON CHANGES IN COMMON STOCK.

         (a)      CAPITALIZATION ADJUSTMENTS. If any change is made in the stock
subject to the Plan, or subject to any Option, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the nature, class(es) and maximum number of securities subject both
to the Plan pursuant to Section 4 and to the nondiscretionary Options specified
in Section 6, and the outstanding Options will be appropriately adjusted in the
nature, class(es) and number of securities and price per share of stock subject
to such outstanding Options. The Board shall make such adjustments, and its
determination shall be final, binding and conclusive. (The conversion of any
convertible securities of the Company shall not be treated as a transaction
"without receipt of consideration" by the Company.)

         (b)      DISSOLUTION OR LIQUIDATION. In the event of a dissolution or
liquidation of the Company, then all outstanding Options shall terminate
immediately prior to such event.

         (c)      ASSET SALE, MERGER, CONSOLIDATION OR REVERSE MERGER. In the
event of (i) a sale, lease or other disposition of all or substantially all of
the assets of the Company, (ii) a merger or consolidation in which the Company
is not the surviving corporation or (iii) a reverse merger in which the Company
is the surviving corporation but the shares of Common Stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise,


                                       8.
<PAGE>

then with respect to Options held by Optionholders whose Continuous Service
has not terminated, the vesting of such Options (and, if applicable, the time
during which such Options may be exercised) shall be accelerated in full, and
the Options shall terminate if not exercised (if applicable) at or prior to
such event. With respect to any other Options outstanding under the Plan,
such Options shall terminate if not exercised (if applicable) prior to such
event.

         (d)      PARACHUTE PAYMENTS. In the event that the acceleration of the
vesting and exercisability of the Options provided for in subsection 11(c) and
benefits otherwise payable to a Optionholder (i) constitute "parachute payments"
within the meaning of Section 280G of the Code, or any comparable successor
provisions, and (ii) but for this subsection would be subject to the excise tax
imposed by Section 4999 of the Code, or any comparable successor provisions (the
"Excise Tax"), then such Optionholder's benefits hereunder shall be either

                  (i)      provided to such Optionholder in full, or

                  (ii)     provided to such Optionholder as to such lesser
extent which would result in no portion of such benefits being subject to the
Excise Tax,

whichever of the foregoing amounts, when taking into account applicable federal,
state, local and foreign income and employment taxes, the Excise Tax, and any
other applicable taxes, results in the receipt by such Optionholder, on an
after-tax basis, of the greatest amount of benefits, notwithstanding that all or
some portion of such benefits may be taxable under the Excise Tax. Unless the
Company and such Optionholder otherwise agree in writing, any determination
required under this subsection shall be made in writing in good faith by the
Accountants. In the event of a reduction of benefits hereunder, the Optionholder
shall be given the choice of which benefits to reduce. For purposes of making
the calculations required by this subsection, the Accountants may make
reasonable assumptions and approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations concerning the application of the
Code, and other applicable legal authority. The Company and the Optionholder
shall furnish to the Accountants such information and documents as the
Accountants may reasonably request in order to make a determination under this
subsection. The Company shall bear all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this subsection.

                  If, notwithstanding any reduction described in this
subsection, the Internal Revenue Service (the "IRS") determines that the
Optionholder is liable for the Excise Tax as a result of the receipt of the
payment of benefits as described above, then the Optionholder shall be obligated
to pay back to the Company, within thirty (30) days after a final IRS
determination or in the event that the Optionholder challenges the final IRS
determination, a final judicial determination, a portion of the payment equal to
the "Repayment Amount." The Repayment Amount with respect to the payment of
benefits shall be the smallest such amount, if any, as shall be required to be
paid to the Company so that the Optionholder's net after-tax proceeds


                                       9.
<PAGE>

with respect to any payment of benefits (after taking into account the payment
of the Excise Tax and all other applicable taxes imposed on such payment) shall
be maximized. The Repayment Amount with respect to the payment of benefits shall
be zero if a Repayment Amount of more than zero would not result in the
Optionholder's net after-tax proceeds with respect to the payment of such
benefits being maximized. If the Excise Tax is not eliminated pursuant to this
paragraph, the Optionholder shall pay the Excise Tax.

                  Notwithstanding any other provision of this subsection 11(d),
if (i) there is a reduction in the payment of benefits as described in this
subsection, (ii) the IRS later determines that the Optionholder is liable for
the Excise Tax, the payment of which would result in the maximization of the
Optionholder's net after-tax proceeds (calculated as if the Optionholder's
benefits had not previously been reduced), and (iii) the Optionholder pays the
Excise Tax, then the Company shall pay to the Optionholder those benefits which
were reduced pursuant to this subsection contemporaneously or as soon as
administratively possible after the Optionholder pays the Excise Tax so that the
Optionholder's net after-tax proceeds with respect to the payment of benefits is
maximized.

         If the Optionholder either (i) brings any action to enforce rights
pursuant to this subsection 11(d), or (ii) defend any legal challenge to his or
her rights hereunder, the Optionholder shall be entitled to recover attorneys'
fees and costs incurred in connection with such action, regardless of the
outcome of such action; provided, however, that in the event such action is
commenced by the Optionholder, the court finds the claim was brought in good
faith.

12.      AMENDMENT OF THE PLAN AND OPTIONS.

         (a)      AMENDMENT OF PLAN. The Board at any time, and from time to
time, may amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in Common Stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.

         (b)      STOCKHOLDER APPROVAL. The Board may, in its sole discretion,
submit any other amendment to the Plan for stockholder approval.

         (c)      NO IMPAIRMENT OF RIGHTS. Rights under any Option granted
before amendment of the Plan shall not be impaired by any amendment of the Plan
unless (i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.

         (d)      AMENDMENT OF OPTIONS. The Board at any time, and from time to
time, may amend the terms of any one or more Options; provided, however, that
the rights under any Option shall not be impaired by any such amendment unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.


                                      10.
<PAGE>

13.      TERMINATION OR SUSPENSION OF THE PLAN.

         (a)      PLAN TERM. The Board may suspend or terminate the Plan at any
time. No Options may be granted under the Plan while the Plan is suspended or
after it is terminated.

         (b)      NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan
shall not impair rights and obligations under any Option granted while the Plan
is in effect except with the written consent of the Optionholder.

14.      EFFECTIVE DATE OF PLAN.

         The Plan shall become effective on the IPO Date, but no Option shall be
exercised unless and until the Plan has been approved by the stockholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.

15.      CHOICE OF LAW.

         All questions concerning the construction, validity and interpretation
of this Plan shall be governed by the law of the State of California, without
regard to such state's conflict of laws rules.


                                      11.
<PAGE>



                                  AEROGEN, INC.
                 2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

                             STOCK OPTION AGREEMENT
                           (NONSTATUTORY STOCK OPTION)


Pursuant to your Stock Option Grant Notice ("Grant Notice") and this Stock
Option Agreement, AeroGen, Inc. (the "Company") has granted you an option under
its 2000 Non-Employee Directors' Stock Option Plan (the "Plan") to purchase the
number of shares of the Company's Common Stock indicated in your Grant Notice at
the exercise price indicated in your Grant Notice. Defined terms not explicitly
defined in this Stock Option Agreement but defined in the Plan shall have the
same definitions as in the Plan.

The details of your option are as follows:

         1.       VESTING. Subject to the limitations contained herein, your
option will vest as provided in your Grant Notice, provided that vesting will
cease upon the termination of your Continuous Service.

         2.       NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of
Common Stock subject to your option and your exercise price per share referenced
in your Grant Notice may be adjusted from time to time for Capitalization
Adjustments, as provided in the Plan.

         3.       EXERCISE PRIOR TO VESTING ("EARLY EXERCISE"). If permitted in
your Grant Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise"
of your option is permitted) and subject to the provisions of your option, you
may elect at any time that is both (i) during the period of your Continuous
Service and (ii) during the term of your option, to exercise all or part of your
option, including the nonvested portion of your option; provided, however, that:

         (a)      a partial exercise of your option shall be deemed to cover
first vested shares of Common Stock and then the earliest vesting installment of
unvested shares of Common Stock;

         (b)      any shares of Common Stock so purchased from installments that
have not vested as of the date of exercise shall be subject to the purchase
option in favor of the Company as described in the Company's form of Early
Exercise Stock Purchase Agreement; and

         (c)      you shall enter into the Company's form of Early Exercise
Stock Purchase Agreement with a vesting schedule that will result in the same
vesting as if no early exercise had occurred.

         4.       METHOD OF PAYMENT. Payment of the exercise price is due in
full upon exercise of all or any part of your option. You may elect to make
payment of the exercise price in cash or by check or in any other manner
PERMITTED BY YOUR GRANT NOTICE, which may include one or more of the following:


                                      1.
<PAGE>

         (a)      In the Company's sole discretion at the time your option is
exercised and provided that at the time of exercise the Common Stock is publicly
traded and quoted regularly in THE WALL STREET JOURNAL, pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board that,
prior to the issuance of Common Stock, results in either the receipt of cash (or
check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds.

         (b)      Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in THE WALL STREET JOURNAL, by delivery of
already-owned shares of Common Stock either that you have held for the period
required to avoid a charge to the Company's reported earnings (generally six
months) or that you did not acquire, directly or indirectly from the Company,
that are owned free and clear of any liens, claims, encumbrances or security
interests, and that are valued at Fair Market Value on the date of exercise.
"Delivery" for these purposes, in the sole discretion of the Company at the time
you exercise your option, shall include delivery to the Company of your
attestation of ownership of such shares of Common Stock in a form approved by
the Company. Notwithstanding the foregoing, you may not exercise your option by
tender to the Company of Common Stock to the extent such tender would violate
the provisions of any law, regulation or agreement restricting the redemption of
the Company's stock.

         (c)      Pursuant to the following deferred payment alternative:

                  (i)      Not less than one hundred percent (100%) of the
aggregate exercise price, plus accrued interest, shall be due four (4) years
from date of exercise or, at the Company's election, upon termination of your
Continuous Service.

                  (ii)     Interest shall be compounded at least annually and
shall be charged at the minimum rate of interest necessary to avoid the
treatment as interest, under any applicable provisions of the Code, of any
portion of any amounts other than amounts stated to be interest under the
deferred payment arrangement.

                  (iii)    At any time that the Company is incorporated in
Delaware, payment of the Common Stock's "par value," as defined in the Delaware
General Corporation Law, shall be made in cash and not by deferred payment.

                  (iv)     In order to elect the deferred payment alternative,
you must, as a part of your written notice of exercise, give notice of the
election of this payment alternative and, in order to secure the payment of the
deferred exercise price to the Company hereunder, if the Company so requests,
you must tender to the Company a promissory note and a security agreement
covering the purchased shares of Common Stock, both in form and substance
satisfactory to the Company, or such other or additional documentation as the
Company may request.

         5.       WHOLE SHARES. You may exercise your option only for whole
shares of Common Stock.


                                      2.
<PAGE>

         6.       SECURITIES LAW COMPLIANCE. Notwithstanding anything to the
contrary contained herein, you may not exercise your option unless the shares of
Common Stock issuable upon such exercise are then registered under the
Securities Act or, if such shares of Common Stock are not then so registered,
the Company has determined that such exercise and issuance would be exempt from
the registration requirements of the Securities Act. The exercise of your option
must also comply with other applicable laws and regulations governing your
option, and you may not exercise your option if the Company determines that such
exercise would not be in material compliance with such laws and regulations.

         7.       TERM. You may not exercise your option before the commencement
of its term or after its term expires. The term of your option commences on the
Date of Grant and expires upon the EARLIEST of the following:

         (a)      three (3) months after the termination of your Continuous
Service for any reason other than your Disability or death, provided that if
during any part of such three (3) month period your option is not exercisable
solely because of the condition set forth in the preceding paragraph relating to
"Securities Law Compliance," your option shall not expire until the earlier of
the Expiration Date or until it shall have been exercisable for an aggregate
period of three (3) months after the termination of your Continuous Service;

         (b)      twelve (12) months after the termination of your Continuous
Service due to your Disability;

         (c)      eighteen (18) months after your death if you die either during
your Continuous Service or within three (3) months after your Continuous Service
terminates;

         (d)      the Expiration Date indicated in your Grant Notice; or

         (e)      the day before the tenth (10th) anniversary of the Date of
Grant.

         8.       EXERCISE.

         (a)      You may exercise the vested portion of your option (and the
unvested portion of your option if your Grant Notice so permits) during its term
by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.

         (b)      By exercising your option you agree that, as a condition to
any exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
your option, (2) the lapse of any substantial risk of forfeiture to which the
shares of Common Stock are subject at the time of exercise, or (3) the
disposition of shares of Common Stock acquired upon such exercise.


                                       3.
<PAGE>

         9.       TRANSFERABILITY. Your option is not transferable, except by
will or by the laws of descent and distribution, and is exercisable during your
life only by you. Notwithstanding the foregoing, by delivering written notice to
the Company, in a form satisfactory to the Company, you may designate a third
party who, in the event of your death, shall thereafter be entitled to exercise
your option.

         10.      RIGHT OF REPURCHASE. To the extent provided in the Company's
bylaws as amended from time to time, the Company shall have the right to
repurchase all or any part of the shares of Common Stock you acquire pursuant to
the exercise of your option.

         11.      OPTION NOT A SERVICE CONTRACT. Your option is not an
employment or service contract, and nothing in your option shall be deemed to
create in any way whatsoever any obligation on your part to continue in the
employ of the Company or an Affiliate, or of the Company or an Affiliate to
continue your employment. In addition, nothing in your option shall obligate the
Company or an Affiliate, their respective stockholders, Boards of Directors,
Officers or Employees to continue any relationship that you might have as a
Director or Consultant for the Company or an Affiliate.

         12.      WITHHOLDING OBLIGATIONS.

         (a)      At the time you exercise your option, in whole or in part, or
at any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "cashless
exercise" pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with your option.

         (b)      Upon your request and subject to approval by the Company, in
its sole discretion, and compliance with any applicable conditions or
restrictions of law, the Company may withhold from fully vested shares of Common
Stock otherwise issuable to you upon the exercise of your option a number of
whole shares of Common Stock having a Fair Market Value, determined by the
Company as of the date of exercise, not in excess of the minimum amount of tax
required to be withheld by law. If the date of determination of any tax
withholding obligation is deferred to a date later than the date of exercise of
your option, share withholding pursuant to the preceding sentence shall not be
permitted unless you make a proper and timely election under Section 83(b) of
the Code, covering the aggregate number of shares of Common Stock acquired upon
such exercise with respect to which such determination is otherwise deferred, to
accelerate the determination of such tax withholding obligation to the date of
exercise of your option. Notwithstanding the filing of such election, shares of
Common Stock shall be withheld solely from fully vested shares of Common Stock
determined as of the date of exercise of your option that are otherwise issuable
to you upon such exercise. Any adverse consequences to you arising in connection
with such share withholding procedure shall be your sole responsibility.

         (c)      You may not exercise your option unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your


                                       4.
<PAGE>

option when desired even though your option is vested, and the Company shall
have no obligation to issue a certificate for such shares of Common Stock or
release such shares of Common Stock from any escrow provided for herein.

         13.      NOTICES. Any notices provided for in your option or the Plan
shall be given in writing and shall be deemed effectively given upon receipt or,
in the case of notices delivered by mail by the Company to you, five (5) days
after deposit in the United States mail, postage prepaid, addressed to you at
the last address you provided to the Company.

GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions of the
Plan, the provisions of which are hereby made a part of your option, and is
further subject to all interpretations, amendments, rules and regulations which
may from time to time be promulgated and adopted pursuant to the Plan. In the
event of any conflict between the provisions of your option and those of the
Plan, the provisions of the Plan shall control.

                                       5.
<PAGE>

                                  AEROGEN, INC.
                            STOCK OPTION GRANT NOTICE
                                  INITIAL GRANT
                (2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN)


AeroGen, Inc. (the "Company"), pursuant to its 2000 Non-Employee Directors'
Stock Option Plan (the "Plan"), hereby grants to Optionholder an option to
purchase the number of shares of the Company's Common Stock set forth below.
This option is subject to all of the terms and conditions as set forth herein
and in the Stock Option Agreement, the Plan and the Notice of Exercise, all of
which are attached hereto and incorporated herein in their entirety.

<TABLE>
<S>                                               <C>
Optionholder:
Date of Grant:                                    ______________________________________________
Vesting Commencement Date:                        ______________________________________________
Number of Shares Subject to Option:               ______________________________________________
Exercise Price (Per Share):                       ______________________________________________
Total Exercise Price:                             ______________________________________________
Expiration Date:                                  ______________________________________________
</TABLE>

<TABLE>
<S>                   <C>                                       <C>
TYPE OF GRANT:        Nonstatutory Stock Option

EXERCISE SCHEDULE:    / /  Same as Vesting Schedule             / /  Early Exercise Permitted

VESTING SCHEDULE:     1/3rd of the shares vest one year after the Vesting Commencement Date.
                      1/36th of the shares vest monthly thereafter over the next two years.

PAYMENT:              By one or a combination of the following items (described in the Stock Option Agreement):

                               By cash or check
                               Pursuant to a Regulation T Program if the Shares are publicly traded
                               By delivery of already-owned shares if the Shares are publicly traded
</TABLE>

ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionholder acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionholder further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between Optionholder and the Company regarding the
acquisition of stock in the Company and supersede all prior oral and written
agreements on that subject with the exception of (i) options previously granted
and delivered to Optionholder under the Plan, and (ii) the following agreements
only:

         OTHER AGREEMENTS:                   ___________________________________
                                             ___________________________________

AEROGEN, INC.                                   OPTIONHOLDER:

By:_________________________________________    ________________________________
                  Signature                                 Signature

Title: _____________________________________    Date: __________________________

Date: ______________________________________

ATTACHMENTS: Stock Option Agreement, 2000 Non-Employee Directors' Stock Option
             Plan and Notice of Exercise

<PAGE>

                                  AEROGEN, INC.
                            STOCK OPTION GRANT NOTICE
                                  ANNUAL GRANT
                (2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN)


AeroGen, Inc. (the "Company"), pursuant to its 2000 Non-Employee Directors'
Stock Option Plan (the "Plan"), hereby grants to Optionholder an option to
purchase the number of shares of the Company's Common Stock set forth below.
This option is subject to all of the terms and conditions as set forth herein
and in the Stock Option Agreement, the Plan and the Notice of Exercise, all of
which are attached hereto and incorporated herein in their entirety.

<TABLE>

<S>                                               <C>
Optionholder:
Date of Grant:                                    ______________________________________________
Vesting Commencement Date:                        ______________________________________________
Number of Shares Subject to Option:               ______________________________________________
Exercise Price (Per Share):                       ______________________________________________
Total Exercise Price:                             ______________________________________________
Expiration Date:                                  ______________________________________________
</TABLE>

<TABLE>
<S>                   <C>                                       <C>
TYPE OF GRANT:        Nonstatutory Stock Option

EXERCISE SCHEDULE:    / /  Same as Vesting Schedule             / /  Early Exercise Permitted

VESTING SCHEDULE:     1/3rd of the shares vest one year after the Vesting Commencement Date.
                      1/36th of the shares vest monthly thereafter over the next two years.

PAYMENT:              By one or a combination of the following items (described in the Stock Option Agreement):

                               By cash or check
                               Pursuant to a Regulation T Program if the Shares are publicly traded
                               By delivery of already-owned shares if the Shares are publicly traded
</TABLE>

ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionholder acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionholder further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between Optionholder and the Company regarding the
acquisition of stock in the Company and supersede all prior oral and written
agreements on that subject with the exception of (i) options previously granted
and delivered to Optionholder under the Plan, and (ii) the following agreements
only:

         OTHER AGREEMENTS:                   ___________________________________
                                             ___________________________________

AEROGEN, INC.                                   OPTIONHOLDER:

By:_________________________________________    ________________________________
                  Signature                                 Signature

Title: _____________________________________    Date: __________________________

Date: ______________________________________

ATTACHMENTS: Stock Option Agreement, 2000 Non-Employee Directors' Stock Option
             Plan and Notice of Exercise


<PAGE>

                               NOTICE OF EXERCISE



AeroGen, Inc
1310 Orleans Drive
Sunnyvale, California  94089                  Date of Exercise: _______________

Ladies and Gentlemen:

This constitutes notice under my stock option that I elect to purchase the
number of shares for the price set forth below.

         Type of option (check one):                 Nonstatutory

         Stock option dated:                         _______________

         Number of shares as
         to which option is
         exercised:                                  _______________

         Certificates to be
         issued in name of:                          _______________

         Total exercise price:                       $______________

         Cash payment delivered
         herewith:                                   $______________

         Value of ________ shares of
         AeroGen, Inc. common
         stock delivered herewith(1):                $______________

By this exercise, I agree (i) to provide such additional documents as you may
require pursuant to the terms of the 2000 Non-Employee Directors' Stock Option
Plan and (ii) to provide for the payment by me to you (in the manner designated
by you) of your withholding obligation, if any, relating to the exercise of this
option.

                                            Very truly yours,

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

--------------------------------
(1)      Shares must meet the public trading requirements set forth in the
option. Shares must be valued in accordance with the terms of the option being
exercised, must have been owned for the minimum period required in the option,
and must be owned free and clear of any liens, claims, encumbrances or security
interests. Certificates must be endorsed or accompanied by an executed
assignment separate from certificate.


                                       1.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.6
<SEQUENCE>17
<FILENAME>ex-10_6.txt
<DESCRIPTION>EXHIBIT 10.6
<TEXT>

<PAGE>

                                                                    EXHIBIT 10.6

                                  AEROGEN, INC.
                        2000 EMPLOYEE STOCK PURCHASE PLAN

                ADOPTED BY BOARD OF DIRECTORS [AUGUST 24, 2000]
                  APPROVED BY STOCKHOLDERS [___________, 2000]
                     TERMINATION DATE: [___________, 2020]


1.       PURPOSE.

         (a)      The purpose of the Plan is to provide a means by which
Employees of the Company and certain designated Affiliates may be given an
opportunity to purchase Shares of the Company.

         (b)      The Company, by means of the Plan, seeks to retain the
services of such Employees, to secure and retain the services of new Employees
and to provide incentives for such persons to exert maximum efforts for the
success of the Company and its Affiliates.

         (c)      The Company intends that the Rights to purchase Shares granted
under the Plan be considered options issued under an "employee stock purchase
plan," as that term is defined in Section 423(b) of the Code.

2.       DEFINITIONS.

         (a)      "AFFILIATE" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.

         (b)      "BOARD" means the Board of Directors of the Company.

         (c)      "CODE" means the United States Internal Revenue Code of 1986,
                  as amended.

         (d)      "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.

         (e)      "COMMON STOCK" means the common stock of the Company.

         (f)      "COMPANY" means AeroGen, Inc., a Delaware corporation.

         (g)      "DIRECTOR" means a member of the Board.

         (h)      "ELIGIBLE EMPLOYEE" means an Employee who meets the
requirements set forth in the Offering for eligibility to participate in the
Offering.


                                      -1-
<PAGE>

         (i)      "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or an Affiliate of the Company. Neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
"employment" by the Company or the Affiliate.

         (j)      "EMPLOYEE STOCK PURCHASE PLAN" means a plan that grants rights
intended to be options issued under an "employee stock purchase plan," as that
term is defined in Section 423(b) of the Code.

         (k)      "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

         (l)      "FAIR MARKET VALUE" means the value of a security, as
determined in good faith by the Board. If the security is listed on any
established stock exchange or traded on the Nasdaq National Market or the Nasdaq
SmallCap Market, then, except as otherwise provided in the Offering, the Fair
Market Value of the security shall be the closing sales price (rounded up where
necessary to the nearest whole cent) for such security (or the closing bid, if
no sales were reported) as quoted on such exchange or market (or the exchange or
market with the greatest volume of trading in the relevant security of the
Company) on the trading day prior to the relevant determination date, as
reported in THE WALL STREET JOURNAL or such other source as the Board deems
reliable.

         (m)      "OFFERING" means the grant of Rights to purchase Shares under
the Plan to Eligible Employees.

         (n)      "OFFERING DATE" means a date selected by the Board for an
Offering to commence.

         (o)      "PARTICIPANT" means an Eligible Employee who holds an
outstanding Right granted pursuant to the Plan or, if applicable, such other
person who holds an outstanding Right granted under the Plan.

         (p)      "PLAN" means this AeroGen, Inc. 2000 Employee Stock Purchase
Plan.

         (q)      "PURCHASE DATE" means one or more dates established by the
Board during an Offering on which Rights granted under the Plan shall be
exercised and purchases of Shares carried out in accordance with such Offering.

         (r)      "RIGHT" means an option to purchase Shares granted pursuant to
the Plan.

         (s)      "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3 as in effect with respect to the Company at the time
discretion is being exercised regarding the Plan.

         (t)      "SECURITIES ACT" means the Securities Act of 1933, as amended.

         (u)      "SHARE" means a share of the Common Stock of the Company.


                                      -2-
<PAGE>

3.       ADMINISTRATION.

         (a)      The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c). Whether
or not the Board has delegated administration, the Board shall have the final
power to determine all questions of policy and expediency that may arise in the
administration of the Plan.

         (b)      The Board (or the Committee) shall have the power, subject to,
and within the limitations of, the express provisions of the Plan:

                  (i)      To determine when and how Rights to purchase Shares
shall be granted and the provisions of each Offering of such Rights (which need
not be identical).

                  (ii)     To designate from time to time which Affiliates of
the Company shall be eligible to participate in the Plan.

                  (iii)    To construe and interpret the Plan and Rights granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.

                  (iv)     To amend the Plan as provided in Section 14.

                  (v)      Generally, to exercise such powers and to perform
such acts as it deems necessary or expedient to promote the best interests of
the Company and its Affiliates and to carry out the intent that the Plan be
treated as an Employee Stock Purchase Plan.

                  (vi)     All determinations, interpretations and constructions
made by the Board in good faith shall not be subject to review by any person and
shall be final, binding and conclusive on all persons.

         (c)      The Board may delegate administration of the Plan to a
Committee of the Board composed of two (2) or more Directors.

4.       SHARES SUBJECT TO THE PLAN.

         (a)      Subject to the provisions of Section 13 relating to
adjustments upon changes in securities, the Shares that may be sold pursuant
to Rights granted under the Plan shall not exceed in the aggregate seven
hundred fifty thousand (750,000) Shares. If any Right granted under the Plan
shall for any reason terminate without having been exercised, the Shares not
purchased under such Right shall again become available for the Plan.

         (b)      The aggregate number of Shares that may be sold pursuant to
Rights granted under the Plan as specified in Section 4(a) hereof automatically
shall be increased as follows:

                  (i)      Subject to the provisions of Section 13 relating to
adjustments upon changes in securities, on the day of each annual meeting of
stockholders of the Company (the


                                      -3-
<PAGE>

"Calculation Date") for a period of twenty (20) years, commencing with the
annual meeting of stockholders in 2001, the aggregate number of shares of
Common Stock that is available for issuance under the Plan shall
automatically be increased by that number of shares equal to the least of (1)
one percent (1%) of the Diluted Shares Outstanding; (2) two hundred fifty
thousand (250,000) number of shares of Common Stock; or (3) such lesser
number of shares as determined by the Board.

                  (ii)     "Diluted Shares Outstanding" shall mean, as of any
date, (1) the number of outstanding shares of Common Stock of the Company on
such Calculation Date, plus (2) the number of shares of Common Stock issuable
upon such Calculation Date assuming the conversion of all outstanding Preferred
Stock and convertible notes, plus (3) the additional number of dilutive Common
Stock equivalent shares outstanding as the result of any options or warrants
outstanding during the fiscal year, calculated using the treasury stock method.

         (c)      The Shares subject to the Plan may be unissued Shares or
Shares that have been bought on the open market at prevailing market prices or
otherwise.

5.       GRANT OF RIGHTS; OFFERING.

         (a)      The Board may from time to time grant or provide for the grant
of Rights to purchase Shares of the Company under the Plan to Eligible Employees
in an Offering on an Offering Date or Dates selected by the Board. Each Offering
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate, which shall comply with the requirements of Section
423(b)(5) of the Code that all Employees granted Rights to purchase Shares under
the Plan shall have the same rights and privileges. The terms and conditions of
an Offering shall be incorporated by reference into the Plan and treated as part
of the Plan. The provisions of separate Offerings need not be identical, but
each Offering shall include (through incorporation of the provisions of this
Plan by reference in the document comprising the Offering or otherwise) the
period during which the Offering shall be effective, which period shall not
exceed twenty-seven (27) months beginning with the Offering Date, and the
substance of the provisions contained in Sections 6 through 9, inclusive.

         (b)      If a Participant has more than one Right outstanding under the
Plan, unless he or she otherwise indicates in agreements or notices delivered
hereunder: (i) each agreement or notice delivered by that Participant will be
deemed to apply to all of his or her Rights under the Plan, and (ii) an
earlier-granted Right (or a Right with a lower exercise price, if two Rights
have identical grant dates) will be exercised to the fullest possible extent
before a later-granted Right (or a Right with a higher exercise price if two
Rights have identical grant dates) will be exercised.

6.       ELIGIBILITY.

         (a)      Rights may be granted only to Employees of the Company or, as
the Board may designated as provided in subsection 3(b), to Employees of an
Affiliate. Except as provided in subsection 6(b), an Employee shall not be
eligible to be granted Rights under the Plan unless, on the Offering Date, such
Employee has been in the employ of the Company or the Affiliate, as the


                                      -4-
<PAGE>

case may be, for such continuous period preceding such grant as the Board may
require, but in no event shall the required period of continuous employment be
equal to or greater than two (2) years.

         (b)      The Board may provide that each person who, during the course
of an Offering, first becomes an Eligible Employee will, on a date or dates
specified in the Offering which coincides with the day on which such person
becomes an Eligible Employee or which occurs thereafter, receive a Right under
that Offering, which Right shall thereafter be deemed to be a part of that
Offering. Such Right shall have the same characteristics as any Rights
originally granted under that Offering, as described herein, except that:

                  (i)      the date on which such Right is granted shall be the
"Offering Date" of such Right for all purposes, including determination of the
exercise price of such Right;

                  (ii)     the period of the Offering with respect to such Right
shall begin on its Offering Date and end coincident with the end of such
Offering; and

                  (iii)    the Board may provide that if such person first
becomes an Eligible Employee within a specified period of time before the end of
the Offering, he or she will not receive any Right under that Offering.

         (c)      No Employee shall be eligible for the grant of any Rights
under the Plan if, immediately after any such Rights are granted, such Employee
owns stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company or of any Affiliate. For
purposes of this subsection 6(c), the rules of Section 424(d) of the Code shall
apply in determining the stock ownership of any Employee, and stock which such
Employee may purchase under all outstanding rights and options shall be treated
as stock owned by such Employee.

         (d)      An Eligible Employee may be granted Rights under the Plan only
if such Rights, together with any other Rights granted under all Employee Stock
Purchase Plans of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such Eligible Employee's rights to purchase
Shares of the Company or any Affiliate to accrue at a rate which exceeds twenty
five thousand dollars ($25,000) of the fair market value of such Shares
(determined at the time such Rights are granted) for each calendar year in which
such Rights are outstanding at any time.

         (e)      The Board may provide in an Offering that Employees who are
highly compensated Employees within the meaning of Section 423(b)(4)(D) of the
Code shall not be eligible to participate.

         (f)      The Board may provide in an Offering that Employees whose
customary employment is twenty (20) hours or less per week shall not be eligible
to participate.


                                      -5-
<PAGE>

         (g)      The Board may provide in an Offering that Employees whose
customary employment is for not more than five (5) months in any calendar year
shall not be eligible to participate.

7.       RIGHTS; PURCHASE PRICE.

         (a)      On each Offering Date, each Eligible Employee, pursuant to an
Offering made under the Plan, shall be granted the Right to purchase up to the
number of Shares purchasable either:

                  (i)      with a percentage designated by the Board not
exceeding fifteen percent (15%) of such Employee's Earnings (as defined by the
Board in each Offering) during the period which begins on the Offering Date (or
such later date as the Board determines for a particular Offering) and ends on
the date stated in the Offering, which date shall be no later than the end of
the Offering; or

                  (ii)     with a maximum dollar amount designated by the Board
that, as the Board determines for a particular Offering, (1) shall be withheld,
in whole or in part, from such Employee's Earnings (as defined by the Board in
each Offering) during the period which begins on the Offering Date (or such
later date as the Board determines for a particular Offering) and ends on the
date stated in the Offering, which date shall be no later than the end of the
Offering and/or (2) shall be contributed, in whole or in part, by such Employee
during such period.

         (b)      The Board shall establish one or more Purchase Dates during an
Offering on which Rights granted under the Plan shall be exercised and purchases
of Shares carried out in accordance with such Offering.

         (c)      In connection with each Offering made under the Plan, the
Board may specify a maximum amount of Shares that may be purchased by any
Participant as well as a maximum aggregate amount of Shares that may be
purchased by all Participants pursuant to such Offering. In addition, in
connection with each Offering that contains more than one Purchase Date, the
Board may specify a maximum aggregate amount of Shares which may be purchased by
all Participants on any given Purchase Date under the Offering. If the aggregate
purchase of Shares upon exercise of Rights granted under the Offering would
exceed any such maximum aggregate amount, the Board shall make a pro rata
allocation of the Shares available in as nearly a uniform manner as shall be
practicable and as it shall deem to be equitable.

         (d)      The purchase price of Shares acquired pursuant to Rights
granted under the Plan shall be not less than the lesser of:

                  (i)      an amount equal to eighty-five percent (85%) of the
fair market value of the Shares on the Offering Date; or

                  (ii)     an amount equal to eighty-five percent (85%) of the
fair market value of the Shares on the Purchase Date.


                                      -6-
<PAGE>

8.       PARTICIPATION; WITHDRAWAL; TERMINATION.

         (a)      An Eligible Employee may become a Participant in the Plan
pursuant to an Offering by delivering a participation agreement to the Company
within the time specified in the Offering, in such form as the Company provides.
Each such agreement shall authorize payroll deductions of up to the maximum
percentage specified by the Board of such Employee's Earnings during the
Offering (as defined in each Offering). The payroll deductions made for each
Participant shall be credited to a bookkeeping account for such Participant
under the Plan and deposited with the general funds of the Company. To the
extent provided in the Offering, a Participant may reduce (including to zero) or
increase such payroll deductions. To the extent provided in the Offering, a
Participant may begin such payroll deductions after the beginning of the
Offering. A Participant may make additional payments into his or her account
only if specifically provided for in the Offering and only if the Participant
has not already had the maximum permitted amount withheld during the Offering.

         (b)      At any time during an Offering, a Participant may terminate
his or her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board in the Offering. Upon such withdrawal
from the Offering by a Participant, the Company shall distribute to such
Participant all of his or her accumulated payroll deductions (reduced to the
extent, if any, such deductions have been used to acquire Shares for the
Participant) under the Offering, without interest unless otherwise specified in
the Offering, and such Participant's interest in that Offering shall be
automatically terminated. A Participant's withdrawal from an Offering will have
no effect upon such Participant's eligibility to participate in any other
Offerings under the Plan but such Participant will be required to deliver a new
participation agreement in order to participate in subsequent Offerings under
the Plan.

         (c)      Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating Employee's employment
with the Company or a designated Affiliate for any reason (subject to any
post-employment participation period required by law) or other lack of
eligibility. The Company shall distribute to such terminated Employee all of his
or her accumulated payroll deductions (reduced to the extent, if any, such
deductions have been used to acquire Shares for the terminated Employee) under
the Offering, without interest unless otherwise specified in the Offering. The
distribution shall be made from the general funds of the Company, without
interest.

         (d)      Rights granted under the Plan shall not be transferable by a
Participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in Section 15 and, otherwise during his
or her lifetime, shall be exercisable only by the person to whom such Rights are
granted.

9.       EXERCISE.

         (a)      On each Purchase Date specified therefor in the relevant
Offering, each Participant's accumulated payroll deductions and other additional
payments specifically


                                      -7-
<PAGE>

provided for in the Offering (without any increase for interest) will be applied
to the purchase of Shares up to the maximum amount of Shares permitted pursuant
to the terms of the Plan and the applicable Offering, at the purchase price
specified in the Offering. No fractional Shares shall be issued upon the
exercise of Rights granted under the Plan unless specifically provided for in
the Offering.

         (b)      Unless otherwise specifically provided in the Offering, the
amount, if any, of accumulated payroll deductions remaining in any Participant's
account after the purchase of Shares that is equal to the amount required to
purchase one or more whole Shares on the final Purchase Date of the Offering
shall be distributed in full to the Participant at the end of the Offering,
without interest. The distribution shall be made from the general funds of the
Company, without interest.

         (c)      No Rights granted under the Plan may be exercised to any
extent unless the Shares to be issued upon such exercise under the Plan
(including Rights granted thereunder) are covered by an effective registration
statement pursuant to the Securities Act and the Plan is in material compliance
with all applicable state, foreign and other securities and other laws
applicable to the Plan. If on a Purchase Date in any Offering hereunder the Plan
is not so registered or in such compliance, no Rights granted under the Plan or
any Offering shall be exercised on such Purchase Date, and the Purchase Date
shall be delayed until the Plan is subject to such an effective registration
statement and such compliance, except that the Purchase Date shall not be
delayed more than twelve (12) months and the Purchase Date shall in no event be
more than twenty-seven (27) months from the Offering Date. If, on the Purchase
Date of any Offering hereunder, as delayed to the maximum extent permissible,
the Plan is not registered and in such compliance, no Rights granted under the
Plan or any Offering shall be exercised and all payroll deductions accumulated
during the Offering (reduced to the extent, if any, such deductions have been
used to acquire Shares) shall be distributed to the Participants, without
interest unless otherwise specified in the Offering. The distribution shall be
made from the general funds of the Company, without interest.

10.      COVENANTS OF THE COMPANY.

         (a)      During the terms of the Rights granted under the Plan, the
Company shall ensure that the amount of Shares required to satisfy such Rights
are available.

         (b)      The Company shall seek to obtain from each federal, state,
foreign or other regulatory commission or agency having jurisdiction over the
Plan such authority as may be required to issue and sell Shares upon exercise of
the Rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of Shares under the Plan, the Company shall be relieved from any liability for
failure to issue and sell Shares upon exercise of such Rights unless and until
such authority is obtained.


                                      -8-
<PAGE>

11.      USE OF PROCEEDS FROM SHARES.

         Proceeds from the sale of Shares pursuant to Rights granted under the
Plan shall constitute general funds of the Company.

12.      RIGHTS AS A STOCKHOLDER.

         A Participant shall not be deemed to be the holder of, or to have any
of the rights of a holder with respect to, Shares subject to Rights granted
under the Plan unless and until the Participant's Shares acquired upon exercise
of Rights under the Plan are recorded in the books of the Company.

13.      ADJUSTMENTS UPON CHANGES IN SECURITIES.

         (a)      If any change is made in the Shares subject to the Plan, or
subject to any Right, without the receipt of consideration by the Company
(through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
nature, class(es) and maximum number of Shares subject to the Plan pursuant to
Section 4, and the outstanding Rights will be appropriately adjusted in the
nature, class(es), number of Shares and purchase limits of such outstanding
Rights. The Board shall make such adjustments, and its determination shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a transaction that does not involve the
receipt of consideration by the Company.)

         (b)      In the event of: (i) a dissolution, liquidation, or sale,
lease or other disposition of all or substantially all of the assets of the
Company; (ii) a merger or consolidation in which the Company is not the
surviving corporation; or (iii) a reverse merger in which the Company is the
surviving corporation but the Shares outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise, then: (1) any surviving or acquiring
corporation shall assume or continue Rights outstanding under the Plan or shall
substitute similar rights (including a right to acquire the same consideration
paid to stockholders in the transaction described in this subsection 13(b)) for
those outstanding under the Plan, or (2) in the event any surviving or acquiring
corporation refuses to assume or continue such Rights or to substitute similar
rights for those outstanding under the Plan, then, as determined by the Board in
its sole discretion such Rights may continue in full force and effect or the
Participants' accumulated payroll deductions (exclusive of any accumulated
interest which cannot be applied toward the purchase of Shares under the terms
of the Offering) may be used to purchase Shares immediately prior to the
transaction described in clause (i)-(iii) above under the ongoing Offering and
the Participants' Rights under the ongoing Offering thereafter shall be
terminated.


                                      -9-
<PAGE>

14.      AMENDMENT OF THE PLAN.

         (a)      The Board at any time, and from time to time, may amend the
Plan. However, except as provided in Section 13 relating to adjustments upon
changes in securities and except as to minor amendments to benefit the
administration of the Plan, to take account of a change in legislation or to
obtain or maintain favorable tax, exchange control or regulatory treatment for
Participants or the Company or any Affiliate, no amendment shall be effective
unless approved by the stockholders of the Company to the extent stockholder
approval is necessary for the Plan to satisfy the requirements of Section 423 of
the Code, Rule 16b-3 under the Exchange Act and any Nasdaq or other securities
exchange listing requirements. Currently under the Code, stockholder approval
within twelve (12) months before or after the adoption of the amendment is
required where the amendment will:

                  (i)      Increase the amount of Shares reserved for Rights
under the Plan;

                  (ii)     Modify the provisions as to eligibility for
participation in the Plan to the extent such modification requires stockholder
approval in order for the Plan to obtain employee stock purchase plan treatment
under Section 423 of the Code or to comply with the requirements of Rule 16b-3;
or

                  (iii)    Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or to comply with the
requirements of Rule 16b-3.

         (b)      It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide Employees with
the maximum benefits provided or to be provided under the provisions of the Code
and the regulations promulgated thereunder relating to Employee Stock Purchase
Plans and/or to bring the Plan and/or Rights granted under it into compliance
therewith.

         (c)      Rights and obligations under any Rights granted before
amendment of the Plan shall not be impaired by any amendment of the Plan, except
with the consent of the person to whom such Rights were granted, or except as
necessary to comply with any laws or governmental regulations, or except as
necessary to ensure that the Plan and/or Rights granted under the Plan comply
with the requirements of Section 423 of the Code.

15.      DESIGNATION OF BENEFICIARY.

         (a)      A Participant may file a written designation of a beneficiary
who is to receive any Shares and/or cash, if any, from the Participant's account
under the Plan in the event of such Participant's death subsequent to the end of
an Offering but prior to delivery to the Participant of such Shares and cash. In
addition, a Participant may file a written designation of a beneficiary who is
to receive any cash from the Participant's account under the Plan in the event
of such Participant's death during an Offering.


                                      -10-
<PAGE>

         (b)      The Participant may change such designation of beneficiary at
any time by written notice. In the event of the death of a Participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such Participant's death, the Company shall deliver such Shares
and/or cash to the executor or administrator of the estate of the Participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its sole discretion, may deliver such Shares
and/or cash to the spouse or to any one or more dependents or relatives of the
Participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.

16.      TERMINATION OR SUSPENSION OF THE PLAN.

         (a)      The Board in its discretion may suspend or terminate the Plan
at any time. Unless sooner terminated, the Plan shall terminate on the twentieth
anniversary of the effective date or at the time that all of the Shares subject
to the Plan's reserve, as increased and/or adjusted from time to time, have been
issued under the terms of the Plan whichever is earlier. No Rights may be
granted under the Plan while the Plan is suspended or after it is terminated.

         (b)      Rights and obligations under any Rights granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except as expressly provided in the Plan or with the consent of the person to
whom such Rights were granted, or except as necessary to comply with any laws or
governmental regulation, or except as necessary to ensure that the Plan and/or
Rights granted under the Plan comply with the requirements of Section 423 of the
Code.

17.      EFFECTIVE DATE OF PLAN.

         The Plan shall become effective upon the effective date of the initial
public offering the Company's Common Stock, but no Rights granted under the Plan
shall be exercised unless and until the Plan has been approved by the
stockholders of the Company within twelve (12) months before or after the date
the Plan is adopted by the Board, which date may be prior to the effective date
set by the Board.


                                      -11-
<PAGE>

                                  AEROGEN, INC.

                      EMPLOYEE STOCK PURCHASE PLAN ("ESPP")
                             ENROLLMENT/CHANGE FORM

<TABLE>
<CAPTION>

                       Action                                        Complete Sections:
                       ------                                        ------------------
<S>                    <C>                                           <C>
-------------------
SECTION 1:             / / New Enrollment                            2, 3, 6, 7
-------------------
                       / / Payroll Deduction Change                  2, 4, 7

ACTIONS                / / Withdrawal                                2, 5, 7

                       / / Beneficiary Designation                   2, 6, 7

================================================================================================================================
-------------------
SECTION 2:
-------------------
                         Name ________________________________________________________________________________________
                                  Last                          First                                MI
EMPLOYEE                 Home Address ________________________________________________________________________________
DATA                                                         Street
                         _____________________________________________________________________________________________
                                  City                       State                     Zip Code
                         Social Security #: / / / / / /- / / / / -/ / / /
================================================================================================================================
-------------------
SECTION 3:
-------------------
                       Effective:                           Payroll Deduction Amount:  _____% of Earnings (whole percentage,
NEW                    / / _______________, 200__            maximum 15%)
ENROLLMENT
                       / / Initial Offering
================================================================================================================================
-------------------
SECTION 4:
-------------------
                       Effective  _____________________,  200__,  I  authorize  the  following  new  level  of  payroll
                       deduction:   (circle one)

PAYROLL                           0%     1%      2%     3%      4%      5%        6%        7%        8%     9%      10%
DEDUCTION
CHANGE                           11%     12%     13%    14%     15%.
</TABLE>

                       I understand that I may increase or reduce my payroll
                       deductions only as of the start of the next Purchase
                       Period, PROVIDED, HOWEVER, that I may reduce my payroll
                       deduction level ONCE, AND ONLY ONCE, during a six month
                       Purchase Period, effective as soon as administratively
                       practicable (except during the ten (10)-day period
                       immediately preceding a Purchase Date). I further
                       understand that, notwithstanding the foregoing, I may
                       reduce my participation level to zero at any time during
                       the six month period ending on a Purchase Date (except
                       during the ten (10)-day period immediately preceding a
                       Purchase Date).

                       NOTE:    If you reduce your payroll deductions to zero,
                                you are still considered a participant in the
                                ESPP and your previously-collected payroll
                                deductions will be applied toward the purchase
                                of shares on the next Purchase Date. To stop
                                your payroll deductions during an Offering and
                                receive a refund of your payroll deductions,
                                complete Section 5.

================================================================================
-------------------
SECTION 5:
-------------------
                       Effective with the pay period beginning
                       _____________________, I withdraw from the ESPP. I
                       understand that my withdrawal will be effective during
                       the specified pay period if
WITHDRAWAL             administratively practicable, and may actually occur in
                       the following pay period. I also understand that I may
                       not withdraw during the ten (10)-day period immediately
                       preceding a Purchase Date.

                       Your election to withdraw from the Offering cannot be
                       changed, and you may not resume participation in the ESPP
                       prior to the commencement of the next Offering. In
                       connection with your withdrawal, your payroll deductions
                       will be refunded to you as soon as practicable, without
                       interest.

                       NOTE: If your employment terminates for any reason you
                       will immediately cease to participate in the ESPP, and
                       any payroll deductions collected and not previously used
                       to purchase stock will automatically be refunded to you
                       as soon as practicable, without interest.


================================================================================

<PAGE>

-------------------
SECTION 6:             Beneficiary            Relationship of Beneficiary
-------------------    -----------            ---------------------------

BENEFICIARY
DESIGNATION            _____________________  __________________________________

================================================================================
-------------------
SECTION 7:
-------------------

AUTHORIZATION

I hereby authorize AeroGen, Inc. to enroll me in the ESPP, to make regular
deductions in the amount indicated above, and to purchase shares for me. If I
have elected to withdraw from the ESPP, I authorize AeroGen, Inc. to distribute
my accumulated deductions to me. Any authorization for payroll deductions will
continue until canceled or changed by me in accordance with the terms of the
ESPP. Deductions will cease upon the termination of my status as an eligible
employee or termination of the ESPP or if I have elected to withdraw from the
ESPP. I agree to be bound by the terms and provisions of the ESPP, as described
in the official text of the ESPP, and any applicable offering document.


Date:_________________     Signature: __________________________________________


                                       2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>18
<FILENAME>ex-10_7.txt
<DESCRIPTION>EXHIBIT 10.7
<TEXT>

<PAGE>

                                                                   EXHIBIT 10.7


                                    SUBLEASE

1.       PARTIES. This Sublease ("Sublease") is entered into as of the 3rd
day of April 1997, by and between Aerogen, Inc., ("Sublessee"), and Microbar,
Inc., ("Sublessor"), as a Sublease under the Lease dated December 17, 1996,
("Master Lease") entered into by The Realty Associates Fund III, L.P., as
Lessor ("Master Lessor"). A copy of the Master Lease is attached hereto,
marked Exhibit "A," and incorporated herein by reference. Pursuant to the
Master Lease, Sublessor leases from Master Lessor approximately 75,000 of
space (the "Original Premises") located in those certain buildings
("Buildings") at 1310 Orleans Drive and 1252 Orleans Drive, Sunnyvale,
California. Except as otherwise expressly provided herein, any capitalized
terms used herein and not defined, shall have the same meaning as they have
in the Master Lease.

2.       PROVISIONS CONSTITUTING SUBLEASE.

         A.  This Sublease is and at all time shall be subject and
subordinate to the Master Lease. Sublessee shall take no action which would
cause Sublessor to be in default of its obligations under the Master Lease,
and Sublessee shall assume and perform all of its obligations under this
Sublease, (including those obligations of Sublessor under Master Lease that
are incorporated herein and are the obligation of Sublessee) and Sublessee
shall indemnify and hold Sublessor harmless from and against all liability,
costs, damages, claims, demands and expenses, including reasonable attorneys'
fees and costs, arising out of Sublessee's failure to do so. Sublessor shall
fully perform all of its obligations under the Master Lease (except to the
extent any of the same are the obligation of Sublessee hereunder) and shall
indemnify and hold Sublessee harmless from and against all liability, costs,
damages, claims, demands and expenses, including reasonable attorneys' fees
and costs, arising out of Sublessor's failure to do so. Each party's
obligations under this Paragraph 2.A shall survive the expiration or earlier
termination of this Sublease. Upon any termination of the Master Lease, this
Sublease shall terminate concurrently therewith except as otherwise provided
in the Consent of Landlord to Sublease and without any liability of Sublessor
to Sublessee; provided, however, that a lease termination due to Sublessor's
default of its obligations under the Master Lease or this Sublease, shall be
subject to the indemnification set forth above. Sublessor shall not enter
into any amendment or modification of the Master Lease materially adversely
affecting Sublessee's use of or right to possession of the Premises (as
defined below) without the prior written consent of Sublessee which will not
be unreasonably withheld (and except as may be specifically permitted by this
Sublease). Notwithstanding the foregoing, Sublessor shall have the right, at
its sole election, to exercise any discretionary right to terminate the
Master Lease granted Sublessor in the Master Lease as of the date hereof.

         B.  All of the terms and conditions contained in the Master Lease
which are not in conflict with the provisions of this Sublease are
incorporated herein with respect to

                                      1 of 7
<PAGE>


the Premises, except for Article 1 paragraphs 5, 6, 7, 8, 9, 10, 11, 12, 15
and 18, Article III (but excepting Section 3.7 from this exclusion), Section
4.6, Section 12.1, Article XX, Section 21.1, Exhibits A and D, and paragraphs
1 through 5.7 through 10, 11(a), 11(g) and 11 (h) of the Addendum to Lease,
as terms and conditions of this Sublease (with each reference therein to
Lessor and Lessee to be deemed to refer to Sublessor and Sublessee and each
reference therein to Commencement Date shall mean the Commencement Date as
used in this Sublease), and along with all of the following paragraphs set up
in this Sublease shall be the complete terms and conditions of this Sublease.
With respect to obligations or services to be performed or provided by Master
Lessor under the Master Lease including without limitation those set forth in
Articles IX, X, XII and XIII, Sublessee agrees Sublessor's sole obligation
shall be to exercise reasonable efforts to require Master Lessor to comply
with such obligations as provided in Section 18 hereof.

3.       PREMISES. Sublessor leases to Sublessee, and Sublessee hires from said
Sublessor, subject to the terms and conditions contained herein, approximately
25,000 square foot of space, located at 1310 Orleans Drive, Sunnyvale, County of
Santa Clara, California, (the "Premises"), as more particularly shown on Exhibit
B attached hereto.

4.       TERM.

    4.1  TERM.  The term of this Sublease shall be for a period commencing on
that date which is forty-five (45) days after the full execution of this
Sublease, and the consent thereto of Master Lessor (the "Commencement Date"),
and ending on that date which is one day prior to the third anniversary of the
Commencement Date, provided that if such date does not fall on the last day of a
calendar month the term shall be extended to the last day of such month, or such
earlier date as the Master Lease may be terminated pursuant to the terms
thereof. The parties agree to execute a writing memorializing the Commencement
Date once it has been established. Sublessee shall be obligated to accept
possession of the Premises on the Commencement Date whether or not the Tenant
Improvements (as defined herein) have been substantially completed.

    4.2  DELAY IN COMMENCEMENT.  Notwithstanding said Commencement Date, if
for any reason Sublessor cannot delivery possession of the Premises to Sublessee
on such date, Sublessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Sublease or the obligations of
Sublessee hereunder or extend the term hereof, but in such case Sublessee shall
not be obligated to pay rent until possession of the Premises is delivered to
Sublessee; provided, however, that if Sublessor shall not have delivered
possession of the Premises within thirty (30) days from such Commencement Date,
Sublessee may, at Sublessee's option, by notice in writing to Sublessor, cancel
this Sublease by providing written notice thereof to Sublessor within ten (10)
days after the expiration of the aforesaid thirty (30) day period. Effective
immediately, if this Sublease is canceled as herein provided, Sublessor shall
return any monies previously deposited by Sublessee and the parties shall be
discharged from all obligations hereunder.

    4.3  EARLY POSSESSION.  Upon full execution of this Sublease and delivery
of the Letter of Credit in accordance with Section 8 B., Sublessor shall permit
Sublessee to

                                      2 of 7
<PAGE>


occupy the Premises for the purpose of constructing the Tenant Improvements
prior to the Commencement Date subject to all of the provisions of this
Sublease except the obligation to pay rent. Such early possession shall not
advance the termination date of this Sublease.

5.       RIGHT OF FIRST REFUSAL TO EXTEND: Sublessee will have a one-time
right of first offer to extend the Sublease, if Sublessor determines that it
will not utilize the subject premises for any length of time after the
expiration date of the Sublease term. Sublessor will notify Sublessee that
the space is available, and on what terms Sublessor would be willing to
sublease the space not later than September 30, 1999. Except as modified by
any terms specifically addressed in Sublessor's Notice, the terms of the
Sublease will apply to the space. Sublessee will have 10 business days to
notify Sublessor of Sublessee's election to extend the Sublease. If Sublessee
exercises its right to sublease the space, Sublessor and Sublessee will amend
the Sublease, modify the rent and other Sublease terms affected by the
extension of the Sublease. If, however, Sublessee elects not to lease the
space or Sublessee fails to notify Sublessor of Sublessee's election to lease
the space within a 10 business-day period, Sublessor will have the right to
sublease the space to a third party without further notice to Sublessee.

6.       TENANT IMPROVEMENTS: Subject to Sublessee's satisfaction of the
condition set forth in Section 8 B. and this Section 6, Sublessor agrees to
fund $100,000 (the "Allowance") of the cost of the Tenant Improvements
described and referred to in Exhibit C attached hereto. Notwithstanding the
foregoing or anything contained herein to the contrary, Sublessor's
obligation to fund the Allowance or any portion thereof shall be subject to
the condition precedent that Sublessor receives the Allowance from Master
Lessor in accordance with the Master Lease. Provided Sublessor has received
such funds from Master Lessor, Sublessor agrees to reimburse Sublessee for
costs incurred by Sublessee to construct the Tenant Improvements described on
Exhibit C attached hereto (collectively, the "Tenant Improvements") in an
amount not to exceed $100,000, provided further that (a) prior to commencing
construction of the Tenant Improvements, Sublessee has obtained Sublessor's
and Master Lessor's approval of the Tenant Improvements and the plans and
specifications therefor in writing; (b) if requested by Master Lessor,
Sublessee has furnished Master Lessor with a lien and completion bond in form
and amount reasonably satisfactory to Sublessor and Master Lessor (provided
Sublessor may not withhold its approval if Master Lessor approves); (c)
Sublessee has entered into a contract with McClarney Construction as general
contractor for the construction of the Tenant Improvements; (d) Sublessee's
architect shall have delivered a written certificate to Sublessor that the
Tenant Improvements identified in the Request for Payment have been
substantially completed in accordance with the approved plans and
specifications; (e) Sublessor has received fully executed unconditional lien
waivers as to work which was subject of prior Request for Payments and
conditional lien waivers as to current work in the form prescribed by law
from Sublessee's contractor, all subcontractors and suppliers furnishing
labor or materials with respect to the Tenant Improvements; (f) Sublessee has
constructed the Tenant Improvements in accordance with the requirements of
the Master Lease and this Sublease, and with all applicable laws, codes,
permits, and the Americans with Disabilities Act; (g) Sublessee has furnished
its Request for Payment no later than July 3, 1997; and (h) Sublessee has
complied with the

                                      3 of 7

<PAGE>


terms of the Master Lease respecting the Tenant Improvements. All work to be
performed by Sublessee pursuant hereto shall be performed in good and
workmanlike manner using new materials. Sublessee agrees to use reasonable
efforts to complete the Tenant Improvements prior to the Commencement Date or
within a reasonable time period following the Commencement Date.

7.       RENT. Rent shall commence on the Commencement Date (as defined
herein). The monthly rent shall be payable in advance on the first day of
each calendar month as follows:

         Base Rent:

         Months 01-12 $1.40 per square foot per month NNN ($35,000.00 per month)
         Months 13-24 $1.45 per square foot per month NNN ($36,250.00 per month)
         Months 25-36 $1.50 per square foot per month NNN ($37,500.00 per month)


         Sublessee shall pay Sublessor upon the execution hereof the sum of
Thirty-five Thousand Dollars ($35,000.00) as rent for the first month of the
Term. Rent for any period during the term hereof which is less than one month
shall be a pro-rata portion of the monthly installment. In addition to base
rent, Sublessee shall pay as additional rent ("Additional Rent") within three
(3) days after demand all other amounts payable by Sublessor under the Master
Lease (other than the Monthly Rent referred to in paragraph 1.9 of the Lease)
which are incurred at the request of Sublessee or which are applicable to the
Premises. It is the intent of the parties that Sublessee shall pay all costs
and expenses relating to the Premises which arise under the Master Lease,
whether or not such costs and expenses are specifically referred to herein.

         Rent shall be payable to Sublessor in lawful money of the United
States, without prior notice, demands, or offset.

         In the event of any casualty or condemnation affecting the Premises,
rent payable by Sublessee shall be abated hereunder, but only to the extent that
rent under the Master Lease is abated with respect to the Premises. Sublessee
waives any right to terminate the Sublease in connection with such casualty or
condemnation except that to the extent such right is granted Sublessor under the
Master Lease, Sublessee shall have the same right with respect to the
termination of this Sublease.

8.       SECURITY DEPOSIT PROVISIONS.

         A. Upon the execution of this Sublease, Sublessee shall deposit with
Sublessor a cash security deposit in the amount of thirty-seven thousand five
hundred dollars ($37,500.00) (the "Security Deposit"). Sublessor may apply all
or part of the Security deposit to any unpaid rent or other charges due from
Sublessee or to cure any other defaults of Sublessee. If Sublessor uses any part
of the Security Deposit, Sublessee shall restore the Security Deposit to its
full amount within thirty (30) days after Sublessor's written request. No
interest shall be paid on the Security Deposit. Sublessor shall not be required
to keep the Security Deposit separate from its other accounts and no trust
relationship is created with respect to the Security Deposit. Sublessor shall
refund

                                      4 of 7
<PAGE>


the unused portion of the Security Deposit to Sublessee within thirty (30)
days after the expiration or earlier termination of this Sublease.

         B. In addition to the Security Deposit, Sublessee shall deliver to
Sublessor, promptly after the date that Master Lessor consents to this Sublease,
an irrevocable unconditional standby letter of credit made payable to Sublessor
in the amount of ninety thousand dollars ($90,000) (the "Letter of Credit") as
additional security for the performance of Sublessee's obligations under this
Sublease. The Letter of Credit shall be issued by a bank selected by Sublessee,
and approved by Sublessor, and shall be in form acceptable to Sublessor, with an
expiration date no less than one (1) year after issuance, and shall permit
Sublessor to draw on the Letter of Credit by presentation of a sight draft in an
amount equal to the extent of costs to cure a breach or default of this Sublease
by Sublessee, provided Sublessor has given Sublessee any notice and grace period
required under this Sublease with respect thereto. The Letter of Credit also
shall provide that if it is not renewed or replaced with a substitute letter of
credit no later than twenty (20) business days before the expiration date of the
Letter of Credit, then Sublessor may draw down the Letter of Credit. Within
thirty (30) days after the expiration or earlier termination of this Sublease or
as soon thereafter as is practical, Sublessor shall return to Sublessee the
original or replacement Letter of Credit, or so much thereof as remains after
curing any defaults of Sublessee hereunder, including without limitation, any
failure to surrender the Premises in the condition required pursuant to Section
19 hereof.

         C. Sublessor's obligations under this paragraph 8 shall survive the
expiration or earlier termination of this Sublease.

9.       SIGNAGE: Sublessee has the right to monument signage in appropriate
locations (subject to city and Master Lessor approval).

10.      USE. The Premises shall be used and occupied only for research and
development purposes, sales of medical devices and other legal related uses.

11.      BROKERS. Sublessor and Sublessee each represent and warrant to the
other that it has dealt only with CPS as brokers ("Brokers") in connection
with this Sublease transaction. Each of the Sublessor and Sublessee shall
indemnify and hold harmless the other from and against any and all claims,
liabilities, losses, damages, costs and expenses (including, without
limitation, attorneys fees) arising out of or related to any breach of such
party's representation and warranty set forth in this Paragraph 11. The
commission due to Brokers pursuant to this lease transaction shall be paid
per separate agreement by Sublessor.

12.      CONDITION OF PREMISES. Sublessee hereby accepts the Premises in their
"as-is" condition existing as of the date hereof, subject to all applicable
zoning, municipal, county and state laws, ordinances and regulations governing
and relating to the use of the Premises, and accepts this Sublease subject
thereto and to all matters disclosed thereby and by any exhibits attached
hereto.

                                      5 of 7
<PAGE>


13.      PARKING. Sublessee shall be entitled to 25% of all on-site parking
spaces provided at the Project.

14.      REPRESENTATIONS AND WARRANTIES. Sublessor hereby represents and
warrants to Sublessee as follows: the copy of the Master Lease attached
hereto as Exhibit "A" is accurate and complete; the Master Lease constitutes
the entire agreement between Master Lessor and Sublessor with respect to the
Premises; there are no defaults under the Master Lease, and to the best of
Sublessor's knowledge, no event has occurred which, with the passage of time,
the giving of notice, or both, would constitute a default under the Master
Lease; and Sublessor has not assigned or sublet the Premises to any other
party, nor has Sublessor encumbered the Premises or its leasehold estate
pursuant to the Master Lease.

15.      COUNTERPARTS. This Sublease may be signed in multiple counterparts
which, when signed by all parties, shall constitute a binding agreement.

16.      ATTORNEYS' FEES. In any action between the parties arising out of
this Sublease, the prevailing party in the action shall be entitled, in
addition to damages, injunctive relief or other relief; to its reasonable
costs and expenses including, without limitation, costs and reasonable
attorneys' fees fixed by the court.

17.      OBTAINING MASTER LESSOR'S CONSENT. Sublessor shall use commercially
reasonable efforts to obtain Master Lessor's consent to this Sublease
pursuant to the Master Lease. If Sublessor fails to so obtain Master,
Lessor's consent substantially in the form of Exhibit F attached hereto on or
before May 9, 1997, then Sublessee, at its option, shall have the right to
terminate this Sublease by delivering to Sublessor at any time thereafter
written notice of Sublessee's election, In such event, Sublessor shall
immediately return to Sublessee all amounts previously paid by Sublessee to
Sublessor under this Sublease.

18.      SUBLESSOR'S OBLIGATIONS. To the extent that the provision of any
services or the performance of any maintenance or any other act (singly
and/or collectively, "Master Lessor Obligations") is the responsibility of
Master Lessor, Sublessor, upon Sublessee's request, shall make reasonable
efforts to cause Master Lessor to perform such Master Lessor Obligations;
provided, however, that in no event shall Sublessor be liable to Sublessee
for any liability, loss or damage whatsoever in the event that Master Lessor
shall fail to perform the same, nor shall Sublessee be entitled to withhold
rent or terminate this Sublease.

         Except as provided in this paragraph 18, Sublessee acknowledges that
Sublessor is not in a position to furnish the services set forth in the Master
Lease, obtain a nondisturbance agreement, or to perform certain other
obligations which are not within Sublessor's control, including without
limitation, maintenance, repairs and replacements, compliance with laws, and
restoration of the Premises or Buildings after casualty or condemnation.
Notwithstanding anything to the contrary contained therein, Sublessee agrees to
look solely to the Master Lessor to furnish and perform all services and
obligations of Master Lessor under the Master Lease.

                                      6 of 7
<PAGE>


19.      SURRENDER OF PREMISES. Notwithstanding anything in the Sublease or
Master Lease to the contrary, Sublessee agrees to surrender the Premises at
or upon the expiration or termination of this Sublease in shell condition
with all Tenant Improvements demolished and free of debris, as more
particularly described in Exhibit D attached hereto.

SUBLESSOR:  MICROBAR, INC.                       SUBLESSEE:  AEROGEN, INC.

By:  /S/ James D. Paradee                        By:  /S/ Andrew Heath
   ----------------------------                     ----------------------------
Title:  C.F.O                                    Title:  C.E.O
      -------------------------                        -------------------------
Date: 4/25/97                                    Date: 4/25/97
     --------------------------                       --------------------------


CONSENT BY MASTER LESSOR:  See attached Exhibit F.

Exhibit A -       Master Lease
Exhibit B -       Premises
Exhibit C -       Tenant Improvements
Exhibit D -       Sublessee's Surrender Obligations
Exhibit E -       Sublessee's Environmental Questionnaire
Exhibit F -       Consent of Master Lessor

                                     7 of 7
<PAGE>



                               AMENDMENT NO. 1 TO

                                    SUBLEASE

This Amendment No. 1 ("Amendment No. 1") dated for reference purposes only July
1, 1999 amends as set forth below that certain Sublease, dated as of April 3,
1997 (the "Sublease") by and between MICROBAR, INC. ("Sublessor") and AEROGEN,
INC. ("Sublessee"). Capitalized terms not defined herein shall have the same
meaning as defined in the Sublease unless the context requires otherwise.

NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, Sublessor and Sublessee covenant and agree as follows:

                                    AGREEMENT

1)     Sublessor and Sublessee hereby agree to the following modifications to
       the Sublease.

       a)     SECTION 4.1. TERM is hereby amended so that the expiration date of
              the Sublease shall be December 31, 2001.

       b)     Section 5. Right Of First Offer To Extend is hereby amended to
              read as follows:

              "If Sublessor does not need of the Premises for its own business
              purposes, which need shall be determined in Sublessor's sole and
              absolute discretion (i.e. if the space becomes available to lease
              to any third party), then Sublessee will have a one-time right of
              first offer to extend the term of this Sublease for a period of
              one (1) year. If Sublessor will not need the Premises beyond the
              initial term hereof, Sublessor will notify Sublessee on or prior
              to May 30, 2001 that the space will become available, and on what
              terms Sublessor would be willing to sublease the space. Except as
              modified by any terms specifically addressed in Sublessor's
              Notice, the terms of the Sublease will apply to the space.
              Sublessee will have 30 business days to notify Sublessor of
              Sublessee's election to extend the Sublease. If Sublessee
              exercises its right to sublease the space, Sublessor and Sublessee
              will amend the Sublease, modify the rent and other Sublease terms
              affected by the extension of the Sublease. If, however, Sublessee
              elects not to lease the space or Sublessee fails to notify
              Sublessor of Sublessee's election to lease the space within a 30
              business-day period, Sublessor will have the right to sublease the
              space to a third party without further notice to Sublessee. In the
              event that Sublessor does not notify Sublessee on or prior to May
              30, 2001 that the space will become available, then Sublessee
              shall have no further rights hereunder."

       c)     SECTION 7. RENT is hereby amended to read as follows:

                                       1
<PAGE>

<TABLE>
<CAPTION>
<S>                                        <C>
             Months 01-12                  $1.40 per square foot per month NNN ($35,000.00 per month)
             Months 13-24                  $1.45 per square foot per month NNN ($36,250.00 per month)
             Months 25-36                  $1.50 per square foot per month NNN ($37,500.00 per month)
             Months 37-48                  $1.55 per square foot per month NNN ($38,750.00 per month)
             Months 49- expiration         $1.60 per square foot per month NNN ($40,000.00 per month)
</TABLE>

       d)     Section 8.B. is hereby amended to that if there has been no
              default under this Sublease, then upon the natural expiration of
              the Letter of Credit in effect at the time of this Amendment, the
              amount required for a replacement Letter of Credit shall be
              seventy thousand dollars ($70,000.00).

       e)     SECTION 19. SURRENDER OF PREMISES is hereby amended to read as
              follows:

              "Notwithstanding anything in the Sublease or Master Lease to the
              contrary, at or upon the expiration or earlier termination of this
              Sublease, Sublessee agrees to surrender (i) the lab/manufacturing
              area of the Premises (as shown in Exhibit A) in shell condition
              with all Tenant Improvements demolished and free of debris, if so
              requested by Sublessor and otherwise in its as-improved condition,
              less lab cabinets (ii) the office portion of the Premises in its
              as-improved condition."

       f)     SECTION 20. CROSS DEFAULT. is hereby added and shall read as
              follows:

              "Any default hereunder shall also be deemed to be a default under
              that certain sublease by and between Sublessor and Sublessee for
              those certain premises located at 1306 Orleans Drive, dated as of
              July 1, 1999."

2)     Except as set forth in this Amendment No. 1, the Sublease continues in
       full force and effect according to its terms.

IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 as of the
date set forth above.

SUBLESSOR:  MICROBAR, INC.                       SUBLESSEE:  AEROGEN, INC.

By:  /S/ Bruce M. Juhdlo                         By:  /S/ Jane E. Shaw
   ----------------------------                     ----------------------------
            (signature)                                       (signature)

By:  BRUCE M. JUHDLO                             By:  JANE E. SHAW
   ----------------------------                     ----------------------------
          (printed name)                                    (printed name)

Its:  C.E.O                                      Its:  C.E.O.
   ----------------------------                     ----------------------------

                                       2
<PAGE>

                            CONSENT OF MASTER LESSOR

THE REALTY ASSOCIATES FUND III, L.P., the Master Lessor under the Sublease
hereby consents to the foregoing Amendment No. 1 to the Sublease.

Master Lessor:

THE REALTY ASSOCIATES FUND III, L.P.

By:
   ------------------------------------------
                  (signature)

Name:
     ----------------------------------------
Title:
      ---------------------------------------
Date:
     ----------------------------------------


                                       3
<PAGE>


                         EXHIBIT A - AMENDMENT TO LEASE

                               1310 ORLEANS DRIVE




                                   [GRAPHIC]




                                        4
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.8
<SEQUENCE>19
<FILENAME>ex-10_8.txt
<DESCRIPTION>EXHIBIT 10.8
<TEXT>

<PAGE>

                                                                    EXHIBIT 10.8


                                    SUBLEASE


1. PARTIES. This Sublease ("Sublease") is entered into as of the 9th day of
August 1999, by and between Aerogen, Inc., ("Sublessee"), and Microbar, Inc.,
("Sublessor"), as a Sublease under the Lease dated December 17, 1996, entered
into by The Realty Associates Fund III, L.P., as Lessor ("Master Lessor"), as
amended by that certain Amendment dated as of April 28, 1999 expanding the
Premises (as defined thereunder) to include 1306 Orleans Drive ("Master Lease").
Sublessor warrants that there have been no changes to the terms of the Master
Lease, with the exception of creating "The Third Amendment to Lease", a copy of
which is attached hereto, marked Exhibit "A" and incorporated by reference.
Pursuant to the Master Lease, Sublessor leases from Master Lessor approximately
98,500 of space (the "Original Premises") located in those certain buildings
("Buildings") at 1306 Orleans Drive, 1310 Orleans Drive and 1252 Orleans Drive,
Sunnyvale, California. Except as otherwise expressly provided herein, any
capitalized terms used herein and not defined, shall have the same meaning as
they have in the Master Lease.

2.       PROVISIONS CONSTITUTING SUBLEASE.

         A. This Sublease is and at all time shall be subject and subordinate to
the Master Lease. Sublessee shall take no action which would cause Sublessor to
be in default of its obligations under the Master Lease, and Sublessee shall
assume and perform all of its obligations under this Sublease, (including those
obligations of Sublessor under Master Lease that are incorporated herein and are
the obligation of Sublessee) and Sublessee shall indemnify and hold Sublessor
harmless from and against all liability, costs, damages, claims, demands and
expenses, including reasonable attorneys' fees and costs, arising out of
Sublessee's failure to do so. Sublessor shall fully perform all of its
obligations under the Master Lease (except to the extent any of the same are the
obligation of Sublessee hereunder) and shall indemnify and hold Sublessee
harmless from and against all liability, costs, damages, claims, demands and
expenses, including reasonable attorneys' fees and costs, arising out of
Sublessor's failure to do so. Each party's obligations under this Paragraph 2.A
shall survive the expiration or earlier termination of this Sublease. Upon any
termination of the Master Lease, this Sublease shall terminate concurrently
therewith except as otherwise provided in the Consent of Landlord to Sublease
and without any liability of Sublessor to Sublessee; provided, however, that a
lease termination due to Sublessor's default of its obligations under the Master
Lease or this Sublease, shall be subject to the indemnification set forth above.
Sublessor shall not enter into any amendment or modification of the Master Lease
materially adversely affecting Sublessee's use of or right to possession of the
Premises (as defined below) without the prior written consent of Sublessee which
will not be unreasonably withheld (and except as may be specifically permitted
by this Sublease). Notwithstanding the foregoing, Sublessor shall have the
right, at its sole election, to exercise any discretionary right to terminate
the Master Lease granted Sublessor in the Master Lease as of the date hereof.

                                      1.
<PAGE>


         B. All of the terms and conditions contained in the Master Lease which
are not in conflict with the provisions of this Sublease are incorporated herein
with respect to the Premises, except for Article 1 paragraphs 5, 6, 7, 8, 9, 10,
11, 12, 15 and 18, Article III (but excepting Section 3.7 from this exclusion),
Section 4.6, Section 12.1, Article XX, Section 21.1, Exhibits A and D, and
paragraphs 1 through 5.7 through 10, 11(a), 11(g) and 11 (h) of the Addendum to
Lease, as terms and conditions of this Sublease (with each reference therein to
Lessor and Lessee to be deemed to refer to Sublessor and Sublessee and each
reference therein to Commencement Date shall mean the Commencement Date as used
in this Sublease), and along with all of the following paragraphs set up in this
Sublease shall be the complete terms and conditions of this Sublease. With
respect to obligations or services to be performed or provided by Master Lessor
under the Master Lease including without limitation those set forth in Articles
IX, X, XII and XIII, Sublessee agrees Sublessor's sole obligation shall be to
exercise reasonable efforts to require Master Lessor to comply with such
obligations as provided in Section 18 hereof.

3. PREMISES. Sublessor leases to Sublessee, and Sublessee hires from said
Sublessor, subject to the terms and conditions contained herein, approximately
13,395 rentable square foot of space, located at 1306 Orleans Drive, Sunnyvale,
County of Santa Clara, California, (the "Premises"), as more particularly shown
on Exhibit B attached hereto. Sublessor and Sublessee hereby agree that the
above statement of rentable square footage, is an approximation which both
parties agree is reasonable and Sublessee's obligations herein are not subject
to revision whether or not the actual square footage is more or less.

4.       TERM.

     4.1 TERM. The term of this Sublease shall commence on the later to occur of
(i) August 1, 1999 or (ii) the consent of the Master Lessor to this Sublease
(the "Commencement Date"), and shall expire on December 31, 2001 or such earlier
date as the Master Lease may be terminated pursuant to the terms thereof.
Sublessee shall be obligated to accept possession of the Premises on the
Commencement Date whether or not the Tenant Improvements (as defined herein)
have been substantially completed.

     4.2 DELAY IN COMMENCEMENT. Notwithstanding said Commencement Date, if for
any reason Sublessor cannot delivery possession of the Premises to Sublessee on
such date, Sublessor shall not be subject to any liability therefor, nor shall
such failure affect the validity of this Sublease or the obligations of
Sublessee hereunder or extend the term hereof, but in such case Sublessee shall
not be obligated to pay rent until possession of the Premises is delivered to
Sublessee; provided, however, that if Sublessor shall not have delivered
possession of the Premises by November 1, 1999, Sublessee may, at Sublessee's
option, by notice in writing to Sublessor, cancel this Sublease by providing
written notice thereof to Sublessor within ten (10) days after the expiration of
the aforesaid thirty (30) day period. Effective immediately, if this Sublease is
canceled as herein provided, Sublessor shall return any monies previously
deposited by Sublessee and the parties shall be discharged from all obligations
hereunder.

     4.3 EARLY POSSESSION. Subject to full execution of this Sublease and
delivery of all required insurance and the security deposit in accordance with
Section 8, Sublessor shall use good faith effort to allow Sublessee to occupy
the Premises for the purpose of constructing the Tenant Improvements prior to
the Commencement Date subject to all of the provisions of this

                                      2.
<PAGE>


Sublease except the obligation to pay rent. Such early possession shall not
advance the termination date of this Sublease.

5. RIGHT OF FIRST OFFER TO EXTEND: If Sublessor does not need of the Premises
for its own business purposes, which need shall be determined in Sublessor's
sole and absolute discretion (i.e. if the space becomes available to lease to
any third party), then Sublessee will have a one-time right of first offer to
extend the term of this Sublease for a period of one (1) year. If Sublessor will
not need the Premises beyond the initial term hereof, Sublessor will notify
Sublessee on or prior to May 30, 2001 that the space will become available, and
on what terms Sublessor would be willing to sublease the space. Except as
modified by any terms specifically addressed in Sublessor's Notice, the terms of
the Sublease will apply to the space. Sublessee will have 30 calendar days to
notify Sublessor of Sublessee's election to extend the Sublease. If Sublessee
exercises its right to sublease the space, Sublessor and Sublessee will amend
the Sublease, modify the rent and other Sublease terms affected by the extension
of the Sublease. If, however, Sublessee elects not to lease the space or
Sublessee fails to notify Sublessor of Sublessee's election to lease the space
within a 30 calendar-day period, Sublessor will have the right to sublease the
space to a third party without further notice to Sublessee. In the event that
Sublessor does not notify Sublessee on or prior to May 30, 2001 that the space
will become available, then Sublessee shall have no further rights hereunder.

6. TENANT IMPROVEMENTS: Subject to Sublessee's satisfaction of the condition set
forth in Section 8 B. and this Section 6, Sublessor agrees to fund $75,000 (the
"Allowance") of the cost of the Tenant Improvements. Notwithstanding the
foregoing or anything contained herein to the contrary, Sublessor's obligation
to fund the Allowance or any portion thereof shall be subject to the condition
precedent that Sublessor receives the Allowance from Master Lessor in accordance
with the Master Lease. Provided Sublessor has received such funds from Master
Lessor, Sublessor agrees to reimburse Sublessee for costs incurred by Sublessee
to construct the Tenant Improvements (collectively, the "Tenant Improvements")
in an amount not to exceed $75,000, provided further that (a) prior to
commencing construction of the Tenant Improvements, Sublessee has obtained
Sublessor's and Master Lessor's approval of the Tenant Improvements and the
plans and specifications therefor in writing; (b) if requested by Master Lessor,
Sublessee has furnished Master Lessor with a lien and completion bond in form
and amount reasonably satisfactory to Sublessor and Master Lessor (provided
Sublessor may not withhold its approval if Master Lessor approves); (c)
Sublessee has entered into a contract with a general contractor, approved by the
Master Lessor for the construction of the Tenant Improvements; (d) Sublessee's
architect shall have delivered a written certificate to Sublessor that the
Tenant Improvements identified in the Request for Payment have been
substantially completed in accordance with the approved plans and
specifications; (e) Sublessor has received fully executed unconditional lien
waivers as to work which was subject of prior Request for Payments and
conditional lien waivers as to current work in the form prescribed by law from
Sublessee's contractor, all subcontractors and suppliers furnishing labor or
materials with respect to the Tenant Improvements; (f) Sublessee has constructed
the Tenant Improvements in accordance with the requirements of the Master Lease
and this Sublease, and with all applicable laws, codes, permits, and the
Americans with Disabilities Act; (g) Sublessee has furnished its Request for
Payment no later than eleven (11) months following the Commencement Date; and
(h) Sublessee has complied with the terms of the Master Lease respecting the
Tenant Improvements. All work to be performed by Sublessee pursuant hereto shall
be performed in

                                      3.
<PAGE>


good and workmanlike manner using new materials. In addition to the
Allowance, Sublessor shall make available to Sublessee the additional sum of
$50,000 if requested by Sublessee (the "Additional Allowance"). Such amount
shall be paid back to Sublessor over the term hereof as additional rent
amortized at a rate of ten percent (10%) per annum.

7. RENT. Rent shall commence thirty (30) days following the Commencement Date
(as defined herein). The monthly rent shall be payable in advance on the first
day of each calendar month as follows:

      Base Rent:

      Months 01-12           $21,432.00 per month ($1.60/foot/month NNN)
      Months 13-24           $22,289.00 per month ($1.66/foot/month NNN)
      Months 25-expiration   $23,181.00 per month ($1.73/foot/month NNN)

         Sublessee shall pay Sublessor upon the execution hereof the sum of
Twenty One Thousand Four Hundred Thirty Two Dollars ($21,432.00) as rent for the
first month of the Term. Rent for any period during the term hereof which is
less than one month shall be a pro-rata portion of the monthly installment. In
addition to base rent, Sublessee shall pay as additional rent ("Additional
Rent") within three (3) days after demand all other amounts payable by Sublessor
under the Master Lease (other than the Monthly Rent referred to in paragraph 1.9
of the Lease) which are incurred at the request of Sublessee or which are
applicable to the Premises. It is the intent of the parties that Sublessee shall
pay all costs and expenses relating to the Premises which arise under the Master
Lease, whether or not such costs and expenses are specifically referred to
herein.

         Rent shall be payable to Sublessor in lawful money of the United
States, without prior notice, demands, or offset.

         In the event of any casualty or condemnation affecting the Premises,
rent payable by Sublessee shall be abated hereunder, but only to the extent that
rent under the Master Lease is abated with respect to the Premises. Sublessee
waives any right to terminate the Sublease in connection with such casualty or
condemnation except that to the extent such right is granted Sublessor under the
Master Lease, Sublessee shall have the same right with respect to the
termination of this Sublease.

8. SECURITY DEPOSIT PROVISIONS. Upon the execution of this Sublease, Sublessee
shall deposit with Sublessor a cash security deposit in the amount of Twenty
Thousand Ninety Two and 50/100 dollars ($20,092.50) (the "Security Deposit").
Sublessor may apply all or part of the Security deposit to any unpaid rent or
other charges due from Sublessee or to cure any other defaults of Sublessee. If
Sublessor uses any part of the Security Deposit, Sublessee shall restore the
Security Deposit to its full amount within thirty (30) days after Sublessor's
written request. No interest shall be paid on the Security Deposit. Sublessor
shall not be required to keep the Security Deposit separate from its other
accounts and no trust relationship is created with respect to the Security
Deposit. Sublessor shall refund the unused portion of the Security Deposit to
Sublessee within thirty (30) days after the expiration or earlier termination of
this Sublease.

                                      4.
<PAGE>


9. SIGNAGE: Sublessee has the right to monument signage in appropriate locations
(subject to city and Master Lessor approval).

10. USE. The Premises shall be used and occupied only for the purposes allowed
pursuant to the Master Lease, including: manufacturing and assembly, research
and development, storage and distribution, and office.

11. BROKERS. Sublessor and Sublessee each represent and warrant to the other
that it has dealt with no brokers ("Brokers") in connection with this Sublease
transaction. Each of the Sublessor and Sublessee shall indemnify and hold
harmless the other from and against any and all claims, liabilities, losses,
damages, costs and expenses (including, without limitation, attorneys fees)
arising out of or related to any breach of such party's representation and
warranty set forth in this Paragraph 11.

12. CONDITION OF PREMISES. Sublessee hereby accepts the Premises in their
"as-is" condition existing as of the date hereof, subject to all applicable
zoning, municipal, county and state laws, ordinances and regulations governing
and relating to the use of the Premises, and accepts this Sublease subject
thereto and to all matters disclosed thereby and by any exhibits attached
hereto.

13. PARKING. Sublessee shall be entitled to its proportionate share of all such
parking rights as Sublessor may have pursuant to the Master Lease.

14. REPRESENTATIONS AND WARRANTIES. Sublessor hereby represents and warrants to
Sublessee as follows: the Master Lease, including amendments, constitutes the
entire agreement between Master Lessor and Sublessor with respect to the
Premises; there are no defaults under the Master Lease, and to the best of
Sublessor's knowledge, no event has occurred which, with the passage of time,
the give of notice, or both, would constitute a default under the Master Lease;
and Sublessor has not assigned or sublet the Premises to any other party, nor
has Sublessor encumbered the Premises or its leasehold estate pursuant to the
Master Lease.

15. COUNTERPARTS. This Sublease may be signed in multiple counterparts which,
when signed by all parties, shall constitute a binding agreement.

16. ATTORNEY'S FEES. In any action between the parties arising out of this
Sublease, the prevailing party in the action shall be entitled, in addition to
damages, injunctive relief or other relief; to its reasonable costs and expenses
including, without limitation, costs and reasonable attorneys' fees fixed by the
court.

17. OBTAINING MASTER LESSOR'S CONSENT. Sublessor shall use commercially
reasonable efforts to obtain Master Lessor's consent to this Sublease pursuant
to the Master Lease.

18. SUBLESSOR'S OBLIGATIONS. To the extent that the provision of any services or
the performance of any maintenance or any other act (singly and/or collectively,
"Master Lessor Obligations") is the responsibility of Master Lessor, Sublessor,
upon Sublessee's request, shall make reasonable efforts to cause Master Lessor
to perform such Master Lessor Obligations; provided, however, that in no event
shall Sublessor be liable to Sublessee for any liability, loss or

                                      5.
<PAGE>


damage whatsoever in the event that Master Lessor shall fail to perform the
same, nor shall Sublessee be entitled to withhold rent or terminate this
Sublease.

         Except as provided in this paragraph 18, Sublessee acknowledges that
Sublessor is not in a position to furnish the services set forth in the Master
Lease, obtain a nondisturbance agreement, or to perform certain other
obligations which are not within Sublessor's control, including without
limitation, maintenance, repairs and replacements, compliance with laws, and
restoration of the Premises or Buildings after casualty or condemnation.
Notwithstanding anything to the contrary contained therein, Sublessee agrees to
look solely to the Master Lessor to furnish and perform all services and
obligations of Master Lessor under the Master Lease.

19. SURRENDER OF PREMISES. Notwithstanding anything in the Sublease or Master
Lease to the contrary, at or upon the expiration or earlier termination of this
Sublease, Sublessee agrees to surrender (i) any lab/manufacturing area of the
Premises in shell condition with all Tenant Improvements demolished and free of
debris if so requested by Sublessor, and otherwise in its as-improved condition
less lab cabinets, and (ii) the office portion of the Premises in its
as-improved condition.

20. CROSS DEFAULT. Any default hereunder shall also be deemed to be a default
under that certain sublease by and between Sublessor and Sublessee for those
certain premises located at 1310 Orleans Drive, dated as of April 3, 1997.

21. RIGHT OF FIRST REFUSAL. In the event that the premises currently subleased
by Control Data Systems, Inc. which is adjacent to the Premises becomes
available for sublease to the general public during the term of this Sublease,
Sublessor shall notify Sublessee of such availability and the terms and
conditions on which Sublessor will lease the space. Sublessee shall have thirty
(30) calendar days in which to notify Sublessor of Sublessee's decision to lease
the space under the terms and conditions contained in Sublessor's notice. In the
event that Sublessee does not give such notice to Sublessor, then Sublessee
shall have no further right to lease the space and Sublessor shall be free to
lease the space to any other person or entity on any terms and conditions as
Sublessor in its sole discretion deems appropriate.

22. UTILITIES. Notwithstanding anything to the contrary contained in section 7.7
of the Master Lease as incorporated herein, Sublessor shall contract for
electrical, water and sewage service for the building located at 1306 Orleans of
which the Premises are a part. Sublessee shall be responsible for and shall pay
promptly for its pro-rata share of all such utilities. Sublessee may, with the
approval of the Master Lessor, arrange to split utilities among subtenants, if
any, if practicable.

23. ASSIGNMENT AND SUBLETTING. Any assignment or subletting shall be subject to
the terms and conditions of the Master Lease, and Subtenant shall not take any
such action until it obtains the consent of the Master Lessor, as may be
required.

                                      6.
<PAGE>


SUBLESSOR:  MICROBAR, INC.             SUBLESSEE:  AEROGEN, INC.

By: /s/ Bruce M. Juhdlo                  By: /s/ Jane E. Shaw
   --------------------------------         --------------------------------
Title: C.E.O                             Title: C.E.O
      -----------------------------            -----------------------------
Date: 8/6/99                             Date: 8/9/99
     ------------------------------           ------------------------------

Exhibit A -   Third Amendment to Master Lease
Exhibit B -   Premises
Exhibit C -   Consent of Master Lessor


                                        7.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9
<SEQUENCE>20
<FILENAME>ex-10_9.txt
<DESCRIPTION>EXHIBIT 10.9
<TEXT>

<PAGE>

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

                                                                   EXHIBIT 10.9

                              AEROGEN/PATHOGENESIS

                    PRODUCT DEVELOPMENT AND SUPPLY AGREEMENT

                                JANUARY 20, 2000

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                               PAGE

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

2.       DEVELOPMENT OF INHALER...................................................................................5

         2.1      Development of Clinical Test Inhaler............................................................5

         2.2      Development of Inhaler..........................................................................5

         2.3      Reporting.......................................................................................5

         2.4      Subcontracting..................................................................................5

         2.5      Delivery........................................................................................5

         2.6      Regulatory Cooperation..........................................................................5

         2.7      Facilities Access...............................................................................6

         2.8      License Grants..................................................................................6

                  2.8.1    Ampoules...............................................................................6

                  2.8.2    Inhaler Products and Adapters..........................................................6

                  2.8.3    Contingent License to Manufacture......................................................6

                  2.8.4    Aminoglycosides........................................................................6

                  2.8.5    Rights Retained by AeroGen.............................................................7

                  2.8.6    [*] for European Community.............................................................7

                  2.8.7    [*] for United States..................................................................8

                  2.8.8    Research Regarding Other PathoGenesis Products.........................................8

                  2.8.9    Further Licenses.......................................................................8

3.       DEVELOPMENT OF THE INHALER...............................................................................8

         3.1      Joint Development Team..........................................................................8

                  3.1.1    Formation; Purpose.....................................................................8

                  3.1.2    Membership.............................................................................8

                  3.1.3    Meetings...............................................................................9

                  3.1.4    Chairpersons...........................................................................9

                  3.1.5    Decision-Making........................................................................9

                  3.1.6    Dispute Resolution.....................................................................9

                  3.1.7    Limitation of Powers...................................................................9

         3.2      Liaisons........................................................................................9

         3.3      Payment for Development Activities..............................................................9

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


                                       i.
<PAGE>

                                TABLE OF CONTENTS
                                   (CONTINUED)

<CAPTION>
                                                                                                               PAGE
<S>                                                                                                            <C>
         3.4      Fees in Excess of Development Cost Limit.......................................................10

         3.5      Invoices.......................................................................................10

4.       DEVELOPMENT AND DELIVERY OF THE DRUG PRODUCT............................................................11

         4.1      Development....................................................................................11

         4.2      Delivery.......................................................................................11

5.       CLINICAL SUPPLY AND TESTING.............................................................................11

         5.1      Delivery of Clinical Supply....................................................................11

         5.2      Ampoule for Clinical Testing...................................................................11

         5.3      Testing and Acceptance.........................................................................11

         5.4      Ownership of Data..............................................................................11

6.       REGULATORY OBLIGATIONS AND COMMERCIALIZATION............................................................12

         6.1      Commercialization of the Product...............................................................12

         6.2      Regulatory Filings for the Products............................................................12

7.       COMMERCIAL MANUFACTURE AND SUPPLY OF THE INHALER........................................................13

         7.1      Manufacturing and Delivery.....................................................................13

         7.2      Quality and Acceptance.........................................................................13

         7.3      Subcontracting.................................................................................13

         7.4      Forecasts and Purchase Order...................................................................14

         7.5      Delivery.......................................................................................14

         7.6      Payments to Third Parties......................................................................14

         7.7      Facilities Access and Regulatory Inspections...................................................14

         7.8      Use of Trademarks on Products..................................................................15

         7.9      Title and Risk of Loss.........................................................................15

         7.10     Product Insurance..............................................................................15

8.       PAYMENTS FOR THE MANUFACTURED INHALER PRODUCTS..........................................................15

         8.1      Inhaler Transfer Price.........................................................................15

         8.2      Invoicing......................................................................................16

9.       ROYALTY.................................................................................................16

         9.1      Royalty Payments by PathoGenesis for Products..................................................16

         9.2      Minimum Royalty................................................................................16

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


                                      ii.
<PAGE>

                                TABLE OF CONTENTS
                                   (CONTINUED)

<CAPTION>
                                                                                                               PAGE
<S>                                                                                                            <C>
         9.3      Royalty Term...................................................................................17

         9.4      Royalty Reports................................................................................17

         9.5      Reduction of Royalties.........................................................................17

         9.6      Books and Records..............................................................................18

         9.7      Inspection.....................................................................................18

         9.8      Withholding Tax................................................................................18

         9.9      Marking........................................................................................18

10.      INTELLECTUAL PROPERTY...................................................................................19

         10.1     Inhaler Ownership..............................................................................19

         10.2     Drug Product Ownership.........................................................................19

         10.3     Cooperation....................................................................................19

11.      EQUITY PURCHASE.........................................................................................19

12.      CONFIDENTIALITY.........................................................................................19

         12.1     Use of Confidential Information................................................................19

         12.2     Confidentiality and Non-use....................................................................20

         12.3     Exclusions.....................................................................................20

         12.4     Confidentiality Agreements.....................................................................20

         12.5     Publicity - Results............................................................................20

         12.6     Publicity - Terms of Agreement.................................................................20

         12.7     Publicity - Press Releases.....................................................................21

         12.8     Publicity - Use of Parties' Names..............................................................21

13.      ADVERSE INFORMATION AND EVENT REPORTING.................................................................21

         13.1     Notification...................................................................................21

         13.2     Product Recalls................................................................................21

14.      REPRESENTATIONS AND WARRANTIES..........................................................................21

         14.1     AeroGen Representations and Warranties.........................................................22

         14.2     PathoGenesis Representations and Warranties....................................................23

15.      INDEMNIFICATION AND INSURANCE...........................................................................23

         15.1     Indemnification of AeroGen.....................................................................23

         15.2     Indemnification of PathoGenesis................................................................24


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


                                      iii.
<PAGE>

                                TABLE OF CONTENTS
                                   (CONTINUED)

<CAPTION>
                                                                                                               PAGE
<S>                                                                                                            <C>
         15.3     Insurance......................................................................................24

         15.4     Limitation of Damages..........................................................................24

         15.5     AeroGen's Right to Prosecute Infringements.....................................................25

         15.6     PathoGenesis' Option to Prosecute Infringements................................................25

16.      DISPUTE RESOLUTION......................................................................................26

         16.1     Negotiation....................................................................................26

         16.2     Mediation......................................................................................26

         16.3     Arbitration....................................................................................26

         16.4     Injunctive Relief..............................................................................27

17.      TERM AND TERMINATION....................................................................................27

         17.1     Term...........................................................................................27

         17.2     Termination for Breach.........................................................................27

         17.3     Termination for Cause..........................................................................27

         17.4     Termination Without Cause......................................................................27

         17.5     Effects of Termination.........................................................................27

                  17.5.1   Sales After Termination...............................................................27

                  17.5.2   Noncancellable Costs..................................................................28

         17.6     Survival.......................................................................................28

         17.7     Rights in Bankruptcy...........................................................................28

18.      MISCELLANEOUS...........................................................................................28

         18.1     Entire Agreement...............................................................................28

         18.2     Notices........................................................................................28

         18.3     Governing Law..................................................................................29

         18.4     Assignability..................................................................................29

         18.5     Waivers and Amendments.........................................................................29

         18.6     Severability...................................................................................29

         18.7     Section Headings...............................................................................30

         18.8     Counterparts...................................................................................30

         18.9     Further Assurances.............................................................................30

         18.10    Force Majeure..................................................................................30

</TABLE>

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


                                      iv.
<PAGE>

                                TABLE OF CONTENTS
                                   (CONTINUED)
<TABLE>
<CAPTION>
                                                                                                               PAGE
<S>                                                                                                            <C>
         18.11    Compliance of Law..............................................................................30

         18.12    Confidentiality of Terms of Agreement..........................................................30

         18.13    Relationship of the Parties....................................................................30

         18.14    Binding Agreement..............................................................................30

         18.15    Books and Records..............................................................................30


Exhibit A         Specification for Inhaler

Exhibit B         Schedule

Exhibit C         AeroGen Patent Rights

Schedule 14.1(h)
</TABLE>


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


                                       v.
<PAGE>

                              AEROGEN/PATHOGENESIS

                    PRODUCT DEVELOPMENT AND SUPPLY AGREEMENT

         THIS PRODUCT DEVELOPMENT AND SUPPLY AGREEMENT ("Agreement") is entered
into and effective as of January 20, 2000 (the "Effective Date"), between
AEROGEN, INC. a Delaware corporation with a principal place of business at 1310
Orleans Drive, Sunnyvale, California 94089 ("AeroGen"), and PATHOGENESIS
CORPORATION, a Delaware corporation with a principal place of business at 201
Elliott Avenue West, Suite 150, Seattle, Washington 98119 ("PathoGenesis").

                                    RECITALS

         WHEREAS, PathoGenesis has the expertise and experience to undertake the
development, manufacture and commercialization of antiinfective drugs and has
developed and is selling tobramycin, an antiinfective in the aminoglycoside
class.

         WHEREAS, AeroGen has in development, and has the expertise and
experience to undertake further development, manufacture and supply of, a drug
delivery inhaler for the delivery of a liquid containing drug molecules; and

         WHEREAS, PathoGenesis and AeroGen desire to initially develop and
commercialize such new drug delivery inhaler for the delivery of tobramycin, on
the terms and conditions set forth herein.

                                    AGREEMENT

         In consideration of the recitals set forth above, the mutual covenants,
terms and conditions set forth below, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, AeroGen and
PathoGenesis agree as follows:

1.       DEFINITIONS

         As used in this Agreement, the following terms shall have the following
meanings:

         "ADAPTER" means one or more customized components which enable the
Ampoule to interfit or co-act with the Dispenser, as described in Exhibit A.

         "AEROGEN INHALER" means that mechanism, which aerosolizes liquids
containing drug molecules for inhalation delivery to the human respiratory
tract, under development by AeroGen as of the Effective Date, for
commercialization by AeroGen and use in conjunction with the delivery of certain
drugs outside the Field.

         "AEROGEN'S INHALATION INTELLECTUAL PROPERTY" means AeroGen's Patent
Rights, AeroGen's Copyrights, AeroGen's Trade Dress Rights and AeroGen's
Know-How owned, licensed or controlled by AeroGen and relating to, covering or
claiming inhalation devices, apparatus, products, systems, methods, processes
and technology, whether created before or after the Effective Date, where such
terms have the following meanings, respectively:

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


                                       1
<PAGE>

                                    (i)      "AEROGEN'S PATENT RIGHTS" means
AeroGen's inventions, proposed inventions, patents, patent applications,
provisional patent applications, divisional applications, continuation
applications, continuation-in-part applications, continued prosecution
applications, renewals, reissues, reexaminations, extensions, and substitutions
thereof, and counterparts for other countries, and any and all patents issuing
therefrom, including, without limitation, the patents and patent applications
set forth in Exhibit C.

                                    (ii)     "AEROGEN'S COPYRIGHTS" means
AeroGen's copyrights in works, including, without limitation, drawings, product
literature, manuals, brochures, catalogues, advertisements, software, and other
written or graphic material and all derivative works arising therefrom, whether
or not such copyrights are registered.

                                    (iii)    "AEROGEN'S TRADE DRESS RIGHTS"
means AeroGen's statutory and common law rights in trade dress and the
associated good will, including, without limitation, rights in product shape,
color, packaging, and overall image.

                                    (iv)     "AEROGEN'S KNOW-HOW" means
AeroGen's confidential or proprietary information, knowledge, data and trade
secrets, including, without limitation, inventions, discoveries, product
designs, models, prototypes, engineering drawings, schematics, manufacturing
processes, methods, equipment and systems, vendor information, and other product
manufacturing and product marketing information.

         An "AFFILIATE" of a party means any person or entity that directly or
indirectly owns or controls, is owned or controlled by or is under common
ownership or control with such party. "Control" of a party shall mean beneficial
ownership, directly or indirectly, of 50% or more of the outstanding voting
shares or securities or the ability otherwise to elect a majority of the board
of directors or other managing authority of the party.

         "AMINOGLYCOSIDE" means compounds consisting of a [*]. This includes,
but is not limited to, [*].

         "AMPOULE" means an ampoule or canister for storing an Antiinfective
Drug, which coacts with or is received by the Adapter, and which is adapted to
be housed or received in the Dispenser, as described in Exhibit A.

         "ANTIINFECTIVE DRUG" means any chemical or biological agent used for
the treatment or prophylaxis of infectious disease.

         "cGMP" means current Good Manufacturing Practices regulations and
Quality System regulations, as promulgated by the FDA.

         "CLINICAL TEST INHALER" means an inhalation device based in part upon
the AeroGen Inhaler, which is fully operable without an Adapter or Ampoule, as
described in Exhibit A.

         "DEVELOPMENT ACTIVITIES" means the development, reporting, supply and
delivery of the Clinical Test Inhalers and the Inhalers in accordance with
Sections 2 and 3 of this Agreement and as described in Exhibit A and Exhibit B.

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


                                       2.
<PAGE>

         "DEVELOPMENT COSTS" means the fully burdened costs and expenses
incurred by AeroGen and specifically identifiable to the Development Activities
including the clinical supply of the Clinical Test Inhalers and the Inhalers
pursuant to this Agreement, all to the extent consistent with U.S. generally
accepted accounting principles, consistently applied. Development Costs include,
without limitation, FTE Costs and the direct costs of materials, all as
specified in the budgets developed by the Joint Development Team, as provided in
Section 3.3.

         "DISPENSER" means a component of an Inhaler which houses an inspiration
sensor, an aerosol generator, which interfits or interacts with the Adapter and
Ampoule, and which includes a mouth piece, as described in Exhibit A.

         "ELECTRONIC COMPONENT" means the component of an Inhaler which houses a
power supply such as one or more batteries and other electronics, and which is
removably connected to the Dispenser, as described in Exhibit A.

         "FDA" means the United States Food and Drug Administration or any
successor to that agency.

         "FIELD" means the treatment or prophylaxis of infectious disease.

         "FTE" shall mean a full time scientific/technical employee of AeroGen
for one year (or, in the case of less than a full-time dedicated
scientific/technical person, a full time equivalent scientific/technical
employee), dedicated to the Development Activities, including development and
clinical supply of the Inhaler and the Clinical Test Inhaler.

         "FTE COSTS" shall mean the annual fully-burdened costs of an FTE, which
has been determined by the parties as of the Effective Date to equal [*] per
FTE.

         "INHALER" means the AeroGen Inhaler as further developed and refined in
accordance with Section 2.2 of this Agreement, and including without limitation:
(i) a Dispenser, and (ii) an Electronic Component, as described in Exhibit A.

         "INHALER MARKUP" has the meaning set forth in Section 8.1 of this
Agreement.

         "INHALER TRANSFER PRICE" has the meaning set forth in Section 8.1 of
this Agreement.

         "JOINT DEVELOPMENT TEAM" or "JDT" means the joint development team
described in Section 3.1 that shall oversee the Development Activities.

         "NET SALES" means the amount invoiced by PathoGenesis, its Affiliates
or sublicensees for sales of the Product less the following deductions: (a)
discounts, returns, allowances, commissions and wholesaler chargebacks; (b)
import, export, excise, sales or use taxes, value added taxes, and other taxes,
tariffs and duties imposed on such sales; (c) freight, freight insurance,
packaging, handling, transportation and other insurance relating to such sales;
and (d) amounts allowed or credited on such sales for retroactive price
reductions or rebates including, but not limited to Medicaid. PathoGenesis, may,
at its option, allocate the above deductions from sales of the Product based
upon accruals estimated reasonably and consistent with

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


                                       3.
<PAGE>

PathoGenesis' standard business practices, and in any event in accordance with
generally accepted accounting principles applied on a consistent basis. If
PathoGenesis elects to utilize such accruals, actual deductions will be
calculated and, if applicable, a "true-up" made, on an annual basis.

         "NORTH AMERICA" means the U.S., its territories and possessions, Canada
and Mexico,

         "OTHER INHALER" means a mechanism developed by AeroGen after the
Effective Date, either alone or in conjunction with a third party (i.e., other
than PathoGenesis), which aerosolizes liquids containing drug molecules for
inhalation delivery to the respiratory tract of a human, but which is [*].

         "OTHER PATHOGENESIS PRODUCT" has the meaning set forth in Section
2.8.5(b).

         "PRODUCT(S)" means any one or more of the following: Inhaler-Drug
Product(s), Inhaler Product(s), and Drug Product(s), where such terms have the
following meanings:

                                    (i)      "INHALER-DRUG PRODUCT(S)" means an
Inhaler Product sold with a Drug Product;

                                    (ii)     "INHALER PRODUCT(S)" means an
Inhaler, including an Electronic Component and Dispenser sold without an Ampoule
or Adapter; and

                                    (iii)    "DRUG PRODUCT(S)" means an Ampoule
filled with a Tobramycin Solution, sold with an Adapter, for use in conjunction
with an Inhaler or Inhaler Product.

         "STOCK PURCHASE AGREEMENT" means that stock purchase agreement to be
entered into by AeroGen and PathoGenesis, for the sale of Preferred Stock of
AeroGen to PathoGenesis.

         "TERRITORY" means the entire world.

         "TERM" means the later of: (a) expiration of the last to expire Valid
Claim within AeroGen's Patent Rights covering or claiming the Product; and (b)
fifteen (15) years from the Effective Date.

         "TOBRAMYCIN SOLUTION(S)" means an aqueous solution containing
tobramycin as described in Exhibit A.

         "VALID CLAIM" means a claim in an issued patent included within
AeroGen's Patent Rights, which has not expired, lapsed, been canceled or become
abandoned and has not been finally found to be invalid (or not valid) or
unenforceable by an unreversed or unappealable final decision or judgment of a
court or other authority or agency of competent jurisdiction.

2.       DEVELOPMENT OF INHALER

         2.1      DEVELOPMENT OF CLINICAL TEST INHALER. AeroGen shall use
commercially reasonable efforts to develop the Clinical Test Inhaler, in
accordance with the specifications set

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


                                       4.
<PAGE>

forth in Exhibit A and the schedule set forth in Exhibit B. Additionally,
AeroGen shall develop the Clinical Test Inhaler: (i) in compliance with cGMP;
and (ii) in accordance with AeroGen's internal quality control and product
specifications or as otherwise agreed upon by AeroGen and PathoGenesis. At
PathoGenesis' reasonable request, AeroGen shall provide PathoGenesis with
documentation for the purpose of verifying AeroGen's compliance with this
section.

         2.2      DEVELOPMENT OF INHALER. AeroGen shall use commercially
reasonable efforts to develop the Inhaler in accordance with the specifications
set forth in Exhibit A and the schedule set forth in Exhibit B. Additionally,
AeroGen shall develop the Inhaler: (i) in compliance with cGMP; and (ii) in
accordance with AeroGen's internal quality control and product specifications or
as otherwise agreed upon by AeroGen and PathoGenesis. At PathoGenesis'
reasonable request, AeroGen shall provide PathoGenesis with documentation for
the purpose of verifying AeroGen's compliance with this section.

         2.3      REPORTING. AeroGen shall keep PathoGenesis up-to-date on the
progress of the development of the Clinical Test Inhaler and the Inhaler, and
specifically shall provide PathoGenesis with written monthly progress reports
and oral progress reports on the development of the Clinical Test Inhaler and
the Inhaler, as reasonably requested by PathoGenesis. Such written reports shall
accompany the invoices submitted by AeroGen under Section 3.5.

         2.4      SUBCONTRACTING. AeroGen may subcontract portions of the
development of the Clinical Test Inhaler or the Inhaler provided that: (i)
AeroGen advises PathoGenesis in advance, to the extent practicable, of entering
into any such subcontract, the terms and conditions (related to technical or
cGMP matters) and the work to be performed; (ii) any such subcontractor agrees
to perform such work in compliance with cGMP and AeroGen's internal quality
control and product specifications or as otherwise agreed upon by AeroGen and
PathoGenesis; and (iii) any subcontractor engaged by AeroGen agrees to perform
such work in compliance with all regulatory requirements imposed by the FDA and
other regulatory agencies.

         2.5      DELIVERY. AeroGen shall use commercially reasonable efforts to
provide PathoGenesis with the samples of the Clinical Test Inhaler for
examination, testing and comment in the amounts and according to the schedule
set forth in Exhibit B. AeroGen shall provide PathoGenesis with the samples of
the Inhaler for examination, testing and comment in the amounts and according to
the schedule set forth in Exhibit B.

         2.6      REGULATORY COOPERATION. AeroGen shall cooperate with and
provide commercially reasonable assistance to PathoGenesis in connection With
PathoGenesis making the necessary submissions and filings for obtaining
regulatory approvals for the Products, as discussed under Section 6. AeroGen
shall be reimbursed for costs reasonably incurred in conducting activities
undertaken pursuant to this Section 2.6 which are above and beyond those
activities for which it is being reimbursed under Section 3.3, in the same
manner and at the same rates as the Development Costs under Section 3.

         2.7      FACILITIES ACCESS. PathoGenesis shall have reasonable access
to the Development Activities conducted in AeroGen facilities. PathoGenesis'
representatives shall be permitted, from time to time and upon reasonable
notice, to visit those portions of the AeroGen facilities

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


                                       5.
<PAGE>

which are used for the development, manufacture, and testing of the Clinical
Test Inhaler or Inhaler during normal or usual hours of operation to monitor the
Development Activities.

         2.8      LICENSE GRANTS.

                  2.8.1    AMPOULES. Subject to the terms and conditions of this
Agreement, including specifically Section 2.8.5, AeroGen hereby grants to
PathoGenesis an exclusive license within the Field, including the right to grant
sublicenses, under AeroGen's Inhalation Intellectual Property to make, have
made, use, import, export, offer for sale and sell Ampoules for use in
connection with the Inhaler, in the Territory.

                  2.8.2    INHALER PRODUCTS AND ADAPTERS. Subject to the terms
and conditions of this Agreement, including specifically Section 2.8.5, AeroGen
hereby grants to PathoGenesis an exclusive license within the Field, including
the right to grant sublicenses, under AeroGen's Inhalation Intellectual Property
to use, import, export, offer for sale and sell the Inhaler Product(s) and the
Adapters (as part of a Drug Product) for the inhalation delivery of
Antiinfective Drugs, in the Territory.

                  2.8.3    CONTINGENT LICENSE TO MANUFACTURE.

                           (a)      Except as otherwise provided herein,
PathoGenesis shall purchase its clinical and commercial requirements for the
Inhaler Products and the Adapters (excluding the Ampoules) from AeroGen pursuant
to the terms and conditions of this Agreement. In the event of a "Triggering
Event" (as defined below), AeroGen shall promptly notify PathoGenesis in writing
thereof, and effective only in such event, AeroGen hereby grants to PathoGenesis
an exclusive (subject to Sections 2.8.6, 2.8.7 and 9.2) license within the
Field, including the right to grant sublicenses, under AeroGen's Inhalation
Intellectual Property, to make and have made the Inhaler Products and the
Adapters for sale and use consistent with the license set forth in Section
2.8.2, for the Term. In such event, PathoGenesis shall notify AeroGen in writing
of its election to exercise such right, and upon receipt AeroGen shall promptly
provide PathoGenesis with the AeroGen Know-How reasonably necessary for
PathoGenesis (or its designee) to make and have made the Inhaler Products
(including Adapters).

                           (b)      As used in this section, "Triggering Event"
shall mean either: (i) [*]; (ii) all or a substantial portion of AeroGen's
assets are transferred to an assignee for the benefit of creditors, to a
receiver or a trustee in bankruptcy; (iii) AeroGen is adjudged bankrupt; or (iv)
[*].

                  2.8.4    AMINOGLYCOSIDES. Subject to the terms and conditions
of this Agreement, including specifically Section 2.8.5, AeroGen hereby grants
to PathoGenesis an exclusive license, within the Field, including the right to
grant sublicenses, under AeroGen's Inhalation Intellectual Property to use,
import, export, offer for sale and sell any inhalation device, adapter or
ampoule (including, without limitation, the Inhaler, Adapter and Ampoule), for
the inhalation delivery of Aminoglycosides in the Territory.

                  2.8.5    RIGHTS RETAINED BY AEROGEN.

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


                                       6.
<PAGE>

                           (a)      Subject to Section 10 and notwithstanding
anything else in this Agreement to the contrary, AeroGen may make, have made,
use, import, export, offer for sale and sell either itself or with or through
any third party inhalation devices, including Inhalers, the AeroGen Inhaler,
Adapters and Ampoules for the delivery of any drug other than an Antiinfective
Drug. In addition, it is understood and agreed by the parties that AeroGen shall
have the right to develop, make, have made, sell, import and market, either
itself or with or through any third party, any Other Inhaler, or any adapter or
ampoule compatible or interfitting or interacting therewith, for the delivery of
any Antiinfective Drug which is not an Aminoglycoside.

                           (b)      Notwithstanding the grant of licenses and
rights under Sections 2.8.1, 2.8.2, 2.8.3, and 2.8.4, in the event PathoGenesis
intends to enter human clinical development of, and/or commercialize the
Inhaler, Ampoule and/or Adapter for the inhalation delivery, in the Field, of an
Antiinfective Drug or Aminoglycosides other than Tobramycin Solution (an "Other
PathoGenesis Product"), it shall so notify AeroGen in writing, and PathoGenesis
shall not proceed with such development or commercialization of any Other
PathoGenesis Product unless and until AeroGen and PathoGenesis negotiate and
enter into a written agreement (or amendment to this Agreement) with respect to
the terms of such development and/or commercialization; including, without
limitation, the development work, if any, to be undertaken by AeroGen, the
development costs of such work, and the consideration to be paid to AeroGen for
commercialization of such Other PathoGenesis Product. In such event,
PathoGenesis and AeroGen shall negotiate in good faith.

                  2.8.6    [*] FOR EUROPEAN COMMUNITY. In the event that: (i)
PathoGenesis files for and obtains regulatory approval for the Drug Product in
the United States as set forth in Section 6.2; (ii) AeroGen obtains the CE mark
for the Inhaler Product in Europe; and (iii) PathoGenesis does not file for a
regulatory approval of the Drug Product within the European Community ("EC")
within a period of [*] (the "EC Filing Date"), then AeroGen shall have the
right upon thirty (30) days written notice to PathoGenesis to [*].
Notwithstanding the foregoing, AeroGen shall not have the right to [*] under
this Section 2.8.6 if, as of the EC Filing Date, PathoGenesis is in the process
of [*], or is in the process of [*]; provided that in all events
PathoGenesis thereafter files for regulatory approval in the EC no later than
[*] from the EC Filing Date.

                  2.8.7    [*] FOR UNITED STATES. In the event that, following
commercial launch of the Drug Product and the Inhaler Product: (i) PathoGenesis
sells an inhalation device for the delivery of Tobramycin Solution in the United
States, the effect of which is to substantially reduce (as defined below) the
sales of the Drug Products in the United States; (ii) such inhalation devices
are not licensed or supplied to PathoGenesis by AeroGen; (iii) such inhalation
devices are not as of the Effective Date being distributed by PathoGenesis; and
(iv) AeroGen is supplying the Inhaler Products to PathoGenesis under the terms
and conditions of this Agreement, then AeroGen shall have the right upon thirty
(30) days written notice to PathoGenesis to [*]. As used in this Section
2.8.7, "substantially reduces" means that Net Sales of the Drug Product for a
given calendar year are less than [*].

                  2.8.8    RESEARCH REGARDING OTHER PATHOGENESIS PRODUCTS. In
the event PathoGenesis intends to utilize the Clinical Test Inhaler, Inhaler,
Adapter, Ampoule or any other

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


                                       7.
<PAGE>

technology covered by AeroGen's Inhalation Intellectual Property, for conducting
research with respect to the use thereof in connection with any Antiinfective
Drug other than Tobramycin Solution in accordance with Section 2.8.5(b); or any
other research outside of that contemplated hereunder, it shall notify AeroGen
in writing.

                  2.8.9    FURTHER LICENSES. Except as expressly provided
herein, neither party grants the other party any rights or licenses under this
Agreement.

3.       DEVELOPMENT OF THE INHALER

         3.1      JOINT DEVELOPMENT TEAM.

                  3.1.1    FORMATION; PURPOSE. Within ten (10) days after the
Effective Date, AeroGen and Pathogenesis shall establish the Joint Development
Team ("JDT"). The general purposes of the JDT shall be (i) to determine the
overall technical strategy for the development of the Inhaler and Adapter (and
the way in which they coact or interfit with the Ampoule), (ii) to oversee and
coordinate the parties' activities in the development of the Inhaler and Adapter
pursuant to the specifications and the timelines set forth in Exhibits A and B,
and (iii) to develop and propose for the parties' approval the final
specifications for the Inhaler and Adapter, all based on the principles of
prompt and diligent development, consistent with good pharmaceutical and medical
device practices. The JDT shall perform such other functions as appropriate to
further the purposes of the this Agreement as determined by the parties,
including the periodic evaluation of performance against goals.

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

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

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


                                       8.
<PAGE>

                  3.1.4    CHAIRPERSONS. The JDT shall be chaired first by a
representative of AeroGen from the Effective Date through June 30, 2000, and the
Chairperson position shall rotate thereafter on a semi-annual basis with
PathoGenesis to appoint the Chairperson for the six month period beginning July
1, 2000. The Chairperson shall be responsible for calling meetings, preparing
and circulating an agenda in advance of each meeting, and preparing and issuing
minutes of each meeting within thirty (30) days thereafter.

                  3.1.5    DECISION-MAKING. Each of AeroGen's and PathoGenesis'
representatives shall have one vote. All decisions of the JDT shall be
unanimous. The JDT shall remain in operation until the earlier of (i)
termination of this Agreement, or (ii) the regulatory approval in both the US
and the EC of the Inhaler-Drug Product.

                  3.1.6    DISPUTE RESOLUTION. In the event that the JDT is
unable to reach agreement on an issue within thirty (30) days, such issue shall
be subject to dispute resolution as set forth in Section 16.

                  3.1.7    LIMITATION OF POWERS. The powers of the JDT are
limited to those expressly set forth in this Agreement. Without limiting the
generality of the foregoing, the JDT shall not have the right to amend this
Agreement. The actions of the JDT shall not substitute for either party's
ability to exercise any right, nor excuse the performance of any obligation, set
forth herein.

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

         3.3      PAYMENT FOR DEVELOPMENT ACTIVITIES. Subject to the terms and
conditions of this Agreement, PathoGenesis shall pay to AeroGen, by wire
transfer to the bank account designated by AeroGen, the Development Costs
incurred by AeroGen [*]. The JDT shall develop mutually agreeable budgets and
schedules which will establish the maximum amount of Development Costs (such
amount is referred to herein as the "Development Cost Limit") to be expended in
developing the Clinical Test Inhaler and the Inhaler to the point of completion
of an application for Section 510(k) Premarket Notification Clearance ("510(k)
Clearance") for the Inhaler. The Development Cost Limit is currently expected
not to exceed the sum of [*] in FTE Costs owed to AeroGen (after taking into
account the above discount) plus [*] in other direct costs. AeroGen shall
account for and calculate the Development Costs in accordance with its internal
accounting systems and GAAP (as defined in Section 8.1). AeroGen, in accordance
with Section 18.15 hereof, shall allow PathoGenesis reasonable access to
AeroGen's books and records in order to verify such Development Costs.

         3.4      FEES IN EXCESS OF DEVELOPMENT COST LIMIT. The Development
Costs for developing the Inhaler shall not exceed the Development Cost Limit
unless AeroGen obtains prior written approval from PathoGenesis. A decision by
PathoGenesis not to agree to provide funding for Development Costs in excess of
the Development Cost Limit shall not constitute a termination or breach of this
Agreement. Unless the parties agree otherwise in writing, in no

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


                                       9.
<PAGE>

event shall AeroGen be obligated to undertake any Development Activities that
would cause it to incur Development Costs in excess of the Development Cost
Limit. The JDT shall work together in good faith to resolve any disputes
regarding the Development Costs. In the event the JDT is unable to resolve such
disputes, such disputes shall be resolved in accordance with Section 16 of this
Agreement.

         3.5      INVOICES. AeroGen shall submit monthly invoices to
PathoGenesis for the Development Activities AeroGen conducts in the preceding
month. The invoices shall contain the following information:

                                    (i)      identification of the number or
fraction of FTEs and subcontractors who performed the Development Activities
during the month covered by the invoice;

                                    (ii)     a general description of the
Development Activities performed during such month by FTEs and subcontractors,
and a report of the progress made to date in light of the goals and timelines
set forth in Exhibits A and B;

                                    (iii)    a statement of costs, categorized
in reasonable detail, of all supplies and materials used and other out-of-pocket
costs incurred during such month directly in connection with the Development
Activities;

                                    (iv)     a statement of payments (if any)
made by AeroGen to third parties during such month in connection with the
Development Activities; and

                                    (v)      the number of Clinical Test
Inhalers or Inhalers, as the case may be, supplied to PathoGenesis for clinical
development during such month.

         PathoGenesis shall make payments to AeroGen as incurred against invoice
within [*] of receipt of such invoice.

4.       DEVELOPMENT AND DELIVERY OF THE DRUG PRODUCT

         4.1      DEVELOPMENT. PathoGenesis shall use commercially reasonable
efforts to develop the Drug Product in accordance with the schedule set forth in
Exhibit B.

         4.2      DELIVERY. PathoGenesis shall use commercially reasonable
efforts to deliver, at PathoGenesis' expense, the filled Ampoule or Tobramycin
Solution, as applicable (in quantities mutually agreed to by the parties) to
AeroGen in accordance with the schedule set forth in Exhibit B. AeroGen shall
use all quantities of filled Ampoule or Tobramycin Solution so supplied by
PathoGenesis pursuant to this Agreement exclusively for the development and
related testing of the Clinical Test Inhaler and the Inhaler. AeroGen shall
handle, store and use the filled Ampoules and Tobramycln Solution in compliance
with all applicable laws, rules and regulations, and shall not use the filled
Ampoules or Tobramycin Solution in any manner on human or animal subjects or in
anything destined for human or animal consumption.

5.       CLINICAL SUPPLY AND TESTING

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


                                      10.
<PAGE>

         5.1      DELIVERY OF CLINICAL SUPPLY. AeroGen shall provide to
PathoGenesis the Clinical Test Inhaler for clinical testing (in quantities and
in accordance with the schedule set forth in Exhibit B and the specifications in
Exhibit A). AeroGen shall provide to PathoGenesis the inhalers for clinical
testing (in quantities and in accordance with the schedule set forth in Exhibit
B and in accordance with the specifications in Exhibit A).

         5.2      AMPOULE FOR CLINICAL TESTING. PathoGenesis shall be
responsible for all Drug Product for clinical testing of the Inhaler, and all
Tobramycin Solution needed for clinical testing of the Clinical Test Inhaler.

         5.3      TESTING AND ACCEPTANCE. PathoGenesis shall have a period of
[*] from the date of receipt of the shipment of Clinical Test Inhaler(s) to test
for quality of the shipment and to accept or reject such shipment. If
PathoGenesis determines that any shipment of the Clinical Test Inhalers or
portions thereof do not meet the specifications set forth in Exhibit A,
PathoGenesis shall notify AeroGen in writing within such [*] period,
indicating the date of delivery and the defective nature of the Clinical Test
Inhaler(s). AeroGen shall undertake commercially reasonable efforts to correct
such defect, and supply PathoGenesis with a replacement shipment of Clinical
Test Inhalers acceptable to PathoGenesis, within a reasonable time and in view
of the timelines set forth in Exhibit B.

         5.4      OWNERSHIP OF DATA. PathoGenesis shall own all data, reports,
applications, approvals and information, all intellectual property rights
therein and all rights arising from its clinical testing and commercialization
activities and efforts with respect to the Products, including, but not limited
to, all data, reports, information and rights arising out of any regulatory
filing for the Ampoule, any regulatory application approval thereof or any
corresponding application or approval in any country in the Territory.
Notwithstanding the foregoing, AeroGen (or its designee) shall have the right,
upon reasonable written request, the granting of which is not to be unreasonably
withheld, to use any data or information generated by PathoGenesis with respect
to the performance characteristics of the Inhaler (the "Inhaler Data"), in
connection with AeroGen's development and submission for regulatory approval and
commercialization of, the AeroGen Inhaler, consistent with AeroGen's obligations
under Section 2.

6.       REGULATORY OBLIGATIONS AND COMMERCIALIZATION

         6.1      COMMERCIALIZATION OF THE PRODUCT. In the event the clinical
testing set forth in Section 5 of this Agreement produces favorable results in
the reasonable discretion of PathoGenesis, PathoGenesis shall use commercially
reasonable efforts to obtain regulatory approval and commercialize the Products
in the United States. PathoGenesis may, at its sole discretion, commercialize
the Products in any other country in the Territory in accordance with
PathoGenesis' other commercial obligations, if any. If any further
documentation, agreement or information is necessary to facilitate PathoGenesis'
commercialization of the Products in countries other than the United States, the
parties agree to cooperate in good faith to effect such documentation or
agreement and to provide such information.

         6.2      REGULATORY FILINGS FOR THE PRODUCTS. The parties agree and
acknowledge that the regulatory approval process for the Inhaler Product and
Drug Product, and their combined use, has not been determined definitively as of
the Effective Date. The parties, through the JDT,

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


                                      11.
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will coordinate and work in good faith to determine the most efficient and
effective regulatory strategy for regulatory approval of the Products. It is
contemplated by the parties, as of the Effective Date, that AeroGen shall
develop the Inhaler Product and prepare such reports and submissions as are
necessary to complete an application for a 510(k) Clearance for the general use
of the Inhaler Product for the delivery of liquids containing drug molecules.
Whether AeroGen, or PathoGenesis, in fact files for such 510(k) Clearance shall
be determined by the JDT in light of the objectives of PathoGenesis under this
Agreement and AeroGen's objectives to develop and commercialize the AeroGen
Inhaler outside this Agreement. PathoGenesis, its Affiliates and sublicensees
shall have the right to prepare, file, prosecute and maintain all necessary and
appropriate applications, submissions and filings with the appropriate
regulatory authorities, to obtain approval of the Drug Products alone, and in
conjunction with the Inhaler Product, in each country within the Territory in
which PathoGenesis, any Affiliate of PathoGenesis or any sublicensee of
PathoGenesis intends to market the Drug Products. PathoGenesis makes no
representation or warranty that PathoGenesis, any Affiliate of PathoGenesis or
any sublicensee of PathoGenesis will obtain approvals for the Products in any
country in the Territory. PathoGenesis, Affiliates of PathoGenesis and
sublicensees of PathoGenesis shall not be liable to AeroGen for any damages or
other compensation if PathoGenesis, Affiliates of PathoGenesis or sublicensees
of PathoGenesis use commercially reasonable efforts to obtain approvals of the
Products, but do not obtain approvals for the Drug Products. PathoGenesis shall
bear all costs for any regulatory filing covering the Products. In the event
PathoGenesis has not [ * ], after the parties have discussed the issue in good
faith, AeroGen shall have the right upon thirty (30) days written notice to
PathoGenesis to [*]. In addition, in the event PathoGenesis has not [*], after
the parties have discussed the issue in good faith, AeroGen shall have the right
to terminate this Agreement upon [*] written notice to PathoGenesis.

7.       COMMERCIAL MANUFACTURE AND SUPPLY OF THE INHALER

         7.1      MANUFACTURING AND DELIVERY. During the Term, and subject to
the provisions of this Section 7, AeroGen shall manufacture for and supply to
PathoGenesis, and PathoGenesis shall purchase from AeroGen, all of the
requirements of PathoGenesis, its Affiliates and sublicensees for the Inhalers
and Adapters (excluding the Ampoules) in the Territory. AeroGen shall
manufacture the Inhaler: (i) in compliance with cGMP; (ii) in compliance with
all regulatory requirements imposed by FDA; and (iii) in accordance with
AeroGen's internal quality control standards and product specifications or as
otherwise agreed upon by AeroGen and PathoGenesis. To enable AeroGen to comply
with its obligations with respect to regulatory requirements outside the United
States, PathoGenesis shall inform AeroGen as early as practical of its intention
to pursue regulatory approval of the Product in a country outside the United
States. Upon AeroGen's reasonable request, PathoGenesis and AeroGen shall meet
and confer regarding the regulatory requirements of such country, compliance
therewith, the timeline for compliance, the costs associated with compliance and
the manufacture of the Inhaler in compliance therewith. The quantities and
delivery schedules shall be as specified in Section 7.4 hereof and in purchase
orders submitted to AeroGen by PathoGenesis. At PathoGenesis' reasonable
request, AeroGen shall provide PathoGenesis with documentation for the purpose
of verifying AeroGen's compliance with this section.

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


                                      12.
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         7.2      QUALITY AND ACCEPTANCE. Both parties acknowledge that quality
is critical to ensuring the performance and reliability of the Product, and that
quality is a material term of this Agreement. AeroGen shall use commercially
reasonable efforts to manufacture the Inhalers to achieve an acceptable quality
level ("AQL") of non-conforming units, as determined by the JDT. The parties,
through the JDT, will negotiate in good faith to identify critical, major and
minor components and corresponding specifications, test methods and associated
AQLs. PathoGenesis shall have a period of [*] from the date of receipt of any
shipment of the Inhalers to test for quality and quantity of the shipment and to
accept or reject such shipment. If PathoGenesis determines that any shipment or
portion thereof of the Inhalers does not meet the specifications set forth in
this Agreement, PathoGenesis shall notify AeroGen in writing within such [*],
indicating the particular lot, date of delivery and the defective nature of the
Inhalers. In such event, PathoGenesis shall promptly return the shipment or
defective portion thereof to AeroGen and PathoGenesis shall have no obligation
to pay for such shipment or defective portion of such shipment, as the case may
be. Upon receipt, AeroGen shall undertake commercially reasonable efforts to
repair or replace defective Inhalers and supply PathoGenesis with a replacement
shipment of Inhalers acceptable to PathoGenesis, within a commercially
reasonable time. In the event PathoGenesis does not so notify AeroGen within [ *
] of receipt of any shipment of Inhalers, PathoGenesis shall be deemed to have
accepted such shipment and shall be obligated to make payment therefor as
provided under Section 8.2.

         7.3      SUBCONTRACTING. AeroGen may subcontract portions of the
manufacturing of the Inhaler provided that: (i) AeroGen advises PathoGenesis in
advance, to the extent practicable, of entering into any such subcontract, the
terms and conditions (related to technical or cGMP matters) and the work to be
performed; (ii) any such subcontractor agrees to comply with cGMP, and AeroGen's
internal quality control and product specifications or as otherwise agreed upon
by AeroGen and PathoGenesis; and (iii) any subcontractor engaged by AeroGen
agrees to comply with all regulatory requirements imposed by the FDA and other
regulatory agencies.

         7.4      FORECASTS AND PURCHASE ORDER. On a [*] basis, PathoGenesis
shall provide AeroGen with its good faith written projections of the anticipated
requirements to be ordered from and delivered by AeroGen during the subsequent [
* ] (as may be amended from time to time by PathoGenesis, the "Supply
Forecast"). PathoGenesis shall provide AeroGen with the Supply Forecast no later
than [*] before the start of each [*]. The Supply Forecast will be binding for
the next [*] and will be non-binding for the subsequent [*]. For each [*], and
by no later than the first day of such [*], PathoGenesis will issue a firm
purchase order for finished Inhaler Products required on a [*] basis by
PathoGenesis in such [*], and a delivery date of no less than [*] from the date
of such purchase order. AeroGen shall accept any such purchase order, or will
negotiate a new delivery schedule for such purchase order and accept such
revised purchase order, within [*] of receipt of such purchase order. Any
purchase order for a given [*] so placed by PathoGenesis shall specify an amount
which is at least [*] of the amount most recently forecast for such [*].
AeroGen shall accept and fill such purchase order; provided however, that where
such purchase order specifies an amount which is more than [*] of the amount
most recently forecast, AeroGen shall use commercially reasonable efforts to
manufacture and supply such excess amount, but shall not be liable in any way in
the event it is unable to so supply such excess amount.

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


                                      13.
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         7.5      DELIVERY. AeroGen shall use diligent efforts, consistent with
its other shipment obligations and manufacturing capacity, to ship all Inhaler
Products and Adapters for which purchase orders are accepted on or before the
requested shipment date, to the extent such date is at least [*] after the date
AeroGen accepts the purchase order for such shipment. The shipping and packaging
method used will be at the discretion of AeroGen. Deliveries shall be shipped to
PathoGenesis' address as set forth in this Agreement. All Products will be
shipped by AeroGen freight collect, or if prepaid, such freight will be
subsequently billed to PathoGenesis. PathoGenesis shall be responsible for
clearing all Products for export. If required, AeroGen shall insure the
shipments against damage or loss and will subsequently bill PathoGenesis for
such shipping insurance.

         7.6      PAYMENTS TO THIRD PARTIES. AeroGen, its affiliates, and its
assignees, shall be fully responsible for paying any and all licensee fees,
royalties and other such payments owed by it to any third parties for the
manufacture, sale, offer for sale, use, importation or exportation of the
Inhalers provided by AeroGen. Third party payments owed by PathoGenesis shall be
handled as provided under Section 9.5(a).

         7.7      FACILITIES ACCESS AND REGULATORY INSPECTIONS. PathoGenesis
shall have reasonable access to the manufacturing activities conducted in
AeroGen facilities. PathoGenesis' representatives shall be permitted, from time
to time and upon reasonable notice, to visit the AeroGen facilities during
normal or usual hours of operation to monitor the manufacturing activities. In
addition, PathoGenesis shall have the right, upon reasonable notice to AeroGen,
and provided such subcontractor agrees to such visit, to visit the facilities of
any of the subcontractors AeroGen utilizes pursuant to Section 2.4 or 7.3;
provided that the PathoGenesis representatives are accompanied by AeroGen
representatives. AeroGen shall promptly notify PathoGenesis of any regulatory
inspection of AeroGen facilities used in the manufacturing, processing or
packaging of the Inhaler Product. At the reasonable written request of
PathoGenesis, AeroGen shall promptly provide to PathoGenesis copies of the
documents relating to or arising out of the inspection such as FDA Form 483 list
of observations, establishment inspection reports, and warning letters.

         7.8      USE OF TRADEMARKS ON PRODUCTS. PathoGenesis will have the
right to mark the Inhaler Product with its own Company Trademarks. PathoGenesis
and AeroGen acknowledge that it may be mutually beneficial to mark the Inhaler
Product with the trademarks, trade names, Iogos, or company names ("Company
Trademarks") of both PathoGenesis and AeroGen. In the event that both parties
desire (or where regulations require) the Inhaler Product to bear the Company
Trademarks of PathoGenesis and AeroGen simultaneously, AeroGen will cooperate
with PathoGenesis and conform to the marking scheme of PathoGenesis. The parties
will agree to the size and placement of the Company Trademarks. Notwithstanding
the foregoing, the parties understand that this Section 7.7 does not include
trademark licenses and that neither PathoGenesis nor AeroGen will use one
another's Company Trademarks without an appropriate license to do so.

         7.9      TITLE AND RISK OF LOSS. Risk of damage or loss of Inhalers
shipped to PathoGenesis by AeroGen shall remain with AeroGen until an Inhaler
Product is shipped at the instructions of PathoGenesis.

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


                                      14.
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         7.10     PRODUCT INSURANCE. AeroGen shall furnish PathoGenesis with
Certificates of Insurance within forty-five (45) days of the first commercial
sale of the Inhaler Drug Product or Inhaler Product and shall furnish
PathoGenesis with annual renewal Certificates of Insurance fifteen (15) days
prior to each anniversary of such first sale. The Certificate of Insurance will
extend [*] to PathoGenesis. A thirty (30) day written notice, as practicable, of
cancellation or reduction in scope or amount of coverage will be provided to
PathoGenesis. If such insurance is written on a claims-made form following
termination of this Agreement, coverage shall survive for a period of no less
than [*].

8.       PAYMENTS FOR THE MANUFACTURED INHALER PRODUCTS

         8.1      INHALER TRANSFER PRICE. Subject to the terms and conditions of
this Agreement, PathoGenesis shall pay AeroGen the per unit manufacturing cost
for each Inhaler delivered to and accepted by PathoGenesis, plus [*] of the
manufacturing cost per unit (the "Inhaler Markup") (the sum of the manufacturing
cost per unit and the Inhaler Markup shall be referred to herein as the "Inhaler
Transfer Price"). The manufacturing cost per unit is the [*] of AeroGen, on a
consolidated basis, of manufacturing the Inhaler. AeroGen shall determine such
cost in accordance with its internal accounting systems and methodologies and
GAAP, and shall allow PathoGenesis reasonable access to AeroGen's books and
records in order to verify such cost in accordance with Section 18.15 hereof. In
computing such cost, AeroGen will utilize standard industry practice, as
mutually agreed upon by the parties, which agreement shall not be unreasonably
withheld or delayed. At the time of [*], the parties will mutually agree on a
target manufacturing cost per unit (the "Target Cost") and consequent Inhaler
Transfer Price. Under current conditions, as of the Effective Date the Target
Cost of the AeroGen Inhaler is projected to be [*], as per AeroGen's 1999
Business Plan. In the event that the actual Target Cost exceeds the agreed upon
Target Cost by [*] or more, then the Inhaler Markup shall be reduced by [*] for
every [*] of such excess. In the event that the actual Target Cost is below the
agreed upon Target Cost by [*] or more, then the Inhaler Markup shall be
increased by [*] for every [*] of such decrease. AeroGen shall use its best
efforts to obtain and maintain appropriate capital funding to satisfy its
obligations under this Agreement. All capital expenditures necessary to
manufacture and supply the Clinical Test Inhalers and the Inhalers pursuant to
this Agreement shall be the sole responsibility of AeroGen.

         8.2      INVOICING. AeroGen shall invoice PathoGenesis when AeroGen
ships the Inhaler. PathoGenesis shall pay all invoices for the Inhalers
delivered to and accepted in accordance with this Agreement within forty-five
(45) days after receipt of the Inhalers.

9.       ROYALTY

         9.1      ROYALTY PAYMENTS BY PATHOGENESIS FOR PRODUCTS. Except as
provided herein and subject to the terms and conditions of this Agreement,
PathoGenesis shall pay to AeroGen, on a country-by-country basis, a royalty
("Royalty" or "Royalties") based upon the Net Sales of the Products at the
following rates:

                           (a)      a royalty of [*] of the annual Net Sales of
the Products sold in each country other than those countries in North America;

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


                                      15.
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                           (b)      a royalty of [*] of the annual Net Sales of
the Products sold in each country in North America.

         PathoGenesis shall pay the royalties owed to AeroGen on Net Sales of
the Products on a calendar-quarterly basis, within sixty (60) days following the
end of the calendar quarter during which the sales in question were made. Upon
payment of a royalty for any sale of a Product, the royalty obligation under
this Agreement with respect to that Product shall be deemed exhausted.

         9.2      MINIMUM ROYALTY. Subject to the terms and conditions of this
Agreement, [*] (the "Minimum Royalty Commencement Date"), and at each
anniversary of the Minimum Royalty Commencement Date during the Term,
PathoGenesis shall pay to AeroGen, in arrears, a minimum annual royalty payment
of [*] within [*] of such Minimum Royalty Commencement Date or anniversary
thereof; provided that any and all royalty payments actually made with respect
to Net Sales during such calendar year shall be credited against such minimum
royalty amount. In the event PathoGenesis fails to make such payment, and such
payment is not made within [*] written notice thereof, AeroGen shall have the
right to [*].

         9.3      ROYALTY TERM. The parties acknowledge that PathoGenesis'
royalty obligations shall be in effect for so long as PathoGenesis, or any
sublicensee, is selling the Product supplied by AeroGen hereunder anywhere in
the Territory.

         9.4      ROYALTY REPORTS. After the first commercial sale of the
Product in the Territory, PathoGenesis shall provide AeroGen with
calendar-quarterly written royalty reports, within sixty (60) days from the last
day of each calendar quarter during the term of the Agreement. Each report shall
include a summary of the Net Sales of the Product for sales made during the
calendar quarter in question on which a royalty is payable and the royalties
which are payable on such Net Sales. Any objection by AeroGen to the accuracy or
completeness of any such reports must be made in writing to PathoGenesis within
two (2) years after the report is provided to AeroGen, or such report shall be
deemed to be true and correct.

         9.5      REDUCTION OF ROYALTIES.

                           (a)      If it is "necessary" (as defined below) for
PathoGenesis, any Affiliate of PathoGenesis or any sublicensee of PathoGenesis
in any country within the Territory to obtain a license and pay a royalty under
such license to either (i) a third party [*] or (ii) a third party [*], under
any patent or other proprietary interest of such third party in order to use,
import, export, offer for sale or sell the Inhaler Product in that country,
PathoGenesis' obligations to pay royalties to AeroGen on Net Sales in that
country shall be [*]; or (b) [*]; provided that in no event shall AeroGen's
royalties be reduced under this Section 9.5(a) below [*] of the applicable rate
set forth in Section 9.1. It shall be considered "necessary" to obtain a license
if [*]. As used in this Section 9.5(a), an "Excepted Party" means [*].

                           (b)      In the event: (i) [*]; or (ii) a third party
obtains, by order, decree or grant from a court or other regulatory authority of
competent jurisdiction in any country in the Territory, a compulsory license
under AeroGen's Inhalation Intellectual Property authorizing such third party to
make, have made, use, import, export, offer for sale or sell the Product in such
country, AeroGen shall give prompt written notice to PathoGenesis. In either
such event

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


                                      16.
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PathoGenesis' obligations to pay royalties with respect to Net Sales of the
Product in such country under this Agreement shall be [*].

                           (c)      If, for any other reason or under any other
circumstances, the exclusive licenses and rights granted to PathoGenesis under
Section 2 of this Agreement [*], the royalties owed by PathoGenesis to AeroGen
for Net Sales of the Products in such country shall be reduced by [*].

         9.6      BOOKS AND RECORDS. PathoGenesis shall keep full, true and
accurate books and records which disclose the Net Sales of the Products, the
number of Products sold in the Territory and all matters relating to those sales
which are relevant for the purposes of determining the royalties to be paid by
PathoGenesis to AeroGen. Such books and records shall be retained for three (3)
years following the occurrence of such sales.

         9.7      INSPECTION. AeroGen, at its own expense, shall have the right
during normal business hours on thirty (30) days' prior written notice to
PathoGenesis, and not more than once in any calendar year, to have a nationally
recognized independent public accounting firm selected by AeroGen and reasonably
acceptable to PathoGenesis, to examine the relevant books and records of
PathoGenesis for the purpose of verifying the royalties due under Section 9.1 of
this Agreement. Such accounting firm shall not work on a contingency fee basis,
shall execute and deliver to PathoGenesis a standard and reasonable
confidentiality agreement and shall not disclose to AeroGen any information
relating to PathoGenesis' business, except whether the PathoGenesis royalty
reports are correct or incorrect. If such reports are incorrect, then the
accounting firm shall provide PathoGenesis with the specific details concerning
any discrepancies and the amounts of the royalties due under Section 9.1 of this
Agreement. If such examination reveals a discrepancy, PathoGenesis shall pay to
AeroGen any additional royalties owed to AeroGen, or AeroGen shall refund to
PathoGenesis any excess royalty payments made by PathoGenesis, as appropriate.
In the event that the discrepancy amounts to an underpayment by PathoGenesis of
[*] or more of the royalties due under Section 9.1 of this Agreement,
PathoGenesis shall promptly reimburse AeroGen for its out-of-pocket expenses
reasonably incurred in connection with such examination.

         9.8      WITHHOLDING TAX. Any and all withholding taxes or similar
charges imposed by any government on royalties due from PathoGenesis under this
Agreement will be deducted from the amounts due and paid to AeroGen, will be
paid by PathoGenesis to the proper taxing authority, and proof of payment of
said taxes or other charges will be promptly secured and sent to AeroGen as
evidence of such payment.

         9.9      MARKING. AeroGen shall provide PathoGenesis with written
notice of the patent number and country of each of the patents in AeroGen's
Patent Rights when issued by providing PathoGenesis a revised Exhibit C of this
Agreement or providing other suitable written notice to PathoGenesis.
PathoGenesis shall use commercially reasonable efforts to place, in a
conspicuous location on the Inhaler Product, a patent notice in accordance with
and when required by applicable laws of the Country in which the Inhaler Product
is sold and in which there is a Valid Claim of a patent in AeroGen's Patent
Rights covering the Inhaler Product. With respect to the patents in AeroGen's
Patent Rights, PathoGenesis will respond to any request for

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


                                      17.
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disclosure under 35 U.S.C. Section 287(b)(4)(B) only by notifying AeroGen of the
request for disclosure.

10.      INTELLECTUAL PROPERTY

         10.1     INHALER OWNERSHIP. Except as provided herein, AeroGen shall
own all right, title, and interest in all intellectual property rights related
[ * ], whether created independently or jointly by PathoGenesis or AeroGen
during the Term of and pursuant to this Agreement. To the extent that
PathoGenesis owns or acquires any interest in such rights, PathoGenesis hereby
assigns to AeroGen any interest in such intellectual property rights.
PathoGenesis shall own all [ * ], whether such rights are created
independently or jointly by PathoGenesis or AeroGen. To the extent that
AeroGen owns or acquires any interest in such rights, AeroGen hereby assigns
to PathoGenesis any interest in such design patent rights, copyrights and
trade dress rights for the Inhaler.

         10.2     DRUG PRODUCT OWNERSHIP. As between AeroGen and PathoGenesis,
PathoGenesis shall own [*] whether created independently or jointly by
PathoGenesis or AeroGen during the Term of and pursuant to this Agreement. To
the extent AeroGen owns or acquires any interest in such rights, AeroGen hereby
assigns to PathoGenesis any interest in such rights. PathoGenesis shall also own
all right, title, and interest in all patent rights, copyrights, trade dress
rights, and know-how rights covering [*]. To the extent that AeroGen owns or
acquires any interest in such rights, AeroGen hereby assigns such interest to
PathoGenesis.

         10.3     COOPERATION. With respect to the intellectual property rights
addressed in this Section 10, both parties shall cooperate with each other to
obtain, prosecute, maintain and enforce its intellectual property rights. Such
cooperation shall include, without limitation, obtaining assignments from the
other party's employees and causing the execution of all documents and
instruments as the other party may reasonably consider appropriate to pursue
protection.

11.      EQUITY PURCHASE. Pursuant to the Stock Purchase Agreement,
PathoGenesis shall purchase Two Million Five Hundred Thousand Dollars
($2,500,000) of Series E Preferred Stock of AeroGen, at a purchase price of
$2.60 per share.

12.      CONFIDENTIALITY

         12.1     USE OF CONFIDENTIAL INFORMATION. During the Term of this
Agreement, AeroGen and PathoGenesis may each provide Confidential Information,
including but not limited to each party's proprietary materials and/or
technologies, economic information, business or research strategies, trade
secrets and material embodiments thereof, to the other. As used herein,
"Confidential Information" of a party means any such confidential information
disclosed by such party to the other party (i) in written form marked
"confidential," or (ii) in oral form if summarized in a writing marked
"confidential" delivered to the receiving party within thirty (30) days after
the oral disclosure. The parties shall only use Confidential Information of the
other party for those purposes specified in this Agreement.

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


                                      18.
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         12.2     CONFIDENTIALITY AND NON-USE. The recipient party shall
maintain the providing party's Confidential Information in strict confidence,
except if and to the extent that such disclosure is required by applicable law
and provided that the providing party has received written notice reasonably far
in advance of the proposed disclosure. The recipient party shall use the
providing party's Confidential Information solely to exercise its rights and
perform its obligations under this Agreement, unless otherwise mutually agreed
in writing. Upon request by the providing party, the recipient party shall,
within ten (10) days of receiving such request, return all tangible materials
comprising Confidential Information of the providing party and return or destroy
any notes, copies, summaries or extracts of the providing party's Confidential
Information, provided that each party shall be permitted to retain one copy of
such embodiments of the other party's Confidential Information for legal
archiving purposes.

         12.3     EXCLUSIONS. Confidential Information shall not include
information that: (i) is shown by contemporaneous documentation of the recipient
party to have been in its possession prior to receipt from the providing party;
(ii) is or becomes, through no fault of the recipient party, publicly known;
(iii) is furnished to the recipient party by a third party without breach of a
duty to the disclosing party; or (iv) is independently developed by the
recipient party without access to the providing party's Confidential
Information.

         12.4     CONFIDENTIALITY AGREEMENTS. AeroGen and PathoGenesis shall use
commercially reasonable efforts to obtain, if not already in place,
confidentiality agreements from its relevant employees, agents, subcontractors
and consultants to protect the confidential information as herein provided.

         12.5     PUBLICITY - RESULTS. During the Term of this Agreement,
AeroGen and PathoGenesis each acknowledge the other party's interest in
publishing certain of its results to obtain recognition within the scientific
community and to advance the state of scientific knowledge. Each party also
recognizes the mutual interest in obtaining valid patent protection and
protecting business interests. Consequently, either party, its employees or
consultants wishing to make a publication or other disclosure (including any
oral disclosure made without obligation of confidentiality) relating to work
performed by such party as part of the work being conducted under this Agreement
(the "Publishing Party") shall transmit to the other party (the "Reviewing
Party") a copy of the proposed written publication or disclosure or an outline
of such oral disclosure at least sixty (60) days prior to submission for
publication or oral disclosure. Such publication or disclosure shall not be made
without the prior written consent of the Reviewing Party, which consent shall
not be unreasonably withheld.

         12.6     PUBLICITY - TERMS OF AGREEMENT. Except as provided in Section
12.7., neither party shall disclose this Agreement or any of the material terms
thereof to any third party, whether in writing or orally, without the prior
written consent of the other party, except for terms or subject matter which has
been the subject of public disclosure or has been mutually approved for such
disclosure pursuant to Section 12. Notwithstanding the foregoing, each party
shall have the right to disclose the material terms of this Agreement in
confidence to any bona fide potential or actual investor, investment banker,
counsel, acquirer, merger target, and where reasonably practicable, shall obtain
a binder of confidentiality consistent with the terms of this Agreement. In
addition, either party may make any such disclosure if, but only to the extent
such disclosure is, on advice of counsel, required by applicable law. The
disclosing party shall use all

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


                                      19.
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commercially reasonable efforts to preserve the confidentiality of this
Agreement and the terms thereof notwithstanding any such required disclosure,
and will give the other party written notice of such required disclosure in
advance thereof, to the extent practicable. In the event either party is
required to file this Agreement with the Securities and Exchange Commission or
any other regulatory agency, such party shall apply for confidential treatment
of this Agreement to the fullest extent permitted by law, shall provide the
other party a copy of the confidential treatment request far enough in advance
of its filing to give the other party a meaningful opportunity to comment
thereon, and shall incorporate in such confidential treatment request any
reasonable comments of the other party.

         12.7     PUBLICITY - PRESS RELEASES. The parties may issue press
releases, either jointly or independently, following the execution of this
Agreement, the form and substance of which shall be approved by the parties,
provided such approval shall not be unreasonably withheld or delayed. Any
subsequent press releases regarding this Agreement, the progress or status
thereof or any developments or other information related thereto shall be
approved in advance by the parties, such approval not to be unreasonably
withheld or delayed.

         12.8     PUBLICITY - USE OF PARTIES' NAMES. Neither party shall use the
name of the other party or any of the other party's affiliates, employees or
subsidiaries, or reference any of the other party's products in any promotions,
public statements or public disclosures without the prior written consent of an
authorized representative of the other party, except where required by law.

13.      ADVERSE INFORMATION AND EVENT REPORTING

         13.1     NOTIFICATION. Each party shall report to the other party, in
as much detail as possible, within forty eight (48) hours from receipt of the
information (or less, where required so as to comply with FDA or after
applicable regulations) any experience coincident with the use of the Inhaler,
AeroGen Inhaler or the Products at any dose, whether or not considered drug
related, that suggests a significant hazard, contraindication, side effect or
precaution. This includes, but is not limited to, any serious adverse experience
or expectation regarding the use of the Products. A serious adverse experience
or expectation includes, at minimum, any possible event coincident with the use
of inhalation devices or the Products that results in any of the following
outcomes: death, a life-threatening experience, inpatient hospitalization,
prolongation of an existing hospitalization, a persistent or significant
disability or incapacity, or a congenital anomaly or birth defect.

         13.2     PRODUCT RECALLS. In the event the FDA orders a recall of the
Inhalers or the Products or one or both parties determine that a voluntary
recall of the Inhaler Product is warranted, the parties agree to meet and confer
in good faith as to whether and how to proceed with such recall and the
allocation of expenses to be incurred in connection therewith.

14.      REPRESENTATIONS AND WARRANTIES

         14.1     AEROGEN REPRESENTATIONS AND WARRANTIES. AeroGen represents,
warrants and covenants that:

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


                                      20.
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                           (a)      AeroGen is a corporation duly organized,
existing and in good standing under the laws of the State of Delaware, with full
right, power and authority to enter into and perform this Agreement;

                           (b)      the execution, delivery and performance of
this Agreement does not conflict with, violate or breach any agreement to which
AeroGen is a party, any court order to which AeroGen is a party or subject to or
AeroGen's certificate of incorporation or bylaws;

                           (c)      this Agreement has been duly executed and
delivered by AeroGen and is a legal, valid and binding obligation enforceable
against AeroGen in accordance with its terms subject to applicable bankruptcy,
insolvency, reorganization, arrangement, moratorium and other laws relating to
or affecting creditors' rights generally and equitable principles;

                           (d)      as of the Effective Date, AeroGen owns or
controls AeroGen's Inhalation Intellectual Property;

                           (e)      to the best of its knowledge, AeroGen [*];

                           (f)      AeroGen has the right to grant the licenses
and rights set forth in this Agreement;

                           (g)      to the best knowledge of AeroGen, [*];

                           (h)      except as set forth on Schedule 14.1(h),
[*];

                           (i)      to the best knowledge of AeroGen, [*].

                           (j)      AeroGen has not knowingly withheld from
PathoGenesis any [*], and to the best knowledge of AeroGen, the information
relating to the manufacture, safety or efficacy of the Clinical Test Inhaler,
Inhaler and the Products provided to PathoGenesis does not contain any
misstatement of a material fact nor omit to state any material fact required to
make such information not misleading;

                           (k)      the execution and delivery by AeroGen of
this Agreement and the performance by AeroGen of the obligations under this
Agreement require no regulatory approvals other than approvals by FDA or other
similar agencies in the Territory to be obtained on the part of AeroGen, or, if
required, AeroGen has obtained such approvals;

                           (l)      during the Term and subject to the terms and
conditions of this Agreement, AeroGen will not grant any license or other right
in any of AeroGen's Inhalation Intellectual Property that interferes with or
conflicts with any of the licenses or rights granted to PathoGenesis under this
Agreement;

                           (m)      the financial information, including but not
limited to audited financial statements, that AeroGen has provided to
PathoGenesis as of the Effective Date comply with GAAP (as defined in Section
8.1) and are correct in all material respects; and

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


                                      21.
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                           (n)      the Clinical Test Inhalers and Inhalers
AeroGen supplies to PathoGenesis hereunder shall, [*].

         14.2     PATHOGENESIS REPRESENTATIONS AND WARRANTIES. PathoGenesis
represents, warrants and covenants that:

                           (a)      PathoGenesis is a corporation duly
organized, existing and in good standing under the laws of the State of
Delaware, with full right, power and authority to enter into and perform this
Agreement;

                           (b)      the execution, delivery and performance of
this Agreement does not conflict with, violate or breach any agreement to which
PathoGenesis is a party, any court order to which PathoGenesis is a party or
subject to or PathoGenesis' certificate of incorporation or bylaws;

                           (c)      this Agreement has been duly executed and
delivered by PathoGenesis and is a binding obligation enforceable against
PathoGenesis in accordance with its terms subject to applicable bankruptcy,
insolvency, reorganization, arrangement, moratorium and other laws relating to
or affecting creditors' rights generally and equitable principles; and

                           (d)      during the term, PathoGenesis will not use
AeroGen's Inhalation Intellectual Property outside the Field or for the delivery
of any drug other than Tobramycin Solution, except as provided under Section
2.8.5(b).

15.      INDEMNIFICATION AND INSURANCE

         15.1     INDEMNIFICATION OF AEROGEN. PathoGenesis shall at all times
during and after the Term be responsible for, and shall defend, indemnify and
hold AeroGen, its directors, officers, employees, agents and representatives
harmless from and against any and all losses, claims, lawsuits, proceedings,
expenses, recoveries and damages, including reasonable legal expenses, costs and
attorneys fees, arising out of: (i) any product liability claim or lawsuit by a
third party directly arising from the Drug Products or any other products made,
used, sold or distributed by PathoGenesis, except to the extent attributable to
AeroGen's breach of its representations and warranties provided in Section 14.1;
(ii) any breach of any representation or warranty given in this Agreement by
PathoGenesis; (iii) any negligent conduct or willful misconduct by PathoGenesis;
and (iv) any representation made or warranty given by PathoGenesis with respect
to the Products (other than the labeling therefor as approved by the relevant
regulatory authorities) provided however, that: (a) AeroGen gives PathoGenesis
prompt notice of any such claim or lawsuit; (b) PathoGenesis has the right to
compromise, settle or defend such claim or lawsuit; and (c) AeroGen, at the
expense of PathoGenesis, cooperates with PathoGenesis in the defense of such
claim or lawsuit. AeroGen, at its expense, may participate in the defense of any
such claim or lawsuit.

         15.2     INDEMNIFICATION OF PATHOGENESIS. AeroGen shall at all times
during and after the Term be responsible for, and shall defend, indemnify and
hold PathoGenesis, its directors, officers, employees, agents and
representatives harmless from and against any and all losses, claims, lawsuits,
proceedings, expenses, recoveries and damages, including reasonable legal

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


                                      22.
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expenses, costs and attorneys fees, arising out of:. (i) any product liability
or lawsuit by a third party directly arising from the Clinical Test Inhalers or
the Inhalers provided by AeroGen to PathoGenesis, except to the extent
attributable to PathoGenesis' breach of its representations and warranties
provided in Section 14.2; (ii) any breach of any representation or warranty
given in this Agreement by AeroGen; and (iii) any negligent conduct or willful
misconduct by AeroGen; provided however, that (a) PathoGenesis gives AeroGen
prompt notice of any such claim or lawsuit; (b) AeroGen has the right to
compromise, settle or defend such claim or lawsuit; and (c) PathoGenesis, at the
expense of AeroGen, cooperates with AeroGen in the defense of such claim or
lawsuit. PathoGenesis, at its expense, may participate in the defense of any
such claim or lawsuit.

         15.3     INSURANCE. Each party shall maintain appropriate product
liability insurance with respect to any clinical trials, manufacturing,
development, sales, marketing, distribution and promotion activities performed
by it hereunder, in each case in the amount of [*] per occurrence and in total,
except that AeroGen shall not be required to maintain separate insurance
pursuant to this Section 15.3 if it maintains substantially the same coverage
pursuant to Section 7.10. Each party shall maintain such insurance until such
Products are no longer sold. In the case of clinical trial insurance, each party
shall maintain such insurance for [*] following the completion of clinical
trials. Upon termination of such insurance, each party shall obtain tail end
product liability coverage for a [*] term in such amounts and subject to such
deductibles as the parties may mutually agree based upon standards prevailing in
the industry at the time. Each party shall name the other party as an additional
insured on any policy required by this section, and shall deliver certificates
of insurance to the other party to document compliance with this section.

         15.4     LIMITATION OF DAMAGES. IN NO EVENT WILL EITHER PARTY BE LIABLE
TO THE OTHER FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES
ARISING IN ANY WAY OUT OF THIS AGREEMENT, HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY. THIS LIMITATION WILL APPLY EVEN IF THE OTHER PARTY HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGE AND NOTWITHSTANDING ANY FAILURE OF ESSENTIAL
PURPOSE OF ANY LIMITED WARRANTY PROVIDED HEREIN. THIS LIMITATION SHALL NOT
APPLY, HOWEVER, TO A PARTY'S INDEMNIFICATION OBLIGATION FOR THIRD PARTY CLAIMS
PURSUANT TO SECTION 15.

         15.5     AEROGEN'S RIGHT TO PROSECUTE INFRINGEMENTS. AeroGen, at
AeroGen's expense and discretion, shall have the first right, but not the
obligation, to take action in its own name, in the name of its Affiliates and
its sublicensees, and in the name of PathoGenesis if necessary, to restrain any
infringement, threatened infringement or suspected infringement of any AeroGen
Inhalation Intellectual Property. PathoGenesis, at AeroGen's expense, shall
reasonably cooperate with AeroGen in such action. PathoGenesis, at PathoGenesis'
option and expense, may actively participate as a party in any such action,
where the infringing product at issue delivers an Antiinfective Drug, so long as
the licenses under Section 2 are exclusive with respect to the country in which
such action is brought (a "Relevant Claim"). Subject to the terms and conditions
of this Agreement, AeroGen shall have the right to control prosecution of such
action and the right to settle and compromise such action or dispute. In the
event any monetary recovery in connection with such action or settlement is
obtained, such recovery shall be applied in the following priority: [*].

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


                                      23.
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         15.6     PATHOGENESIS' OPTION TO PROSECUTE INFRINGEMENTS. If AeroGen
does not file an action to restrain such infringement, threatened infringement
or suspected infringement of AeroGen's Inhalation Intellectual Property in the
Field relating to delivery of an Antiinfective Drug, [*], within [*] after (i)
AeroGen becomes aware of such infringement, threatened infringement or suspected
infringement, or (ii) receipt of PathoGenesis' written request to AeroGen to do
so, then PathoGenesis, at PathoGenesis' expense, shall have the right, but not
the obligation, to take action in its name, to restrain such infringement,
threatened infringement or suspected infringement. AeroGen, at PathoGenesis'
expense shall reasonably cooperate with PathoGenesis in such action. AeroGen, at
AeroGen's option and expense, may actively participate as a party in such
action. Subject to the terms and conditions of this Agreement, PathoGenesis
shall have the sole and exclusive right to control prosecution of such action,
but shall not settle and/or compromise such action or dispute without the
consent of AeroGen, which shall not be unreasonably withheld. In the event any
monetary recovery in connection with such infringement action is obtained, such
recovery shall be applied in the following priority: [*].

16.      DISPUTE RESOLUTION

         16.1     NEGOTIATION. AeroGen and PathoGenesis shall endeavor to
resolve any claim or controversy arising out of or relating to this Agreement or
arising from the JDT, or the threatened breach, breach, termination or validity
of this Agreement informally by negotiation between the senior executives,
officers or management of AeroGen and PathoGenesis. Either party may give the
other party written notice of any claim or controversy not resolved in the
normal course of business, or in the case of the JDT, as provided in Section
3.1.6 (the "Disputing Party Notice"). Within [*] after the delivery of the
Disputing Party Notice, the receiving party shall submit to the other party a
written response (the "Response"). The Disputing Party Notice and Response shall
include a statement of each party's position and a summary of the arguments
supporting that position. Within [*] after the Disputing Party Notice, such
designated senior executives, officers or management of AeroGen and PathoGenesis
shall meet at a mutually acceptable time and place and thereafter as often as
they reasonably deem necessary to attempt to resolve the claim or controversy.
All negotiations pursuant to this clause are confidential and without prejudice
and shall be treated as compromise and settlement negotiations for purposes of
applicable rules of evidence.

         16.2     MEDIATION. If the claim or controversy has not been resolved
by negotiation pursuant to Section 16.1 of this Agreement within [*] of the
Disputing Party Notice, or if the parties fail to meet within the time periods
specified in Section 16.1 of this Agreement, the parties shall endeavor to
settle the dispute by mediation under [*]. Unless otherwise agreed, the parties
shall select a mediator from the [*] panel of neutrals and shall notify [*] to
initiate the selection process. Either party may initiate this procedure [*]
after the Disputing Party Notice whether or not the parties have met.

         16.3     ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement, or the threatened breach, breach, termination or
validity thereof, which remains unresolved for forty five (45) days after the
appointment of a mediator pursuant to Section 16.2 of this Agreement shall be
finally settled by arbitration in accordance with the [*]. The tribunal shall
consist of a sole arbitrator unless in the initial notice of arbitration or
notice of defense, either party requests a panel of three arbitrators in which
event the panel will consist of three

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


                                      24.
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arbitrators, none of whom shall be appointed by a party. In selecting the
arbitrator(s), either party may, but need not, strike any candidate who does
not have a background in the field of pharmaceuticals with related
scientific, legal or business experience. The arbitration shall be governed
by the United States Arbitration Act, 9 U.S.C. Section 1 et seq., and
judgment upon the award rendered by the arbitrator(s) may be entered by any
court or authority having jurisdiction thereof. Insofar as the proceeding
relates to patents, it shall also be governed by 35 U.S.C. Section 294, to
the extent applicable. The arbitrators are not empowered to award treble,
punitive or any other damages in excess of compensatory damages and each
party irrevocably waives any claim to recover any such damages. The place of
the arbitration shall be in [*].

         16.4     INJUNCTIVE RELIEF. Notwithstanding the foregoing, each party
shall have the right to immediately apply to a court of competent jurisdiction
to seek temporary, or permanent injunctive relief to restrain any conduct or any
threatened conduct in violation of or otherwise with respect to Sections 10, 12,
13 and 15 of this Agreement, or that could threaten the parties' rights in or
to, or protect or enforce, any of the parties' intellectual property.

17.      TERM AND TERMINATION

         17.1     TERM. The term of this Agreement is effective as of the
Effective Date as first written above, and except as otherwise provided in this
Section 17 of this Agreement, shall terminate at the end of the Term.

         17.2     TERMINATION FOR BREACH. If either party shall be in default
of, or fail to comply with any material obligation or condition of this
Agreement, the non-defaulting party may terminate this Agreement by giving [*]
notice to the defaulting party, specifying in reasonable detail the basis for
termination. If within [*] after the receipt of such notice, the party who
received such notice remedies the condition forming the basis for termination,
such notice shall cease to be operative, and this Agreement shall continue in
full force and effect. If [*] after the receipt of such notice, the party who
received such notice fails to remedy the condition forming the basis for
termination, this Agreement shall be terminated.

         17.3     TERMINATION FOR CAUSE.

                  17.3.1   PathoGenesis shall have the option to terminate this
Agreement without penalty by giving AeroGen sixty (60) days' written notice if
PathoGenesis, in its sole discretion, determines that the results, [*] are
unsatisfactory; provided that PathoGenesis shall have informed AeroGen promptly
of the basis underlying such decision to terminate, including summaries of data,
and AeroGen shall have had the opportunity to comment thereon and the parties
shall have discussed the matter in good faith.

         17.4     TERMINATION WITHOUT CAUSE. Notwithstanding anything in this
Agreement to the contrary, after the first commercial sale of the Product in any
country, either party, in its sole discretion and without cause, may give the
other party written notice of its intent to terminate this Agreement, such
termination to be effective two (2) years after the receipt of such notice.

         17.5     EFFECTS OF TERMINATION.

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


                                      25.
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                  17.5.1   SALES AFTER TERMINATION. Upon early termination of
this Agreement, other than pursuant to Section 17.1 of this Agreement,
PathoGenesis shall have the right for six (6) months to sell the Product in
inventory, on order, or being manufactured at the time of notification of
termination, whether or not in the form of raw materials, products in process or
finished products on hand, provided the royalties and Inhaler Transfer Price
owed to AeroGen on such sales are paid to AeroGen when due in accordance with
this Agreement.

                  17.5.2   NONCANCELLABLE COSTS. In the event PathoGenesis
terminates this Agreement pursuant to Section 17.3, it shall nonetheless
reimburse AeroGen for any and all non-cancelable costs to be incurred by AeroGen
due to such early termination.

         17.6     SURVIVAL. The rights and obligations described in Sections
5.4, 9.6, 9.7, 10, 12, 13, 15.1, 15.2, 15.3, 15.4, 16, 17, 18 of this Agreement
shall survive expiration or termination of this Agreement.

         17.7     RIGHTS IN BANKRUPTCY. All rights and licenses granted under or
pursuant to this Agreement by AeroGen are, and shall otherwise be deemed to be,
for purposes of Section 365(n) of the United States Bankruptcy Code, licenses of
a right to "intellectual property" as defined under Section 101 of the United
States Bankruptcy Code. PathoGenesis, as licensee of such rights under this
Agreement, shall retain and may fully exercise all of its rights and elections
under the United States Bankruptcy Code in the event of the commencement of a
bankruptcy proceeding by or against AeroGen under the United States Bankruptcy
Code including, but not limited to, the right to treat this Agreement or any
agreement supplementary to this Agreement as terminated or to retain its rights
under this Agreement or any Agreement supplementary to this Agreement. In the
event that PathoGenesis elects to retain its rights under this Agreement or any
agreement supplementary to this Agreement, AeroGen shall provide to
PathoGenesis, within [*] of written notice by PathoGenesis to AeroGen in
accordance with Section 18.2 of this Agreement, all intellectual property and
all embodiments of such intellectual property within the possession or control
of AeroGen.

18.      MISCELLANEOUS

         18.1     ENTIRE AGREEMENT. This Agreement, which includes the Exhibits
hereto, contains the entire agreement between AeroGen and PathoGenesis with
respect to the transactions contemplated by this Agreement and supersedes all
prior arrangements or understandings with respect thereto.

         18.2     NOTICES. All notices or other communications that are required
or permitted under this Agreement shall be in writing and shall be sent by
Federal Express or other reliable overnight courier, or hand delivered or mailed
by registered or certified mail, postage prepaid and return receipt requested,
to the appropriate party addressed as follows:

                  If to AeroGen:        AeroGen, Inc.
                                        1310 Orleans Drive
                                        Sunnyvale, California

                                        Attention: Dr. Jane E. Shaw

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


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                                        Chairman and Chief Executive Officer

                  with a copy to:       Cooley Godward LLP
                                        Five Palo Alto Square
                                        3000 El Camino Road
                                        Palo Alto CA 94306-2155

                                        Attention: Barbara A. Kosacz

                  If to PathoGenesis:   PathoGenesis Corporation
                                        5215 Old Orchard Rd. #900
                                        Skokie, Illinois 60077

                                        Attention: Wilbur H. Gantz
                                        Chairman and Chief Executive Officer

                  with a copy to:       PathoGenesis Corporation
                                        5215 Old Orchard Rd., #900
                                        Skokie, Illinois 60077

                                        Attention:Cameron S. Avery
                                        General Counsel

         Any party may by such notice change the address to which notice or
other communications to it are to be delivered or mailed.

         18.3     GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of Delaware excluding its conflict-of-law
rules. This provision shall not preclude application of the United States
Arbitration Act.

         18.4     ASSIGNABILITY. This Agreement shall not be assignable other
than by operation of law by either party without the prior written consent of
the other party, and any purported assignment by either party without the prior
written consent of the other party shall be void, except that either party may
assign its rights under this Agreement to any other corporation or other entity
that succeeds to all or substantially all of that portion of its business to
which this Agreement relates pursuant to any reorganization or sale or
disposition of substantially all of its assets related to that portion of its
business, provided that the assignee agrees to assume the assignor's obligations
hereunder, in which case the assignor shall have no further rights or
obligations under this Agreement. Nothing in this Agreement or such assignment
shall eliminate such assignor's obligations under this Agreement which arise
prior to the time of such assignment. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors and
permitted assigns.

         18.5     WAIVERS AND AMENDMENTS. Any waiver of any term or condition of
this Agreement, or any amendment or supplementation of this Agreement, shall be
effective only if in writing signed by the parties. A waiver of any breach or
failure to enforce any of the terms or conditions of this Agreement shall not in
any way affect, limit or waive a party's rights

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


                                      27.
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hereunder at any time to enforce strict compliance thereafter with every term or
condition of this Agreement.

         18.6     SEVERABILITY. In the event that any provision contained in
this Agreement shall be determined to be invalid, illegal or unenforceable in
any respect for any reason, the validity, legality and enforceability of any
such provision in every other respect and the remaining provisions of this
Agreement shall not, at the election of the party for whose benefit the
provision exists, be in any way impaired.

         18.7     SECTION HEADINGS. The section headings contained in this
Agreement are for the purpose of convenience and are not intended to define or
limit the contents of such sections.

         18.8     COUNTERPARTS. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The parties may exchange
signature pages of this Agreement by facsimile with originals to follow by
overnight delivery.

         18.9     FURTHER ASSURANCES. Upon the reasonable request of either
party, the other party shall execute any additional certificates or other
documents that may be reasonably necessary to fully implement this Agreement.

         18.10    FORCE MAJEURE. Except pursuant to existing laws, regulations
and orders, no failure or omission by either party in the performance of any
obligation of this Agreement shall be deemed a breach of this Agreement or
create any liability if the same shall arise from any cause or causes beyond the
control of the parties including, but not limited to the following which, for
the purposes of this Agreement, shall be regarded as beyond the control of the
party in question: (i) any act or omission of any government; (ii) any future
rule, regulation or order issued by any governmental authority or by any
officer, department, agency, or instrumentality thereof which makes such
performance impossible or commercially unreasonable; or (iii) any Act of God;
fire; storm; flood; earthquake; accident; war;, rebellion; insurrection; riot;
invasion; strike; and lockout.

         18.11    COMPLIANCE OF LAW. In conducting any activities under this
Agreement or in connection with the manufacture, use or sale of the Product,
AeroGen and PathoGenesis shall comply with all applicable laws and regulations
including, but not limited to, all Export Administration Regulations of the
United States Department of Commerce.

         18.12    CONFIDENTIALITY OF TERMS OF AGREEMENT. Without the prior
written consent of the other party, neither of the parties shall disclose to
anyone any of the material terms of this Agreement, except upon the
recommendation of counsel in view of any governmental or regulatory law, rule or
guideline (in which event, the disclosing party shall make reasonable efforts to
obtain whatever protection against further disclosure may be available in the
circumstances). Notwithstanding the above, either party may issue a press
release as agreed upon by the parties.

         18.13    RELATIONSHIP OF THE PARTIES. The relationship of the parties
under this Agreement is that of independent contractors. Neither party shall be
deemed to be the agent of the other, nor

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


                                      28.
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shall the parties be deemed to be partners or joint venturers. Neither party
hereto shall have any express or implied right or authority to assume or create
any obligations on behalf of or in the name of the other party or to bind the
other party to any contract, agreement or undertaking.

         18.14    BINDING AGREEMENT. This Agreement, and the Exhibits hereto,
constitute a legally valid and binding obligation of both parties.

         18.15    BOOKS AND RECORDS. Each party shall keep full and accurate
books of account containing all particulars that may be necessary for the
purpose of calculating all amounts owed to the other party hereunder and for the
purpose of calculating any costs or developing any budgets hereunder. Said books
of account shall be kept at the parties' respective principal places of
business. All such reports and data shall be open for inspection by the other
party on a confidential basis at all reasonable times and either party may
conduct, at its own expense, once every year during normal business hours
through an independent certified public accountant, an examination of the
accounts contemplated above.

         IN WITNESS WHEREOF, the parties hereby have executed this Agreement, as
of the date first above written.

AEROGEN:

AEROGEN, INC.

/s/ Jane E. Shaw
-------------------------------------------
Dr. Jane E. Shaw
Chairman and Chief Executive Officer

PATHOGENESIS:

PATHOGENESIS CORPORATION

By: /s/ Wilbur H. Gantz
   ----------------------------------------
     Wilbur H. Gantz
     Chairman and Chief Executive Officer





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


                                      29.
<PAGE>

                                    EXHIBIT A

            SPECIFICATIONS FOR AERODOSE/TOBRAMYCIN SOLUTION INHALERS

         TOBRAMYCIN SOLUTION - an aqueous solution containing tobramycin, [*].

         ADAPTER - see drawing attached as part of Exhibit A

         AMPOULE - see drawing attached as part of Exhibit A

         I)       GENERAL

                  A)       [*].

                  B)       Specifications are subject to change by [*]

                  C)       [*]

         II)      [*]

                  A)       [*]

                           [*]

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


                                      30.
<PAGE>

                              EXHIBIT A - CONTINUED

                  [*]

III)     [*]

                  [*]

                  1)       [*]

                                                       EXHIBIT A - CONTINUED

                           [*]

                           [*]

                                                       EXHIBIT A - CONTINUED

                  [*]

         IV)      COMMERCIAL DEVICES: [*]

                  A)       [*]

                  B)       [*]

                  C)       [*]

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


                                      31.
<PAGE>

                                    EXHIBIT A

                                      [*]








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


                                      32.
<PAGE>

                              EXHIBIT A - CONTINUED
                  AEROGEN/PATHOGENESIS PROGRAM COST PROJECTION

<TABLE>
<CAPTION>
CLINICAL PHASE I DEVELOPMENT
<S><C>
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------     -----------------    -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------
         [*]                    [*]                  [*]                   [*]                  [*]

<CAPTION>
PHASE I MANUFACTURING/RELEASE
<S><C>
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------     -----------------    -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------
         [*]                    [*]                  [*]                   [*]                  [*]

[*]                                                  [*]                   [*]                  [*]
[*]                                                  [*]                   [*]                  [*]
                                              ------------------
[*]                                                  [*]                   [*]                  [*]
</TABLE>

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


                                      33.
<PAGE>

                              EXHIBIT A - CONTINUED
                  AEROGEN/PATHOGENESIS PROGRAM COST PROJECTION

<TABLE>
<S>                     <C>                   <C>                   <C>                  <C>
CLINICAL PHASE I DEVELOPMENT
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------     -----------------    -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------     -----------------    -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
                        -------------------                         -----------------    -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------                        -----------------
         [*]                    [*]                  [*]                   [*]                  [*]


PHASE III MANUFACTURING/RELEASE
         [*]                    [*]                  [*]           [*]                  [*]
----------------------  -------------------   -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------                                              -----------------    -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------                                              -----------------    -----------------
         [*]                    [*]                  [*]                   [*]                  [*]

[*]                                          [*]                           [*]                  [*]
[*]                                          [*]                           [*]                  [*]
[*]                                                  [*]                   [*]                  [*]

[*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------     -----------------    -----------------
[*]                             [*]                  [*]                   [*]                  [*]

[*]                     [*]                  [*]                   [*]                  [*]
</TABLE>

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


                                      34.
<PAGE>

                              EXHIBIT A - CONTINUED
                  AEROGEN/PATHOGENESIS PROGRAM COST PROJECTION

<TABLE>
<S>                     <C>                   <C>                   <C>                  <C>
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------     -----------------    -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------                                              -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------                         -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
                                                                                                [*]
[*]                             [*]                  [*]                   [*]                  [*]

[*]
[*]                                                  [*]                   [*]                  [*]
[*]                                                  [*]                   [*]                  [*]
[*]                                                  [*]                   [*]                  [*]
                                              -----------------
[*]                                                  [*]                   [*]                  [*]
</TABLE>

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


                                      35.
<PAGE>

                                    EXHIBIT B

                                      [*]







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


                                      36.
<PAGE>

                                    EXHIBIT C

                              AEROGEN PATENT RIGHTS

ISSUED U.S. PATENTS AND FOREIGN COUNTERPARTS

         [*]









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


                                      37.
<PAGE>

                              EXHIBIT C - CONTINUED
                              AEROGEN PATENT RIGHTS

PENDING U.S. PATENT APPLICATIONS

[*]









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


                                      38.
<PAGE>

                              EXHIBIT C - CONTINUED
                              AEROGEN PATENT RIGHTS

         [*]










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


                                      39.
<PAGE>

                                SCHEDULE 14.1(h)

                                      [*]











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


                                      40.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10
<SEQUENCE>21
<FILENAME>ex-10_10.txt
<DESCRIPTION>EXHIBIT 10.10
<TEXT>

<PAGE>

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

                                                                  EXHIBIT 10.10

                                 INSULIN INHALER

                                   DEVELOPMENT

                                    AGREEMENT

                                 BY AND BETWEEN

                          BECTON, DICKINSON AND COMPANY

                                       AND

                                  AEROGEN, INC.

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       i
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       ii
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                      iii
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       iv
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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


                                       v
<PAGE>

                      INSULIN INHALER DEVELOPMENT AGREEMENT

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

                                    RECITALS

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

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

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

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

1.       DEFINITIONS

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

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

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

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


                                       1.
<PAGE>

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

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

         1.5      "BD CARTRIDGE" means [*].

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

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

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

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

         1.10     "CARTRIDGE" means a [*].

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

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

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

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

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

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

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

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


                                       2.
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       3.
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         1.33     "NET SALES" means, with respect to each Partnering Agreement,
net sales of the Retail Product as defined in such agreement; provided that [*].

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       4.
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         1.47     "THIRD PARTY" means any entity other than AeroGen or BD or
their respective Affiliates.

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

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

2.       OVERVIEW

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

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

3.       MANAGEMENT

         3.1      JOINT DEVELOPMENT TEAM.

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

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

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


                                       5.
<PAGE>

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

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

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

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

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

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

         3.2      STEERING COMMITTEE.

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


                                       6.
<PAGE>

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

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

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

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

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

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


                                       7.
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Notwithstanding the foregoing, BD shall have the right to call a special
meeting of the Steering Committee on two (2) weeks written notice to AeroGen.

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

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

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

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

4.       TECHNICAL DEVELOPMENT PROGRAM

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

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

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

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


                                       8.
<PAGE>

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

         4.5      DEVELOPMENT OF PRODUCT SPECIFICATIONS.

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

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

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

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

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

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

         4.6      RECORDS AND REPORTS.

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

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

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


                                       9.
<PAGE>

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

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

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

5.       CLINICAL DEVELOPMENT

         5.1      AEROGEN RESPONSIBILITIES.

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

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

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

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


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

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

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

6.       COMMERCIALIZATION

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

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

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

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


                                      11.
<PAGE>

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

7.       MANUFACTURING AND SUPPLY

         7.1      SUPPLY OF THE DRUG.

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

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

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

         7.2      MANUFACTURE AND SUPPLY OF THE CARTRIDGE.

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

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


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

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

         7.3      EXCLUSIVITY.

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

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

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

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

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

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

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

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

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


                                      13.
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                  (d)      The negative covenants set forth in this Section
7.3(a) and (b) shall not survive any early termination of this Agreement by
either Party.

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

         7.4      USE OF AEROGEN INTELLECTUAL PROPERTY.

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

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

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

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

8.       LICENSE GRANTS

         8.1      TO BD.

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

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


                                      14.
<PAGE>

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

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

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

         8.2      TO AEROGEN.

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

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

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

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

         8.4      RESERVATION OF RIGHTS.

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

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

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


                                      15.
<PAGE>

9.       ROYALTIES

         9.1      ROYALTIES.

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

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

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

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

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

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

         9.3      CALCULATION OF BD PERCENTAGE IN CERTAIN CIRCUMSTANCES.

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

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

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

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

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

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


                                      16.
<PAGE>

                           (ii)     discounts given for volume purchases;

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

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

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

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

         9.4      UPFRONT PAYMENTS.

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

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

         9.5      PAYMENT OF THE BD PERCENTAGE.

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

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

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

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


                                      17.
<PAGE>

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

10.      INTELLECTUAL PROPERTY

         10.1     OWNERSHIP.

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

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

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

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

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

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


                                      18.
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         10.2     PATENT MATTERS.

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

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

                  (c)      JOINT PATENTS.

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

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

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

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


                                      19.
<PAGE>

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

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

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

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

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

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

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

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

11.      CONFIDENTIALITY

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


                                      20.
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         11.1     TREATMENT OF CONFIDENTIAL INFORMATION. A Party receiving or
gaining access to Confidential Information, as defined below, (the "Receiving
Party") of the other Party (the "Disclosing Party") will (i) maintain in
confidence such Confidential Information to the same extent the Receiving Party
maintains its own proprietary information (but at a minimum the Receiving Party
shall use commercially reasonable efforts), (ii) not disclose such Confidential
Information to any Third Party without prior written consent of the Disclosing
Party, except for disclosures made in confidence to any Third Party pursuant to
a plan approved by the JDT or the Steering Committee, and (iii) not use such
Confidential Information for any purpose except as expressly permitted by this
Agreement. As used herein, "Confidential Information" shall mean all
Information, and any other information and materials, received by the Receiving
Party from the Disclosing Party pursuant to this Agreement. Without limiting the
generality of the foregoing, the AeroGen Technology shall be deemed Confidential
Information of AeroGen, the BD Technology shall be deemed Confidential
Information of BD, and the Joint Technology shall be deemed Confidential
Information of both Parties. Notwithstanding the foregoing, "Confidential
Information" shall not include any Information that:

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

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

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

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

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

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

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


                                      21.
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legally required disclosure and to the extent practicable shall provide the
other Party an opportunity to comment on the proposed disclosure.

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

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

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

12.      REPRESENTATIONS AND COVENANTS

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

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

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

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

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

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


                                      22.
<PAGE>

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

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

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

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

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

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

13.      TERM AND TERMINATION

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

         13.2     TERMINATION FOR OTHER THAN CAUSE.

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

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

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

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


                                      23.
<PAGE>

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

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

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

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

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

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

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

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

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


                                      24.
<PAGE>

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

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

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

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

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

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

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

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

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

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


                                      25.
<PAGE>

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

         13.3     TERMINATION FOR BREACH.

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

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

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


                                      26.
<PAGE>

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

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

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

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

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

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

14.      INDEMNIFICATION

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

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

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


                                      27.
<PAGE>

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

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

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

15.      MISCELLANEOUS

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

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

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


                                      28.
<PAGE>

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

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

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

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

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

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

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

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


                                      29.
<PAGE>

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

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

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

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

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

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

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

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

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


                                      30.
<PAGE>

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

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

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

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

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

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

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

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


                                      31.
<PAGE>

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

BECTON, DICKINSON AND COMPANY                   AEROGEN, INC.

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

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

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


EXHIBIT 1  CRITICAL SYSTEM SPECIFICATIONS

EXHIBIT 2  TECHNICAL DEVELOPMENT PLAN

EXHIBIT 3  SUPPLY AGREEMENT TERMS

EXHIBIT 4  POTENTIAL INVENTORS

EXHIBIT 5  FORM OF EMPLOYMENT AGREEMENT

EXHIBIT 6  DIAGRAM OF [*]


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


                                      32.
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                                    EXHIBIT 1

                         CRITICAL SYSTEM SPECIFICATIONS

                                      [*]










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


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                                    EXHIBIT 2

                           TECHNICAL DEVELOPMENT PLAN

                                      [*]
                                          [*]






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


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                                    EXHIBIT 3

                             SUPPLY AGREEMENT TERMS

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

2.       EXCLUSIVITY.

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

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

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

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

3.       TRANSFER PRICE.

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

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

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

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

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


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

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

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

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

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

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

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

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


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

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

7.       INSPECTION, REJECTION AND ACCEPTANCE.

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

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

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


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

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

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

10.      INTELLECTUAL PROPERTY REPRESENTATIONS AND WARRANTIES.

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

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

11.      PRODUCT WARRANTIES AND DISCLAIMER.

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

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


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

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

12.      CHANGES TO THE BD CARTRIDGE.

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

13.      PRODUCT DISCONTINUANCE AND SUPPLY DEFAULT.

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

14.      REGULATORY MATTERS.

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

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

15.      INSPECTIONS AND AUDITS.

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

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


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

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

16.      ADVERSE EVENT REPORTING AND RECALLS.

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

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

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


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

17.      INDEMNITIES.

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

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

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


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

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

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

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

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

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

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


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                                    EXHIBIT 4

                               POTENTIAL INVENTORS

                                      [*]





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


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                                    EXHIBIT 5

                      FORM OF STANDARD EMPLOYMENT AGREEMENT

                               EMPLOYEE AGREEMENT

                                      [*]








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


                                      44.
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                                    EXHIBIT 6

                                      [*]

                                      [*]







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


                                      45.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.11
<SEQUENCE>22
<FILENAME>ex-10_11.txt
<DESCRIPTION>EXHIBIT 10.11
<TEXT>

<PAGE>

                                                                   EXHIBIT 10.11


                              SETTLEMENT AGREEMENT

                                     BETWEEN

                                   BESPAK PLC

                                       AND

                                  AEROGEN, INC.

                                       AND

                                TENAX CORPORATION


<PAGE>

                              SETTLEMENT AGREEMENT


SECTION A.        BACKGROUND AND STATUS INFORMATION

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

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

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

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

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

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

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

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

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


                                       i
<PAGE>


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

         B.1      SUPPLY CONTRACT EXECUTION.

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

         B.2      PATENT AND PATENT APPLICATION RIGHTS.

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

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

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

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

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

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

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

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


                                       ii
<PAGE>

         B.3      NONASSERTION CLAUSES.

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

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

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

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

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

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

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

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

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


                                      iii
<PAGE>

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

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

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


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


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

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


                                       iv
<PAGE>

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

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

SECTION D. TERMINATION OF EUROPEAN PATENT OFFICE OPPOSITION.

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

SECTION E. WARRANTIES, REPRESENTATION AND MISCELLANEOUS PROVISIONS.

         The following provisions shall apply to this SETTLEMENT AGREEMENT.

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

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

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


                                       v
<PAGE>

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

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

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

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

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

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

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


                                       vi
<PAGE>

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

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

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

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

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

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

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


                                      vii
<PAGE>

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

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

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

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

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

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

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

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

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


                                      viii
<PAGE>

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


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

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




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

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




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

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


                                       ix
<PAGE>

                                  ATTACHMENT I






                                       x
<PAGE>

                               ATTACHMENT I

                                 ATTACHMENT I

                                     TABLE 1

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


                                       xi
<PAGE>

                                  ATTACHMENT II





                                      xii
<PAGE>

                                 SUPPLY CONTRACT

                                     BETWEEN


                                 AEROGEN, INC.,


                                       AND


                               TENAX CORPORATION,


                                    AS SELLER


                           DATED AS OF MARCH 1ST 1999

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                    PAGE

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



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


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

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

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

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

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


                                       i
<PAGE>

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

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

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

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

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

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

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

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

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


                                       ii
<PAGE>

                                 SUPPLY CONTRACT


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


                                    RECITALS


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

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


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

1.       TERM.

         1.1      EFFECTIVE DATE.

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

         1.2      INITIAL TERM.

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

         1.3      RENEWAL TERMS.

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

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

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


                                       1
<PAGE>

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

2.       RELATIONSHIP OF PARTIES.

         2.1      MINIMUM AMOUNTS.

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

         2.2      PURCHASE OF PRODUCTS FROM OTHERS.

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

         2.3      SUPPLY OF PRODUCT TO OTHERS.

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

         2.4      SELLER AND BUYER.

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

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

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

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

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

         2.5      INTELLECTUAL PROPERTY.

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


                                       2
<PAGE>

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

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

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

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

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

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

         2.6      EQUIPMENT.

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

3.       PURCHASES AND SALES.

         3.1      SPECIFICATIONS.

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


                                       3
<PAGE>

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

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

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

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

         3.2      FORECASTS.

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

                           (i)      notify Seller of such determination; and

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

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


                                       4
<PAGE>

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

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

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

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

         3.3      PURCHASE ORDERS.

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

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

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

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

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

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

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


                                       5
<PAGE>

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

         3.4      PACKING.

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

         3.5      FREIGHT.

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

         3.6      ACCEPTANCE.

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

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

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

         then, Buyer:

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

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


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

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


                                       6
<PAGE>

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

         3.7      DELAYS.

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

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

                  (c)      Seller shall notify Buyer:

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

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

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

4.       WARRANTIES.

         4.1      WARRANTIES.

         Seller warrants that Products delivered to Buyer:

                  (a)      conform with the Product Specifications;

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

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


                                       7
<PAGE>

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

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

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

         4.2      DISCLAIMER OF WARRANTIES.

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

         4.3      DOCUMENTATION.

         Seller shall from time to time, upon Buyer's request, deliver to Buyer
copies of all documentation necessary and desirable for Buyer to make any
necessary filings or recordation with, or to obtain any licenses, approvals or
other authorizations from, any governmental agencies having jurisdiction over
Buyer.

5.       PRICE AND PAYMENT.

         5.1      PRICE.

                  (a)      Buyer shall purchase and Seller shall sell each unit
of the preservative free dispensing pump and canister described on Exhibit A at
the price set forth on Exhibit D. To the extent that Buyer requests that Seller
manufacture any product(s) described on Exhibit A other than the preservative
free dispensing pump and canister, the price to be paid by the Buyer for each
unit of such other product(s) shall be mutually agreeable to Buyer and Seller
and shall be commensurate with Seller's customary pricing criteria (which may
include Seller's direct cost of materials, Seller's direct cost of labor and
Seller's manufacturing overhead and profit); provided, however, that Seller's
price for each unit of such other product(s) shall be no more than fifteen
percent (15%) higher than the price any Other Seller (as hereinafter defined) of
such product(s) proposes to charge to Buyer for equivalent product(s). Buyer
shall supply Seller with written evidence on such Other Seller's letterhead of
any price proposed by an Other Seller which is lower than the price which Seller
proposes to charge for the same product(s). For purposes of this Section 5.1(a),
"Other Seller" shall mean a manufacturer of products registered with the federal
Food and Drug Administration and ISO certified, who manufactures such products
in accordance with current GMP and their equivalent promulgated by the governing
health authority of any other country in which such products are sold.


                                       8
<PAGE>

                  (b)      Seller may increase or decrease the price of Products
as set forth in a Modification Order.

                  (c)      No later than October 1 of each year, Seller shall
notify Buyer of (i) any increases and decreases in the costs of the commodities
and services used to produce the Products and included in the price pursuant to
Section 5.1(a) and (ii) the proposed increase or decrease in the price of any
Product which Seller anticipates will be require to compensate Seller or Buyer
for the net effect of such increases and decreases in its costs of production.
Provided that the proposed increase does not exceed the corresponding percentage
increase in the Consumer Price Index for the United States (All Items - All
Urban Consumers) as published by the United States Department of Labor, Bureau
of Labor Statistics (the "Index") for the most recent year for which the Index
is published, such increase or decrease in the price shall be effective on
January 1 of the following year.

         5.2       TAXES.

         Prices do not include sales, excise, use or other taxes specifically
and directly applicable to the Products and such taxes shall be paid by Buyer
unless Buyer provides Seller with a tax exemption certificate acceptable to the
relevant governmental authorities.

         5.3      PAYMENT.

                  (a)      Payment is due net 30 days from the date of Seller's
invoice for all Products not rejected hereunder.

                  (b)      If Buyer (x) disputes any amount on an invoice or (y)
has a claim against Seller under this Contract, Buyer shall:

                           (i)      pay the undisputed portion of the invoice
less the amount of any claims against Seller; and

                           (ii)     promptly notify Seller of its dispute and
claims, setting forth in reasonable detail the nature of such dispute or claims.

                  (c)      If Seller disputes any item disputed or claimed by
Buyer in a notice given by Buyer pursuant to Section 5.3(b), Seller and Buyer
shall resolve their differences pursuant to Sections 9.3 and 9.4.

                  (d)      Buyer shall pay Seller by check or wire transfer of
immediately available funds to a bank account designated by Seller, as Buyer
shall elect.

         5.4      LATE CHARGES.

                  (a)      Buyer shall pay a late charge per month of two
percent (2%) above the current prime or reference rate as announced by Bank of
America National Trust and Savings Association, at its San Francisco office, or
any successor thereto or the maximum rate permitted by law, whichever is less,
on all amounts not paid when due. The late charge shall be paid on the next date
on which payment is due after such late charge has accrued.


                                       9
<PAGE>

                  (b)      If (x) Buyer disputes any item on an invoice or
asserts any claim against Seller (and as a result reduces the amount of its
payment in respect of such invoice), and (y) such dispute or claim is resolved
in favor of Seller, then Buyer shall promptly pay the amount so resolved in
favor of Seller plus interest thereon at the rate specified in Section 5.4(a)
from the date payment on the invoice was due until the date payment of such
amount is made in full.

6.       DEFAULTS AND REMEDIES.

         6.1      DEFAULTS.

         Each or any of the following shall constitute an event of default under
this Contract (each an "Event of Default"):

                  (a)      Buyer fails to pay Seller any moneys within
forty-five (45) days when due hereunder;

                  (b)      Seller fails to deliver:

                           (i)      at least ninety-five percent (95%) of the
Products properly ordered by Buyer pursuant to Purchase Orders during any
three-month period; or

                           (ii)     on the date when due, three or more
shipments during any three-month period; or

                           (iii)    shipments of Products, ninety-five percent
(95%) of which strictly conform to all requirements of this Contract, on three
or more occasions during any three-month period;

                  (c)      a party hereto fails to perform any covenant or
agreement hereunder when the same is required hereunder to be performed and such
failure shall not have been cured within thirty (30) days of notice from the
other party hereto; or

                  (d)      a party hereto voluntarily files a petition in
bankruptcy or make a general assignment for the benefit of creditors, or a
receiver is appointed for a party hereto or a petition in bankruptcy is filed
against a party hereto and such petition is not dismissed within one hundred
twenty (120) days of such filing, or if a party hereto becomes insolvent or
fails to pay indebtedness when due.

         6.2      SUSPENSION OF PERFORMANCE.

         Upon the occurrence of an Event of Default or an event which with the
passing of time or giving of notice, or both, would constitute an Event of
Default under Section 6.1 (an "Incipient Default") in respect of a party hereto
(the "Defaulting Party"), the other party hereto (the "Non-Defaulting Party")
may immediately suspend the performance of all or part its obligations
hereunder, without prior notice to the Defaulting Party provided that the
Non-Defaulting Party immediately gives the Defaulting Party notice that:


                                       10
<PAGE>

                  (a)      an Event of Default or an Incipient Default exists in
respect of the Defaulting Party, providing reasonable details of such Incipient
Default;

                  (b)      the Non-Defaulting Party has suspended performance of
all or part of its obligations hereunder, providing details of the obligations
so suspended if only a part of its obligations are suspended; and

                  (c)      the Non-Defaulting Party will require the Defaulting
Party to provide reasonable assurances that:

                           (i)      in the case of an Incipient Default, such
Incipient Default will not become an Event of Default; and

                           (ii)     in the case of an Event of Default, such
Event of Default will be cured within thirty (30) days of such notice to the
Defaulting Party.

7.       TERMINATION.

         7.1      GROUNDS FOR TERMINATION.

         This Contract may be termination by notice by:

                  (a)      either party to the other party as provided in
Section 1.3(b);

                  (b)      the Non-Defaulting Party to the Defaulting Party upon
the occurrence of an uncured Event of Default;

                  (c)      the expiration or termination of any license(s)
bearing significantly and substantially upon the manufacture of the Products in
accordance with the Product Specifications;

                  (d)      Buyer:

                           (i)      pursuant to Section 3.1(d); or

                           (ii)     if as a result of a change in law after the
date of this Contract, Buyer's use of the Products or the production of the
goods into which Buyer incorporates the Products becomes illegal, impractical
or, in Buyer's judgment, financially imprudent; or

                           (iii)    if Buyer causes production of the goods into
which Products are incorporated; or

                  (e)      Seller not later than January 30 of each year if the
total quantity of Products ordered by the Buyer during the preceding twelve
months was less than the Minimum Amount minus the total quantity of Products
which Buyer demonstrates it would have ordered but for delays, disruptions,
non-deliveries and suspensions of other orders.

         7.2      CONSEQUENCES OF TERMINATION.


                                       11
<PAGE>

         Upon termination of this Contract pursuant to:

                  (a)      Section 7.1(a), 7.1(c), 7.1(d)(ii), 7.1(d)(iii) or
7.1(e),

                           (i)      Seller shall sell to Buyer, and Buyer shall
purchase from Seller (a) at Seller's cost, all raw materials, (b) at Seller's
cost plus fifteen percent (15%), all work-in-process purchased or processed
solely for Products to be delivered to Buyer during the ninety (90) days
following the date of termination, and (c) at the price shown on Exhibit D, all
finished Products in Seller's possession as of the date of termination. The
warranties set forth in Section 4.1 shall apply to such raw materials,
work-in-process and finished Products; and

                           (ii)     Seller shall deliver an invoice for amounts
unpaid to Seller hereunder; and

                           (iii)    Buyer shall pay Seller within thirty (30)
days of its receipt of such invoice. The provisions of Sections 5.3 and 5.4
shall apply to the amounts evidenced by such invoice.

                  (b)      Section 7.1(b) and 7.1 (d)(i),

                           (i)      Seller shall sell to Buyer, and Buyer shall
purchase from Seller, at Seller's cost, all raw materials, all work-in-process
purchased or processed solely for Products to be delivered to Buyer during the
ninety (90) days following the date of termination, and all finished Products in
Seller's possession as of the date of termination. The warranties set forth in
Section 4.1 shall apply to all such raw materials and work-in-process; and

                           (ii)     Seller shall deliver an invoice for amounts
unpaid to Seller hereunder; and

                           (iii)    Buyer shall pay Seller within thirty (30)
days of its receipt of such invoice. The provisions of Sections 5.3 and 5.4
shall apply to the amounts evidenced by such invoice.

                  (c)      Neither Seller nor Buyer may, as a result of its
termination of this Contract, whether by reason of an Event of Default by the
other party or otherwise, and, whether Buyer or Seller shall have terminated
this Contract Seller shall cause Bespak plc not to, terminate any other
agreement entered into concurrently with this Contract between the parties,
including, without limitation, the Settlement Agreement of even date with this
Contract between Buyer, Seller and Bespak plc.

         7.3      CONSEQUENCES OF SUSPENSION.

         Upon suspension of this Contract by Buyer pursuant to Section 3.7(d):

                  (a)      Seller shall sel1 to Buyer, and Buyer shall purchase
from Seller, at Seller's cost, (i) all raw materials and all work-in-process
purchased or processed solely for Product to be delivered to Buyer during the
ninety (90) days following the date of suspension, and (ii) at the price shown
on Exhibit D, all finished Product in Seller's possession as of the date of
suspension.


                                       12
<PAGE>

The warranties set forth in Section 4.1 shall apply to all such raw
materials and work-in-process; and

                  (b)      Seller shall deliver an invoice for amounts unpaid to
Seller hereunder; and

                  (c)      Buyer shall pay Seller within thirty (30) days of its
receipt of such invoice. The provisions of Sections 5.3 and 5.4 shall apply to
the amounts evidenced by such invoice.

8.       INDEMNIFICATION AND LIMITS ON LIABILITY.

         8.1      INDEMNIFICATION.

                  (a)      Buyer shall indemnify and hold harmless Seller, its
directors and officers and their respective assignees and successors, from and
against any and all claims, actions, suits and proceedings, and all reasonable
costs, expenses, damages, obligations, penalties, injuries and liabilities
incurred in connection therewith ("Claims"), asserted by any third party against
Seller, including liability for any infringement upon any patent, copyright,
trade secret or other proprietary right of any third party and Seller's strict
liability in tort, arising out of, connected with, or resulting from the
Products' conformity to the Product Specifications, as modified by any
Modification Order, or any breach by Buyer of any provision of this Contract,
excepting only Claims that arise solely out of the gross negligence or willful
misconduct of Seller, the non-compliance of the Products with the Product
Specifications as modified by any Modification Order or any Breach by Seller of
any provision of this Contract. Buyer agrees to hold harmless and to indemnify
Seller for any claims, damages, expenses and losses relating to third party
suits with respect to death or personal injury relating to or arising from the
sale or use of the drug dispensed by the Product.

                  (b)      Seller shall indemnify and hold harmless Buyer, its
directors and officers and their respective assignees and successors, from and
against any and all Claims asserted by any third party against Buyer arising out
of, connected with, or resulting from the non-compliance of the Products with
the Product Specifications as modified by any Modification Order, the gross
negligence or willful misconduct of Seller, or any breach by Seller of any
provision of this Contract

         8.2      EXCLUSION OF DAMAGES.

         Neither party shall be liable for indirect, incidental, punitive,
special or consequential damages or loss of profit or any costs or expenses
incurred in connection with the other party's obtaining the benefits it
anticipated from the transactions contemplated hereunder except as provided in
Section 8.1.

         8.3      NOTIFICATION; PARTICIPATION.

         A party seeking indemnification hereunder (the "Indemnitee") shall give
the other party (the "Indemnitor") prompt written notice in reasonable detail of
any circumstances giving rise to potential liability under this Section 8 and
shall allow Indemnitee full participation in the defense of any third party
claim and the conduct of any proceeding relating thereto. Indemnitor shall not


                                       13
<PAGE>

make any compromise or settlement in relation to any such third party claim
without Indemnitee's prior written consent.

         8.4      LIMITATION OF SELLER'S LIABILITY.

         Seller's liability for all damages arising under this Contract, except
for liability arising under Sections 7.2(c) and 8.1(b), during any calendar year
shall be limited to the sum of $250,000.00.

9.       REVIEW AND DISPUTE RESOLUTION.

         9.1      PERFORMANCE REVIEW.

                  (a)      Each party shall assign an employee of it who will:

                           (i)      act as its representative (the
"Representative") in connection with this Contract; and

                           (ii)     be responsible for directing all its
activities affecting the exercise of its rights and performance of its
obligations hereunder.

                  (b)      The Representatives shall:

                           (i)      meet from time to time upon request of one
of the Representatives to review the performance of the Seller under this
Contract; and

                           (ii)     use the performance review to:

                                    (1)      improve the performance of Seller
hereunder; and

                                    (2)      address and resolve problems and
complaints of either party, as well as any disputes, pertaining to either
party's performance hereunder.

         9.2      AUDIT RIGHTS.

                  (a)      Buyer shall have the right to visit Seller's
facilities during regular business hours upon ten (10) business days' prior
notice to review files (not including financial statements, books or other
financial data as identified by Seller) directly related to (i) any price change
proposed to be made by Seller; (ii) procedures directly related to the
manufacture of the Products; (iii) the manufacturing conducted by Seller for the
sole purpose of ensuring compliance with GMP and other regulatory compliance; or
(iv) Seller's allocation of the costs and overhead included in the price of the
Products. Buyer shall have the right to engage an accounting firm mutually
agreeable to Buyer and Seller to conduct a financial audit of Seller's books,
the cost of such audit to borne solely by Buyer. The foregoing notwithstanding,
nothing in this Contract shall obligate Seller to disclose to Buyer any
documents or materials containing subject matter which Seller is required to
retain as confidential under any arrangement with any other customer of Seller,
except to the extent required by applicable law.


                                       14
<PAGE>

                  (b)      Subject to the second sentence of Section 9.2(a),
Section 10.3 and Seller's security regulations generally applicable at its
facilities where the Products are manufactured, Seller will provide Buyer and
its representatives with unrestricted access to:

                           (i)      any facility at which Seller stores raw
materials for or manufactures, packages and ships any Products; and

                           (ii)     existing documentation reasonably related to
any data and work product concerning the Products.

                  (c)      Seller will cooperate fully with Buyer or its
designee in connection with Buyer's audits and inspections or with regard to any
examination by government authorities.

                  (d)      The audits shall be conducted in a manner which does
not disrupt, delay or interfere with Seller's supply of Products in any material
respect.

         9.3      DISPUTE RESOLUTION.

         The following procedure will be adhered to in all disputes that arise
under this Contract:

                  (a)      The party which asserts that a dispute has arisen
under this Contract shall notify the other party in writing of the nature of the
dispute with as much detail as possible about the deficient performance of the
other party.

                  (b)      The Representatives shall:

                           (i)      meet within seven (7) days after the date of
the written notification to reach an agreement about the nature of the
deficiency and the corrective action to be taken by the respective parties; and

                           (ii)     produce a detailed written report of the
nature of the dispute to the respective management of Buyer and Seller.

                  (c)      If the Representatives are unable to agree on
corrective action, the respective managers to whom the Representatives report
("Management") shall meet to facilitate an agreement within fourteen (14) days
after the date of the written notification.

                  (d)      If Management cannot resolve the dispute with a
written plan or corrective action with seven (7) days after their initial
meeting, or the agreed-upon completion dates in the written plan of corrective
action are exceeded, either party may request arbitration provided for in this
Contract.

10.      MISCELLANEOUS.

         10.1     PARTIES IN INTEREST, LIMITATION ON RIGHTS OF OTHERS;
ASSIGNMENT.

                  (a)      The terms of this Contract shall be binding upon, and
inure to the benefit of, the parties hereto and their successors and assigns.


                                       15
<PAGE>

                  (b)      Neither party hereto may assign its rights hereunder
in whole or in part without the prior written consent of the other party hereto,
which consent may be reasonably withheld, and any such assignment without such
consent shall be void. If such consent is given, unless expressly agreed by the
parties hereto, it shall not relieve the assignor from any of the obligations of
this Contract, and any assignee shall be considered the agent of the assignor,
and as between the parties hereto, the assignor shall be and remain liable as if
no such assignment has been made.

                  (c)      Notwithstanding Section l0.1(b), either party may
assign this Contract without the consent of the other party to any person (i)
into whom either party is merged or (ii) who acquires all or substantially all
of the asses of either party.

                  (d)      Nothing in this Contract, whether express or implied,
shall be construed to give any person other than the parties hereto and their
respective successors and assigns any legal or equitable right, remedy or claim
under or in respect of this Contract or any covenants, conditions or provisions
contained herein.

         10.2     NOTICES.

                  (a)      Wherever under this Contract one party is required or
permitted to give notice to the other, such notice shall be in writing to the
other party and shall be addressed to such party at the address set forth below:

                                    (1)     In the case of Seller:


                  Bespak, Inc.
                  2450 Laura Duncan Road
                  Apex, NC 27502
                                    Attention:       President
                                    Telephone:       (919) 303-4145
                                    Facsimile:       (919) 387-2049

                  With a copy to:


                  Moore & Van Allen, PLLC
                  One Hannover Square, Suite 1700
                  Raleigh, NC 27601
                                    Attention:       Martin H. Brinkley, Esq.
                                    Telephone:       (919) 821-6274
                                    Facsimile        (919) 828-4254

                                    (2)     In the case of Buyer:


                  AeroGen, Inc.
                  1310 Orleans Drive


                                       16
<PAGE>

                  Sunnyvale, CA 94089
                                    Attention:       Mr. Yehuda Ivri
                                    Telephone:       (408) 543-2400
                                    Facsimile:       (408) 543-2450

                  (b)      Either party hereto may from time to time change its
address for notification purposes by giving the other prior written notice of
the new address and the date upon which it will become effective.

                  (c)      A notice or communication will be deemed effective:

                           (i)      if delivered by hand or sent by federal
express or equivalent courier service, on the day it is delivered unless:

                                    (A) that day is not a day on which
                                        commercial banks are open for business
                                        in the city specified in the address for
                                        notice provided by the recipient (a day
                                        on which banks are open for such
                                        business in the city in which a party is
                                        located is referred to as a "Local
                                        Business Day" for that party) or

                                    (B) if delivered after the close of business
                                        on a Local Business Day, then on the
                                        next succeeding Local Business Day; and

                           (ii)     if sent by facsimile transmission, on the
date transmitted, provided oral or written confirmation of receipt is obtained
by the sender, unless the transmission and confirmation date is not a Local
Business Day, in which case on the next succeeding Local Business Day.

         10.3     CONFIDENTIALITY.

                  (a)      Except as provided later in this Section 10.3, each
party hereto shall:

                           (i)      treat all information obtained by it, its
employees, contractors, subcontractors, agents and any other representatives
from the other party hereto concerning the other party hereto's business or
operations as confidential;

                           (ii)     not divulge such information without prior
written approval from the disclosing party hereto; and

                           (iii)    return all material supplied by the
disclosing party hereto when the material has served its purposes.

                  (b)      Without limiting the generality of the foregoing,
Seller shall keep confidential and shall not divulge without prior written
approval from Buyer, and shall return to Buyer upon termination of this
Contract, all information concerning the Products and the specifications,
testing, manufacture, storage, shipment, distribution, and the audits performed
by Buyer hereunder; provided, however, that Seller may retain copies of all such
information for its files.


                                       17
<PAGE>

                  (c)      The restrictions set forth in Sections 10.3(a) and
(b) shall not apply if:

                           (i)      the party hereto receives said information,
other than the information described in Section l0.3(b), from a source other
than the other party hereto and the source, to the best of that party's
knowledge, is not subject to the restrictions specified above or restrictions
similar thereto;

                           (ii)     the information constitutes public
information or becomes public information; or

                           (iii)    the party hereto receiving the information
possessed the information free of the restrictions specified above prior to its
receipt from the other party hereto. In addition, either party hereto may
disclose information if required by legal means after any request for protective
order concerning said information has been refused.

         10.4     SURVIVAL OF CERTAIN TERMS.

         The terms set forth in Sections 7.2, 8, 9.3, and 10 shall survive the
termination of this Contract for any reason whatsoever.

         10.5     ATTORNEYS' FEES.

         If any arbitration, lawsuit or other action or proceeding relating to
this Contract is brought by either party hereto against the other party hereto,
the prevailing party shall be entitled to recover reasonable attorney's fees,
costs and disbursements in addition to any other relief to which the prevailing
party may be entitled

         10.6     COSTS AND EXPENSES.

         In any case where any party hereto is entitled hereunder to
reimbursement of costs and expenses, "costs" shall include interest on any
judgment and court costs, and "expenses" shall include reasonable legal fees and
expenses including allocated fees of in-house counsel.

         10.7     ENTIRE AGREEMENT.

         There are no oral agreements between the parties hereto affecting this
Contract, and this Contract, together with the Settlement Agreement, supersedes
and cancels any and all previous negotiations, arrangements, brochures, offers,
agreements and understandings, oral or written, if any, between the parties
hereto or displayed by either party hereto to the other party hereto with
respect to the subject matter of this Contract, the Settlement Agreement. There
are no representations or warranties between the parties hereto other than those
expressly set forth in this Contract and all reliance with respect to any
representations is solely upon representations or warranties expressly set forth
in this Contract.

         10.8     NONWAIVER.

         Except as may be expressly provided in this Contract or in a writing
signed by the party hereto, the failure of either party hereto to insist any
instance on strict performance of any


                                       18
<PAGE>

provision of this Contract shall not be construed as a waiver of any such
provision or the relinquishment of any rights thereunder in the future, but the
same shall continue and remain in full and force and effect.

         10.9     AMENDMENT.

         Neither this Contract nor any of the terms hereof nor any covenant or
condition contained herein may be terminated, amended, supplemented, waived or
modified orally, but only by an instrument, in writing signed by the party
hereto against which the enforcement of the termination, amendment, supplement,
waiver or modification shall be sought. Any written amendment duly executed by
the parties hereto shall be binding notwithstanding the absence of any
consideration therefor.

         10.10    SEVERABILITY.

         Any provision of this Contract which is prohibited or unenforceable in
any jurisdiction shall be, only as to such jurisdiction, ineffective to the
extent of such prohibition or unenforceability, but all the remaining provisions
of this Contract shall remain valid. To the extent permitted by applicable law,
the parties hereto hereby waive any provision of law that renders any provision
hereof prohibited or unenforceable in any respect. Notwithstanding that any term
or condition of this Contract, or this Contract as a whole, may be invalid, the
Settlement Agreement shall remain in full force and effect as if no term or
condition herein were invalid. In the event that this Contract is adjudged or
rendered invalid as a whole, the parties agree to use good faith efforts to
negotiate a commercially reasonable supply contract in replacement of and
substitution for this Contract.

         10.11    INTERPRETATION.

                  (a)      In this Contract, unless the contrary intention
appears, a reference to:

                           (i)      this "Contract" is to this Contract as
amended, modified or supplemented in writing from time to time as provided in
this Contract;

                           (ii)     a "Section" or an "Exhibit" is a reference
to an article or a section of, or an exhibit to, this Contract;

                           (iii)    "hereof," "herein," "hereunder" and
comparable terms refer to this entire Contract and not to any particular section
or other subdivision hereof or exhibit hereto;

                           (iv)     "include" and "including" mean includes,
without limitation, and including, without limitation, respectively, unless the
use thereof expressly or impliedly means otherwise;

                           (v)      a "law" includes common or customary law or
any constitution, decree, judgment legislation, order, ordinance, regulation,
statute, treaty or other legislative measure, in each case of any jurisdiction
whatever (and "lawful" and "unlawful" shall be construed accordingly) as such
law is amended or reenacted;


                                       19
<PAGE>

                           (vi)     a "person" includes any individual, company,
corporation, firm, partnership, joint venture, association, organization, trust,
state or agency of a state (in each case, whether or not having separate legal
personality), and its successors and assigns; and

                           (vii)    references to any gender include, unless the
context otherwise requires, references to all genders, and references to the
singular include, unless the context otherwise requires, references to the
plural and vice versa.

                  (b)      The index to and the headings in this Contract are
for convenience only and are to be ignored in construing this Contract.

                  (c)      The terms defined above have the meanings set forth
above for all purposes, and such meanings are equally applicable to both the
singular and plural forms of the terms defined.

                  (d)      For convenient reference, the capitalized words
listed in the first column are defined in the section listed opposite it in the
second column:

<TABLE>
<CAPTION>
                Definition                          Section
                ---------------------------------   --------------------------
                <S>                                 <C>
                Claims                              8.1(a)
                Defaulting Party                    6.2(a)
                Effective Date                      1.1
                Estimated Purchases                 3.3(a)
                Forecast                            3.2(d)
                Event of Default                    6.1
                GMP                                 4.1(c)(ii)
                Incipient Default                   6.2(a)
                Indemnitee                          8.3
                Indemnitor                          8.3
                Initial Term                        1.2
                Intellectual Property Rights        2.5(g)
                Management                          9.3(c)
                Minimum Amount                      2.1
                Modification Order                  3.1(c)
                Non-Defaulting party                6.2(a)
                Product Specifications              2.5(a)
                Products                            Recital B, Exhibit A
                Proposed Modifications              3.1(a)
                Purchase Order                      3.3(a)
                Representative                      9.1(a)
</TABLE>

         10.12    CHOICE OF LAW; ARBITRATION.

         This Contract shall be interpreted and enforced pursuant to the laws of
the State of California, excluding, however, the choice of law principles
thereof. Any claim or dispute under


                                       20

<PAGE>

or relating to this Contract shall be submitted to binding arbitration in
Chicago, Illinois pursuant to the commercial rules of the American Arbitration
Association.

         10.13    COUNTERPARTS.

         This Contract may be executed in multiple copies and copies made
thereof, all of which taken together will constitute one single agreement
between the parties hereto.

         IN WITNESS WHEREOF, the parties hereto have caused this Supply Contract
to be executed in duplicate by their respective representatives thereunto duly
authorized.


                                             Seller:

                                             Tenax Corporation

                                             By /s/ Peter Chambre
                                                -----------------------
                                             Its President
                                                 ----------------------

                                             Buyer:
                                             Aerogen, Inc.

                                             BY /s/ Jane E. Shaw
                                                -----------------------
                                             Its Chairman, CEO
                                                 ----------------------


                                       21
<PAGE>

                                    EXHIBIT A

                             PRODUCT SPECIFICATIONS



Definition of "Products"


         The "Products" are defined as any of the following alternatives, among
which Buyer may select in Buyer's sole discretion (subject to Section 2.1 and
the other provisions of this Agreement):

(1)      a preservative free dispensing canister, as described in the product
         specifications set forth below; and/or
(2)      the molding and assembly of the Inhaler casing (the specifications for
         which may be attached to this Exhibit A following the date of this
         Agreement); and/or
(3)      other products as mutually agreed upon by Buyer and Seller (the
         specifications for which may be attached to this Exhibit A following
         the date of this Agreement).

Product Specifications for Preservative Free Dispensing Pump and Canister


         GENERAL DESCRIPTION: A dispensing pump, integrally connected to a
canister that contains liquid medicament for dispensing a fixed volume upon each
actuation. The pump has a unidirectional valve that allows outflow of liquid
from the canister, but prevents inflow of bacteria into the canister so that the
liquid medicament in the canister requires no preservatives.


Dispensing Pump


Actuation force:  20 Newton Max.
Actuation travel:  10 mm Max.
Dispensed volume per actuation:  To Be Determined
Dispensing accuracy per actuation:  10%
Dispensing form:  Slow outflow that forms a single drop
Operation Orientation:  Upside down (relative to gravity)
Nozzle Geometry:  See Fig-1
Partial dosing:  To Be Determined

Top Seal (Valve)


         Normally-closed pressure differential valve will be positioned at the
dispensing orifice to prevent inflow of bacteria.

         Dead volume at the external surfaces of the valve:  1 [micron]l or less


                                       22
<PAGE>

Canister


Holding volume:  3cc
Residual volume in the canister:  To Be Determined
Air venting:  filtered air or no air venting
External Dimensions Body and Valve:  See Fig-1
Weight: To Be Determined
         Materials:        All molded plastic type:  To Be Determined
                  No metal in contact with liquid
                  No disinfectant releasing materials

Storage cup:  To Be Determined
Packaging:  To Be Determined


[GRAPHIC]


                                       23
<PAGE>

                                    Exhibit B

                               Modification Order


Please see attached.


                                       24
<PAGE>

ADDENDUM B
--------------------------------------------------------------------------------
                                TENAX CORPORATION                   No._________
                           ENGINEERING CHANGE APPROVAL
--------------------------------------------------------------------------------
DRAWING IDENTIFICATION, INCLUDING SHEET # AND          ORIGINATOR
REVISION LEVEL:                                        -------------------------
                                                       DATE
--------------------------------------------------------------------------------
DETAILS OF CHANGE









--------------------------------------------------------------------------------
DEPARTMENT    APPROVALS   COMMENTS -COSTS - PROBLEMS     SIGNATURE    DATE
              YES    NO
------------- ----- ----- ------------------------------ ------------ ----------
DEV.

------------- ----- ----- ------------------------------ ------------ ----------
MANF. ENG.

------------- ----- ----- ------------------------------ ------------ ----------
QUALITY

------------- ----- ----- ------------------------------ ------------ ----------
TOOLING

------------- ----- ----- ------------------------------ ------------ ----------
MOLDING

------------- ----- ----- ------------------------------ ------------ ----------
MATERIAL
  MGT.

------------- ----- ----- ------------------------------ ------------ ----------
FINANCE

------------- ----- ----- ------------------------------ ------------ ----------
R.A.

------------- ----- ----- ------------------------------ ------------ ----------
SALES

------------- ----- ----- ------------------------------ ------------ ----------
CUSTOMER/
SUPPLIER

--------------------------------------------------------------------------------
         PD-95C-I1000.00/B   3/3/95                        Controlled    Issue


                                       25
<PAGE>

                                    Exhibit C

                                 Purchase Order


Please see attached.



                                       26
<PAGE>

                  AEROGEN INC.                                    Purchase Order
                                                              Purchase Order No.
         1310 Orleans Drive
         Sunnyvale, CA  94089
         USA                                                         Date Issued

--------------------------------------------------------------------------------
      To: Ship To: AeroGen, Inc. 1310 Orleans Drive Sunnyvale, CA 94089 USA
--------------------------------------------------------------------------------
         Phone:                                Phone:   408-543-2400
         Fax:                                  Fax:     408-543-2450

--------------------------------------------------------------------------------
Delivery Date           Ship Via            Taxable?          Payment Terms
----------------- ------------------- ------------------- ----------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
  AeroGen P/N    Description    Quantity      U/M      Unit Price    Extension
--------------- ------------- ------------ ---------- ------------ -------------










--------------------------------------------------------------------------------
                                                          TOTAL
                                                      ------------ -------------



---------------------------------------------------
ORDER ACKNOWLEDGEMENT (To be completed by supplier)


I have reviewed and acknowledged the capability to
meet the specified requirements. I shall notify
AeroGen of any changes in the material, process
and/or service that may affect the quality of the     Authorized Signature(s)
product prior to the production of this order.


 _________________________________________________    __________________________
 Name and Title


 _________________________________________________    __________________________
 Signature and Date

---------------------------------------------------

Form 80F 45001-F3, Rev NEW
--------------------------------------------------------------------------------


                                       27
<PAGE>

                                    EXHIBIT D

                                      PRICE


         The price to be paid by the Buyer for each unit of the Product shall be
mutually agreeable to Buyer and Seller, shall be commensurate with Seller's
customary pricing criteria, and shall include the following components:

         1.       Seller's direct cost of materials;
         2.       Seller's direct cost of labor;
         3.       Seller's manufacturing overhead allocable to this Contract
                  and profit; and

         Seller shall allocate the costs of materials, labor and the portion of
its manufacturing overhead to the Product following the practices it uses for
allocating such costs and overhead to other products manufactured by it.


                                       28
<PAGE>

                                    Exhibit E

                            Custody and Use Agreement


Please see attached.


                                       29
<PAGE>

                            CUSTODY AND USE AGREEMENT


         This CUSTODY AND USE AGREEMENT (this "Agreement") dated as of March
1st, 1999, is made between AEROGEN, INC., a Delaware corporation ("Owner"), on
one hand, and TENAX CORPORATION, a Connecticut corporation doing business as
Bespak, Inc. ("Custodian").


                                    RECITALS


         1.       Owner and Custodian are parties to a certain Supply Contract
dated March 1, 1999 (the "Supply Contract") whereby Custodian has agreed to
supply Owner with certain products.

         2.       Owner desires to make available, and Custodian desires to
possess and use, certain equipment owned by Owner for Custodian's manufacture of
the goods supplied by Custodian pursuant to the Supply Contract, on the terms
and subject to the conditions set forth herein.


                                    AGREEMENT


         NOW, THEREFORE, in consideration of the premises and mutual agreements
hereto contained, the parties hereto agree as follows:

         1.       MANUFACTURING EQUIPMENT.

         (a)            Owner hereby grants to Custodian and Custodian accepts
from Owner possession and use of the equipment (the "Equipment") described on
the Schedules executed hereunder, and substantially in the form of Exhibit A
hereto (each a "Schedule").

         (b)            The first Schedule will be part of, and each Schedule
thereafter shall constitute an amendment to, this Agreement.

         (c)            Custodian's possession and use of the Equipment shall
commence on the date on which it is delivered to Custodian and continue until
Owner requests the return of the same or any portion thereof or until Custodian
notifies Owner that it intends to tender possession of the same to Owner, in
either of which events Custodian's possession and use shall terminate as to the
portion returned.

         2.       DELIVERY AND INSTALLATION.

         (a)            Custodian shall install and use the Equipment only at
the address for installation described in the relevant Schedule (the "Equipment
Location").


                                       30
<PAGE>

         (b)            At Custodian's expense, Custodian shall prepare a
suitable Equipment Location, substantially conforming with reasonable
instructions given by Owner, on or before the scheduled delivery date for the
installation of the Equipment.

         3.       TITLE.

         (a)           Each item of the Equipment (each a "Unit") shall remain
personal property, and the title thereto shall remain exclusively in Owner,
notwithstanding the manner in which any Unit may be attached to realty.
Custodian shall, upon the request of Owner at any time during the term of this
Agreement, affix or permit Owner to affix, in a permanent place on any Unit,
labels supplied by Owner identifying the Equipment as the property of Owner, and
shall not alter or remove any such label from any Unit.

         (b)           From time to time, Custodian shall, upon reasonable
request from Owner, execute and deliver to Owner Uniform Commercial Code
Financing Statements which reflect Owner's interest in the Equipment.

         (c)            Custodian shall not, without the prior written consent
of Owner, and then only as directed by Owner:

                  (i)               permit or cause any Unit to be moved from
the Equipment Location specified on the relevant Schedule;

                  (ii)              modify or alter the Equipment or any Unit;
or

                  (iii)            copy, reproduce, remanufacture, disassemble,
or incorporate the Equipment, in whole or part, with any other equipment except
in accordance with specifications provided by Owner.

         (d)           Custodian shall:

                  (i)               promptly notify Owner should Custodian
become aware of any infringement or any suspected infringement by any third
party of Owner' s proprietary rights in the Equipment;

                  (ii)              keep the Equipment free from any and all
liens, pledges, encumbrances, chattel mortgages, hypothecations, security
interests, charges and other claims (each a "Lien"), except those created by
Owner; and

                  (iii)             give Owner prompt notice of any judicial
process or Lien affecting the Equipment.

         (e)           If Custodian uses any Unit to produce any tangible or
intangible property, legal and beneficial title to such property shall vest in
Owner upon the creation thereof. To the extent Custodian receives any proceeds
as a result of any sale or use of any such property, Custodian shall hold such
proceeds in trust for Owner, and remit the same to Owner.

         4.       USE.  Custodian shall:


                                       31
<PAGE>

         (a)           use the Equipment in accordance with the guidelines set
forth in the technical documentation provided by Owner pursuant to Section 3
above;

         (b)           use the Equipment only in Custodian's business and
solely for manufacturing goods supplied to Owner pursuant to the Supply
Contract; and

         (c)           not allow the Equipment to be used by persons other than
its employees or agents.

         5.       TESTING OF EQUIPMENT; CHARGES THEREFOR. Owner recognizes that,
following installation of the Equipment and prior to Custodian's use of the
Equipment for the purposes described in Section 4(b), Custodian will conduct
certain tests of the Equipment to ensure that the Equipment will function
properly in Custodian' s manufacturing process for the goods described in the
Supply Contract. Payment for such testing charges shall be due 30 days from the
date of Custodian's invoice.

         6.       MAINTENANCE.

         (a)           Throughout the term of this Agreement, Custodian shall:

                  (i)               at Owner's expense (after giving effect to
the benefits of any manufacturer's warranty pursuant to Section 7 hereof),
maintain the Equipment in the condition in which Custodian received it from
Owner, normal wear and tear excepted;

                  (ii)              at Owner's expense, make repairs and
replacements reasonably required to maintain the Equipment in good working
condition according to Custodian's customary practices and procedures; and

                  (iii)             keep maintenance logs evidencing such
maintenance of the Equipment according to Custodian's customary practices and
procedures.

         (b)           All replacement parts and additions incorporated into the
Equipment shall become the property of Owner immediately upon incorporation.

         (c)           In the event that any of the Equipment is damaged as a
result of the misconduct or negligent act or omission on the part of Owner or
its agents, then, Owner shall, at Custodian's option and at Owner's expense,
repair or replace such Equipment.

         7.       BENEFIT OF WARRANTY. To the extent that Owner is the
beneficiary of any warranty extended by the manufacturer of the Equipment, Owner
hereby appoints Custodian as Owner's attorney-in-fact to enforce such warranty
in the course of carrying out Custodian's obligations under this Agreement.

         8.       RIGHT OF INSPECTION. Owner shall have the right, upon ten (10)
days' notice and during normal business hours, to send a reasonable number of
Owner's employees or agents to inspect and photograph the Equipment, and in
review all maintenance records related to the Equipment; provided, however, that
such inspections shall be related strictly to the transactions


                                       32
<PAGE>

contemplated herein and shall not, in any event, unreasonably disturb or
interfere with, operations at Custodian's facilities.

         9.       TERM.

         (a)           This Agreement is effective upon execution hereof by the
parties hereto and shall continue during the Initial Term of the Supply Contract
and any renewal term thereof.

         (b)           Following the termination date of this Agreement,
Custodian shall have an additional thirty (30) days to complete the removal of
the Equipment. Owner shall assist and cooperate with Custodian in the packaging
and removal of the Equipment at Owner's expense.

         10.      CASUALTY AND INSURANCE.

         (a)           From the date any Unit of the Equipment is delivered to
Custodian until it is returned to Owner, Custodian shall bear all risk of loss,
damage, theft and destruction to or of the Equipment from any and every cause
whatsoever, whether or not insured, except loss or damage occasioned solely by
the negligent action or omission or misconduct of Owner, its agents or
employees. Custodian, at its own expense, shall maintain all-risk, public
liability, theft and property damage insurance on the Equipment in the amounts
reasonably satisfactory to Owner. All policies of liability insurance shall name
the Owner as an additional insured, and all property damage and casualty
insurance shall name the Owner as loss payee. Custodian shall deliver to Owner
certificates evidencing such insurance.

         (b)           Custodian shall notify Owner of any casualty or partial
destruction to any Unit by the close of business on the next business day
following its occurrence. In the event any Unit is lost, destroyed, stolen,
taken or seized by government authority, or, in Owner's opinion, damaged beyond
repair ("Casualty"), Custodian shall be liable to Owner and shall pay Owner an
amount determined by Owner to equal the cost of replacing such Unit (the
"Casualty Value"). Custodian shall pay Owner such Casualty Value within thirty
(30) days of the date of the Casualty. Upon receipt by Owner of the Casualty
Value for any Unit, the Custodian shall return the Unit salvage to Owner.

         (c)           Seller's liability for all damages arising under this
Agreement during a calendar year shall be limited to the sum $250,000.00.

         11.      INDEMNITY.

         (a)           Custodian shall indemnify and hold Owner, and Owner's
officers, directors, shareholders, partners, affiliates, agents, servants,
successors and assignees, harmless against any and all liabilities, losses,
damages, actions, claims and expenses of any kind and nature, including court
costs and reasonable attorneys' fees and expenses (each, a "Claim"), directly or
indirectly related to or arising in connection with any breach by Custodian of
this Agreement and the maintenance, storage, relocation, return or condition of
any Unit (regardless of whether such Unit is at the time in the possession or
control of the Custodian), except to the extent any such claims, actions,
liabilities and expenses result from the misconduct or negligent act or omission
of Owner.


                                       33
<PAGE>

         (b)           Custodian shall notify Owner by the close of business on
the next business day after receipt of notice or knowledge of any event which
may give rise to a third-party liability claim arising in connection with the
Equipment. To the extent (but only to the extent) that such third-party
liability claim arises from the misconduct or negligent act of Custodian, upon
Owner's written demand, Custodian shall assume and diligently conduct, at its
sole cost and expense, the entire defense of Owner and its agents, employees,
successors and assigns against any indemnified Claim described in this Section
11. Custodian shall not settle or compromise any Claim against or involving
Owner without first obtaining Owner's written consent thereto, which consent
shall not be unreasonably withheld. The foregoing indemnity shall continue in
force and effect notwithstanding the termination or cancellation of this
Agreement, whether by expiration of time, operation of law or otherwise.

         12.      WARRANTIES. CUSTODIAN ACKNOWLEDGES THAT OWNER HAS MADE NO
REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT TO THE
EQUIPMENT, INCLUDING, WITHOUT LIMITATION, THE EQUIPMENT'S CONDITION,
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE.

         13.      FURTHER ASSURANCES. At any time, upon the reasonable written
request of Owner, and at the sole expense of Custodian, Custodian shall take
such action as Owner may reasonably deem desirable to obtain the full benefits
of this Agreement and of the rights and powers herein granted, including,
without limitation, using its best efforts to secure all consents and approvals
necessary or appropriate for Owner to enter Custodian's property for purposes of
carrying out the terms of this Agreement, including installation, maintenance,
inspection, and removal of the Equipment.

         14.      ASSIGNMENT. CUSTODIAN SHALL NOT ASSIGN OR GRANT A SECURITY
INTEREST IN, IN WHOLE OR IN PART, ITS RIGHTS UNDER THIS AGREEMENT OR ITS RIGHTS
TO THE EQUIPMENT, NOR SHALL CUSTODIAN LEASE OR SUBLEASE ANY EQUIPMENT WITHOUT
THE PRIOR WRITTEN CONSENT OF OWNER. ANY ACTION IN CONTRADICTION HERETO SHALL BE
NULL AND VOID AND WITHOUT FORCE OR EFFECT.

         15.      WAIVER. Owner's failure at any time to require strict
performance by Custodian of any of the provisions hereof shall not waive or
diminish Owner's right thereafter to demand strict compliance therewith.

         16.      SEVERABILITY. If any provision of this Agreement shall be
deemed unenforceable under applicable law, it shall be deemed stricken, but the
remainder of this Agreement shall remain in full force and effect and shall be
construed to give effect to the intent of the parties.

         17.      CONSTRUCTION.

         (a)           In this Agreement, unless the contrary intention
appears, a reference to:


                                       34
<PAGE>

                  (i)               "hereof," "herein," "hereunder" and
comparable terms refer to the entire agreement or instrument in which such terms
are used and not to any particular article, section or other subdivision thereof
or attachment thereto;

                  (ii)              "include" and "including" mean include,
without limitation, and including, without limitation, respectively, unless the
use thereof expressly or impliedly means otherwise; and

                  (iii)             any gender includes, unless the context
otherwise requires, references to all genders, and a reference to the singular
includes, unless the context otherwise requires, references to the plural and
vice versa.

         (b)           The headings in this Agreement are for convenience only
and shall not affect the construction of this Agreement.

         18.      NOTICES.

         (a)           Wherever under this Agreement one party is required or
permitted to give notice to the other, such notice shall be in writing to the
other party and shall be addressed to such party at:

                  (i)      In the case of Custodian:

                                  Bespak, Inc.
                             2450 Laura Duncan Road
                                 Apex, NC 27502
                              Attention: President
                            Telephone: (919) 303-4145
                            Facsimile: (919) 387-2049

                  with a copy to:

                             Moore & Van Allen, PLLC
                         One Hannover Square, Suite 1700
                                Raleigh, NC 27601
                       Attention: Martin H. Brinkley, Esq.
                            Telephone: (919) 828-4481
                            Facsimile: (919) 387-2049

                  (ii)     In the case of Owner:

                                  AeroGen, Inc.
                               1310 Orleans Drive
                               Sunnyvale, CA 94089
                           Attention: Mr. Yehuda Ivri
                            Telephone: (408) 543-2400
                            Facsimile: (408) 543-2450


                                       35
<PAGE>

         (b)           Either party hereto may from time to time change its
address for notification purpose by giving the other party prior written notice
of the new address and the date upon which it will become effective.

         (c)           A notice or communication will be deemed effective:

                  (i)               if delivered by hand or sent by overnight
courier, on the day it is delivered unless (a) that day is not a day on which
commercial banks are open for business in the city specified in the address for
notice provided by the recipient (a day on which banks are open for such
business, a "Local Business Day") or (b) if delivered after the close of
business on a Local Business Day, then on the next succeeding Local Business
Day; and

                  (ii)              if sent by facsimile transmission, on the
date transmitted, provided oral or written confirmation of receipt is obtained
by the sender, unless the transmission and confirmation date is not a Local
Business Day, in which case on the next succeeding Local Business Day.

         19.      COUNTERPARTS. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument.

         20.      CHOICE OF LAW. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN
MADE AND ACCEPTED AND PERFORMED IN THE COUNTY OF SANTA CLARA, IN THE STATE OF
CALIFORNIA, WHERE OWNER'S PRINCIPAL PLACE OF BUSINESS IS LOCATED. THIS AGREEMENT
AND ALL TRANSACTIONS HEREUNDER AND ALL RIGHTS AND LIABILITIES OF THE PARTIES
HERETO, SHALL BE DETERMINED AND GOVERNED AS TO THE VALIDITY, INTERPRETATION,
ENFORCEMENT AND EFFECT BY THE LAWS OF THE STATE OF CALIFORNIA. ANY CLAIM OR
DISPUTE ARISING UNDER OR RELATING TO THIS AGREEMENT SHALL BE SUBMITTED TO
BINDING ARBITRATION IN CHICAGO, ILLINOIS PURSUANT TO THE COMMERCIAL RULES OF THE
AMERICAN ARBITRATION ASSOCIATION.

         21.      ENTIRE AGREEMENT. This instrument constitutes the entire
agreement between the parties as to the subject matter herein and may not be
modified except in writing executed by Owner and Custodian. No supplier or agent
of Owner is authorized to bind Owner or Custodian or to waive or modify any term
this Agreement.

         Custodian's Initials:      PC      Owner's Initials: JES
                                ------                       ----


                                       36
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.

                                    Owner:
                                    Aerogen, Inc.

                                    By: /s/ Jane E. Shaw
                                       -----------------------
                                    Name:    Jane E. Shaw
                                    Title:   Chairman, CEO

                                    Custodian:

                                    Tenax Corporation

                                    By: /s/ Peter Chambre
                                       -----------------------
                                    Name:    Peter Chambre
                                    Title:   President


                                       37
<PAGE>

                                    Exhibit A

                       CUSTODY AND USE AGREEMENT SCHEDULE


                                 Schedule No.___
                    to Custody Agreement dated March 1, 1999
                        between AeroGen, Inc., as Owner,
                       and Tenax Corporation, as Custodian

         This is a "Schedule" to the above-referenced Custody and Use Agreement
(the "Agreement"). This Schedule shall become effective on the date executed by
Owner Capitalized terms used in this Schedule and not otherwise defined herein
shall have the respective meanings set forth in the Agreement.

I.   Equipment
     Unit
     Description
     Quantity
     Estimated Date of Delivery and Installation
     Equipment Location

{II.     Software}

         Unit

         Description

         Quantity

         Estimated Date of Delivery and Installation

         Equipment Location

         Location

         Computer Configuration


                                       38
<PAGE>

                                 ATTACHMENT III


                                       39
<PAGE>

                                 ATTACHMENT III


         Claim A below would be licensed to BESPAK and TENAX under B2.2, because
Claim A reads on subject matter disclosed in or supported by U.S Patent No.
5,261,601. Claim B would not be licensed to BESPAK and TENAX under B2.2, because
Claim B does not read on subject matter disclosed in or supported by U.S. Patent
No. 5,261, 601.


CLAIM A


         Dispensing apparatus for use in dispensing liquid as an atomized spray
comprising a vibratable perforate membrane having at least one hole and having a
front surface and rear surface, liquid supply means for supplying the liquid to
the rear surface, and vibrating means operable to vibrate the membrane relative
to the liquid supply means such that droplets of the liquid are dispensed
through the hole as an atomized spray, wherein the hole is flared such that the
cross-section of the hole narrows in a direction from the rear surface towards
the front surface.


CLAIM B


         Dispensing apparatus for use in dispensing liquid as an atomized spray
comprising a vibratable perforate membrane having at least one hole and having a
front surface and rear surface, liquid supply means for supplying the liquid to
the rear surface, and vibrating means operable to vibrate the membrane relative
to the liquid supply means such that droplets of the liquid are dispensed
through the hole as an atomized spray, wherein the hole is flared such that the
cross-section of the hole narrows in a direction from the rear surface toward
the front surface; said liquid being a film of liquid which, during an inward or
rearward oscillation cycle, is held to said membrane and said one or more
openings exclusively by the cohesive attraction of surface tension.


                                       40
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.12
<SEQUENCE>23
<FILENAME>ex-10_12.txt
<DESCRIPTION>EXHIBIT 10.12
<TEXT>

<PAGE>

                                                                   EXHIBIT 10.12



                               DATED 25TH MAY 2000






                                (1) AEROGEN, INC.

                                       AND

                  (2) THE PERSONS SET OUT IN SCHEDULE 1 HEREOF







                         AGREEMENT FOR THE ACQUISITION,
                               BY WAY OF EXCHANGE,
               OF THE ENTIRE ISSUED "A" ORDINARY SHARE CAPITAL OF
                                 CERUS LIMITED.








                                   ARTHUR COX,
                                EARLSFORT CENTRE,
                               EARLSFORT TERRACE,
                                    DUBLIN 2

                                  MS 10001.DOC

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                               PAGE
<S>      <C>                                                                                                   <C>
1.       INTERPRETATION...........................................................................................1

2.       SALE AND EXCHANGE........................................................................................6

3.       CONSIDERATION............................................................................................6

4.       OPTION...................................................................................................6

5.       COMPLETION...............................................................................................8

6.       WARRANTIES AND INDEMNITY................................................................................10

7.       CONFIDENTIALITY.........................................................................................12

8.       USE OF INTELLECTUAL PROPERTY RIGHTS.....................................................................12

9.       FURTHER VENDORS' UNDERTAKINGS...........................................................................13

10.      ANNOUNCEMENTS...........................................................................................14

11.      COSTS...................................................................................................14

12.      FURTHER ASSURANCE.......................................................................................14

13.      GENERAL.................................................................................................14

14.      ASSIGNMENT..............................................................................................15

15.      NOTICES.................................................................................................15

16.      GOVERNING LAW AND JURISDICTION..........................................................................15

17.      ENTIRE AGREEMENT........................................................................................16

18.      COUNTERPARTS............................................................................................16

SCHEDULE 1  THE VENDORS..........................................................................................17

SCHEDULE 2 PART 1 INFORMATION CONCERNING CERUS LIMITED...........................................................19

SCHEDULE 3  ITEMS FOR DELIVERY BY THE VENDORS AT COMPLETION......................................................20

SCHEDULE 4  WARRANTIES GIVEN BY THE WARRANTORS...................................................................22

SCHEDULE 5  THE PROPERTY.........................................................................................72

SCHEDULE 6  VENDORS' REPRESENTATIONS AND WARRANTIES TO THE CONSIDERATION SHARES..................................73

SCHEDULE 7  JOINT ESCROW INSTRUCTIONS............................................................................76

</TABLE>


                                       i.
<PAGE>

THIS AGREEMENT is made on 25th day of May 2000 BETWEEN

(1)      AEROGEN, INC having its principal office at 1310 Orleans Drive,
         Sunnyvale, CA 94089

(2)      THE PERSONS SET OUT IN SCHEDULE 1 HEREOF (the "Vendors").

WHEREAS the Vendors have agreed to sell and the Purchaser has agreed to purchase
the entire issued "A" Ordinary Shares of Cerus Limited in exchange for the
Consideration Shares on the terms and subject to the conditions of this
Agreement.

IT IS AGREED as follows:

1.       INTERPRETATION

         1.1      In this Agreement:

                  "Accounting Standards" means accounting principles, standards
                  and practices generally accepted in Ireland at the date of
                  this Agreement consistently applied with prior periods;

                  "Accounts" means the audited profit and loss accounts and
                  balance sheet of the Company as at the Last Accounting Date
                  and the notes, reports and other documents required by law to
                  be annexed thereto;

                  "B Shares" means the 154,000 "B" Ordinary Shares in the
                  capital of the Company;

                  "Breach", in relation to a warranty means any instance of the
                  Warranty being untrue or misleading in any respect;

                  "Business Day" means a day (other than a Saturday or Sunday or
                  a public holiday) on which clearing banks are open for
                  business in Dublin;

                  "Claim" means a Warranty Claim or an Indemnity Claim;

                  "Company" means Cerus Limited, particulars of which are set
                  out in Schedule 2 hereto;

                  "Completion Date" means the date of Completion of this
                  Agreement in accordance with Clause 5.1;

                  "Completion" means completion of the sale and exchange of the
                  Shares in accordance with this Agreement;

                  "Confidential Information" means all information not at
                  present in the public domain used in or otherwise relating to
                  the business, customers or financial or other affairs of the
                  Company including, without limitation, information relating
                  to:


                                       1.
<PAGE>

                  1.1.1    the marketing of any products or services including,
without limitation, customer names and lists and any other details of customers,
sales targets, sales statistics, market share statistics, prices, market
research reports and surveys, and advertising or other promotional materials; or

                  1.1.2    future projects, business development or planning,
commercial relationships and negotiations;

                           but does not include information which;

                  (i)      is or becomes publicly known or available or becomes
lawfully available from a third party who is not bound by any confidentiality
restriction; or

                  (ii)     is lawfully known at the date hereof,

                  "Consideration Shares" means 1,725,000 shares of AeroGen, Inc.
                  Series E Preferred Stock;

                  "Disclosure Letter" means the letter of even date herewith
                  from the Vendors to the Purchaser in the agreed form in
                  relation to the Warranties;

                  "Employee" means any director, former director, employee or
                  former employee of the Company;

                  "Encumbrance" means any mortgage, charge, pledge, lien,
                  option, restriction, right of first refusal, right of
                  pre-emption, third party right or interest, any other
                  encumbrance or security interest of any kind, and any other
                  type of preferential arrangement (including, without
                  limitation, title transfer and retention arrangements) having
                  a similar effect;

                  "Escrow Agent" means the Secretary for the time being of
                  Aerogen, Inc

                  "Euro" means the euro, the currency of Europe;

                  "IDA Option Agreement" means an option agreement dated 1st
                  October, 1999 between the Industrial Development Agency
                  ("IDA") and the Company whereby the IDA granted to the Company
                  an option to acquire certain lands at Dangan Lower by way of a
                  999 year lease;

                  "Indemnity Claim" means a claim under clause 6.11 or under the
                  Tax Deed;

                  "Intellectual Property" means patents, trade marks, service
                  marks, registered designs, applications for any of the
                  foregoing, trade and business names, unregistered trade marks
                  and service marks, know-how, copyrights, rights in designs,
                  inventions, rights under licences and consents in relation to
                  any such rights, and rights of the same or similar effect or
                  nature, in any part of the world;


                                       2.
<PAGE>

                  "Intellectual Property Rights" means all Intellectual Property
                  used, or required to be used, by the Company, in, or in
                  connection with, its business;

                  "Last Accounting Date" means 31st December, 1999;

                  "Net Assets" means fixed assets, plus net working capital (to
                  consist of stocks, debtors, cash, less creditors) less bank
                  and other debt and provisions for Taxation liabilities and
                  charges and specifically excluding goodwill;

                  "Option Shares" means the shares defined as such in Clause 4.1
                  of the Agreement.

                  "Property" means the property short particulars of which are
                  set out in Schedule 5;

                  "Purchaser's Accountants" means PricewaterhouseCoopers of
                  Gardner House, Wilton Terrace, Dublin 2;

                  "Purchaser's Group" means the Purchaser, its holding company
                  and any subsidiary of such holding company;

                  "Purchaser's Solicitors" means Arthur Cox of Earlsfort Centre,
                  Earlsfort Terrace, Dublin 2;

                  "Regulation S Purchaser" means the Vendors or any of them;

                  "Restricted Business" means the business of aerosolization;

                  "Shareholders Agreement" means the Shareholders Agreement
                  dated 23rd August, 1999 between John Power, Bernadette Power,
                  Charles Mulligan, Timothy McSweeney, Eoghan O'Sullivan, Anne
                  O'Sullivan, Billy Brogan, Michael Brogan, Dermot O'Mahony,
                  Eileen O'Mahony, Tom Curran, Marion Curran and the Company;

                  "Shares" means all the issued "A" Ordinary shares in the
                  Company referred to in Column 2 of Schedule I comprising the
                  whole of the issued share capital of the Company carrying
                  rights to vote at general meetings of the Company;

                  "Subscription Agreement" means an agreement to issue and
                  subscribe for shares in the Company in the event of
                  anticipated equity not being forthcoming, dated 27th August,
                  1999 between the Company, Mr. John Power, Mr. Charles
                  Mulligan, Mr. Eoghan O'Sullivan and Mr. Timothy McSweeney.

                  "Tax" or "Taxation" includes (without limitation) corporation
                  tax, advance corporation tax, income tax (including income tax
                  or amounts on account of income tax required to be deducted or
                  withheld from or accounted for in respect of any payment),
                  capital gains tax, development land tax, inheritance tax,
                  value added tax, national insurance contributions, capital
                  duty, stamp duty, stamp duty


                                       3.
<PAGE>

                  reserve tax, duties of customs and excise, petroleum revenue
                  tax, rates, all taxes, duties or charges replaced by or
                  replacing any of them, and all other taxes on gross or net
                  income, profits or gains, distributions, receipts, sales, use,
                  occupation, franchise, value added, and personal property, and
                  all levies, imposts, duties, charges or withholdings of any
                  nature whatsoever chargeable by any tax authority, and any
                  payment whatsoever which the Company may be or become bound to
                  make to any person as a result of the discharge by that person
                  of any tax which the Company has failed to discharge, together
                  with all penalties, charges and interest relating to any of
                  the foregoing or to any late or incorrect return in respect of
                  any of them, and regardless of whether any such taxes, levies,
                  duties, imposts, charges, withholdings, penalties and interest
                  are chargeable directly or primarily against or attributable
                  directly or primarily to the Company, or any other person and
                  of whether any amount in respect of any of them is recoverable
                  from any other person;

                  "Tax Authority" means any taxing or other authority (whether
                  within or outside Ireland) competent to impose any tax
                  liability;

                  "Tax Deed" means the deed of indemnity in the agreed form
                  between the Vendors, the Company and the Purchaser;

                  "Taxes Act" means the Taxes Consolidation Act, 1997;

                  "Territory" means Ireland and Northern Ireland;

                  "Trade Marks" means the trade marks used or required to be
                  used by the Company or any Group Company in or in connection
                  with the business;

                  "United States Dollar" and "US$" means the lawful currency of
                  the United States of America from time to time;

                  "Vendors' Representations and Warranties" means the Vendors'
                  representatives and warranties as set out in Schedule 6;

                  "Vendors' Solicitors" means Kieran Murphy & Co., The Crescent,
                  Galway;

                  "Warranties" means the warranties contained in Schedule 5; and

                  "Warranty Claim" means a claim for a Breach of the Warranties;
                  and

                  "Warrantors" means Mr. John Power and Mr. Charles Mulligan.

         1.2      In this Agreement, a reference to:

                  1.2.1    the words "company", "subsidiary", "subsidiary
undertaking" and "holding company" have the meanings given to them by the
Companies Acts, 1963 to 1999;


                                       4.
<PAGE>

                  1.2.2    a document in the "agreed form" is a reference to a
document in a form approved and for the purposes of identification signed by or
on behalf of the parties;

                  1.2.3    the word "pounds" and the symbol "L" shall be
construed as a reference to the lawful currency of Ireland from time to time.
The parties confirm that the occurrence or non-occurrence of an event associated
with economic and monetary union in the European Community will not:

                           (a)      have the effect of altering any term of, or
discharging or excusing performance under this Agreement or in relation to the
sale and purchase of the Shares or under any other documents, instruments or
agreements to be issued, entered into or executed in connection herewith or
therewith or pursuant hereto or thereto (hereinafter together referred to as the
"Documents"); or

                           (b)      give any party the right unilaterally to
alter or terminate any of the Documents; or

                           (c)      in and of itself, give rise to frustration
of, or any right of recission in relation to, any of the Documents.

                  1.2.4    a statutory provision includes a reference to:

                           (a)      the statutory provision as modified or
re-enacted or both from time to time (whether before or after the date of this
Agreement); and

                           (b)      to any subordinate legislation made under
the statutory provision (whether before or after the date of this Agreement);

but excluding any statutory modification not in force at the date hereof which
operates to increase any liability of the Vendors hereunder;

                  1.2.5    persons includes a reference to any body corporate,
unincorporated association or partnership;

                  1.2.6    a person includes a reference to that person's legal
personal representatives and successors;

                  1.2.7    a Clause or Schedule, unless the context otherwise
requires, is a reference to a clause of or schedule to this Agreement; and

                  1.2.8    the masculine gender shall include the feminine and
neutral and the singular shall include the plural and vice versa.

         1.3      The headings in this Agreement shall not affect the
interpretation of this Agreement.

         1.4      All the obligations and liabilities of the Vendors under this
Agreement shall be several.


                                       5.
<PAGE>

2.       SALE AND EXCHANGE

         2.1      In accordance with and subject to the provisions of this
Agreement, the Vendors as beneficial owners shall sell or procure to be sold the
Shares and the Purchaser shall purchase the Shares free from all Encumbrances
together with all rights of any nature whatsoever now or after the date of this
Agreement attaching or accruing to them in exchange for the issue to the Vendors
of the Consideration Shares.

         2.2      Each Vendor waives all rights of pre-emption and other
restrictions on transfer over the Shares conferred on it or any other persons
under the Articles of Association of the Company or otherwise.

         2.3      Each Vendor represents and warrants to the Purchaser in the
terms of the Vendors' Representations and Warranties set out in Schedule 6.

3.       CONSIDERATION

         In consideration of the sale of the shares to the Purchaser, the
Purchaser shall issue the Consideration Shares to the Vendors in the proportions
set out in Schedule 1 opposite the name of each Vendor.

4.       OPTION

         4.1      DEFINITIONS

                  In this clause 4, the following words shall have the means
given to them below:

                  "Exercise Price" means the sum of one U.S. $.01;

                  "Holder" means Mr. John Power;

                  "Options" means the options granted by the Holder to the
                  Purchaser under this clause 4.

                  "Option Period" means the period commencing on the date hereof
                  and ending on the second anniversary of the date hereof;

                  "Option Shares" means 50% of the Consideration Shares to be
                  issued to the Holder in accordance with the provisions of
                  clause 3 of this Agreement;

                  "Relevant Proportion" means that proportion of the Option
                  Shares which bears the same proportion to the total number of
                  Option Shares as the number of months from the date hereof to
                  the Termination Date bears to the period of 24 months;

                  "Relevant Value" means the market value of the Option Shares
                  at the date of exercise of the Option pursuant to clause 4.3;

                  "Termination Event" means the Holder ceasing to be an employee
                  of the Company except where such cessor arises due to the
                  death, incapacity or illness of


                                       6.
<PAGE>

                  the Holder or as a result of an unfair or wrongful dismissal
                  of the Holder by the Company;

                  "Termination Date" means the date upon which a Termination
                  Event occurs.

         4.2      GRANT OF OPTION

         In consideration of the Purchaser agreeing to enter into this
Agreement, the Holder hereby grants to the Purchaser the right to purchase the
Option Shares upon the terms and subject to the conditions set out in this
clause 4.

         4.3      EXERCISE

         The Options may be exercised only during the Option Period and only in
one or both of the circumstances set out below:

                  (a)      if a Termination Event occurs at any time during the
Option Period, the Option may be exercised in respect of the Relevant Proportion
of the Option Shares; and

                  (b)      if the Purchaser has made a valid Claim against the
Holder before the expiry of the Option Period, the Purchaser shall be entitled
to exercise the Option in respect of such number of Option Shares as when
multiplied by the Relevant Value would equal the value of the Claim as estimated
by the Purchaser provided that if any Option Shares acquired by the Purchaser
pursuant to this clause 4.3(b), when multiplied by the Relevant Value equal an
amount (x) which exceeds the actual liabilities of the Holder pursuant to the
Claim. (as agreed between the parties or as finally determined by a court
without possibility of further appeal) (y), Option Shares having a Relevant
Value equal to the excess of (x) over (y) shall be transferred back to the
Holder for a consideration equal to the Exercise Price within 30 days of the
settlement or final determination of the Claim.

         4.4      NOTICE OF EXERCISE OF OPTIONS

         Options may be exercised by the Purchaser giving notice in writing to
the Holder of its intention to exercise the Options.

         4.5      DIVIDENDS AND OTHER RIGHTS ON OPTION SHARES

         With effect from the time of service of the notice of exercise of any
Options the Purchaser shall be entitled to all dividends and other rights
attaching to the relevant Option Shares, and following the time of service of
such notice of exercise, the Holder shall account to the Purchaser for all
dividends or distributions of the Company declared or paid by reference to a
record date which is prior to the date of service of the notice of exercise of
any Options and shall exercise all voting and other rights at the direction of
the Purchaser.

         4.6      COMPLETION OF SALE

         The sale of the Option Shares pursuant to this clause 4 shall be
completed within fourteen (14) days of the first date of service of the notice
of exercise of the Option pursuant to clause 4.4.


                                       7.
<PAGE>

         4.7      ATTORNEY

         The Holder hereby appoints any Director of the Purchaser for the time
being and from time to time as the lawful attorney of the Holder with authority
to execute on behalf of the Holder all documents and do all such things and acts
in the name of the Holder that may be required to be executed or done in order
to vest in the Purchaser or as it may direct, the full legal and beneficial
title in the Option Shares to be acquired by the Purchaser pursuant to this
clause 4, upon Completion. The Holder agrees to deposit with the Purchaser for
the Option Period the certificate representing the Option Shares.

         4.8      WARRANTIES

         The Holder hereby warrants, covenants and undertakes to the Purchaser
that:

         (a)      the Option Shares to be acquired by the Purchaser pursuant to
this clause 4 shall be transferred free from any lien, mortgage or encumbrance
of any nature whatsoever;

         (b)      the Holder has full power and authority to grant the Options
over the Option Shares upon the terms and conditions of this clause 4; and

         (c)      the Holder will, at Completion, execute joint escrow
instructions in the form set out in Schedule 7 hereto or in such other form as
the Purchaser may reasonably request and shall, at the request of and expense of
the Purchaser, execute such further joint escrow instructions as the Purchaser
may reasonably require in order to protect or perfect the Purchaser's interests
in the Option Shares.

         4.9      NO DISPOSALS

         The Holder hereby agrees with the Purchaser that during the term of the
Option Period it will not dispose of any legal or beneficial interest in the
Option Shares, nor without the prior written consent of the Purchaser create or
suffer to exist any lien, mortgage or other encumbrance over any or all of the
Option Shares; provided that if no Termination Event shall occur by the end of
the first year of the Option Period, this restriction shall be deemed no longer
applicable to one half of the Option Shares.

5.       COMPLETION

         5.1      Completion shall take place at the office of the Purchasers'
Solicitors immediately after the execution of this Agreement.

         5.2      At Completion the Vendors shall deliver or procure to be
delivered to the Purchaser those items set out in Schedule 3.

         5.3      The Vendors shall procure that the directors of the Company
shall convene and at Completion hold a meeting of the board of directors of the
Company at which the directors shall:


                                       8.

<PAGE>

                  5.3.1    vote in favour of the registration of the Purchaser
or its nominee(s) as members of the Company in respect of the Shares (subject to
the production of duly stamped transfers);

                  5.3.2    revoke all existing mandates for the operation of
bank accounts and issue new mandates giving authority to persons nominated by
the Purchaser;

                  5.3.3    change its registered office to such address as is
nominated by the Purchaser;

                  5.3.4    appoint Jane Shaw and Deborah Karlson or such other
persons as the Purchaser may nominate as directors of the Company with immediate
effect and accept the resignation in the agreed form of Eoghan O'Sullivan and
Tim McSweeney as directors of the Company;

                  5.3.5    appoint PricewaterhouseCoopers as joint auditors of
the Company;

                  5.3.6    approve and authorise the execution by the Company of
the Tax Deed;

                  5.3.7    approve and authorise an agreement to terminate the
Subscription Agreement;

                  5.3.8    approve and authorise a side letter to Mr. John
Power's service agreement with the Company; and

                  5.3.9    approve and authorise an agreement terminating the
Shareholders' Agreement.

         5.4      At Completion the Purchaser shall deliver to the Vendors'
Solicitors:

                  5.4.1    stock certificates representing the Consideration
Shares to be issued to the Vendors on Completion; and

                  5.4.2    the Tax Deed duly executed by the Purchaser.

         5.5      At Completion the Purchaser shall deliver to the Escrow Agent
the stock certificates representing the Option Shares and shall vouch the
delivery of same to the Vendors' solicitors by furnishing a copy of same to the
Vendors' Solicitors.

         5.6      The Vendors shall not be obliged to complete this Agreement
unless:

                  5.6.1    the Purchaser complies fully with its obligations
under this Clause 5; and

                  5.6.2    the purchase of all the Shares is completed
simultaneously.

         5.7      The parties intend to cause the IDA Option Agreement to be
assigned to Mr. John Power (subject to the prior consent of the IDA). If such
assignment occurs or Mr. John Power otherwise acquires an option or other
interest in the lands comprised in the IDA Option


                                       9.
<PAGE>

Agreement ("the Option Lands"), Mr. John Power hereby undertakes to offer to the
Company a lease of any building constructed on the Option Lands on reasonable
commercial terms and for a term suitable to the needs of the Company.

6.       WARRANTIES AND INDEMNITY

         6.1      The Warrantors hereby represent and warrant to the Purchaser
(for itself and as trustee for its successors in title) in the terms of the
Warranties and agree that if any of the Warranties is found to be untrue or
incorrect, then, subject to the provisions of this Agreement and without
restricting the rights of the Purchaser to claim damages on any other basis
available to it, the Warrantors will, at the Purchaser's option, either:

                  6.1.1    pay to the Purchaser an amount equal to the amount by
which the amount of any liability (whether existing, prospective or contingent)
or the value of any asset (whether existing, prospective or contingent) of the
Company or any subsidiary is respectively greater or less than it would have
been if the Warranty in question had been true and correct, together with all
fees, costs and expenses (including, without prejudice, any Tax arising on the
payment whether such tax arises in Ireland or elsewhere) or sustained by the
Purchaser as a result of such breach or in connection with the matter or
circumstance giving rise to that breach; or

                  6.1.2    pay to the Purchaser an amount equal to the amount by
which the value of the Shares is less than it would have been if such Warranty
had been true and correct, together with all fees, costs and expenses
(including, without prejudice, any Tax arising on the payment whether such tax
arises in Ireland or elsewhere) incurred or sustained by the Purchaser or any
member of the Purchaser's Group as a result of such breach or in connection with
the matter or circumstance giving rise to that breach.

         6.2      The Warranties are given subject to the matters fully and
fairly disclosed in the Disclosure Letter. No other information of which the
Purchaser may have knowledge (whether before or after the date hereof and
whether actual or constructive or imputed) shall prejudice or affect in any way
the Purchaser's ability to make any Warranty Claim nor to reduce the amount
recoverable in respect of any Warranty Claim.

         6.3      Each of the Warranties shall be separate and independent and
shall not be limited by reference to any other paragraph or sub-paragraph or
anything in this Agreement or the Schedules.

         6.4      Where any statement contained in the Warranties is expressed
to be given or made to the best of the Warrantors' knowledge or is qualified by
reference to the Warrantors' awareness or is qualified in some other manner
having substantially the same effect, such statement shall be deemed to be
qualified by the additional statement that the Warrantors have made all
reasonable enquiries prior to the date hereof in respect of the subject matter
of the relevant statement and each Warrantor shall be deemed to have knowledge
of:

                  6.4.1    anything which each of the other Warrantors knows or
is deemed by this clause to have knowledge of; and


                                      10.
<PAGE>

                  6.4.2    anything which he or she ought reasonably to have
knowledge of given his or her particular position in and responsibilities to the
Company and/or any subsidiary.

         6.5      The Purchaser is entering into this Agreement on the basis of
the Warranties and in reliance on them and each of the Warrantors acknowledges
that this is the case. Liability under any Warranty shall not be confined to
breaches discovered before Completion nor in any way be modified or discharged
by Completion.

         6.6      The calculation of any damages payable by the Warrantors in
respect of any breach of any of the Warranties shall wholly disregard any
investigation made by or on behalf of the Purchaser into the affairs of the
Company and any subsidiary.

         6.7      Each of the Warrantors agrees with the Purchaser for himself
or herself and as trustee for the Company and any subsidiary and its officers
and employees to assign to the Purchaser all the rights, remedies or claims
which he or she have or may have in respect of any misrepresentations in or
inaccuracies or omissions from any information (including information set out in
the Disclosure Letter) or advice supplied or given by the Company or any
subsidiary or any of the officers, employees or agents of the Company or any
subsidiary and on which the Warrantors; have relied in giving the Warranties,
preparing the Disclosure Letter and/or entering into this Agreement and/or the
other Documents.

         6.8      The Warrantors hereby indemnify and hold the Purchaser
harmless against all claims, demands, proceedings, costs and expenses relating
to any matter, act, default or omission arising or occurring prior to Completion
("Pre-Completion Liabilities"), save only and to the extent that the
Pre-Completion Liabilities are provided for in the Completion Accounts.

         6.9      The Warrantors shall not have any liability whatsoever in
respect of any Claim:

                  (a)      unless the Purchaser shall have given the Warrantors
written notice of the relevant Claim (giving reasonable particulars of the
Claim)

                           (i)      in the case of a Claim in respect of any of
the Warranties other than those relating to Tax (and other than a Claim under
the Tax Deed) within a period of two (2) years after the Completion Date; and

                           (ii)     in the case of any other Claim relating to
Tax and/or a Claim under the Tax Deed within a period of seven (7) years after
the Completion Date;

                  (b)      unless the aggregate amount of the liability of the
Warrantors for all Claims exceeds IRL30,000 (in which event the Warrantors shall
be liable for the entire amount of the Claim and not just the excess).

         6.10     The aggregate amount of the liability of the Warrantors for
all Warranty Claims shall not in any event exceed the amounts specified below
for that Warrantor:

         John Power                         US$3,068,683
         Charles Mulligan                   US$283,262


                                      11.
<PAGE>

         6.11     The liability of the Warrantor in relation to any Claim shall
be joint and several and not joint, so that each Warrantor shall be liable for
only the proportion of any Claim set out opposite the name of the Warrantor
below:

         John Power                      91.5%
         Charles Mulligan                 8.5%
         Total                          100.0%

         6.12     The Purchaser shall, and shall procure that the Company shall,
give the Vendors and their professional advisers reasonable access to the
premises of the Company (as the case may be) and to any relevant chattels,
accounts, documents and records within the power, procurement or control of the
Company to enable the Warrantors and their professional advisers to examine such
premises, chattels, accounts, documents and records as may be necessary or
desirable for the purpose of considering any Claim, and to take copies or
photographs thereof at the Warrantors' own expense.

         6.13     Save as expressly provided in this Agreement, nothing herein
shall be deemed to relieve the Purchaser or the Company from any common law duty
to mitigate any loss or damage occurred by it or them in respect of a Breach of
the Warranties.

         6.14     The Purchaser warrants to the Vendors that the Consideration
Shares are duly authorised and properly issued.

7.       CONFIDENTIALITY

         7.1      Each of the Vendors shall:

                  7.1.1    not, and shall use all reasonable endeavours to
procure that any persons or company controlled by them or any of them shall not,
at any time after the date of this Agreement use or disclose to any person any
Confidential Information which may be within or may come to its knowledge; and

                  7.1.2    use all reasonable endeavours to prevent the
disclosure of any Confidential Information.

8.       USE OF INTELLECTUAL PROPERTY RIGHTS

         The Vendors shall not, and shall procure that no persons or company
controlled by any of them shall, either alone or jointly with, through or as
manager, adviser, consultant or agent for any person, directly or indirectly use
in connection with any business which competes, directly or indirectly, with any
business of the Company as carried on at the date of this Agreement, any of the
Intellectual Property Rights (in particular, any corporate, trading or business
name including the words Cerus or any variation thereof or word similar thereto)
or use anything which is intended or is likely to be confused with, any of the
Intellectual Property Rights.


                                      12.
<PAGE>

9.       FURTHER VENDORS' UNDERTAKINGS

         9.1      Each of the Vendors undertakes to the Purchaser that it shall
not, and shall procure that no persons or company controlled by any of them
shall, for a period of two years after the date of this Agreement either alone
or jointly with, through or as manager, adviser, consultant or agent for any
person, directly or indirectly:

                  9.1.1    for a period of two years after the date of this
Agreement carry on, or be engaged, concerned or interested in, or assist, any
business which competes, directly or indirectly, with the Restricted Business in
the Territory;

                  9.1.2    for a period of two years after the date of this
Agreement in competition with the Restricted Business either seek to procure
orders from, or do business with, or procure directly or indirectly any other
person to procure orders from or do business with, any person who has been a
client or customer of the Company at any time during the period of 12 months
before the date of this Agreement;

                  9.1.3    for a period of two years after the date of this
Agreement engage, employ, solicit, or contact with a view to the engagement or
employment by any person, any employee, officer or manager of the Company or any
person who has been an employee, officer or manager of the Company in the 12
months before the date of this Agreement in either case where the employee,
officer of manager either as a part of his duties is privy to Confidential
Information or would be in a position to exploit the trade connections of the
Company;

                  9.1.4    do or say anything which is harmful to the reputation
of the Company or which may lead any person to cease to deal with the Company on
substantially equivalent terms to those previously offered or at all;

                  9.1.5    for a period of two years after the date of this
Agreement seek to contract with or engage (in such a way as to adversely affect
the business of the Company as carried on at the date of this Agreement) any
person who has been contracted with or engaged to manufacture, assemble, supply
or deliver products, goods, materials or services to the Purchaser's Group at
any time during the period of 12 months before the date of this Agreement with
the intent that each of the foregoing shall constitute an entirely separate and
independent restriction on the Vendors.

         9.2      It is agreed between the parties that, whilst the restrictions
set out in clause 10. 1 are considered fair and reasonable, if it should be
found that any of the restrictions be void or unenforceable as going beyond what
is fair and reasonable in all the circumstances and if by deleting part of the
wording or substituting a shorter period of time or different geographical limit
or a more restricted range of activities for any of the periods of time,
geographical limits or ranges of activities set out in clause 10 it would not be
void or unenforceable then there shall be substituted such next less extensive
period or limit or activity or such deletions shall be made as shall render
clause 10.1 valid and enforceable.


                                      13.
<PAGE>

10.      ANNOUNCEMENTS

         Unless required by law no public announcement, communications or
circular concerning the transactions referred to in this Agreement shall be made
or dispatched at any time (whether before or after Completion) by either party
without the prior written consent of the other party (such consent not to be
unreasonably withheld or delayed).

11.      COSTS

         Except as otherwise agreed in writing, the Purchaser shall pay its own
costs of and incidental to the negotiation, preparation, execution and
implementation by it of this Agreement and of all other documents referred to in
it. The costs of the Company and of the Vendors in relation to this transaction
shall be borne by the Company; said costs are estimated not to exceed
IRL40,000.00 and the consent of the Purchaser (which shall not be unreasonably
withheld) shall be required in relation to the discharge of any costs incurred
by either the Company or any of the Vendors (as the case may be) in excess of
the said IRL40,000.00 in aggregate.

12.      FURTHER ASSURANCE

         12.1     At any time after Completion the Vendors shall (at the
reasonable cost of the Purchaser) do and execute, or procure to be done and
executed, all necessary acts, deeds, documents and things as may be reasonably
requested of them by the Purchaser to give effect to this Agreement.

         12.2     At any time after Completion and upon the Purchaser's
reasonable request from time to time the Vendors shall (at the reasonable cost
of the Purchaser):

                  12.2.1   provide, or procure to be provided, to the Purchaser
all information relating to the business and affairs of the Company and which is
in its possession or under its control; and

                  12.2.2   give, or procure to be given, to the Purchaser, its
directors and agents access to any documents containing any of the information
referred to in clause 13.2.1 and the Purchaser may copy any of those documents.

13.      GENERAL

         13.1     No variation of this Agreement shall be valid unless it is in
writing and signed by or on behalf of each of the parties.

         13.2     The failure to exercise or delay in exercising a right or
remedy under this Agreement shall not constitute a waiver of the right or remedy
or a waiver of any other rights or remedies and no single or partial exercise of
any right or remedy under this Agreement shall prevent any further exercise of
the right or remedy or the exercise of any other right or remedy.

         13.3     The rights and remedies of the Purchaser contained in this
Agreement are cumulative and not exclusive of any rights or remedies provided by
law.


                                      14.
<PAGE>

         13.4     The invalidity, illegality or unenforceability of any
provision of this Agreement shall not affect or impair the continuation in force
of the remainder of this Agreement.

         13.5     The Warranties, indemnities, undertakings and obligations
contained in this Agreement shall remain in fall force and effect
notwithstanding Completion.

         13.6     This Agreement shall enure to the benefit of and be binding
upon the legal personal representatives and successors of the parties hereto.

14.      ASSIGNMENT

         Neither party shall assign or transfer or purport to assign or transfer
any of its rights or obligations under this Agreement except that the benefit
this Agreement may be assigned by the Purchaser to any subsequent purchaser of
the Shares.

15.      NOTICES

         15.1     Any notice or other communication under or in connection with
this Agreement shall be in writing and shall be delivered personally or by
registered post or sent by telex or by telefax, to the party due to receive the
notice or communication at its address set out in this Agreement or such other
address as either party may specify by notice in writing to the other. Any such
notice served on the Vendors' Solicitors shall be deemed, for the purposes of
this Agreement, to be served on the Vendors. The Vendors hereby irrevocably
authorise the Vendors' Solicitors to accept service of proceedings issued in
connection with this Agreement. The Purchaser hereby irrevocably authorises the
Purchaser's Solicitors to accept service of proceedings issued in connection
with this Agreement.

         15.2     In the absence of evidence of earlier receipt, any notice or
other communication shall be deemed to have been duly given:

                  15.2.1   if delivered personally, when left at the address
referred to in Clause 16.1;

                  15.2.2   if sent by registered post, two days after posting
it;

                  15.2.3   if sent by telex, when the proper answer-back is
received; and

                  15.2.4   if sent by telefax, on completion of its transmission
but if sent after 4:00pm it shall be deemed to have been duly given as at 9:00am
on the next Business Day.

16.      GOVERNING LAW AND JURISDICTION

         16.1     This Agreement is governed by, and shall be construed in
accordance with the laws of Ireland.

         16.2     Each party irrevocably agrees that the courts of Ireland shall
have exclusive jurisdiction to hear and determine any suit, action or
proceedings, and to settle any disputes,


                                      15.
<PAGE>

which may arise out of or in connection with this Agreement and, for such
purposes, each party irrevocably submits to the jurisdiction of the courts of
Ireland.

17.      ENTIRE AGREEMENT

         This Agreement (together with the Disclosure Letter and the Tax Deed
and all documents in the agreed form) constitutes the entire understanding and
agreement between the parties and supersedes all prior agreements, arrangements,
letters and discussions between the parties.

18.      COUNTERPARTS

         This Agreement may be executed in any number of counterparts each of
which when executed and delivered shall be an original, but all the counterparts
together shall constitute one and the same instrument.


                                      16.
<PAGE>

                                                  SCHEDULE 1

                                                  THE VENDORS

<TABLE>
<CAPTION>

---------------------------------------- ---------------- ---------------------- ------------------- -----------------

                                           NUMBERS OF     PERCENTAGE OF ISSUED                          NUMBER OF
                                          ISSUED SHARES   SHARE CAPITAL OF THE       NUMBER OF        CONSIDERATION
   NAMES AND ADDRESS OF VENDORS AND        HELD IN THE       COMPANY HELD BY       CONSIDERATION     SHARES (ROUNDED
        REGULATION S PURCHASERS              COMPANY             VENDOR                SHARES              UP)
---------------------------------------- ---------------- ---------------------- ------------------- -----------------
<S>                                      <C>              <C>                    <C>                 <C>

John & Bernadette Power,                     65,000                68.4211%       1,180,263.157895       1,180,262
40 Woodlands Park,
Moycullen, Co.  Galway
---------------------------------------- ---------------- ---------------------- ------------------- -----------------

Charles Mulligan,                             6,000                 6.3158%         108,947.368421         108,947
Poolnarooma West Salthill,
Galway
---------------------------------------- ---------------- ---------------------- ------------------- -----------------

Timothy & Mary                                2,500                 2.6316%          45,394.736842          45,395
McSweeney, 7 The
Hawthorns, Truskey West,
Barna, Co.  Galway
---------------------------------------- ---------------- ---------------------- ------------------- -----------------

Richard Gahan & Grainne                       2,000                 2.1053%          36,315.789474          36,316
Power, 116 Abbeyfield,
Killester, Dublin 5
---------------------------------------- ---------------- ---------------------- ------------------- -----------------

Paul Redmond, Carraig na                      2,000                 2.1053%          36,315.789474          36,316
Greinne, Furbo, Co.
Galway
---------------------------------------- ---------------- ---------------------- ------------------- -----------------

Bernard Collins, 86                           2,000                 2.1053%          36,315.789474          36,316
Westbrook, Barna Road,
Galway
---------------------------------------- ---------------- ---------------------- ------------------- -----------------

Jim Mountjoy, 16 Gosworth                     2,000                 2.1053%          36,315.789474          36,316
Park, Sandycove, Co.
Dublin
---------------------------------------- ---------------- ---------------------- ------------------- -----------------

David Hogan c/o Hogan                         1,000                 1.0526%          18,157.894737          18,158
Motors, Ballybrit, Galway
---------------------------------------- ---------------- ---------------------- ------------------- -----------------

Timothy Crowley, 178                          2,000                 2.1053%          36,315.789474          36,316
Spring Street, Pembroke,
MA 02354, USA
---------------------------------------- ---------------- ---------------------- ------------------- -----------------

Michael Crowley, 26                           1,500                 1.5789%          27,236.842105          27,237
Cloondara, Oakpark,
Tralee, Co.  Kerry
---------------------------------------- ---------------- ---------------------- ------------------- -----------------

Pat Sweeney, 17 Suantra,                      2,000                 2.1053%          36,315.781474          36,316
Dr Colohan Road, Salthill,
Galway
---------------------------------------- ---------------- ---------------------- ------------------- -----------------


                                      17.
<PAGE>

---------------------------------------- ---------------- ---------------------- ------------------- -----------------
Pat & Caitriona McCarthy                        500                 0.5263%           9,078.947368           9,079
Bawnahow, Skibbereen, Co.
Cork
---------------------------------------- ---------------- ---------------------- ------------------- -----------------

Pat & Aideen Burke, 39                        1,000                 1.0526%          18,157.894737          18,158
College Grove,
Castleknock, Dublin 15
---------------------------------------- ---------------- ---------------------- ------------------- -----------------

Ann Murphy, Chestnut                          1,000                 1.0526%          18,157.894737          18,158
Lane, Dangan, Galway
---------------------------------------- ---------------- ---------------------- ------------------- -----------------

Norah Long, 2A Woodlands                      1,000                 1.0526%          18,157.894737          18,158
Park, Moycullen, Co.
Galway
---------------------------------------- ---------------- ---------------------- ------------------- -----------------

Brian O'Connell, Le                           1,000                 1.0526%          18,157.894737          18,158
Canadu, Pollnarooma West,
Salthill, Galway.
---------------------------------------- ---------------- ---------------------- ------------------- -----------------

Joseph Nolan, Legaun,                           500                 0.5263%           9,078.947368           9,079
Moycullen, Co.  Galway.
---------------------------------------- ---------------- ---------------------- ------------------- -----------------

Oliver Lynch, 19 Oaklands,                      667                 0.7021%          12,111.315789          12,111
Salthill, Galway.
---------------------------------------- ---------------- ---------------------- ------------------- -----------------

Tony Pidgeon, 1 St.                             622                 0.6547%          11,294.210526          11,294
Romans Close, Rockbarton,
Salthill, Galway.
---------------------------------------- ---------------- ---------------------- ------------------- -----------------

Niall Keating                                   711                 0.7484%          12,910.263158          12,910
9 The Nurseries, Taylors
Hill, Galway
---------------------------------------- ---------------- ---------------------- ------------------- -----------------

                                             95,000                     100%      1,725,000.0000         1,725,000
---------------------------------------- ---------------- ---------------------- ------------------- -----------------

</TABLE>


                                      18.
<PAGE>

                                   SCHEDULE 2
                                     PART 1
                             INFORMATION CONCERNING
                                  CERUS LIMITED

     1    Registered number:                  277354
     2.   Date of incorporation:              16 December, 1997
     3.   Place of incorporation:             Ireland
     4.   Address of registered office:       Kilraney Centre, Moycullen, Co.
                                              Galway
     5.   Type of company:                    Private company limited by shares
     6.   Authorised share capital:           L600,000 divided into 10,000,000
                                              Ordinary A Shares of L0.01 each
                                              and 500,000 Ordinary B Shares of
                                              L1.00 each.
     7.   Issued Share Capital:
     8.   Legal and beneficial holders of
          shares:                             See second column of Schedule 1
     9.   Directors:                          John Power
                                              Charles Mulligan
                                              Timothy McSweeney
                                              Eoghan O' Sullivan
    10.   Secretary:                          John Power
    11.   Accounting reference date:          31st December
    12.   Auditors:                           G. P. Griffin & Co.
    13.   Tax residence:                      Ireland
    14    VAT registration no.:               8277354F
    15    Bank Accounts:                      Bank of Ireland, 19 Eyre Square,
                                              Galway
    16    Charges:                            None


                                      19.

<PAGE>

                                   SCHEDULE 3

                 ITEMS FOR DELIVERY BY THE VENDORS AT COMPLETION

1.       Evidence that no dividend or other distributions have been paid by the
         Company since the Last Accounting Date.

2.       Duly executed transfers in respect of the Shares in favour of the
         Purchaser or its nominee(s) together with the share certificates in
         respect of the Shares.

3.       By way of evidence of the authority of each person executing any
         document on behalf of the Vendors, a copy of the power of attorney
         conferring the authority.

4.       Pending registration of the Purchaser or its nominees as the holder of
         the Shares, a duly executed power of attorney in favour of the
         Purchaser or its nominees generally in respect of the Shares and in
         particular to enable the Purchaser or its nominees to attend and vote
         at general meetings of the Company.

5.       Any waivers, consents or other documents necessary to vest in the
         Purchaser the fun beneficial ownership of the Shares and to enable the
         Purchaser or its nominees to be registered as owners of the Shares.

6.       The common seal and all registers, minute books, and other statutory
         books, required to be kept by Company pursuant to the Companies Acts
         1963 to 1990 made up to the Completion Date and all certificates of
         incorporation and certificates on change of name for the Company.

7.       The Tax Deed duly executed by the Vendors.

8.       Duly executed service agreements in the agreed form between John Power
         and the Company.

9.       Copies of all bank mandates of the Company together with copies of
         statements of all bank accounts as at a date not earlier than five
         Business Days before the date of Completion.

10.      Evidence that all registered charges created by the Company have been
         discharged.

11.      Evidence satisfactory to the Purchaser that loans from the Company to
         the Vendors have been fully paid and settled.

12.      Evidence satisfactory to the Purchasers that all guarantees and/or
         indemnities executed by the Company in favour of the Vendors or any
         person connected with them have been discharged and released.

13.      CGT clearance cert or letter from auditors confirming none required.


                                      20.
<PAGE>

14.      Evidence satisfactory to the Purchaser that no bonuses or gratuities
         have been paid to employees, consultants, directors or shareholders of
         the Company since the Last Accounting Date.

15.      An agreement to terminate the Subscription Agreement, such agreement to
         be in a form approved by the Purchaser and executed by all parties to
         the Subscription Agreement.

16.      A side letter to Mr. John Power's service agreement with the Company,
         in a form approved by the Purchaser.

17.      A proprietary information and non-disclosure agreement (in a form
         approved by the Purchaser) duly executed by each employee of the
         Company.

18.      An agreement to terminate the Shareholders Agreement, such agreement to
         be in a form approved by the Purchaser and executed by all parties to
         the Shareholders Agreement.

19.      An assignment in favour of the Company from John Power of all
         intellectual property rights in the invention the subject of the US
         Patent Office Disclosure Document Program.


                                      21.
<PAGE>

                                   SCHEDULE 4

                       WARRANTIES GIVEN BY THE WARRANTORS

1.       CAPACITY AND AUTHORITY

         1.1      INCORPORATION AND EXISTENCE

                  The Company is a company duly incorporated and validly
                  existing under the law of Ireland and is duly qualified to do
                  business in the jurisdictions in which the transaction of its
                  business makes such qualification necessary.

         1.2      POWER AND AUTHORITY

                  The Vendors have the legal right and full power and authority
                  to execute and deliver, and to exercise their rights and
                  perform their obligations under this Agreement and all the
                  documents which are to be executed at Completion.

         1.3      BINDING AGREEMENTS

                  This Agreement constitutes, and the documents which are to be
                  executed at Completion when executed will constitute, valid
                  and binding agreements of the Vendors enforceable in
                  accordance with their respective terms.

2.       INFORMATION

         2.1      ALL INFORMATION

                  All written information (together the "Information") provided
                  to the Purchaser or to its professional advisors by or on
                  behalf of the Warrantor in the course of negotiations leading
                  to this Agreement is at the date hereof true and accurate in
                  all respects and so far as such information is expressed as a
                  matter of opinion, such opinions were when given and are at
                  the date hereof truly and honestly held and not given casually
                  or recklessly or without due regard for their accuracy.

                  The Information has been properly made or provided after due
                  and careful consideration of all relevant factors affecting
                  the same and there were no facts known to the Warrantor which
                  were not taken into account in the preparation of such
                  Information which could reasonably be expected to have a
                  material effect thereon. No events have occurred subsequent
                  thereto and no fact or matter or circumstance exists which has
                  not been disclosed in writing to the Purchaser or to its
                  professional advisers which would render such information
                  inaccurate, untrue or misleading or which on the basis of the
                  utmost good faith ought to be disclosed to an intending
                  purchaser of shares in the Company or the disclosure of which
                  might reasonably affect the willingness of the Purchaser to
                  purchase the Shares on the terms (including price) of this
                  Agreement.


                                      22.
<PAGE>

         2.2      THE AGREEMENT AND THE DISCLOSURE LETTER

                  The information set out in this Agreement and in the
                  Disclosure Letter, are true, complete and accurate in all
                  material respects.

         2.3      The Articles of Association of the Company as adopted by a
                  special resolution dated 1 April 1999 were validly adopted and
                  were in full force and effect prior to the issue of the "B"
                  ordinary shares to the holders thereof. To the best of the
                  knowledge information and belief of the Warrantors, the "B"
                  ordinary shareholders were aware of the said Articles of
                  Association prior to the said issue of the "B" ordinary shares
                  in the capital of the Company.

3.       SHARES AND SUBSIDIARIES

         3.1      THE SHARES

                  3.1.1    The Vendors of those Shares which are not the subject
of a subsale of even date herewith to the Purchaser are the sole legal and
beneficial owners of the Shares.

                  3.1.2    The Vendors of those Shares which are the subject of
a subsale of even date herewith to the Purchaser are the beneficial owners of
those Shares only; the legal owners thereof are as stated on the applicable
Share transfer forms.

                  3.1.3    The Shares and the B Shares comprise the whole of the
allotted and issued share capital of the Company. Save for the B Shares, there
are no shares issued or allotted in the Company which are not legally and
beneficially owned by the Vendors save those Shares which are the subject of a
subsale of even date herewith to the Purchaser and the legal title to such
Shares is as stated in the applicable Share transfer forms.

                  3.1.4    There is no Encumbrance, nor is there any agreement,
arrangement or obligation to create or give any Encumbrance, on, over or
affecting any of the Shares and no claim has been made by any person to be
entitled to any such Encumbrance.

                  3.1.5    Save as provided in this Agreement:

                           (i)      there is no agreement, arrangement or
obligation in force which calls for the present or future allotment, issue or
transfer of, or the grant to any person of the right (whether conditional or
otherwise) to call for the allotment, issue or transfer of, any share or loan
capital of the Company (including, without limitation, any option or right of
pre-emption or conversion); and

                           (ii)     no share or loan capital has been created,
allotted, issued, acquired, repaid or redeemed, or agreed to be created,
allotted, issued, acquired, repaid or redeemed, by the Company since the
Accounting Date.

                  3.1.6    All rights and interests of every kind existing in
respect of the Shares are valid and enforceable by action or legal proceeding or
otherwise.


                                      23.
<PAGE>

         3.2      SUBSIDIARIES, ASSOCIATES AND BRANCHES

                  3.2.1    The Company does not have any subsidiary or
subsidiary undertaking and does not have any interest in, and has not agreed to
acquire any interest in, any shares of any other bodies corporate.

                  3.2.2    The Company has no branch, agency or place of
business, or any permanent establishment (as that expression is defined in the
relevant double taxation relief orders current at the date of this Agreement)
outside Ireland.

                  3.2.3    The Company does not and has never had any associated
undertaking within the meaning of the European Communities (Companies: Group
Accounts) Regulations, 1992.

4.       ACCOUNTS

         4.1      GENERAL

                  4.1.1    The Accounts have been prepared in accordance with
the laws of Ireland on a proper and consistent basis and in accordance with the
Companies Act, 1963 to 1999 and the European Communities (Companies' Group
Accounts) Regulations 1992 and with the Accounting Standards.

                  4.1.2    No change in accounting policies has been made in
preparing the accounts of the Company for each of the three financial periods
ended on the Last Accounting Date, except as stated in the audited balance
sheets and profit and loss accounts for those periods.

                  4.1.3    The Accounts show a true and fair view of the assets,
liabilities (including contingent liabilities), commitments and financial
position and the state of affairs of the Company as at the Last Accounting Date
and of the results and cashflows of the Company for the financial period ending
on the Last Accounting Date.

         4.2      PROVISION FOR LIABILITIES

                  Full disclosure of and adequate provisions for all liabilities
                  (whether actual, contingent or otherwise) and all material
                  financial commitments in existence at the Last Accounting Date
                  have been made in the Accounts.

         4.3      EXTRAORDINARY AND EXCEPTIONAL ITEMS

                  The results shown by the audited profit and loss accounts of
                  the Company for each of the three financial periods ended on
                  the Last Accounting Date have not (save as disclosed in those
                  accounts) been affected by any extraordinary or exceptional
                  item or by any other circumstances rendering the profits or
                  losses for all or any of the periods covered by those accounts
                  unusually high or low.


                                      24.
<PAGE>

         4.4      PROVISION FOR TAXATION

                  The Accounts provide in full for all Taxation liable to be
                  assessed on the Company, or for which it is or may become
                  accountable, in respect of any period beginning on or before
                  the Last Accounting Date and whether or not the Company has or
                  may have any right of reimbursement against any other person
                  and the Accounts provide or note in full for any contingent or
                  deferred liability to Taxation for any such period.

         4.5      VALUATION OF STOCK

                  In the Accounts:

                  4.5.1    stocks (excluding long-term contract balances) were
valued in the same manner adopted in the [two] preceding accounting periods and
on the basis of the lower of cost and net realisable value;

                  4.5.2    all redundant and obsolete stocks were wholly written
off and all slow moving and damaged stocks were written down appropriately and
the value of the remaining stock included in the relevant balance sheets did not
exceed the lower of cost and net realisable value as at the Last Accounting
Date.

                  4.5.3    the value of the work in progress shown in the
Accounts properly reflects only the direct costs incurred by the Company.

         4.6      DEPRECIATION

                  4.6.1    The bases and rules of depreciation and amortisation
adopted in the Accounts were the same as those adopted in the audited accounts
of the Company for the [two] previous accounting periods.

                  4.6.2    The Accounts make adequate provision for depreciation
and amortisation of fixed assets of the Company to the period ended on the Last
Accounting Date were sufficient to ensure (on the basis of proper maintenance of
the assets during their useful life) that each of the fixed assets of the
Company would be written down to residual value by the end of its useful life.

         4.7      GAINS AND BALANCING CHARGES

                  Except as disclosed by the Accounts and save insofar as full
                  provision is made therein for Taxation in respect of any
                  chargeable gains or balancing charges which would arise or
                  accrue in respect of any such asset or machinery and plant on
                  disposal thereof at the values at which they are included, no
                  asset is included in the Accounts at such value that if it
                  were obtained in the disposal or deemed disposal of the asset
                  a chargeable gain or balancing charge would arise or accrue.


                                      25.
<PAGE>

         4.8      BOOK DEBTS

                  Excluding the bad and doubtful debts for which fall and
                  adequate provision was made in the Accounts, the book debts of
                  the Company on Completion will be good for the full face value
                  thereof and, subject to the exercise of due diligence by the
                  Company, will be paid in the ordinary course of business
                  within six calendar months after the Completion Date.

         4.9      BOOKS AND FINANCIAL RECORDS

                  All the accounting books and records of the Company are in its
                  possession or under its control, are fully and accurately
                  completed in accordance with all applicable legal requirements
                  and are up-to-date.

         4.10     MANAGEMENT ACCOUNTS

                  The Management Accounts have been prepared with due care and
                  attention and have been prepared on a basis consistent with
                  that and on the same assumptions as those made in preparing
                  previous Management Accounts of the Company for the year
                  immediately preceding the date of the Management Accounts and
                  show a reasonably accurate view of the state of affairs and
                  profit or loss of the Company as at and for the period in
                  respect of which they have been prepared.

5.       CHANGES SINCE THE LAST ACCOUNTING DATE

         5.1      GENERAL

                  Since the Last Accounting Date:

                  5.1.1    the business and activities of the Company have been
carried on in the ordinary and usual course without interruption, in the same
manner (including, without limitation, nature and scope) as in the year ended on
the Last Accounting Date and so as to maintain the business of the Company as a
going concern;

                  5.1.2    there has been no material adverse change in the
financial or trading Company; and

                  5.1.3    save in the ordinary and proper course of business no
material changes have occurred in the assets and liabilities shown in the
Accounts and there has been no material reduction in the value of the net
tangible assets of the Company on the basis of the valuations adopted for the
purposes of the Accounts.

5.2      SPECIFIC

                  Since the Last Accounting Date:

                  5.2.1    the Company has not disposed of any asset (including,
without limitation, trading stock) and has not supplied any service or business
facility of any kind


                                      26.
<PAGE>

(including, without limitation, a loan of money or the letting, hiring or
licensing of any property whether tangible or intangible) in circumstances where
the consideration actually received or receivable or the disposal or the supply,
as the case may be, was less than the consideration which would be deemed to
have been received for the purposes of Taxation;

                  5.2.2    the Company has not, other than in the ordinary and
usual course of its business:

                           (i)      acquired or disposed of, or agreed to
acquire or dispose of, any material asset; or

                           (ii)     assumed or incurred, or agreed to assume or
incur, any material liability, expenditure or obligation;

                  5.2.3    the Company has not factored, sold or agreed to sell,
any of its debts other than in the ordinary and usual course of its business;

                  5.2.4    the Company has not made, or agreed to make, any
capital expenditure exceeding in total L30,000 or incurred, or agreed to incur,
any commitments involving capital expenditure exceeding in total L30,000;

                  5.2.5    the business of the Company has not been materially
and adversely affected by the termination, or any change in the terms, of any
important agreement or by the loss of any customer or source of supply or by any
abnormal factor not affecting similar businesses to a like extent;

                  5.2.6    no dividend or distribution (including, without
limitation, any distribution within the meaning of the Corporation Tax Act 1976)
has been declared, paid or made by the Company except as provided in its
Accounts;

                  5.2.7    save in the ordinary course of business no payment
has been made by the Company which will not be deductible for corporation tax
purposes either in computing the profits of the Company or in computing the
corporation tax chargeable on the Company;

                  5.2.8    the Company has not changed its accounting reference
period;

                  5.2.9    no resolution of the Company in general meeting has
been passed (other than any resolution constituting ordinary business conducted
at an annual general meeting);

                  5.2.10   the Company has not borrowed or lent any money or
increased by an amount any secured liability or (except in the ordinary course
of its trading and for full value) disposed of any assets or incurred or entered
into any other liability, transaction or contract of a financial nature;

                  5.2.11   the Company has not issued or repaid or agreed to
issue or repay or agreed to the registration of any transfer of any share or
loan capital or granted any option in relation thereto;


                                      27.
<PAGE>

                  5.2.12   the Company has not created, extended, granted or
issued or agreed to create, extend, grant or issue any lease, tenancy, licence,
mortgage, charge, lien, encumbrance, option, debenture or other security;

                  5.2.13   the Company has not made any unusual augmentation in
stock nor written up any fixed assets or stock;

                  5.2.14   the Company has not written off any debts;

                  5.2.15   the Company has not passed any resolution by its
members in general meeting or made any alteration to the provisions of its
memorandum of association or articles of association; and

                  5.2.16   the Company has not disposed of any assets of a
capital nature other than in the normal and ordinary course of business.

                  5.2.17   the Company has not paid any bonus or gratuity to any
employee, consultant, director or shareholder of the Company.

6.       TAXATION

         6.1      GENERAL

                  6.1.1    All taxation of any nature whatsoever or other sums
imposed, charged, assessed, levied or payable under the provisions of applicable
legislation relating to taxation for which the Company is liable as a result of
any act or omission by the Company prior to Completion will if, and in so far as
such taxation or other sums ought to be paid prior to or on Completion, have
been paid at or before Completion and in particular, but without prejudice to
the generality of the foregoing, at Completion, all amounts due for payment to
the Revenue Commissioners in respect of excise duty and of Value Added Tax in
respect of goods or services supplied prior to Completion or goods imported
prior to Completion, and of income tax deductible prior to Completion under
Schedule E by virtue of the PAYE regulations from time to time in force will
have been paid so that the Company will have no liability in respect thereof and
at Completion all Social Welfare and Pay Related Social Insurance contributions
(both employer's and employees') and any other levies and impositions due in
respect of the employees of the Company will have been duly paid.

                  6.1.2    The Company is not liable and has not at any time
since the Accounting Date been liable to pay interest on overdue taxation.

                  6.1.3    The Company has not acquired or disposed of any asset
or entered into any transaction otherwise than by way of bargain at arm's
length.

                  6.1.4    The Company has not entered into any financing or
leasing agreement in which or in connection with which the Company has
indemnified any other party against any claim, loss or other liability arising
from any change in tax legislation or in the interpretation of tax legislation.


                                      28.
<PAGE>

                  6.1.5    There are no differences between and taxation
treatments of all items in the Accounts.

                  6.1.6    There is no appeal by the Company pending against any
assessment to tax and the Company is not in default in payment of any tax within
the period prescribed for payment thereof.

                  6.1.7    The Company has not committed any act nor made any
omission which might constitute an offence under Section 1078 of the Taxes
Consolidation Act, 1997.

                  6.1.8    The Company has not been at any time, for taxation
purposes, resident in any jurisdiction other than the Republic of Ireland nor
has it been at any time managed or controlled in or from any country other than
the Republic of Ireland and the Company has not at any time carried on any trade
in any other country and does not have a permanent establishment in any country
other than the Republic of Ireland.

                  6.1.9    The Company has for each accounting period up to and
including the accounting period ending on Completion furnished the Company's
Inspector of Taxes with full and accurate particulars relating to the affairs of
the Company, and also has properly and within the prescribed periods of time
made all return and given or delivered all notices, accounts and information
required for the purpose of taxation, and all such particulars, notices,
accounts or information have been correct in all material respects and on a
proper basis and none such are disputed by the Revenue Commissioners or other
authority concerned, there are no grounds or circumstances which might cause any
such dispute and the Company has made all claims which would be of benefit to it
within the time limits laid down in the relevant legislation.

                  6.1.10   The Company has submitted computations of its taxable
profit in respect of all periods up to and including the last Accounting Date
and the Revenue have not audited, or issued notice of intention to audit the
company in respect of any accounting period or transaction and the revenue
Commissioners have where relevant agreed computations of its taxable profits in
respect of all periods up to and including the yew ended on the Accounting Date.

                  6.1.11   The Company has not entered into or been a party to
any schemes or arrangements designed partly or wholly for the purpose of
avoiding taxation which could be classed as a "tax avoidance transaction" within
the meaning of Section 811 of the Taxes Consolidation Act, 1997 and no
provisions of that Section apply to the Company in respect of any event (whether
or not involving the Company) which took place before Completion or in respect
of any series of events, (whether or not such events or any of them involve the
Company) taking place partly before Completion and partly after Completion.

                  6.1.12   No act or transaction has been effected in
consequence of which the Company is liable for any taxation primarily chargeable
against some other person.

                  6.1.13   The making of returns, payment of preliminary tax and
all other requirements of Sections 950 to 959 of the Taxes Consolidation Act,
1997 have been complied with fully by the Company.


                                      29.

<PAGE>

                  6.1.14   No penalty under Section 1084 of the Taxes
Consolidation Act, 1997 has or will become payable.

                  6.1.15   No notice of attachment has been served on the
Company or in relation to any funds of the Company under Section 1002 of the
Taxes Consolidation Act, 1997.

                  6.1.16   The Company has for each accounting period:

                           (i)      furnished the Inspector of Taxes with full
and accurate particulars relating to the affairs of the Company; and

                           (ii)     properly and within the prescribed periods
of time made all returns and given or delivered all notices, accounts and
information required for the purposes of taxation.

                           (iii)    Complied fully with the requirements of
Sections 950 to 959 of the Taxes Consolidation Act, 1997, regarding the payment
of preliminary tax, corporation tax and capital gains tax.

         All such particulars, returns, notices, accounts information and
payments have been correct in all material respects and on a proper basis and
none such are disputed by the Revenue Commissioners or other authority
concerned. In addition there are no grounds or circumstances which might cause
any dispute and the Company has made all claims which would be of benefit to it
within the time limits laid down in the relevant legislation.

                  6.1.17   No transaction has or had been effected by the
Company in respect of which any consent or clearance from the Revenue
Commissioners or other taxation authority was required and which consent or
clearance (as the case may be) was not obtained.

                  6.1.18   The Company is not and has never been a member of a
group of companies within the meaning of Section 590 or Section 616 of the Taxes
Consolidation Act, 1997, or associated with any other company within the meaning
of Section 423(1), Taxes Consolidation Act, 1997.

                  6.1.19   The provisions of the Waiver of Certain Tax, Interest
and Penalties Act, 1993 do not have any application to the Company or any of its
officers.

                  6.1.20   The Company has not made a relevant investment within
the meaning of Section 481, and Schedule 32, Paragraph 22 of the Taxes
Consolidation Act, 1997.

                  6.1.21   The Company is not a service company for the purposes
of S 441 TCA 1997.

                  6.1.22   The Company has no liability to Dividend Withholding
Tax under Chapter 8A of Part 6 of Taxes Consolidation Act 1997.

                  6.1.23   The Company does not need to apply for a certificate
under S 980 (8) Taxes Consolidation Act 1997, as a result of the current
transactions.


                                      30.
<PAGE>

                  6.1.24   The Company has complied in all respects with the
provisions of Section 894 Taxes Consolidation Act 1997.

                  6.1.25   The Company has not been a party to or otherwise been
involved in any transaction scheme or arrangement to which the provisions of
Part 28, Chapter 1 and Schedule 21 Taxes Consolidation Act 1997 apply.

                  6.1.26   The Company has not been a party to or otherwise been
involved in any transaction scheme or arrangement to which the provisions of
Part 3 Chapter 1 Taxes Consolidation Act 1997 apply.

                  6.1.27   The Company has not been a party to or otherwise been
involved in any transaction scheme or arrangement under which a liability to tax
could arise to the Company under S 1001 Taxes Consolidation Act 1997.

                  6.1.28   No event has occurred and the Company has not entered
into any transaction which could give rise to a liability to tax under Part 20
Chapter 2 Taxes Consolidation Act 1997.

                  6.1.29   The Company has not made any claim under S 930 Taxes
Consolidation Act 1997.

                  6.1.30   The Company has not made any claim under S 1004 of
the Taxes Consolidation Act 1997.

                  6.1.31   The Company has complied in all material respects
with the provisions of S 1041 Taxes Consolidation Act 1997 and with all
regulations which have been made by virtue thereof.

                  6.1.32   The Disclosure Letter contains full details of the
Company's rights and obligations and liabilities in respect of the B Shares.
Furthermore, no arrangements are in place whereby the Company is required to
compensate any of the holders of the B Shares for a withdrawal of any relief
under Part 16 of the Taxes Consolidation Act 1997.

                  6.1.33   All the Company's expenses incurred prior to
Completion were incurred wholly and exclusively for the purposes of the
Company's trade and no circumstance exists which would lead to a denial of tax
deduction by the Revenue Commissioners for any expense incurred prior to
Completion.

         6.2      CORPORATION TAX

                  6.2.1    (a)      The Company has not paid remuneration to its
employees, officers or directors (either deemed or otherwise) in excess of such
amount as will be deductible in computing the taxable profits of the Company;

                           (b)      The Company has not paid and will not pay
remuneration or compensation for loss of office or make any gratuitous payment
or any other payment in respect of management or other services rendered or to
be rendered to the Company to any of its present


                                      31.
<PAGE>

or former directors or employees (deemed or otherwise) which will not be
deductible in computing the taxable profits of the Company;

                           (c)      The Company has not paid nor has it agreed
to pay nor will it become liable to pay any payment to any person which will not
be deductible in computing the taxable profits of the Company.

                  6.2.2    In respect of Schedule 32, Paragraph 7 of the Taxes
Consolidation Act, 1997, no circumstance exists which would lead the Revenue to
withdraw approval of the scheme or to contend that the Company is not a
qualifying Company carrying on a specified trade.

                  6.2.3    In respect of profit sharing schemes under Sections
509 to 518 of the Taxes Consolidation Act, 1997, no circumstance exists which
would lead the Revenue to withdraw approval of any such scheme.

                  6.2.4    In respect of employee share ownership trusts under
Section 519 and Section 511(A) of the Taxes Consolidation Act, 1997, no
circumstance exists which would lead the Revenue to withdraw approval of any
such scheme.

                  6.2.5    If the employees of the Company have benefited from
Section 479 of the Taxes Consolidation Act, 1997, no circumstance exists in
relation to the Company which would lead to the withdrawal of the relief.

                  6.2.6    The Company has not, within the meaning of Sections
520 to 529 of the Taxes Consolidation Act, 1997, received payment in respect of
professional services from an accountable person.

                  6.2.7    No loan or advance or payment has been made or
consideration given or transaction effected falling within Sections 438 or 439
of the Taxes Consolidation Act, 1997.

                  6.2.8    The Company has duly complied with the requirements
of Section 239 of the Taxes Consolidation Act, 1997 and with the requirements of
all other provisions relating to the deduction and withholding of tax at source
up to the date hereof and all such tax which has become due to the Revenue
Commissioners has been paid to the Revenue Commissioners.

                  6.2.9    The Company has never incurred any expense or paid
any amount in consequence of which the Company has been or could be treated
under Sections 436 or 437 of the Taxes Consolidation Act, 1997 as having made a
distribution.

                  6.2.10   The limitation on the meaning of "distribution"
provided for by Sections 133 and 134 of the Taxes Consolidation Act, 1997 does
not apply to any financial arrangements of the Company.

                  6.2.11   The Company is not affected by the amendments to Part
IX of the Corporation Tax Act, 1976 contained in Section 133(3) and 134(2) of
the Taxes Consolidation Act, 1997.


                                      32.
<PAGE>

                  6.2.12   Section 138 of the Taxes Consolidation Act, 1997 does
not apply to any dividend paid by the Company in respect of its preference
shares.

                  6.2.13   The Company has not made any claim for relief in
respect of stock appreciation under Section 665 to 669 of the Taxes
Consolidation Act, 1997 or under Section 31 and 31A of the Finance Act, 1975 or
Section 26 of the Finance Act, 1976 or Section 49 Finance Act, 1984.

                  6.2.14   The Company has not effected or entered into any act
transaction or arrangement of any nature whereby it has incurred or may
hereafter incur any liability under or by virtue of any of Sections 98, 99, 100
and 103 of the Taxes Consolidation Act, 1997.

                  6.2.15   The Company has not surrendered any amount by way of
group relief under the provisions of Sections 411 to 424 the Taxes Consolidation
Act, 1997.

                  6.2.16   The Company is not and will not at any time in the
future become liable to make a subvention payment or any other payment for an
amount surrendered by any other Company under or in connection with the
provisions of Section 411 of the Taxes Consolidation Act, 1997.

                  6.2.17   The Company has not at any time:

                           (a)      repaid or redeemed or agreed to repay or
redeem any shares of any class of its share capital or otherwise reduced or
agreed to reduce its issued share capital or any class thereof; or

                           (b)      capitalised or agreed to capitalise in the
form of shares, debentures or other securities or in paying up any amounts
unpaid on any shares debentures or other securities any profits or reserves of
any class or description or passed or agreed to pass any resolution to do so; or

                           (c)      provided capital to any company on terms
whereby the company so capitalised has in consideration thereof issued shares
loan stock or other securities where the terms of any such capitalisation were
otherwise than by way of a bargain made at arm's length or where the shares loan
stock or other securities acquired are shown in the Accounts at a value in
excess of their market value at the time of acquisition.

                  6.2.18   No allowable loss which has arisen or which may
hereafter arise on the disposal by the Company of shares in or securities of any
company is liable to be disallowed in whole or in part by virtue of the
application of Section 621 or 622 of the Taxes Consolidation Act, 1997.

                  6.2.19   No change of ownership of the Company has taken place
in circumstances such that Section 401 of the Taxes Consolidation Act, 1997 has
or may be applied to deny relief for a loss or losses incurred by the Company.

                  6.2.20   On a sale of any machinery and plant at the value
thereof shown in the Accounts no balancing charge will be incurred.


                                      33.
<PAGE>

                  6.2.21   There has not been, in respect of any accounting
period, any excess of distributable investment and estate income within the
meaning of Section 434 of the Taxes Consolidation Act, 1997.

                  6.2.22   The Company is entitled to relief up to 5th April
1990 under Sections 144 to 146 of the Taxes Consolidation Act, 1997.

                  6.2.23   The Company has never claimed relief under Sections
147 to 149, 151, 442 to 450 and 453 and Schedule 32, paragraphs 4, 5(2), 6(2),
16(1) - (4) and 18 of the Taxes Consolidation Act, 1997.

                  6.2.24   The Company has not entered into transactions by
virtue of which it will be chargeable under Case IV, Schedule D in accordance
with Section 815 of the Taxes Consolidation Act, 1997.

                  6.2.25   The restrictions on the use of capital allowance for
certain leased assets, as set out in Section 403 of the Taxes Consolidation Act,
1997 do not have application to any transactions entered into by the Company.

                  6.2.26   The provisions of Sections 272 and 317(3) of the
Taxes Consolidation Act, 1997 apply to all expenditure incurred by the Company,
and have been properly implemented in the accounts of the Company.

                  6.2.27   No circumstance exists in connection with the Company
which would lead to the withdrawal of relief for investment in research and
development as provided for in Chapter III of the Finance Act, 1986.

                  6.2.28   The Company is not liable to any claim in respect of
tax due under Sections 530 or 531 of the Taxes Consolidation Act, 1997, and the
Company has complied with the provisions of these Sections.

                  6.2.29   The Company has not entered into any transaction as a
result of which it could be assessed to tax under Schedule D in accordance with
Section 639 to 647 of the Taxes Consolidation Act, 1997.

                  6.2.30   The Company has not received a notice under Section
446 of the Taxes Consolidation Act, 1997, requiring the Company to desist from
an activity or revoking the certificate.

                  6.2.31   The utilisation of losses incurred by the Company is
not restricted by Section 456 of the Taxes Consolidation Act, 1997.

                  6.2.32   No reduction or withdrawal of relief has occurred
under Section 222 of the Taxes Consolidation Act, 1997.

                  6.2.33   No allowance in respect of capital expenditure is or
may be restricted by virtue of Sections 271, 273, 274, 278, 283, 284, 285, 300,
304, 305, 316, 317, 320, 658 and Schedule 32, paragraphs 9 and 23(2) of the
Taxes Consolidation Act, 1997.


                                      34.
<PAGE>

         No circumstances exist in connection with the Company, or its shares,
which would or could lead to the withdrawal of relief as provided for in Part 16
of the Taxes Consolidation Act.

                  6.2.34   The Company has not entered into or taken any steps
the object of which is a transaction which comes or might come within Section
817 of the Taxes Consolidation Act, 1997.

                  6.2.35   The Company does not beneficially own nor has it ever
beneficially owned shares to which Sections 155 and 489 of the Taxes
Consolidation Act, 1997 apply or may have applied.

                  6.2.36   The goods produced by the Company fall within the
definition of goods regarded as manufactured contained in Section 443 of the
Taxes Consolidation Act, 1997.

                  6.2.37   The tax benefit envisaged at the time of borrowing in
respect of any loan under Section 130 of the Taxes Consolidation Act, 1997 will
under present legislation remain undiminished until such loan has been repaid.

                  6.2.38   The Company does not own nor has it ever owned an
asset which constitutes a material interest in an off-shore fund which is or has
at any time been a non qualifying off-shore fund within the terms of Sections
740 to 747 of the Taxes Consolidation Act, 1997.

                  6.2.39   Any machinery or plant provided for use for the
purposes of the trade of the Company after I April 1990 is used wholly and
exclusively for the purposes of the trade of the Company.

                  6.2.40   The cost of acquisition for the purposes of
corporation tax on chargeable gains to the Company of each asset of the Company
(except trading stock and work in progress) is not less than the book value of
that asset as provided for in the Company's accounts and the Company has not
acquired any asset otherwise than by way of bargain at arms-length.

                  6.2.41   As at Completion, the Company has no accumulated
trading corporation tax losses and no advance corporation tax available for
carrying forward unless such (if any) as are identified by the tax computation
for the year ended 31st December 1999.

                  6.2.42   The Company has not since its incorporation acquired
any assets other than trading stock from any company which at the time of the
acquisition was a member of the same group as defined in Sections 590(11) and
616 of the Taxes Consolidation Act, 1997.

                  6.2.43   Where fixed assets have been stated in the Accounts
in excess of their cost, any potential liability to Taxation on chargeable gains
that would accrue on the sale of these assets at their values stated are either
fully provided for or disclosed by way of note in the Accounts.

                  6.2.44   The Company is not a close company as defined in
Taxes Consolidation Act, 1997.


                                      35.
<PAGE>

                  6.2.45   All of the disbursements of the Company from 31
December 1999 to Completion are bona fide disbursements wholly exclusively and
necessarily incurred during the ordinary course of business of the Company.

                  6.2.46   The Company and the Vendors have complied with all
the provisions of s128 TCA 1997.

         6.3      ADVANCE CORPORATION TAX ("ACT")

                  6.3.1    The Company has no liability to ACT under Sections
159 to 172 of the Taxes Consolidation Act, 1997.

                  6.3.2    The Company has not made an election under Section
165 of the Taxes Consolidation Act, 1997 and no surrender has been made under
Section 166 of the Taxes Consolidation Act, 1997.

                  6.3.3    The Company is not affected by the provisions of
Section 167 or Section 170 of the Taxes Consolidation Act, 1997.

         6.4      CAPITAL GAINS TAX

                  6.4.1    The Company has not made any claim under Section
597 of the Taxes Consolidation Act, 1997, as respects the consideration for
the disposal of or of its interest in any assets which are defined in the
said Section 597 as "the old assets".

                  6.4.2    The Company has not made any such transfer as is
referred to in Section 589 of the Taxes Consolidation Act, 1997, or received
any asset by way of gift as mentioned in Section 978 of the Taxes
Consolidation Act, 1997.

                  6.4.3    The Company has not been a party to or involved in
any share for share exchange nor any scheme of reconstruction or amalgamation
such as are mentioned in Sections 583 to 588, Section 600, Section 615 or
Section 733 of the Taxes Consolidation Act, 1997, under which shares or
debentures have been issued or any transfer of assets effected.

                  6.4.4    [The Company has not entered into any transaction
which has, will or may give rise to a charge to tax under the provisions of
Taxes Consolidation Act, 1997 or under the provisions of the Capital
Acquisitions Tax Act, 1976.]

                  6.4.5    The Company has no liability by virtue of the
provisions of Section 571 of the Taxes Consolidation Act, 1997.

                  6.4.6    The Company has not made any claim under Section
1005 of the Taxes Consolidation Act, 1997 and no tax liability has been
deferred under any other provision of the Taxes Consolidation Act, 1997
including Sections 981 and 563(1) of the Taxes Consolidation Act, 1997.

                  6.4.7    The Company has not entered into any transactions
which give rise to a liability under Sections 590, 616, 623, 625, 626 of the
Taxes Consolidation Act, 1997. Nor has

                                      36.
<PAGE>

the Company entered into any transactions to which Sections 632 to 635, 637 and
648 to 649 of the Taxes Consolidation Act, 1997, apply.

                  6.4.8    There have been no claims under Section 538 of the
Taxes Consolidation Act, 1997.

                  6.4.9    The Company has not entered into or taken any
steps the object of which is a transaction which comes within or might come
within Sections 549 or 817 of the Taxes Consolidation Act, 1997.

         6.5      STAMP/CAPITAL DUTY

                  6.5.1    The Company has duly complied with and has no
liability under Section 1 of the Stamp Act, 1891 as substituted by the
provisions of Section 94 of the Finance Act, 1991.

                  6.5.2    All documents in the possession or under the
control of or required in connection with the title of the Company to any
matter or thing of the Company which attract stamp duty have been properly
stamped.

                  6.5.3    No relief, exemption or reduction has been
obtained from companies capital duty or stamp duty and without prejudice to
the generality of the foregoing no relief, exemption or reduction has been
obtained from companies capital duty or stamp duty under Section 72 of the
Finance Act, 1973 (as amended) or from stamp duty under Section 19 of the
Finance Act, 1952 (as amended) or Section 31 of the Finance Act, 1965 (as
amended) which:

                           (a)    has become liable to forfeiture; or

                           (b)    may be forfeited in the future.

                  6.5.4    All capital duty and/or stamp duty payable by the
Company in respect of any of the transactions referred to in the following
Sections of the Finance Act, 1973 has been duty and promptly paid by the
Company so that there is no liability in respect thereof or any, interest
thereon:

                           (a)    Section 63;

                           (b)    Section 64;

                           (c)    Section 68; and

                           (d)    Sections 69 and 70.

                  6.5.5    All other capital and/or stamp duty howsoever
arising or payable has been paid by the Company and there is no outstanding
liability therefore or interest thereon.

                                      37.
<PAGE>

         6.6      VALUE ADDED TAX

                  6.6.1    The Company is a registered and taxable person for
the purposes of the Value Added Tax Acts and has complied in all respects
with such legislation and all regulations made or notices issued thereunder
and has maintained full complete correct and up to date records, invoices and
other documents (as the case may be) appropriate or requisite for the
purposes thereof.

                  6.6.2    The Company is not in arrears with its payments or
return or notifications under the Value Added Tax legislation regulations or
notices or liable to any abnormal or non routine payment or any forfeiture or
penalty or to the operation of the penal provisions contained therein.

                  6.6.3    The Company has not been required by appropriate
fiscal authorities to give security under the Value Added Tax legislation.

                  6.6.4    No arrangement exists or has existed whereby
pursuant to Section 8(8) of the Value Added Tax Act, 1972 and Regulation 5 of
the Value Added Tax Regulation 1979 (as amended) the business activities of
the Company are or were deemed to be carried on by any other person or the
business activities of any other person are or were deemed to be carried on
by the Company.

                  6.6.5    The Company has not availed of the procedure in
Section 58 of the Finance Act, 1989 whereby a trader may account and make
returns for VAT purposes other than after each two monthly taxable period.

                  6.6.6    The Company does not make any supplies which are
exempt for VAT purposes.

                  6.6.7    The Company has never acted as an agent, manager
or factor of any person not resident in the State so as to be accountable for
that person's tax under Section 37 of the Value Added Tax Act, 1972.

                  6.6.8    The only deductions of input Tax (i.e. tax paid in
respect of supplies to the Company) from output tax (i.e. tax payable by the
Company in respect of supplies made by it) which the Company has claimed are
credits or deductions allowable under Section 12 of Value Added Tax Act 1972.

                  6.6.9    Any payments of excess credit for input Tax or
refunds of Tax to the Company have been made on the correct basis.

                  6.6.10   The Company has never been required to make
adjustments to the deduction of input tax paid on capital items in accordance
with the provisions of Section 12 of the Value Added Tax Act 1972.

                  6.6.11   No value is attributable in the Accounts to
credit for input tax paid which is not available in full by reason of the
Company having made exempt supplies for VAT

                                      38.
<PAGE>

purposes or otherwise nor for refunds not made on the correct basis. Details of
any exempt supplies made by the Company are set out in the Disclosure Letter.

                  6.6.12   The Company has never been and will not up to
Completion be liable to any penalty and no goods of the Company have been or
will up to Completion be liable to forfeiture under Section 27 of the VAT Act
1972.

                  6.6.13   The Company does not make exempt supplies for VAT
purposes nor are they unable to obtain a credit or deduction for any input
tax paid or suffered by them.

         6.7      CAPITAL ACQUISITIONS TAX

                  6.7.1    There is no unsatisfied liability to capital
acquisitions tax attached or attributable to the Shares or any of the assets
of the Company and the Shares and the said assets are not subject to a charge
in favour of the Revenue Commissioners.

                  6.7.2    No person is liable to capital acquisitions tax
attributable to the value of any of the Shares and in consequence no person
has the power to raise the amount of such tax by sale or mortgage or by a
terminable charge on any of the Shares.

                  6.7.3    The Company has not entered into or taken any
steps the object of which is a transaction which comes within Section 90 of
the Finance Act, 1989.

                  6.7.4    The Company has not, prior to completion, entered
into any transaction which will or may give rise to a tax liability to the
Company under the provisions of the Capital Acquisitions Tax Act 1976.

         6.8      WEALTH TAX

         The Company has not any outstanding liability for wealth tax under
the Wealth Tax Act, 1975.

         6.9      PAYE/SOCIAL WELFARE

                  6.9.1    The Company is registered for the purposes of
regulations made under Section 986 of the Taxes Consolidation Act, 1997, and
has complied in all respects with such regulations and has maintained full,
complete, correct and up to date records appropriate or requisite for the
purposes thereof.

                  6.9.2    The Company is not in arrears with its payments or
returns required under regulations made under Section 986 of the Taxes
Consolidation Act, 1997, or liable to interest or any abnormal or non-routine
payment or any forfeiture or penalty or to the operation of any penal
provisions due to non-compliance with the said regulations.

                  6.9.3    The Company has complied in all respects with Part
II, Chapter 1, Social Welfare Consolidation Act, 1981, Health Contributions
Act, 1979, Youth Employment Agency Act, 1981 and Section 16 Finance Act, 1983
and any regulations made under those Acts and has maintained full, complete,
correct and up to date records appropriate or requisite for the

                                      39.

<PAGE>

purposes thereof and has not committed any offence under Section 115, Social
Welfare Consolidation Act, 1981 and is not liable to any abnormal or non-routine
payment or any forfeiture or penalty or to the operation of any penal provisions
due to non-compliance with the said Acts and/or regulations.

                  6.9.4    The Company has not availed of the Income Tax
(Employments) Regulations 1989 (SI No. 58 of 1989) whereby an employer may
make remittances of PAYE deducted from his employees at longer intervals than
the normal monthly remittance basis.

                  6.9.5    The Company has properly operated the PAYE system
of deduction and of accounting to the Revenue Commissioners (and all similar
systems to the appropriate authority in any other jurisdiction) for tax
chargeable on the remuneration of its employees (deemed or otherwise) and has
properly operated social welfare deductions (or their equivalent in any other
jurisdiction) and had made all payments to the relevant authority in respect
thereof.

         6.10     MISCELLANEOUS

                  6.10.1   The Company has not been the subject of any audit
inspection or discovery by the Revenue Commissioners and there are no facts
to the best of the knowledge, information and belief of the Warrantors which
are likely to cause such an audit, inspection or discovery to be made.

7.       ASSETS

         7.1      TITLE, CONDITION AND SUFFICIENCY OF ASSETS

                  7.1.1    All assets included in the Accounts or acquired by
the Company since the Last Accounting Date (other than trading stock
subsequently disposed of in the ordinary and usual course of business) and
all material assets used by the Company or which are in the reputed ownership
of the Company are:

                           (i)    legally and beneficially owned by the
Company free from any Encumbrance; and

                           (ii)   where capable of possession, in the
possession or under the control of the Company.

                  7.1.2    The plant, machinery, vehicles and all other
equipment furniture and fittings used in connection with the business of the
Company:

                           (i)    is in good repair and condition and in
satisfactory working order, and has been regularly and properly maintained;
and

                           (ii)   is operating (or is capable of operating)
safely and without danger to any person, property or the environment and in
accordance with all relevant licences, regulations and permits governing its
use.

                                      40.
<PAGE>

                  7.1.3    Maintenance contracts are in full force and effect
in respect of all assets of the Company which it is normal or prudent to have
maintained by independent or specialist contractors.

                  7.1.4    The assets owned or leased by the Company and the
facilities and services to which the Company has a contractual right comprise
all the assets, facilities and services necessary or convenient for the
carrying on of the business of the Company in the manner in which it is
presently conducted.

         7.2      HIRE PURCHASE AND LEASED ASSETS

         The Company is not a party to, nor has any material liability under,
any lease or hire, hire purchase, credit sale or conditional sale agreement.

         7.3      STOCKS

         The level of stocks of the Company is reasonable having, regard to
current and anticipated demand.

         7.4      INTELLECTUAL PROPERTY

                  7.4.1    The Company is the registered proprietor (where
appropriate) of or applicant for and the beneficial owner of and otherwise
has good title to each of its patents, trade marks, registered designs and
copyrights free from all charges, liens, encumbrances, equities, licences,
user and other parties are presently infringing the same.

                  7.4.2    The Company has not any interest in any other
patents, trade marks, registered designs, copyrights or applications for any
of the same.

                  7.4.3    The Intellectual Property Rights are:

                           (i)    in full force and effect; and

                           (ii)   solely and beneficially owned by, and
validly granted to, the Company free from all licences or Encumbrances.

                  7.4.4    The Company is not a party to any confidentiality
or other agreement or understanding of any kind or nature whatsoever which
restricts the free use or disclosure of any information.

                  7.4.5    The Company does not use, or otherwise carry on its
business under, any name other than its corporate name.

                  7.4.6    The Company has not entered into any agreement
(whether as licensor or licensee) for

                                      41.
<PAGE>

                           (i)    the licensing or use of any patents, trade
marks, registered designs, copyrights or any applications therefor, including
without limitation the Intellectual Property Rights;

                           (ii)   the provision or acquisition of know-how or
technical information or assistance; or

                           (iii)  the prohibition or restriction of the
disclosure of any know-how or technical information.

                  7.4.7    The Company dues not require any either patent,
trade mark, registered design, copyright or licence for any of the operations
of any of its businesses as presently carried on and wheresoever carried on.

                  7.4.8    None of the business operations of the Company
infringe any intellectual property right vested in any other party or win or
may give rise to payment by the Company of any royalty or of any sum in the
nature of a royalty or to liability to pay compensation.

                  7.4.9    The know-how, secrets, confidential information and
lists of customers and suppliers of the company are all adequately documented.

                  7.4.10   The subject matter of the Intellectual Property
Rights has been made or otherwise generated solely by employees of the
Company and in the course of carrying out their normal duties or duties
specifically assigned to them. No employee of the Company is entitled to or
has claimed any payment in respect of any of the Intellectual Property Rights.

                  7.4.11   No act has been done or has been omitted to be
done to entitle any authority or person to cancel, forfeit or modify any
Intellectual Property Rights.

                  7.4.12   All documents material to the title to the
Intellectual Property Rights form part of the records and assets of the
Company's business.

                  7.4.13   Save as disclosed to Aerogen's patent attorney
there are no Intellectual Property Rights owned or used by the Company
capable of registration which have not been so registered, or in respect of
which application for registration has not been made or is pending.

                  7.4.14   None of the Intellectual Property Rights owned or
used by the Company is the subject of any claim, opposition, attack,
assertion or other arrangement of whatsoever nature which does or may impinge
or their use, validity, enforceability or ownership by the Company, and there
are no grounds or other circumstances which may give rise to the same.

                  7.4.15   The activities, processes, methods and products
employed and used by the Company:

                           (i)    are not supplied subject to the licence
(other than from the Purchaser), consent or permission of, or payment to, any
third party;

                                      42.
<PAGE>

                           (ii)   do not infringe any intellectual property
rights of any third party; and

                           (iii)  have not given rise to any Claim against
the Companies.

                  7.4.16   No party to any agreement relating to the use by
the Company of any Intellectual Property Rights owned by a third party is, or
has at any time been, in breach of the agreement.

         7.5      TRADE MARKS

                  7.5.1    No limitations or restrictions on the use or
enforceability of any of the Trade Marks have been agreed with any third
party or registered in relation to any of the Trade Marks.

                  7.5.2    No third party is entitled or has been permitted to
or does use marks which consist of or include any of the Trade Marks or any
similar such mark in connection with:

                           (i)    any goods or services within the classes in
which the Trade Marks are registered or used; or

                           (ii)   goods or services of the same description
as any of the goods or services in respect of which any of the Trade Marks
are registered or used; or

                           (iii)  services or a description of services which
are associated with those goods or goods of that description, or vice versa.

                  7.5.3    Each of the Trade Marks which are registered was
used by the registered proprietor or a licensee complying with the licence
thereof and has not ceased to be so used for any period exceeding 12 months.

         7.6      KNOW-HOW

                  7.6.1    All the know-how comprised in the Intellectual
Property Rights is adequately documented and of a confidential nature or the
confidentiality thereof is material to the business of the Company
("Confidential Know-How") no part of the Confidential Know-How has been or
will be disclosed to any third party and there is no agreement or other
arrangement or circumstance under which any third part can require any such
disclosure.

                  7.6.2    The Company has not received any information from
any third party subject to any signed confidentiality undertakings other than
those annexed to the Disclosure Letter and such information which has been
received is clearly identifiable.

         7.7      COMPUTERS

                  7.7.1    The Company has in force maintenance contracts for
all items of computer hardware having a cost in excess of IRL75,000
(including operating systems) which it uses and there is no reason to believe
that those maintenance contracts will not be renewed by

                                      43.
<PAGE>

the other contracting party upon their expiry (if so required by the Company)
upon substantially similar terms to those now applicable.

                  7.7.2    The Company has not suffered any material failures
or break downs of the computer hardware which it used in the year preceding
the date of the Agreement.

                  7.7.3    The Company has operated and used all items of
computer hardware used by it in accordance with the manufacturer's
recommendations including (without limitation) any recommendations as to
environmental condition and power supply.

                  7.7.4    All computer software (including programs held on
silicon chip, compact or digital or floppy disks and any other media, manuals
and operator guides) used by the Company is either owned by the Company or
held by it on licence.

                  7.7.5    The Company has in force software support contracts
for all items of computer software and there is no reason to believe that
those contracts will not be renewed by the other contracting party upon their
expiry (if so required by the Company) upon substantially similar terms to
those now applicable.

                  7.7.6    The Company has not suffered any failures or "bugs"
in or breakdowns of such software (except arising from operator error not
based on inadequate manuals) in the year preceding the date of the Agreement.

                  7.7.7    The Company has not and is entitled to have back up
copies of all such software, which copies are up to date, fit for immediate
use and stored in a secure place separate from the original copies of such
software themselves.

                  7.7.8    The Company has altered, adapted or modified any
software held by it on licence or used by it whether with or without the
consent of the owner or manufacturers thereof.

                  7.7.9    The Company has taken proper precautions to
preserve the availability, confidentiality and integrity of its computer
systems.

                  7.7.10   The Company is not aware of any case where fraud
has been committed against the Company by use or abuse of its computer
systems, whether alone or in conjunction with any third party.

         7.8      EFFECT OF SALE

         The execution or performance of this Agreement and all other
documents which are to be executed on the date hereof will not:

                  7.8.1    conflict with or result in the breach of or
constitute a default under any of the terms, conditions or other provisions
of:

                           (i)    any agreement licence or instrument to which
the Company is a party; or

                                      44.
<PAGE>

                           (ii)   any provision of the Memorandum and
Articles of Association of the Company; or

                           (iii)  any Encumbrance, lease, contract, Order,
Judgement, award, injunction, regulation or other restriction or obligation
of any kind or character by which or to which any assets of the Company is
bound or subject;

                  7.8.2    relieve any person from any obligation to the
Company (whether contractual or otherwise) or enable any person to determine
or avoid any such obligation or any right or benefit enjoyed by the Company
to enable any person to exercise any right whether under an agreement with or
otherwise in respect of the Company;

                  7.8.3    result in the creation, imposition, crystallisation
or enforcement of any security interest whatsoever on any assets of the
Company.

         7.9      BUSINESS DEALINGS

         As a result of the acquisition of the Shares by the Purchaser no:

                  7.9.1    supplier of the Company will cease, or be entitled
or likely to cease under the terms of any contract, agreement or arrangement
(written or oral), supplying the Company, or may substantially reduce its
supply, or modify its terms of supply to the Company;

                  7.9.2    client or customer of the Company will cease, or be
entitled or likely to cease under the terms of any contract, agreement or
arrangement (written or oral), to deal with the Company, or may substantially
reduce its existing level of business, or alter the basis upon which it does
business with the Company;

                  7.9.3    the Company will not or may not lose the benefit of
any right or privilege which it enjoys; and

                  7.9.4    officer or senior employee of the Company will
leave the employ of the Company.

         None of the Vendors has received notice that as a result of the
acquisition of the Shares by the Purchaser:

                           (i)    any client or customer of the Company will
cease to deal with the Company or substantially reduce its existing level of
business, or alter the basis upon which it does business with the Company; or

                           (ii)   any officer or senior employee of the
Company will leave the employ of the Company.

8.       INSURANCE

         8.1      Copies of all current insurance and indemnity policies (the
"Policies") in respect of which the Company has an interest have been
provided to the Purchaser, together with a list of

                                      45.
<PAGE>

such Policies and all premiums due in respect of the Policies have been fully
paid and the next renewal dates for each of the Policies is set out in the
Disclosure Letter.

         8.2      There are no circumstances which could lead to any liability
under such Policies being avoided by insurers or the premiums increased and
all of the Policies are in full force and effect and are not void or voidable
and nothing has been done or omitted to be done by the Company which would
make any of the Policies void or voidable.

         8.3      No claim is outstanding under any of the Policies and no
event has occurred, and no circumstances exist, which gives rise, or are
likely to give rise, to any claim under any of the Policies.

         8.4      Nothing has been done or omitted to be done by the Company
which is likely to result in an increase in premium under any of the Policies.

         8.5      The Company is now, and has at all material times been,
adequately covered against accident, damage, injury, public liability, third
party loss (including product liability), loss of profits and other risks
normally covered by insurance and the Property and all other assets of an
insurable nature of the Company are insured with a reputable insurance office
or underwriters in amounts representing their full reinstatement or
replacement value (including, where any of the property is let, two years
loss of rent) against fire and other risks normally insured against by
persons carrying on business similar to that of the Company.

         8.6      All claims made by the Company under its past and present
insurance policies have been settled in full by the relevant insurers.

9.       PROPERTY

         9.1      The Property comprises all the land and buildings owned
and/or occupied and/or used by the Company or otherwise used in connection
with the business of the Company.

         9.2      The Company has good and marketable title to the Property
and is the legal and beneficial owner of the Property.

         9.3      The Property is not subject to:

                  9.3.1    any matters which might adversely affect the value
of the Property or the proper use, occupation or enjoyment of the Property
for the purpose for now used and all matters which benefit the Property have
where necessary been properly protected by registration;

                  9.3.2    (and have never been subject to) any contaminative
use.

         9.4      All necessary permissions, consents and licences relating to
the Property, its current use and the conduct of the Company's business
therefrom have been obtained and any attached conditions have been satisfied
and are not onerous.

                                      46.
<PAGE>

                  9.4.1    The Property is directly served by all means of
access, services and other facilities necessary for its current use and all
of these are either publicly adopted or owned by the relevant statutory
undertaker; and

                  9.4.2    There are no proposed schemes or orders affecting
any road or highway giving lead to any such proposal, scheme or order which
would adversely affect the use or enjoyment of the Property.

         9.5      The Property is not located in an area or subject to
circumstances particularly susceptible to flooding nor is affected by past or
present mining activity.

         9.6      The Company has no any outstanding obligations (whether
existing or contingent) in respect of any Property formerly owned or occupied
or used by it or in respect of which it had an interest or acted as security.

         9.7      The Property is free from any mortgage, debenture, charge,
rent charge, lien or other Encumbrance securing the repayment of monies or
any other obligation or liability of the Company or any other party.

         9.8      The Property is not subject to any outgoings, other than
commercial rates, water rates, insurance premiums, rent and service charges,
and there are no outstanding arrears in relation to any of the foregoing.

         9.9      The Property is not subject to any option, right of
pre-emption or right of first refusal in favour of any third party.

         9.10     Where the rent reserved by any lease of any of the Property
is subject to review, all rent review notices have been served within the
requisite time limits and there are no disputes outstanding as to the
settlement of the level of rent.

         9.11     The Company is a joint insured with the landlord on all
relevant policies of insurance in respect of the Property occupied by it and
the insurers have waived subrogations rights against each such company.

         9.12     The Property is not nor has it been let or sub-let to a
third party by the Company.

         9.13     The replies given to the requisitions and rejoinders thereto
raised by the Purchaser and its advisers prior to the date hereof are true
and correct in all respects and not inaccurate or misleading in any respect.

         9.14     There are no actions pending or threatened in relation to
the Property.

         9.15     The leases provided in relation to the Property, copies of
which are annexed to the Disclosure Letter, constitute the entire agreement
relating to occupation by the Company of the Property and there are no other
agreements or arrangements (written or unwritten) relating to the occupation
by the company of the Property.

                                      47.
<PAGE>

         9.16     The sale and purchase of the Shares contemplated by this
Agreement does not give rise to any obligation to notify or procure the
consent of the holder of any other interest (including a superior interest)
in the Property and no failure to so notify or procure shall result in the
termination of any lease or tenancy relating to the Property.

         9.17     The buildings and other structures on the Property are in
good and substantial repair and fit for the purposes for which they are
presently used. The Property is not nor has been affected by structural or
other defects in the Property or in buildings thereon, or in any drains,
pipes, wires or services, or by flooding, mining activity, subsidence, rising
damp, wet or dry rot or any infestation. None of the following substances
have been used in the construction of the buildings and other structures on
the Property or in any additions or alterations thereto: high alumina cement
or concrete, asbestos, woodwool slabs, calcium silicate bricks or tiles,
calcium chloride cement, sea-washed or sea-dredged aggregates, or any other
materials whether considered by EOLAS - The Irish Science and Technology
Agency or any other such body to be, or are known to be, inadequate,
dangerous, unstable or otherwise inappropriate for building purposes. There
is no control waste, household waste, commercial waste, industrial waste,
toxic or any other deleterious or dangerous substances that have been or are
buried, lain or disposed of, over or under the Property.

         9.18     All agreements, covenants, restrictions or other matters to
which the Property is subject have been complied with and there are no claims
or disputes or outstanding orders or notices affecting the Property.

         9.19     The present use of the Property and all development carried
out on it complies fully with the Planning Acts and there are no outstanding
or onerous conditions attached to any planning permissions and no planning
permissions are personal, limited in time or open to any application for
review or appeal.

         9.20     Compliance has been made with all applicable Planning Laws
with respect to the Property and there is no outstanding unobserved or
unperformed obligation owed to, or necessary to comply with the requirements
(whether formal or informal) of, any competent authority exercising statutory
or delegated powers.

         9.21     (a)      The Property is directly served by all means of
access, services and other facilities necessary for its current use; and

                  (b)      there are no proposed schemes or orders affecting
any road or highway giving access to the Property or any circumstances likely
to lead to any such proposal, scheme or order which would adversely affect
the use or enjoyment of the Property.

         9.22     With respect to any leases, subleases, tenancies or rights
of occupation to which the Property is subject:

                  9.22.1   the Warrantors have provided the Purchaser with
particulars of any notices or other matters which may affect the Vendors or
which may involve the Vendors in any expenditure and the Disclosure Letter
contains all relevant details of the principal terms thereof; and

                                      48.
<PAGE>

                  9.22.2   in relation to the leases (which expression
includes any supplemental deeds or documents and also under leases under
which the Property is held) the Company has fully performed and observed all
of the covenants and conditions on the part of the tenant and there are no
notices relating to them nor are there any outstanding reviews, matters or
proceedings which have yet to be commenced or concluded.

         9.23     The Company has not entered into any agreement to acquire or
dispose of the Property or premises thereon or any interest therein which has
not been completed.

10.      AGREEMENTS

         10.1     ALL AGREEMENTS

         All contracts and agreements of the Company relating to the business
are valid and enforceable. Complete and accurate copies of these contracts
and agreements are annexed to the Disclosure Letter together with any
variations thereto and complete and accurate summaries of any oral contracts
and agreements with customers.

         10.2     VALIDITY OF AGREEMENTS

         No party with whom the Company has entered into any agreement or
arrangement has given any notice of its intention to terminate, or has
otherwise sought to repudiate or disclaim, the agreement or arrangement.

         10.3     NO BREACH

         Neither the Company nor any party with whom the Company has entered
into any agreement or arrangement is in breach or has committed a breach
under the agreement or arrangement. No matter exists which might give rise to
a breach of this type.

         10.4     MATERIAL AGREEMENTS

         The Company is not a party to and has no liability under any
material long term, onerous or unusual agreement, arrangement or obligation
including, without limitation:

                  10.4.1   any agreement, arrangement or obligation which was
entered into otherwise than in the ordinary and usual course of its business;

                  10.4.2   any agreement, arrangement or obligation which was
entered into otherwise than by way of a bargain at arm's length;

                  10.4.3   any sale or purchase option or similar agreement,
arrangement or obligation affecting any assets owned or used by the Company
or by which the Company is bound;

                  10.4.4   any agreement, arrangement or obligation which
cannot readily be fulfilled or performed by the Company on time or without
undue or unusual expenditure of money or effort; or

                                      49.

<PAGE>

                 10.4.5    any guarantee, comfort letter, long back
obligations, underwriting obligation or indemnity given by the Company (other
than guarantees given in the normal course of trading);

                 10.4.6    any agreement for the hire, rent, hire purchase or
purchase on deferred terms by the Company of any asset (other than the
Property) excluding hirings and leases for periods of less than one month and
agreements in respect of which the annual rental or payment does not exceed
IRL1000;

                 10.4.7    any agreement or arrangement under which any
person has authority to pledge the credit of the Company;

                 10.4.8    any loan capital or other indebtedness of the
Company which will become repayable or any security given by the Company
which will or may become enforceable by reason of the acquisition by the
Purchaser of the Shares;

                 10.4.9    any obligation on the part of the Company to pay
any royalty or other similar periodic sums in the nature of royalties;

                 10.4.10   any mortgage, charge, lien, encumbrance,
debenture or other security interest;

                 10.4.11   any option granted by the Company;

                 10.4.12   any power of attorney given by the Company.

         10.5    The Company is not a party to any agency, distribution,
marketing, purchasing, service, licensing or management agreement or
arrangement or any other agreement which cannot be terminated by the Company
on less than three months' notice without payment of compensation.

         10.6    Save with regard to bank borrowings which do not exceed the
overdraft or loan facilities (particulars of which have been disclosed in the
Disclosure Letter) available to the Company, the Company has no actual or
potential liability of any kind to any person or to any governmental or local
authority except in the normal course of the Company's business and the
Company has no bank accounts except as disclosed in the Disclosure Letter.

         10.7    AGENCY AGREEMENTS, JOINT VENTURES ETC

         Save as disclosed in the Disclosure Letters, the Company is not a
party to nor has it any liability under:

                 10.7.1    any agreement or arrangement whereby the Company
is a member of a joint venture, consortium, partnership or incorporated or
unincorporated association (other than bona fide trade associations);

                 10.7.2    any agreement or arrangement which restricts its
freedom to carry on its business in any part of the world in such manner as
it thinks fit;

                                      50.
<PAGE>

                 10.7.3    any distributorship, agency, or management
agreement or arrangement; or

                 10.7.4    any agreement or arrangement in respect of which:

                           (i)    particulars have been notified to the
Commission of the European Communities for an exemption under Article 85(3)
of the Treaty of Rome; or

                           (ii)   an application has been made to the
Commission of the European Communities for a negative clearance under Article
85 or 86 of the Treaty of Rome.

         10.8    GUARANTEES ETC

         Save as disclosed in the Accounts, there is not outstanding in
respect of any director or shadow director of the Company or any person
connected with any of them any guarantee, indemnity or suretyship given by or
for the benefit of the Company or any director or shadow director of the
Company or any person connected with any of them.

         10.9    LOANS ETC

         With the exception of the loans, quasi-loans, credit transactions,
debts and securities particulars of which are contained in the Disclosure
Letter, all of which have been entered into in compliance with all legal and
statutory requirements and conditions, there are:

                 10.9.1    no loans, quasi-loans or credit transactions made
by the Company to any of the Vendors or any director or shadow director of
the Company or any person connected with any of them;

                 10.9.2    no debts owing to the Company by any of the
Vendors or any director or shadow director of the Company or any person
connected with any of them;

                 10.9.3    no debts owing by the Company other than debts
which have arisen in the ordinary course of business; and

                 10.9.4    no securities for any such loans or debts as
aforesaid.

         10.10   CONTRACTS WITH VENDORS OR DIRECTORS ETC

         With the exception of the contracts and arrangements particulars of
which are contained in the Disclosure Letter, there are no existing contracts
or arrangements to which the Company is a party and in which any of the
Vendors or any director or shadow director of the Company or any Person
connected with any of them is interested, whether directly or indirectly.

         10.11   ARRANGEMENTS OR UNDERSTANDINGS

         There are not outstanding any arrangement or understandings (whether
legally binding or not) between the Company and any person who is a
shareholder, or the beneficial owner of any interest in, or any director or
shadow director of the Company or any person who is connected

                                      51.
<PAGE>

with any such director, or in any company in which the Company is interested,
or any person connected with any such person, relating to the management of
the Company's businesses, or the appointment or removal of directors of the
Company, or the ownership or transfer of ownership or the letting of any of
the assets of the Company, or the provision, supply or purchase of finance,
goods, services or other facilities to, by or from the Company, or otherwise
howsoever relating to its affairs.

         10.12   COMPETING BUSINESSES

         None of the Warrantors has any right or interest, direct or
indirect, in any business other than those now carried on by the Company
which are, or are likely to become, competitive with the business of the
Company or any proposed new business at the date hereof proposed by the
Company.

         10.13   WARRANTIES AND INDEMNITIES

         The Company has never at any time prior to Completion sold or
otherwise disposed of any shares or assets in circumstances such that it is,
or may be, still subject to any liability (whether contingent or otherwise)
under any representation, warranty or indemnity given or agreed to be given
on or in connection with such sales or disposal.

11.      TERMS OF TRADE AND BUSINESS

         11.1    CREDITORS

         The Company has paid its trade creditors in the normal course. No
debt owing by the Company has been due for more than 12 weeks.

         11.2    DEBTORS

         No debt shown in the Accounts or the accounting records of the
Company is overdue by more than three months or is the subject of an unusual
or factoring agreement.

         11.3    SUPPLIERS AND CUSTOMERS

                 11.3.1    Neither during the financial period of the
Company ended on the Accounting Date nor during the period commencing on the
Accounting Date and ending on the date of this Agreement has any person
(either individually or jointly with any other person) purchased the Company
more than five per cent of the aggregate amount of all purchases or sales
made by the Company during these periods.

                 11.3.2    During the 12 months ending on the date of this
Agreement no substantial customer or supplier of the Company has:

                           (i)    ceased, or indicated an intention to cease,
trading with or supplying the Company;

                                      52.
<PAGE>

                           (ii)   reduced, or indicated an intention to
reduce, substantially its trading with or supplies to the Company; or

                           (iii)  changed, or indicated an intention to
change, substantially the terms on which it is prepared to trade with or
supply the Company (other than normal price and quota changes).

         11.4    LICENCES, AUTHORISATIONS AND CONSENTS

                 11.4.1   The Company has obtained all material licences,
authorisations and consents required for the proper carrying on of its
business and all licences, authorisations and consents (short particulars of
which are set out in the Disclosure Letter) are valid and subsisting.

                 11.4.2   The Company is in material breach of any licences,
authorisations or consents and no circumstances exist which may result in any
of them may be revoked or not renewed, in whole or in part.

         11.5    COMPUTER RECORDS

         None of the records, systems, data or information of the Company are
recorded, stored, maintained, operated or otherwise wholly or partly
dependent on or held or accessible by any means (including, without
limitation, any electronic, mechanical or photographic process whether
computerised or not) which are not under the exclusive ownership and direct
control of the Company.

12.      EMPLOYEES

         12.1    GENERAL

                 12.1.1   There are in existence service agreements or
employment contracts with all officers and or employees of the Company. No
consultancy agreements or arrangements exist between the Company and any
third party.

                 12.1.2   There is not in existence any service agreement
with any officer or employee of the Company which cannot be terminated by
three months' notice or less without giving rise to any claim for damages or
compensation (other than a statutory redundancy payment or statutory
compensation for unfair dismissal) and the Company has not received notice of
resignation from any Key Employees and there are no commitments or
undertakings to any such persons other than as set forth in formal written
agreements or contracts already disclosed in writing to the Purchaser.

                 12.1.3   Full particulars axe contained in the Disclosure
Letter of:

                           (i)    the total number of employees (including
officers, consultants, part time employees and agency employees) of the
Company including those who are on maternity leave or absent on the grounds
of disability or other long term leave of absence, and have or may have a
statutory or contractual right to return to work with the Company; and

                                      53.
<PAGE>

                           (ii)   the names of all employees (including
officers, consultants, part time employees and agency employees) of the
Company, such names being set out in a list being split between permanent
employees, part-time employees and agency employees and having the following
headings and setting out the relevant details on each such employee under
such headings:

                                  (1)  employee names and addresses;

                                  (2)  salaries/wages and other benefits of
any kind;

                                  (3)  dates of birth/age;

                                  (4)  dates of commencement of employment;

                                  (5)  number of years continuous employment
(including previous employment where relevant);

                                  (6)  participation in benefit schemes (e.g.
VHI, pension scheme, share scheme etc);

                                  (7)  notice entitlements;

                                  (8)  grades/positions;

                                  (9)  holiday entitlement;

                                  (10) any other relevant terms;

         and where employee is continuously absent from work for in period in
excess of one month, the reason for the absence.

                 12.1.4    The basis of the remuneration payable to the
officers or employees of the Company is the same as that in force at the
Accounting Date and the Company is not obliged to increase and has not made
any provision to increase the aggregate annual remuneration payable to the
officers and employees by more than five percent.

                 12.1.5    There are no amounts owing to any present or former
officers or employees of the Company other than remuneration accrued due or
for disbursement of business expenses details of which are contained in the
Disclosure Letter.

                 12.1.6    There is no agreement or arrangement between the
Company and any officer or employee or former employee with respect to his
employment, his ceasing to be employed or his retirement which is not
included in the written terms of his employment or service or previous
employment or service (as the case may be).

                 12.1.7    The Company has maintained current and adequate
records regarding the service of each of its officers and employees
(including, without limitation, details of terms

                                      54.
<PAGE>

of employment, payments of sick pay, statutory maternity pay, disciplinary
and health and safety matters, income tax and social security contribution)
and termination of employment.

                 12.1.8    No officer or employee of the Company has given or
received notice terminating his or her employment.

                 12.1.9    No employee or officer of the Company is assigned
or employed wholly or mainly outside of Ireland.

                 12.1.10   No past employee has a right of return to work or
has or may have a right to be reinstated or re-engaged.

                 12.1.11   On or prior to Completion:

                           (i)    all pay related social insurance
contributions (both employer's and employees') due and payable by the Company
will have been duly paid;

                           (ii)   all amounts due to the Revenue
Commissioners in respect of deductions which have been made or which should
have been made by the Company in accordance with PAYE regulations from time
to time in force have been deducted and paid over so that the Company will
have no liability in respect thereof;

                           (iii)  all certificates relating to matters
referred to in this paragraph which by law are required to be given by
employers to employees (as defined) have been given to all employees of the
Company and are true and accurate in all material respects.

                 12.1.12   There are no schemes in operation by or in
relation to the Company whereunder any employee of the Company or any other
person whatsoever is entitled to a commission remuneration bonus or other
payment of any sort calculated by reference to the whole or any part of the
turnover profits or sales of the Company.

                 12.1.13   Every employee of the Company who should have been
treated as employed for tax purposes has been so treated.

                 12.1.14   The Company has incurred no liability:

                           (i)    for breach or termination or variation of
any service agreement with any of its officers or employees including,
without limitation, redundancy payments, protective awards, compensation for
wrongful dismissal or unfair dismissal or failure to comply with any order
for the reinstatement or re-engagement of any officer or employee; and

                           (ii)   for breach or termination of any
consultancy agreement.

                 12.1.15   There is no agreement or arrangement between the
Company and any of its employees or former employees with respect to past
and/or current redundancy payments;

                 12.1.16   The Company does not have in existence nor is it
proposing to introduce a sick pay scheme;

                                      55.
<PAGE>

                 12.1.17   The Company has not made or agreed to make any
payment to its employees on statutory maternity, adoptive or parental leave;

                 12.1.18   The Company does not pay nor is it proposing to
introduce payment of commission to any of its employees;

                 12.1.19   No employee is in receipt of or entitled to more
than 20 days holidays per calendar year;

                 12.1.20   Save as disclosed in the Disclosure Letter, there
is no agreement or arrangement between the Company and any of its employees
with respect to payment by the Company of any of its employee's medical
insurance/VHI/BUPA.

                 12.1.21   Save as disclosed in the Disclosure Letter, there
is no agreement or arrangement between the Company and any of its employees
or officers with respect to payment by the Company of a car allowance or
provision of a car to any of its employees or officers;

                 12.1.22   The Company is not liable to make payment to any
person pursuant to the Employment Equality Act, 1977, the Anti-Discrimination
(Pay) Act, 1974 or the Employment Equality Act, 1998.

         12.2    PAYMENTS ON TERMINATION

         Except as disclosed in the Accounts:

                 12.2.1    no liability has been incurred by the Company for
breach or termination of any service agreement or employment contract with
any of its employees including, without limitation, redundancy payments,
protective awards, compensation for wrongful dismissal or unfair dismissal or
failure to comply with any order for the reinstatement or re-engagement of
any employee;

                 12.2.2  no liability has been incurred by the Company for
breach or termination of any consultancy agreement or other contract for
services; and

                 12.2.3  the Company has not made or agreed to make any
payment and has not provided or agreed to provide any material benefit to any
present or former director or employee of the Company or any dependant of any
present or former director or employee in connection with the actual or
proposed termination or suspension of employment or variation of any service
agreement of any present or former director or employee.

         12.3    NON-ALLOWABLE PAYMENTS

         The Company has not made or agreed to make any payment to or
provided or agreed to provide any benefit for any present or former director
or employee which is not allowable as a deduction for the purposes of
Taxation.

         12.4    LIABILITIES FOR EMPLOYEES


                                      56.
<PAGE>

         The Company is not liable to pay any (save statutory) industrial
training levy nor has outstanding any undischarged liability to pay to any
governmental or regulatory authority in any jurisdiction any contribution,
Taxation or other impost arising in connection with the employment or engagement
of employees or directors by it.

         12.5    CLAIMS BY EMPLOYEES

         There are no claims pending or threatened against the Company:

                 12.5.1    by an employee or workman or third party, in
respect of an accident or injury which is not fully covered by insurance; or

                 12.5.2    by an employee or director in relation to his
terms and conditions of employment or appointment.

         12.6    COMPLIANCE WITH STATUTES

         The Company has in relation to each of its officers and employees
(and, so far as relevant, to each of its former officers and employees)
complied in all material respects with:

                 12.6.1    all obligations imposed by it by Article 119 of
the Treaty of Rome and all statutes, regulations and codes of conduct and
practice relevant to the relations between it and its employees or any trade
union, and has maintained current, adequate and suitable records regarding
the service of each of its employees;

                 12.6.2    all collective agreements, customs and practices
for the time being dealing with such relations or the conditions of service
of its employees;

                 12.6.3    all relevant orders and awards made under any
relevant statute, regulation or code of conduct or practice affecting the
conditions of service of its employees;

                 12.6.4    all obligations imposed by the European
Communities (Safeguarding of Employees' Rights on the Transfer of
Undertakings) Regulations, 1980 in relation to any sale, purchase or other
transfer coming within the terms of those Regulations; and

                 12.6.5    all obligations imposed by the Safety, Health and
Welfare at Work Act, 1989.

         12.7    INDUSTRIAL DISPUTES AND NEGOTIATIONS

         The Company is not involved in any industrial or trade dispute or
any dispute or negotiation regarding a claim of material importance with any
trade union or association of trade unions or organisation or body of
employees, and no facts or circumstances exist which might lead to any such
dispute and during the past two calendar years the Company has not had a
strike or lockout or any other labour dispute which has materially disrupted
its business.

         12.8    REDUNDANCIES AND TRANSFER OF BUSINESS


                                      57.
<PAGE>

         Within the period of one year ending on the date of this Agreement,
the Company has not:

                 12.8.1    given notice of any redundancies to its employees
and/or the Minister for Enterprise, Trade and Employment or started
consultations in respect of redundancies with any trade union; and

                 12.8.2    been a party to any relevant transfer within the
scope of the European Communities (Safeguarding of Employees' Rights on
Transfer of Undertakings) Regulations, 1980 and has not failed to comply with
any duty to inform and consult any trade union under those Regulations.

         12.9    TRADE UNIONS

         Full and complete details of all recognised trade unions and all
collective bargaining or procedural or other agreements or arrangements in
existence relating or relevant to any of the employees of the Company and of
the current state of any negotiations with any trade union staff association
or other organisation formed for a similar purpose which might affect the
terms and conditions of employment of any employees are set out in the
Disclosure Letter.

         12.10   INCENTIVE SCHEMES

         The Company does not have in existence nor is it proposing to
introduce any share incentive, share option, profit sharing, bonus or other
incentive, scheme for any of its consultants, officers or employees.

         12.11   TRAINING

         There is no training scheme, arrangement or proposal in existence at
the date of this Agreement in relation to the Company.

13.      LIABILITIES

         13.1    INDEBTEDNESS

         Except as disclosed in the Accounts or in the Disclosure Letter, the
Company has no outstanding and has not agreed to create or incur any loan
capital, borrowing or indebtedness in the nature of borrowing, including,
without limitation, any bank overdrafts, liabilities under acceptances or
acceptance credits.

         13.2    GUARANTEES AND INDEMNITIES

                 13.2.1    The Company is not a party to nor has any material
liability (including, without limitation, any contingent liability) under any
guarantee, indemnity, bond, facility or other agreement to secure, or
otherwise incur financial or other obligations with respect to, an obligation
of a third party.

                                      58.
<PAGE>

                 13.2.2    None of the loan capital, borrowings or
indebtedness in the nature of borrowing of the Company is dependent on the
guarantee or indemnity of, or any security provided by, a third party.

         13.3    EVENTS OF DEFAULT

         No event has occurred or been alleged which:

                 13.3.1    constitutes an event of default, or otherwise
gives rise to an obligation to repay, under any agreement relating to
borrowing or indebtedness in the nature of borrowing or which would lead to
any Encumbrance constituted or created in connection with any borrowing or
indebtedness in the nature of borrowing, guarantee or indemnity, or which
would lead to any other obligation of the Company, becoming enforceable;

                 13.3.2    would constitute such an event of default or would
lead to such security or obligation becoming enforceable with the giving of
notice or lapse of time or both; or

                 13.3.3    would, or would be likely to, give rise to an
obligation for the Company to repay any monetary compensatory amounts, export
refunds, intervention payments or other like subsidies.

         13.4    GRANTS

                 13.4.1    The Company is not under any liability to repay
any investment or other grant or subsidy made to it by any body; no
circumstances have arisen in which any such body would or might be entitled
to require repayment of, or refuse an application by the Company for, any
such grant or subsidy either in whole, or in part and neither the execution
nor performance of this Agreement will constitute such circumstances.

                 13.4.2    Full particulars of all agreements, claims, leases
and other arrangements between the Company and any other grant body are set
out in the Disclosure Letter.

         13.5    BORROWINGS

                 13.5.1    Full and accurate details of all loan, overdraft
and other financial facilities available to the Company are set out in the
Disclosure Letter and the Vendors have done nothing whereby they may be
prejudiced.

                 13.5.2    The total amount borrowed by the Company from each
of its bankers does not exceed its respective overdraft facility limits.

                 13.5.3    The total amount borrowed by the Company does not
exceed any limitation on the borrowing powers contained in the Articles of
Association of the Company or in any debenture or other deed or document or
agreement binding it.

                 13.5.4    The Company has no outstanding (nor has it agreed
to create or issue) loan capital nor has it factored any of its debts or
engaged in financing of a type which would not

                                      59.

<PAGE>

require to be shown or reflected in the Accounts and has not borrowed any money
which it has not repaid save for borrowings not exceeding the amounts shown in
the Accounts.

                 13.5.5    The Company has not since the Accounting Date
repaid or become liable to repay any loan or indebtedness in advance of its
stated date of maturity.

         13.6    CONTINUED AVAILABILITY OF FACILITIES

                 13.6.1    The Disclosure Letter sets out full and accurate
details of all acceptance credits, overdrafts, loan or other financial
facilities outstanding or available to the Company (together the
"Facilities") and there are attached to it accurate and complete copies of
all documents relating to the Facilities.

                 13.6.2    There has been no contravention of or
non-compliance with any of the provisions of such documents.

                 13.6.3    No steps for early repayment of any indebtedness
of the Company has been taken or threatened.

                 13.6.4    There have not been any circumstances, nor are
there existing circumstances whereby the continuation of any of the
Facilities might be prejudiced or which may give rise to any alteration in
the terms and conditions of any of the Facilities.

                 13.6.5    None of the Facilities is dependent on the
guarantee or indemnity of or any security provided by a third party.

                 13.6.6    As a result of the acquisition of the Shares by
the Purchaser or any other thing contemplated by this Agreement none of the
Facilities may be terminated or mature prior to its stated date of maturity.

14.      INSOLVENCY

         14.1    NO ORDER

         No order has been made or petition presented or resolution passed
for the winding up or dissolution of the Company or for the appointment of a
liquidator or examiner to the Company.

         14.2    NO RECEIVER

         No receiver has been appointed by any person of the whole or any pan
of the business or assets of the Company.

         14.3    NOT INSOLVENT

         The Company is not insolvent or unable to pay its debts.

         14.4    PAYMENTS OF DEBTS

         The Company has not stopped paying its debts as they fall due.

                                      60.
<PAGE>

         14.5    NO DISTRESS ETC

         No distress, execution or other process has been levied in respect
of any of the assets of the Company.

         14.6    COMPOSITION OR SCHEMES ETC

         No composition in satisfaction of the debts of the Company, or
scheme of arrangement of its affairs, or compromise, or arrangement between
it and its creditors or members or any class of its creditors or members, has
been proposed, sanctioned or approved.

         14.7    CRYSTALLISATION OF CHARGES

         No event has occurred causing, or which upon intervention or notice
by any third party may cause, any floating charge created by the Company to
crystallise or any charge created by it to become enforceable, nor has any
such crystallisation occurred or is such enforcement in process.

         14.8    RIGHTS OF THIRD PARTIES

         In relation to any property or assets held by the Company under any
hire purchase, conditional sale, chattel leasing or retention of title
agreement or otherwise belonging to a third party, no event has occurred
which entitles, or which upon intervention or notice by the third party may
entitle, the third party to repossess the property or assets concerning or
terminate the agreement or any licence in respect of the same.

15.      COMPETITION

         15.1    GENERAL

         There is not in existence in connection with the business of the
Company any agreement arrangement or practice which infringes or which has or
should have been registered under the Restrictive Practices Act, 1972 to 1987
(as amended) or which infringes or which has or should have been notified to
the Minister for Enterprise and Employment, the Competition Authority and/or
European Commission under the Mergers, Takeovers and Monopolies (Control)
Act, 1978 (as amended), the Competition Act, 1991 and/or Articles 85 or 86 of
the Treaty of Rome (or any regulations or directive made thereunder).

         15.2    UNDERTAKINGS AND ORDERS

         The Company has not given any undertaking or written assurance
(whether legally binding or not) to any governmental authority or any
authority of the European Communities under the Treaty of Rome or any other
statute or legal instrument of Ireland or any other country and the Company
is not affected by any order or regulations made by the Competition Authority
or by any decision made by the Commission of the European Communities.

         15.3    INVESTIGATIONS

                                      61.
<PAGE>

         The Company has not received any process notice or communication
formal or informal by or on behalf of the Ombudsman, the Director of Consumer
Affairs, the Competition Authority or the European Commission, or any
competition or governmental authority of Ireland or any other country,
relating to any aspect of the business of the Company, nor has any agreement,
arrangement or conduct (whether by omission or otherwise) of the Company been
the subject of an investigation, report or decision by any of the previously
named people or bodies.

         15.4    IRISH COMPETITION LAW

                 15.4.1    The Company is not nor has it been a party to, or
engaged in, any agreement, arrangement, decision, concerted practice or
activity which is prohibited by Section 4(1) of the Competition Act 1991.

                 15.4.2    The Company has not made any notification to the
Competition Authority requesting a licence pursuant to Section 4(2) of the
Competition Act 1991 or a certificate to Section 4(4) of the Competition Act
1991.

                 15.4.3    The Company has not committed, contrary to Section
5 of the Competition Act 1991, any abuse, either alone or jointly with any
other undertaking, of a dominant position within the State or a substantial
part of the State.

16.      PENSIONS AND OTHER BENEFITS

         16.1    Save as disclosed in the Disclosure Letter there is not in
operation, and no proposal has been announced to enter into or establish, any
agreement, arrangement, custom or practice (whether legally enforceable) for
the payment of, or payment of any contributions towards, any pensions,
allowances, lump sum or other like benefits on retirement, death, termination
of employment (whether voluntary or not) or during periods of sickness or
disablement, for the benefit of any Employee or for the benefit of the
dependent of any Employee.

17.      LITIGATION AND COMPLIANCE WITH LAW

         17.1    LITIGATION

                 17.1.1    Neither the Company nor any person for whose acts
or defaults the Company may be vicariously liable is involved, or has at any
time ending on the date of this Agreement been involved, in any civil,
criminal, arbitration or other proceedings and no civil, criminal,
arbitration or other proceedings are pending, or threatened, by or against
the Company or any person for whose acts or defaults the Company may be
vicariously liable.

                 17.1.2    No fact or circumstance exists which is likely to
give rise to any civil, criminal, arbitration or other proceedings involving
the Company or any person for whose acts or defaults the Company may be
vicariously liable.

                 17.1.3    There is no outstanding judgement, order, decree,
arbitral award or decision of any court, tribunal, arbitrator or governmental
agency against the Company or any person for whose acts or defaults the
Company may be vicariously Liable.

                                      62.
<PAGE>

         17.2    COMPLIANCE WITH LAW

         The Company has conducted its business in all material respects in
accordance with all applicable legal requirements in Ireland and elsewhere.

         17.3    DEFECTIVE PRODUCTS/SERVICES

         The Company has not manufactured, imported, sold or supplied
products or supplied services which are or were, or will become, in any
material respect faulty or defective which do not comply in any material
respect with any warranties or representations expressly or impliedly made by
the Company, or with all applicable laws, regulations, standards and
requirements.

         17.4    INVESTIGATIONS

         There have been and are no governmental or other investigations or
enquiries or disciplinary proceedings concerning the Company; none are
pending or threatened.

         17.5    DIRECTORS AND OTHER OFFICERS

                 17.5.1    None of the persons who at present is, or who at
any time within the last three years was, a director or officer of the
Company is, or at any material time was, ineligible to be a director by
reason of the Companies Act, 1963 to 1999.

                 17.5.2    None of the directors or other officers of the
Company has been declared by a court to be a person to whom Chapter I of part
IV of the 1990 Act applies, nor has any person been or is an auditor,
director or other officer in any way, whether directly or indirectly,
concerned or taken part in the promotion, formation or management of the
Company in breach of Section 160 of the 1990 Act.

                 17.5.3    The only directors and other officers of the
Company are the persons whose names are listed in Schedule 2 and no person is
or has been a shadow director (within the meaning of section 27 of the 1990
Act) of the Company.

         17.6    UNLAWFUL PAYMENTS

         The Company and no person for whose acts or defaults the Company may
be vicariously liable has:

                 17.6.1    induced any person to enter into any agreement or
arrangement with the Company by means of any unlawful or immoral payment,
contribution, gift, or other inducement;

                 17.6.2    offered or made any unlawful or immoral payment,
contribution, gift or other inducement to any government official or
employee; or

                 17.6.3    directly or indirectly made any unlawful
contribution to any political activity.

                                      63.
<PAGE>

         17.7    GENERAL

                 17.7.1    All appropriate returns and an relevant
reformation have been supplied by the Company to the Revenue Commissioners,
the Department of Health, the Department of Social Welfare, the Department of
Enterprise and Employment and all other relevant governmental, regulatory,
municipal and local authorities (in any country of the world) in connection
with the business of the Company and the same were and are complete tree and
accurate in all material respects.

                 17.7.2    Full details of all present negotiations with and
investigations and enquiries by any of the public authorities referred to in
the immediately preceding paragraph concerning any material liability (or
alleged liability) actual or contingent of or any material act or omission of
the Company (or any officer, employee or agent of the Company in such
capacity) have been disclosed to the Purchaser and in respect of all such
negotiations, investigations and enquiries full and frank disclosure of all
material facts was made to such public authorities concerned and all
information supplied to them was true and accurate in all respects and there
were and are no circumstances which would render any such information
inaccurate untrue or misleading in any respect.

18.      CONSTITUTION, REGISTERS AND RETURNS

         18.1    CONSTITUTION

         The Company has at all times carried on its business and affairs in
all material respects in accordance with its memorandum and articles of
association or other relevant organisational and governance document for the
time being and the copy of the memorandum and articles of association or
other relevant organisational and governance document of the Company
delivered by the Warrantor to the Purchaser is true and complete and, in the
case of such memorandum and articles of association, has embodied therein or
annexed thereto a copy of every such resolution as is referred to in sections
143(2) of the Companies Act, 1963.

         18.2    REGISTERS, MINUTE BOOKS AND STATUTORY BOOKS

         All registers, minute books and other statutory books required to be
kept by the Company pursuant to the Companies Act, 1963 to 1999 have been
properly kept, contain a true, complete and accurate record of the matters
with which they should deal and no notice or allegation has been received
that any of them is incorrect or should be rectified.

         18.3    OTHER RECORD

                 18.3.1    The Company has maintained proper records of its
activities including all requisite books of account (reflecting in accordance
with generally accepted accounting principles all the financial transactions
of the Company or to which it has been a party), minute books, registers and
records, all of which are up-to-date, complete and accurate in all respects
and these and all other deeds and documents (properly stamped where
necessary) belonging to the Company and its seals are and at Completion will
be in the possession of the Company.

                                      64.
<PAGE>

                 18.3.2    The Company does not have any of its records,
systems, controls, data or information recorded, stored, maintained, operated
or otherwise dependent upon or held by any means (including any electronic,
mechanical or photographic process, whether computerised or not) which
(including all means of access thereto and therefrom and use thereof) are not
under the exclusive ownership and direct control of the Company.

                 18.3.3    There has been no breach of any service or
maintenance contract relevant to any such electronic, mechanical or
photographic process or equipment of or used by the Company whereby any
person or body providing services or maintenance thereunder may have the
right to terminate such service or maintenance contract.

         18.4    RETURNS

         All returns, particulars, resolutions and other documents required
to be delivered by the Company to the Companies Registration Office
including, without limitation, in respect of all charges granted by the
Company, relevant companies registers or any governmental authority have been
in all material aspects properly and correctly prepared and so delivered.

         18.5    POWERS OF ATTORNEY AND AUTHORITIES

         There is no power of attorney given by the Company in force and no
outstanding authority by which any person may enter into any agreement,
arrangement or obligation to do anything on behalf of the Company (other than
any authority of its employees and directors to enter into agreements in the
ordinary and usual course of their duties).

         18.6    COMPLIANCE WITH 1990 ACT

The Company has not:

                 18.6.1    had its affairs investigated pursuant to section
7, 8 or 9 of the 1990 Act, nor has there been any investigation of the
ownership of the shares of the Company pursuant to section 14 or request
pursuant to section 15 of the 1990 Act, nor has there been a direction made
under section 16 of the 1990 Act nor an investigation pursuant to section 66
of the 1990 Act;

                 18.6.2    entered into any arrangement in breach of section
28 or 29 of the 1990 Act;

                 18.6.3    made any loans or quasi-loans (within the meaning
of section 25 of the 1990 Act), entered into any credit transactions as
creditor or entered into any guarantee or indemnity or provided any security
in connection with a loan, quasi-loan or credit transaction in breach of
section 31 of the 1990 Act;

                 18.6.4    been related and is not related to any other
company for the purpose of section 140 of the 1990 Act and is not and will
not at any time be liable to be subject to an order made under that section
by virtue of any act (whether of commission or omission) that occurred prior
to Completion;

                                      65.
<PAGE>

                 18.6.5    had a notice served on it by its auditors pursuant
to section 185 or 194 of the 1990 Act;

                 18.6.6    been struck off and subsequently restored to the
register pursuant to section 31lA of the 1963 Act; or

                 18.6.7    purchased or redeemed its own shares or those of
its holding company or created treasury shares pursuant to part XI of the
1990 Act.

19.      BROKERAGE OR COMMISSIONS

         No one is entitled to receive from the Company any finder's fee
brokerage or commission m connection with this Agreement or anything
contained in it.

20.      ENVIRONMENT

         20.1    INTERPRETATION In this warranty 20:

         "ENVIRONMENT" includes any land (including, without limitation,
soil, surface land and sub surface strata, sea bed or river bed under any
water as referred to below and any natural or man made structures), any
waters (including, without limitation, coastal and inland waters, surface
waters, ground waters and water in pipes, drains or other conduits) and air
(including, without limitation, air within buildings and other natural or man
made structures above or below ground).

         "ENVIRONMENTAL LAWS" means all laws (whether criminal, civil or
administrative) including common law, statutes, statutory instruments,
directives, regulations, by-laws, orders, codes, judgements and other legal
measures having the force of law in Ireland concerning Environmental Matters
and protection of the Environment (as hereinafter defined) including, without
limitation, the Public Health (Ireland) Act, 1878, the Air Pollution Act,
1987, the Local Government (Water Pollution) Acts, 1977 and 1990, the
Fisheries Acts, 1959 to 1991, the Dangerous Substances Acts, 1972 and 1979,
the Litter Act, 1982, the Safety, Health and Welfare at Work Act, 1989, the
Safety in Industry Act 1980, the Factories Act, 1955, the Local Government
(Planning and Development) Acts, 1963-1992, the Environmental Protection
Agency Act 1992, the European Communities Act, 1972 and all regulations,
by-laws, orders, decisions or codes made thereunder.

         "ENVIRONMENTAL LICENCES" means any permit, licence, approval,
consent, registration or other authorisation required by or pursuant to any
applicable Environmental Laws or relating to Environmental Matters.

         "ENVIRONMENTAL MATTERS" means any matter arising out of, relating
to, or resulting from pollution, contamination, protection of the
Environment, human health or safety (including health and safety of
employees), health and safety of animal and plant life, sanitation and any
matters relating to actual or threatened emissions, discharges,
disseminations, releases of Hazardous Materials into the Environment or
otherwise arising out of, or relating to, or resulting from the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials.

                                      66.
<PAGE>

         "HAZARDOUS MATERIALS" means any pollutants, contaminants,
radioactive, explosive, oxidising, flammable, toxic, harmful, corrosive,
irritant, dangerous, hazardous, infectious, carcinogenic, teratongenic,
etiologic or mutagenic substances, materials, constituents, chemicals,
preparations or wastes (including without limitation, petroleum or any
by-products or fractions thereof, any form of natural gas, asbestos and
asbestos containing materials, or any derivations thereof, polychlorinated
biphenyls ("PCBs") and PCB-containing equipment, radon or other radioactive
elements, pesticides and defoliants) or any other meanings ascribed to such
terms by any Environmental Laws.

         20.2    The Company has never, and no third party has ever, used,
generated, manufactured, treated, stored, emitted, released, discharged or
disposed of on, under or about the Property, or transported to or from the
Property, any Hazardous Materials other than Hazardous Materials which are
(1) used by the Company in its ordinary day-to-day business and (2) likely to
be seen on a visual inspection of the Property.

         20.3    The Property and the material used in the construction of
the Property do not contain and are free of all contamination arising from,
relating to, or resulting from, Hazardous Materials.

         20.4    The Company has not received any notification or claim (1)
orally or in writing from a local authority or (2) in writing from the
occupier or owner of any premises adjoining any part of the Property of, and
the Warrantor is not aware of any public meeting having been held in relation
to, any alleged discharge or emission on or from the Property of anything
alleged to be Hazardous Material.

         20.5    The Company has not received any notification or claim (1)
orally or in writing from a local authority or (2) in writing from the
occupier or owner of any premises adjoining any part of the Property
alleging, and the Warrantor is not aware of any public meeting having been
held at which it was allege, that

                 20.5.1    the existence of any underground or aboveground
storage tanks or containers, incinerators or surface impoundments at, on, or
about, under or within any of the Property or the removal of any of the same
from the Property constituted a breach of Environmental Laws; or

                 20.5.2    the Company is a potentially responsible person or
otherwise liable in connection with any waste disposal site allegedly
containing any Hazardous Materials, or other location used for the disposal
of any Hazardous Materials; or

                 20.5.3    the Company was in violation of any Environmental
Laws or was required to perform any remedial activity or other responsive
action in connection with any Environmental Matter.

         20.6    All, if any, Hazardous Materials resulting from the
Company's operations are transported from the Property and disposed of to the
extent required by law.

         20.7    The Company has operated at all times and is in compliance
in all respects with Environmental Laws, including all limitations,
restrictions, conditions, standards, prohibitions,

                                      67.
<PAGE>

requirements, obligations, schedules and timetables contained in all applicable
Environmental Laws.

         20.8    All Environmental Licences applicable to the Company are in
full force and effect, except for those Environmental Licences, the absence
of which would not affect the ability of the Company to conduct its business
and the Company has made all appropriate filings for issuance or renewal of
such Environmental Licences and no expenditure is required to be spent to
ensure compliance with any Environmental Licences (including any improvement
programmes) over the next three years.

         20.9    The Company has obtained all Environment Licences requisite
for its operations and activities and has not been and is not in breach of
such Environmental Licences or any conditions of same. No work or other
investment are or will be necessary to secure compliance with, or to maintain
or obtain, any Environmental Licences and there are no facts or circumstances
indicating that any Environmental Licences would or might lapse or be
revoked, suspended, cancelled, varied or not renewed.

         20.10   The Warrantor is not aware of any breach of any
Environmental Laws or any Environmental Licences (or the conditions of same)
by any third party (including, without limitation, any employees, servants,
agents or contractors of the Company) or any other circumstances relating to
Environmental Matters, which has resulted or could result in damage or injury
to the Property or damage or injury to persons present from time to time on
the Property or to the Environment generally arising from the Property.

         20.11   There is no contamination of any groundwater underneath or
in the vicinity of the Property and no remedial action in relation to such
groundwater has been carried out at or in respect of contamination on or
arising from the Property.

         20.12   With respect to land in the previous ownership or use of the
Company, the Company has caused no pollution or environmental damage on such
land or the surrounding area and there is no obligation on the Company to
clean up such land, nor any pending or threatened action with respect to
environmental damage on or arising from such land.

         20.13 There are annexed to the Disclosure Letter accurate and
complete copies of any environmental audit reports relating to the Property
and copies of all sampling and test results obtained from all environmental
and/or health samples and tests taken at and around the Property, including
any obtained or taken in anticipation or as part of the transaction
contemplated by the Agreement.

         20.14   There have been no breaches of or liabilities caused or
permitted to arise under any applicable Environmental Laws and there are no
matters whatsoever which have given rise to or are likely to or may give rise
to any claims, actions or obligations whether in nuisance, trespass,
negligence or specifically under the rule in Rylands v Fletcher, or under any
other agreement, legal duty or obligation concerning contamination,
decontamination or other remediation of the Property or land adjoining or in
the vicinity of the Property, or concerning employee or third party exposure
to any product, material, substance, waste, air or noise emission, hazard or
contamination whatsoever.

                                      68.
<PAGE>

21.      GENERAL

         21.1    No sums are owing by the Company to its auditors, solicitors
or other professional advisers except in the ordinary course of business.

         21.2    There are no loans owing to the Company by any of its
directors.

         21.3    Neither the Company nor any of its officers, employees or
agents nor other person acting on its behalf has ever directly or indirectly
given or agreed to give any gift or similar benefit to any customer,
supplier, governmental employee or other person who is or may be in a
position to help or hinder its business or assist it in connection with any
actual or proposed transaction.

         21.4    Except as disclosed in the Disclosure Letter the Company is
not a member of any trade association and in respect of any trade associates
which have been disclosed has complied with all its obligations `as a member
thereof and all codes of practice promulgated by such association.

22.      YEAR 2000 AND EURO

         22.1    SYSTEMS COMPLIANCE

         All hardware and software owned or used by the Company as of
Completion and all other procedures (whether automated or not) (the
"Systems") are or will be EMU Compliant.

         For the purposes of this warranty:

         "EMU Compliant" means that during and after the introduction of any
new currency in connection with European Economic and Monetary Union:

                 22.1.1    all functions (including, without limitation, the
input, processing and presentation of financial data) currently performed or
capable of being performed by the Systems are capable of being performed in,
and in relation to, both any existing currency and any new currency so
introduced, as accurately and efficiently as before such introduction and
without interruption or adverse change to efficiency or user operation and
without incurring additional costs;

                 22.1.2    the Systems will enable compliance with all legal
requirements under legislation enacted at the date of this agreement
(irrespective of the time from which such requirements come into force)
applicable to any such new currency in any jurisdiction (including, without
limitation, Council Regulation (EC) No. 1103/97); and

                 22.1.3    the Systems will display and incorporate in all
relevant forms, screen layouts and printouts all symbols and codes currently
adopted by any government or any other European Union body in relation to any
such new currency.

         22.2    YEAR 2000 COMPLIANCE FOR PRODUCTS AND SERVICES


                                      69.

<PAGE>

                 22.2.1    All of the product and/or service(s) offered by
the Company (the "Services"), any and all enhancements, upgrades,
customisations, modifications, maintenance and the like, are, as of the date
of this agreement, Year 2000 Compliant and EMU Compliant. If the Company is
obliged to repair or replace any Products or Services previously provided by
the Company that were not Year 2000 Compliant in order to meet the Company's
contractual obligations, to avoid injury or liability, to avoid
misrepresentation claims or due to other obligations, either (i) the Company
has repaired or replaced those Products and Services so that those Products
and Services are Year 2000 Compliant, or (ii) the Company has a plan to
repair or replace those Products or Services so that those Products and
Services are Year 2000 Compliant, and such plan is fully funded on the
Company's books, all as fully described in the Disclosure Letter.

                 22.2.2    The Company is not subject to any pending or
threatened regulatory action, proceeding or investigation concerning the Year
2000 Compliance of the Company's Products, Services or operations, and, to
the knowledge of the Warrantor, there is no basis for any such regulatory
action, investigation or proceeding. The Company is in compliance with all
applicable regulatory rules, regulations and requirements in regards to the
Year 2000 Compliance of the Company's Products, Services and operations. No
claim that any of the Company's Products or Services are not Year 2000
Compliant, including product liability claims, has been asserted or
threatened, and, to the Company's knowledge after a reasonably diligent
investigation, there is no basis for any such claim or action.

                 22.2.3    The Warrantor has furnished the Purchaser with
true, correct and complete copies of any customer agreements or other
materials in which the Company has furnished (or could be deemed to have
furnished) assurances as to the Year 2000 Compliance of the Company's
Products or Services, including any responses to surveys or requests for
certification of Year 2000 Compliance and letters of assurance to customers.

                 22.2.4    The Products and the Services will be capable of
supporting the "Euro", in accordance with the specification set out in the
Disclosure Letter, as an additional and/or main currency and/or complying
with any relevant legislative changes without any financial outlay or
disruption to the Products or the Services and the user's system.

                 22.2.5    All vendors of products or services to the
Company, and their respective products, services and operations used by the
Company, are Year 2000 Compliant, and, to the knowledge of the Warrantor,
each such vendor will continue to furnish its products or services to the
Company, without interruption or material delay, on and after January 1,
2000. The Company has either (i) entered into appropriate agreements with
each such vendor certifying that all hardware, software or firmware, and any
other products and services furnished by such vendor, including any all
enhancements, upgrades, customisations, modifications, maintenance and the
like, are Year 2000 Compliant, or (ii) the Company has a plan to enter into
such appropriate agreements, all as fully described in the Disclosure Letter.

                 22.2.6    The Warrantor has furnished the Purchaser with a
true, correct and complete copy of any internal investigations, memoranda,
budget plans, forecasts or reports concerning the Year 2000 Compliance of the
products, services, operations, systems, supplies, and facilities of the
Company and the Company's vendors.

                                      70.
<PAGE>

                 22.2.7    As used in this clause 22.2, "Year 2000 Compliant"
means that (1) the products, services, and other item(s) at issue accurately
process, provide and/or receive all date/time data (including calculating,
comparing, and sequencing) within, from, into, and between centuries
(including the twentieth and twenty-first centuries and the years 1999 and
2000), including leap year calculations; (2) neither the performance nor the
functionality nor the Company's provision of the products, services, and
other item(s) at issue will be affected by any dates/times prior to, on,
after, or spanning 1st January, 2000; and (3) the design of the products,
services, and other item(s) at issue to ensure compliance with the foregoing
warranties and representations includes proper date/time darn century
recognition and recognition of 1999 and 2000, calculations that accommodate
single century and multi-century formulae and date/time values before, on,
after, and spanning 1st January, 2000, and date/time date interface values
that reflect the century, 1999 and 2000. In particular, but without
limitation, (i) no value for current date/time will cause any error,
interruption, or decreased performance in or for such product(s), service(s),
and other item(s), (ii) all manipulations of date and time related data
(including calculating, comparing, sequencing, processing, and outputting)
will produce correct results for all valid dates and times, when used
independently or in combination with other products, services, and/or items,
(iii) date/time elements in interfaces and data storage will specify the
century to eliminate date ambiguity without human intervention, including
leap year calculations, (iv) where any date/time element is represented
without a century, the correct century will be unambiguous for all
manipulations involving that element, (v) authorisation codes, passwords, and
zaps (purge functions) will function normally and in the same manner during,
prior to, on, and after 1st January, 2000, including the manner in which they
function with respect to expiration dates and CPU serial numbers, and (vi)
the Company's supply of the product(s), service(s), and other item(s) will
not be interrupted, delayed, decreased, or otherwise affected by the advent
of the year 2000.

                                      71.
<PAGE>

                                   SCHEDULE 5

                                  THE PROPERTY

<TABLE>
<CAPTION>
DESCRIPTION                                      EXISTING USE
-------------------------------------------      ---------------------------------
<S>                                              <C>
1,170 square feet on ground floor, Galway        Computer software development
Business Park Upper Newcastle Road, Galaway

</TABLE>

<TABLE>
<CAPTION>
DETAILS OF LEASE (DATE AND PARTIES)      DURATION       CURRENT RENT A YEAR AND
                                                        RENT REVIEW DATE(S)
-----------------------------------      ----------     ------------------------
<S>                                      <C>            <C>
1st October 1999                         15 months      IRL11,700
                                                        per annum
Aimware Limited
The Company
</TABLE>


                                      72.
<PAGE>

                                   SCHEDULE 6

                     VENDORS' REPRESENTATIONS AND WARRANTIES

1.       Each Vendor in relation to the Consideration Shares hereby, severally
         and not jointly, represents and warrants to the Company as follows:

         (a)      INVESTMENT REPRESENTATIONS.
                  In connection with the acquisition by way of exchange of the
                  Consideration Shares under this Agreement, each Purchaser
                  makes the following representations:

                  (1)      This Agreement is made with each Vendor identified on
                           Schedule 1 of the Agreement as a Regulation S
                           Purchaser ("Regulation S Purchaser") in reliance upon
                           such Regulation S Purchaser's representation to the
                           Company, which by such Regulation S Purchaser's
                           execution of this Agreement such Purchaser hereby
                           confirms, that the Consideration Shares to be
                           purchased by such Regulation S Purchaser
                           (collectively, the "Regulation S Securities" or the
                           "Securities") and the related Conversion Stock will
                           be acquired for investment for such Regulation S
                           Purchaser's own account, not as a nominee or agent,
                           and not with a view to the resale or distribution of
                           any part thereof in the United States or to a United
                           States resident, and that such Regulation S Purchaser
                           has no present intention of selling, granting any
                           participation in, or otherwise distributing the same.
                           By executing this Agreement, each Regulation S
                           Purchaser further represents that such Regulation S
                           Purchaser does not have any contract undertaking,
                           agreement or arrangement with any person to sell,
                           transfer or grant participations to such person or to
                           any third person in the United States or to a United
                           States resident, or any hedging transaction with any
                           third person in the United States or to a United
                           States resident, with respect to any of the
                           Regulation S Securities.

                  (2)      Each Regulation S Purchaser understands that (i) the
                           Consideration Shares to be acquired, by way of
                           exchange, under this Agreement (and any related
                           Conversion Stock) have not and at the time of
                           issuance may not be, registered under the Securities
                           Act of 1933, as amended (the "Securities Act") on the
                           ground that the acquisition provided for in this
                           Agreement is exempt from registration under the
                           Securities Act pursuant to Regulation S thereof, and
                           that the Company's reliance on such exemption is
                           predicated on the Regulation S Purchasers'
                           representations set forth herein, that such
                           securities must be held by each Regulation S
                           Purchaser must, therefore, bear the economic risk of
                           such investment, until a subsequent disposition
                           thereof is registered under the Securities Act or is
                           exempt from such registration; and (ii) each
                           certificate representing such shares will be endorsed
                           with the following legends:


                                      73.
<PAGE>

                           A.       "THE SECURITIES REPRESENTED HEREBY HAVE BEEN
                                    ACQUIRED PURSUANT TO REGULATION S OF THE
                                    SECURITIES ACT OF 1933, AS AMENDED (THE
                                    `ACT'), AND MAY NOT BE SOLD, MORTGAGED,
                                    PLEDGED, HYPOTHECATED OR OTHERWISE
                                    TRANSFERRED EXCEPT IN ACCORDANCE THEREWITH.
                                    IN ADDITION, NO HEDGING TRANSACTION MAY BE
                                    CONDUCTED WITH RESPECT TO THESE SECURITIES
                                    UNLESS SUCH TRANSACTIONS ARE IN COMPLIANCE
                                    WITH THE ACT."

                  (3)      Each Regulation S Purchaser represents that he is
                           experienced in evaluating and investing in securities
                           of companies in the early stages of product
                           production and acknowledges that he is able to fend
                           for himself, herself or itself, can bear the economic
                           risk of such Regulation S Purchaser's investment, and
                           has such knowledge and experience in financial and
                           business matters that such Regulation S Purchaser is
                           capable of evaluating the merits and risks of the
                           investment in the Shares. If other than an
                           individual, Regulation S Purchaser also represents
                           that such Regulation S Purchaser has not been
                           organized for the purpose of acquiring the Shares.

                  (4)      Each Regulation S Purchaser, as to such Regulation S
                           Purchaser, severally and not jointly, further
                           represents to the Company that such Regulation S
                           Purchaser is a Qualified Regulation S Purchaser. The
                           term "Qualified Regulation S Purchaser" as used
                           herein refers to a person or entity who is not a U.S.
                           person, as such term is defined in Rule 902
                           promulgated under the Securities Act.

         2.       For the purposes of Clause 2 (a) below each Vendor is defined
                  as a "Holder" and Aerogen, Inc. is defined as the "Company".

                  "MARKET STAND-OFF" Agreement; Agreement to Furnish Information

                  Each holder hereby agrees that such Holder shall not sell,
                  transfer, make any short sale of, grant any option for the
                  purchase of, or enter into any hedging or similar transaction
                  with the same economic effect as a sale, any (or other
                  securities) of Aerogen, Inc. held by such Holder (other than
                  those included in the registration) for a period specified by
                  the representative of the underwriters of Common Stock (or
                  other securities) of the Company not to exceed one hundred and
                  eighty (180) days following the effective date of a
                  registration statement of the Company filed under the
                  Securities Act.

                  Each Holder agrees to execute and deliver such other
                  agreements as may be reasonably requested by the Company or
                  the underwriter which axe consistent with the foregoing or
                  which are necessary to give further effect thereto. In
                  addition, if requested by the Company or the representative of
                  the underwriters of common stock (or other securities) of the
                  Company, each Holder shall provide,


                                      74.
<PAGE>

                  within ten (10) days of such request, such information as may
                  be required by the Company or such representative in
                  connection with the completion of any public offering of the
                  Company's securities pursuant to a registration statement
                  filed under the Securities Act. The obligations described in
                  this Section shall not apply to a registration relating solely
                  to employee benefit plans on Form S-1 or Form S-8 or similar
                  forms that may be promulgated in the future, or a registration
                  relating solely to a Commission Rule 145 transaction on Form
                  S-4 or similar forms that may be promulgated in the future.
                  The Company may impose stop-transfer instructions with respect
                  to the shares of common stock (or other securities) subject to
                  the foregoing restriction until the end of said one hundred
                  and eighty (180) day period. Each Holder agrees that any
                  transferee of any shares of capital stock shall be bound by
                  this clause. The underwriters of the Company's stock are
                  intended third party beneficiaries of this clause and shall
                  have the right, power and authority to enforce the provisions
                  hereof as though they were a party hereto.


                                      75.
<PAGE>

                                   SCHEDULE 7

                            JOINT ESCROW INSTRUCTIONS

Secretary,
AEROGEN, Inc,
1310 Orleans Drive,
Sunnyvale,
California 94089,
States of America.

Ladies and Gentlemen:

As Escrow Agent for both Aerogen, Inc. a Delaware corporation ("Corporation")
and John Power ("Purchaser"), you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Share
Acquisition/Exchange Agreement dated as of 25th May, 2000 ("Agreement"), to
which a copy of these Joint Escrow Instructions is attached as Schedule 7 in
accordance with the following instructions: In the event Corporation or an
assignee shall elect to exercise the Repurchase Option set forth in the
Agreement, the Corporation or its assignee will give to Purchaser and you a
written notice specifying the number of shares of stock to be purchased, the
purchase price, and the time for a closing thereunder at the principal office of
the Corporation. Purchaser and the Corporation hereby irrevocably authorize and
direct you to close the transaction contemplated by such notice in accordance
with the terms of said notice.

1.       At the closing, you are directed (a) to date the stock assignments
         necessary for the transfer in question, (b) to fill in the number of
         shares being transferred, and (c) to deliver the same, together with
         the certificate evidencing the shares of stock to be transferred, to
         the Corporation against the simultaneous delivery to you of the
         purchase price (which may include suitable acknowledgement of
         cancellation of indebtedness) for the number of shares of stock being
         purchased pursuant to the exercise of the Repurchase Option.

2.       Purchaser irrevocably authorizes the Corporation to deposit with you
         any certificates evidencing shares of stock to be held by you hereunder
         and any additions and substitutions to said shares as specified in the
         Agreement. Purchaser does hereby irrevocably constitute and appoint you
         as his attorney in fact and agent for the term of this escrow to
         execute with respect to such securities all documents necessary or
         appropriate to make such securities negotiable and complete any
         transaction herein contemplated, including but not limited to any
         appropriate filing with state or government officials or bank
         officials. Subject to the provisions of this paragraph 3, Purchaser
         shall exercise all rights and privileges of a shareholder of the
         Corporation while the stock is held by you.

3.       This escrow shall terminate upon the exercise in full or expiration of
         the Repurchase Option, whichever occurs first.

4.       If at the time of termination of this escrow you should have in your
         possession any documents, securities, or other property belonging to
         Purchaser, you shall deliver all of


                                      76.
<PAGE>

         the same to Purchaser and shall be discharged of all further
         obligations hereunder; provided, however, that if at the time of
         termination of this escrow you are advised by the Corporation that any
         property subject to this escrow is the subject of a pledge or other
         security agreement, you shall deliver all such property to the
         pledgeholder or other person designated by the Corporation.

5.       Except as otherwise provided in these Joint Escrow Instructions, your
         duties hereunder may be altered, amended, modified or revoked only by a
         writing signed by all of the parties hereto.

6.       You shall be obligated only for the performance of such duties as are
         specifically set forth herein and may rely and shall be protected in
         relying or refraining from acting on any instrument reasonably believed
         by you to be genuine and to have been signed or presented by the proper
         party or parties. You shall not be personally liable for any act you
         may do or omit to do hereunder as Escrow Agent or as attorney in fact
         for Purchaser while acting in good faith and in the exercise of your
         own good judgement, and any act done or omitted by you pursuant to the
         advice of your own attorneys shall be conclusive evidence of such good
         faith.

7.       You are hereby expressly authorized to disregard any and all warnings
         given by any of the parties hereto or by any other person or
         corporation, excepting only orders or process of courts of law, and are
         hereby expressly authorized to comply with and obey orders, judgements
         or decrees of any court. In case you obey or comply with any such
         order, judgement or decree of any court, you shall not be liable to any
         of the parties hereto or to any other person, firm or corporation by
         reason of such compliance, notwithstanding any such order, judgement or
         decree being subsequently reversed, modified, annulled, set aside,
         vacated or found to have been entered without jurisdiction.

8.       You shall not be liable in any respect on account of the identity,
         authorities or rights of the parties executing or delivering or
         purporting to execute or deliver the Agreement or any documents or
         papers deposited or called for hereunder.

9.       You shall not be liable for the outlawing of any rights under any
         statute of limitations with respect to these Joint Escrow Instructions
         or any documents deposited with you.

10.      Your responsibilities as Escrow Agent hereunder shall terminate if you
         shall cease to be Secretary of the Corporation or if you shall resign
         by written notice to each party. In the event of any such termination,
         the Corporation shall appoint any officer or assistant officer of the
         Corporation as successor Escrow Agent, and Purchaser hereby confirms
         the appointment of such successor as his attorney-in-fact and agent to
         the full extent of your appointment.

11.      If you reasonably require other or further instruments in connection
         with these Joint Escrow Instructions or obligations in respect hereto,
         the necessary parties hereto shall join in furnishing such instruments.

12.      It is understood and agreed that should any dispute arise with respect
         to the delivery and/or ownership or right of possession of the
         securities held by you hereunder, you are


                                      77.

<PAGE>

         authorized and directed to retain in your possession without liability
         to anyone all or any part of said securities until such dispute shall
         have been settled either by mutual written agreement of the parties
         concerned or by a final order, decree or judgement of a court of
         competent jurisdiction after the time for appeal has expired and no
         appeal has been perfected, but you shall be under no duty whatsoever to
         institute or defend any such proceedings.

13.      Any notice required or permitted hereunder shall be given in writing
         and shall be deemed effectively given upon personal delivery, including
         delivery by express courier, or five (5) days after deposit in the
         United States Post Office, by registered or certified mail with postage
         and fees prepaid, addressed to each of the other parties entitled to
         such notice at the following addresses, or at such other addresses as a
         party may designate by ten days' advance written notice to each of the
         other parties hereto.

14.      By signing these Joint Escrow Instructions, you become a party hereto
         only for the purpose of said Joint Escrow Instructions; you do not
         become a party to the Agreement.

15.      You shall be entitled to employ such legal counsel and other experts
         (including, without limitation, the firm of Cooley Godward LLP) as you
         may deem necessary properly to advise you in connection with your
         obligations hereunder. You may rely upon the advice of such counsel,
         and you may pay such counsel reasonable compensation therefor. The
         Corporation shall be responsible for all fees generated by such legal
         counsel in connection with your obligations hereunder.

16.      This instrument shall be binding upon and inure to the benefit of the
         parties hereto and their respective successors and permitted assigns.
         It is understood and agreed that references to "you" and "your" herein
         refer to the original Escrow Agents. It is understood and agreed that
         the Corporation may at any time or from time to time assign its rights
         under the Agreement and these Joint Escrow Instructions.

17.      This Agreement shall be governed by and interpreted and determined in
         accordance with the laws of the State of California as such laws are
         applied by Californian courts to contracts made and to be performed
         entirely in California by residents of that state.

                                    Very truly yours,

                                    Corporation:
                                                     DEBORAH KARLSON
                                                     --------------------------
                                                     AEROGEN, INC.
                                                     --------------------------
                                    Purchaser:

                                                     JOHN POWER
                                                     --------------------------
                                    Escrow Agent:

                                                     AEROGEN, INC.
                                                     --------------------------


                                      78.
<PAGE>

                   STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE

For Value Received, John Power hereby sells, assigns and transfers unto Aerogen,
Inc., a Delaware corporation (the "Company"), pursuant to the Repurchase Option
under that certain share Acquisition/Exchange Agreement, effective as of 25th
May, 2000, by and between the undersigned and the Company (the "Agreement"),
[Number of Shares Being Purchased - Spelled Out] ([Number]) shares of Series E
Aerogen, Inc. preferred stock of the Company or Common Stock issued upon
conversion of the Series E Preferred Stock standing in the undersigned's name on
the books of the Company represented by Certificate No[(s)] [number(s) of Stock
Certificates] and does hereby irrevocably constitute and appoint the Company's
Secretary attorney to transfer said stock on the books of the Company with full
power of substitution in the premises. This Assignment may be used only in
accordance with and subject to the terms and conditions of the Agreement, in
connection with the repurchase of shares of Preferred Stock or Common Stock
issued to the undersigned pursuant to the Agreement, and only to the extent that
such shares remain subject to the Company's Repurchase Option under the
Agreement.

Dated:
      -------------------------

                                                 (Signature)


                                                 (Print Name) JOHN POWER


         [Instruction: Please do not fill in any blanks other than the signature
         line. The purpose of the Assignment is to enable the Company to
         exercise its repurchase option set forth in the Agreement without
         requiring additional signatures on the part of Purchaser.]

         [*Please do not use this form for use with an employee loan - use
         generic form 45698/SA.]


                                      79.
<PAGE>

AS WITNESS the hands of the parties of their duly authorised representatives the
day and year first above written.



SIGNED by DEBORAH KARLSON
for and on behalf of
AEROGEN, INC.

/s/


SIGNED SEALED AND DELIVERED
by JOHN POWER
in the presence of:

/s/                                                           /s/


SIGNED by JOHN POWER on
behalf of BERNADETTE POWER
pursuant to a power of attorney
dated 24th May, 2000 in the presence of:

/s/                                                           /s/


SIGNED SEALED AND DELIVERED
by CHARLES MULLIGAN
in the presence of:

/s/                                                           /s/


SIGNED SEALED AND DELIVERED
by TIMOTHY MCSWEENEY
in the presence of:

/s/                                                           /s/


SIGNED by TIMOTHY MCSWEENEY
on behalf of MARY MCSWEENEY
pursuant to a power of attorney
dated 23rd May, 2000 in the presence of:

/s/                                                           /s/


                                      80.
<PAGE>

SIGNED by TIMOTHY MCSWEENEY
on behalf of RICHARD GAHAN
pursuant to a power of attorney
dated 1st May, 2000 in the presence of:

/s/                                                           /s/


SIGNED by TIMOTHY MCSWEENEY
on behalf of GRAINNE POWER
pursuant to a power of attorney
dated 1st May, 2000 in the presence of:

/s/                                                           /s/


SIGNED by TIMOTHY MCSWEENEY
on behalf of PAUL REDMOND
pursuant to a power of attorney
dated 22nd May, 2000 in the presence of:

/s/                                                           /s/


SIGNED by TIMOTHY MCSWEENEY
on behalf of BERNARD COLLINS
pursuant to a power of attorney
dated 22nd May, 2000 in the presence of:

/s/                                                           /s/
SIGNED by TIMOTHY MCSWEENEY
on behalf of JIM MOUNTJOY
pursuant to a power of attorney
dated 2nd May, 2000 in the presence of:

/s/                                                           /s/


SIGNED by TIMOTHY MCSWEENEY
on behalf of DAVID HOGAN
pursuant to a power of attorney
dated 23rd May, 2000 in the presence of:

/s/                                                           /s/


                                      81.
<PAGE>

SIGNED by TIMOTHY MCSWEENEY
on behalf of TIMOTHY CROWLEY
pursuant to a power of attorney
dated 30th April, 2000 in the presence of:

/s/                                                           /s/


SIGNED by TIMOTHY MCSWEENEY
on behalf of MICHAEL CROWLEY
pursuant to a power of attorney
dated 29th April, 2000 in the presence of:

/s/                                                           /s/


SIGNED by TIMOTHY MCSWEENEY
on behalf of PAT SWEENEY
pursuant to a power of attorney
dated 19th May, 2000 in the presence of:

/s/                                                           /s/


SIGNED by TIMOTHY MCSWEENEY
on behalf of PAT MCCARTHY
pursuant to a power of attorney
dated 22nd May, 2000 in the presence of:

/s/                                                           /s/


SIGNED by TIMOTHY MCSWEENEY
on behalf of CAITRIONA MCCARTHY
pursuant to a power of attorney
dated 22nd May, 2000 in the presence of:

/s/                                                           /s/


SIGNED by TIMOTHY MCSWEENEY
on behalf of PAT BURKE
pursuant to a power of attorney
dated 2nd May, 2000 in the presence of:

/s/                                                           /s/


                                      82.
<PAGE>

SIGNED by TIMOTHY MCSWEENEY
on behalf of AIDEEN BURKE
pursuant to a power of attorney
dated 2nd May, 2000 in the presence of:

/s/                                                           /s/


SIGNED by JOHN POWER
on behalf of ANN MURPHY
pursuant to a power of attorney
dated 19th May, 2000 in the presence of:

/s/                                                           /s/


SIGNED by JOHN POWER
on behalf of NORAH LONG
pursuant to a power of attorney
dated 22nd May, 2000 in the presence of:

/s/                                                           /s/


SIGNED by CHARLES MULLIGAN
on behalf of BRIAN O'CONNELL
pursuant to a power of attorney
dated 22nd May, 2000 in the presence of:

/s/                                                           /s/


SIGNED by JOHN POWER
on behalf of JOSEPH NOLAN
pursuant to a power of attorney
dated 25th May, 2000 in the presence of:

/s/                                                           /s/


SIGNED by CHARLES MULLIGAN
on behalf of OLIVER LYNCH
pursuant to a power of attorney
dated 22nd May, 2000 in the presence of:

/s/                                                           /s/


                                      83.
<PAGE>

SIGNED by CHARLES MULLIGAN
on behalf of TONY PIDGEON
pursuant to a power of attorney
dated 24th May, 2000 in the presence of:

/s/                                                           /s/


SIGNED by CHARLES MULLIGAN
on behalf of NIALL KEATING
pursuant to a power of attorney
dated 22nd May, 2000 in the presence of:

/s/                                                           /s/



                                      84.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>24
<FILENAME>ex-21_1.txt
<DESCRIPTION>EXHIBIT 21.1
<TEXT>

<PAGE>


                                                                    EXHIBIT 21.1

                                  SUBSIDIARIES



                            AeroGen (Ireland) Limited








                                       1.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>25
<FILENAME>ex-23_1.txt
<DESCRIPTION>EXHIBIT 23.1
<TEXT>

<PAGE>
                                                                    EXHIBIT 23.1

                       CONSENT OF INDEPENDENT ACCOUNTANTS

    We hereby consent to the inclusion in this Registration Statement on Form
S-1 of our report dated February 25, 2000, except for Note 11, as to which the
date is July 21, 2000, and Note 12 as to which the date is August 24, 2000,
relating to the financial statements of AeroGen, Inc. (a company in the
development stage) at December 31, 1998 and 1999, for each of the three years
ended December 31, 1999 and for the cumulative period from November 18, 1991
(date of inception) to December 31, 1999, which appear in such Registration
Statement. We also consent to the references to us under the headings "Experts"
in such Registration Statement.

PricewaterhouseCoopers LLP

San Jose, California
August 25, 2000
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.2
<SEQUENCE>26
<FILENAME>ex-23_2.txt
<DESCRIPTION>EXHIBIT 23.2
<TEXT>

<PAGE>
                                                                    EXHIBIT 23.2

                       CONSENT OF INDEPENDENT ACCOUNTANTS

    We hereby consent to the inclusion in this Registration Statement on Form
S-1 of our report dated August 23, 2000, relating to the financial statements of
Cerus Limited (a company in the development stage) at December 31, 1998 and
1999, for the two years then ended and for the cumulative period from
December 16, 1997 (date of inception) to December 31, 1999, which appear in such
Registration Statement. We also consent to the references to us under the
headings "Experts" in such Registration Statement.

PricewaterhouseCoopers LLP

Limerick, Ireland
August 25, 2000
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27.1
<SEQUENCE>27
<FILENAME>ex-27_1.txt
<DESCRIPTION>EXHIBIT 27.1
<TEXT>

<TABLE> <S> <C>

<PAGE>
<ARTICLE> 5

<S>                             <C>                     <C>                     <C>
<PERIOD-TYPE>                   YEAR                   YEAR                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1999             DEC-31-1998             DEC-31-1997
<PERIOD-START>                             JAN-01-1999             JAN-01-1998             JAN-01-1997
<PERIOD-END>                               DEC-31-1999             DEC-31-1998             DEC-31-1997
<CASH>                                       1,821,945              17,499,487                       0
<SECURITIES>                                 5,986,918                       0                       0
<RECEIVABLES>                                  319,051                       0                       0
<ALLOWANCES>                                         0                       0                       0
<INVENTORY>                                          0                       0                       0
<CURRENT-ASSETS>                             8,518,662              17,617,559                       0
<PP&E>                                       2,219,435               1,580,949                       0
<DEPRECIATION>                             (1,209,589)               (715,278)                       0
<TOTAL-ASSETS>                               9,673,601              18,608,230                       0
<CURRENT-LIABILITIES>                        1,111,226                 792,691                       0
<BONDS>                                              0                       0                       0
<PREFERRED-MANDATORY>                                0                       0                       0
<PREFERRED>                                 31,476,099              31,476,099                       0
<COMMON>                                         6,929                   6,548                       0
<OTHER-SE>                                (23,020,653)            (14,146,617)                       0
<TOTAL-LIABILITY-AND-EQUITY>                 9,673,601              18,608,230                       0
<SALES>                                        468,220                  85,450                 327,780
<TOTAL-REVENUES>                               468,220                  85,450                 327,780
<CGS>                                                0                       0                       0
<TOTAL-COSTS>                                        0                       0                       0
<OTHER-EXPENSES>                           (9,986,010)             (5,992,813)             (5,470,334)
<LOSS-PROVISION>                                     0                       0                       0
<INTEREST-EXPENSE>                            (76,128)               (121,946)                (29,239)
<INCOME-PRETAX>                            (8,967,915)             (5,562,383)             (5,055,249)
<INCOME-TAX>                                         0                       0                       0
<INCOME-CONTINUING>                        (8,967,915)             (5,562,383)             (5,055,249)
<DISCONTINUED>                                       0                       0                       0
<EXTRAORDINARY>                                      0                       0                       0
<CHANGES>                                            0                       0                       0
<NET-INCOME>                               (8,967,915)             (5,562,383)             (5,055,249)
<EPS-BASIC>                                     (1.65)                  (1.16)                  (1.14)
<EPS-DILUTED>                                   (1.65)                  (1.16)                  (1.14)


</TABLE>
</TEXT>
</DOCUMENT>
</SUBMISSION>
