ARADIGM CORP (Form: 8-K, Received: 04/18/2011 16:52:17)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of report (Date of earliest event reported): April 15, 2011

(Exact name of registrant as specified in its charter)

California	000-28402	94-3133088
(State or other jurisdiction	(Commission	(I.R.S. Employer
of incorporation)	File Number)	Identification No.)

3929 Point Eden Way, Hayward, California	94545
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (510) 265-9000

Not Applicable

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):

o	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On April 15, 2011, Aradigm Corporation (the "Company"):

●	amended and restated its Executive Officer Severance Benefit Plan ("Executive Severance Plan");

●	amended and restated the Change of Control Agreements the Company has with members of its senior management; and

●	amended and restated its form of Indemnification Agreements the Company has with members of its Board of Directors and senior management.

The Company entered into the amendments of the Executive Severance Plan and the Change of Control Agreements for members of the senior management for the purpose of clarifying the calculation of bonus payments payable under the Executive Severance Plan and Change of Control Agreements. In 2010, the Board approved the conversion of the Executive Bonus Plan from a one-year to a multi-year performance evaluation period in order to incentivize senior management to focus on the achievement of longer term goals that could be significant value creation events for the Company’s shareholders. This conversion rendered the bonus payment calculation under the existing Executive Severance Plan and the Change of Control Agreements obsolete, as the calculation was dependent upon a measure of attainment under the prior one-year evaluation periods. The amendments are not intended to increase the compensation payable by the Company to members of the Company’s senior management under the Executive Severance Plan or the Change of Control Agreements.

In conjunction with the election of a new director to the Board of Directors (Tamar Howson) and the annual renewal of the Company’s Directors and Officers Liability Insurance Policy, and as a matter of good corporate governance, the Board of Directors reviewed the Indemnification Agreements currently in place for directors and senior management. Because of recent developments in the interpretation of companies’ indemnification obligations, the Company’s Board of Directors has determined that it was necessary to amend the form indemnification agreement that the Company has used to enter into indemnification agreements with all of the Company’s directors and senior management.

The Indemnification Agreement provides for indemnification to the fullest extent permitted by applicable California law. It requires the Company, subject to conditions and limitations, to indemnify the indemnitee against all expenses and losses incurred by the indemnitee in connection with proceedings in which the indemnitee is involved because of his or her corporate status. The Indemnification Agreement also provides for the advancement of expenses incurred by the indemnitee in connection with any proceeding, subject to conditions and limitations, including an undertaking by the indemnitee contained in the Indemnification Agreement to repay expense advances if it is ultimately determined that the indemnitee is not entitled to be indemnified. Where the Company and the indemnitee are jointly liable in respect of a proceeding and indemnification is not available under the Indemnification Agreement but not prohibited, the Company is required to contribute to the amount of expenses and/or losses incurred by the indemnitee in proportion to the relative benefits received, subject to further adjustments based on relative fault and other equitable considerations to the extent necessary to conform to applicable law. The Indemnification Agreement contains presumptions that are favorable to the indemnitee, including that the indemnitee is entitled to indemnification and that the indemnitee has at all times acted in good faith and in a manner the indemnitee reasonably believed to be in or not opposed to the best interests of the Company. The Indemnification Agreement also requires the Company to maintain directors’ and officers’ liability insurance, subject to exceptions.

The Indemnification Agreement contains exclusions from the Company’s obligation to indemnify, and advance expenses to, the indemnitee. The Company is not obligated to indemnify, or advance expenses to, the indemnitee in connection with any proceeding brought voluntarily by the indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Board of Directors authorized the proceeding or (ii) the proceeding was commenced following a Change in Control. The exclusion of voluntary proceedings from indemnification does not apply when such proceedings are brought by indemnitee to enforce his or her rights under the Indemnification Agreement. The Company is not obligated to indemnify, or advance expenses to, the indemnitee in connection with any proceeding with respect to which final judgment has been rendered against the indemnitee for (i) any acts or omissions or transactions from which the indemnitee may not be relieved of liability pursuant to California law, including but not limited to intentional misconduct or failure to act in good faith and in a manner which the indemnitee reasonably believed to be in the best interests of the Company, (ii) payment or an accounting of short-swing profits within the meaning of Section 16(b) of the Securities Exchange Act of 1934 or (iii) any recoupment from the indemnitee of any bonus, other incentive- or equity-based compensation or profits pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) or any Company clawback policy, or from the purchase or sale by the indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act.

The Board believes the revised indemnification agreements serve the best interests of the Company and its shareholders by strengthening the Company’s ability to attract and retain the services of experienced and knowledgeable persons as directors and officers who, through their efforts and expertise, can make a significant contribution to the Company’s success. The indemnification agreements are intended to complement the indemnity protection available under applicable law, the Company’s bylaws and any insurance policies the Company maintains.

The foregoing description of the amendments does not purport to be complete and is qualified in its entirety by reference to the full texts of the amendments, copies of which are attached hereto as Exhibits 10.1, 10.2, 10.3, and 10.4, and are incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit		Description
10.1		Amended and Restated Executive Officer Severance Benefit Plan.

10.2		Amended and Restated Change of Control Agreement, dated as of April 15, 2011, by and between the Company and Igor Gonda.

10.3		Amended and Restated Change of Control Agreement, dated as of April 15, 2011, by and between the Company and Nancy Pecota.

10.4		Form of Indemnification Agreement between the Company and each of its directors and senior officers.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	ARADIGM CORPORATION

Dated: April 18, 2011	By:	/s/ Nancy Pecota
		Name: Nancy Pecota
		Title: Vice President, Finance and Chief
		Financial Officer

EXHIBIT INDEX

Exhibit		Description
10.1		Amended and Restated Executive Officer Severance Benefit Plan.
10.2		Amended and Restated Change of Control Agreement, dated as of April 15, 2011, by and between the Company and Igor Gonda.
10.3		Amended and Restated Change of Control Agreement, dated as of April 15, 2011, by and between the Company and Nancy Pecota.
10.4		Form of Indemnification Agreement between the Company and each of its directors and senior officers.

ARADIGM CORPORATION

EXECUTIVE OFFICER SEVERANCE BENEFIT PLAN

Section 1. Introduction.

The Aradigm Corporation Executive Officer Severance Benefit Plan (the “ Plan ”) was established effective October 7, 2005, amended December 31, 2008 and is hereby amended and restated effective April 15, 2011. The purpose of the Plan is to provide for the payment of severance benefits to certain eligible employees of Aradigm Corporation (the “ Company ”) or an affiliate of the Company whose employment with the Company is involuntarily terminated. This Plan, the Company’s Severance Benefit Plan and the Company’s Director Severance Benefit Plan shall supersede any severance benefit plan, policy or practice previously maintained by the Company or any affiliate of the Company. This Plan document also is the Summary Plan Description for the Plan.

Section 2. Eligibility For Benefits.

(a) General Rules. Subject to the requirements set forth in this Section, the Company will grant severance benefits under the Plan to Eligible Employees.

(1) “Eligible Employees” for purposes of this Plan are all full-time and part-time regular hire employees of the Company and its affiliates (i) who are based in the United States, (ii) whose employment is involuntarily terminated, (iii) whose termination of employment results in a “separation from service” with the Company within the meaning of Treasury Regulation Section 1.409A-1(h) (without regard to any permissible alternative definition of “termination of employment” thereunder) (such date, a “ Termination Date ”), (iv) who have the title of officer of the Company and (v) who are notified by the Company in writing that they are eligible for participation in this Plan. The determination as to whether an employee is an Eligible Employee shall be made by the Company, in its sole discretion, and such determination shall be binding and conclusive on all persons. For purposes of this Plan, part-time employees are those regular hire employees who are regularly scheduled to work more than twenty (20) hours per week but less than a full-time work schedule. Regular hire employees working twenty (20) hours per week or less and temporary employees are not eligible for severance benefits under the Plan.

(2) In order to be eligible to receive benefits under the Plan, an Eligible Employee must remain on the job until his or her Termination Date.

(3) In order to be eligible to receive benefits under the Plan, an Eligible Employee also must execute a general waiver and release in substantially the form attached hereto as Exhibit A, Exhibit B or Exhibit C, as appropriate, and such release must become effective in accordance with its terms within sixty (60) days following a Termination Date. The Company, in its sole discretion, may modify the form of the required release to comply with applicable state law and shall determine the form of the required release.

Exhibit 10.1

(b) Exceptions to Benefit Entitlement. An employee will not be an Eligible Employee and thus will not receive benefits under the Plan in any of the following circumstances, as determined by the Company, in its sole discretion:

(1) The employee has executed an individually negotiated employment contract or agreement with the Company relating to severance benefits that is in effect on his or her Termination Date, in which case such employee’s severance benefit, if any, shall be governed by the terms of such individually negotiated employment contract or agreement.

(2) The employee voluntarily terminates employment with the Company or an affiliate of the Company. Voluntary terminations include, but are not limited to, resignation, retirement or failure to return from a leave of absence on the scheduled date.

(3) The employee voluntarily terminates employment with the Company or an affiliate of the Company in order to accept employment with another entity that is wholly or partly owned (directly or indirectly) by the Company or an affiliate of the Company.

(4) The employee is involuntarily terminated for reasons related to job performance or misconduct.

(5) The employee is offered a position with the Company or an affiliate of the Company for which the employee is qualified and does not accept that position.

(6) The employee is offered immediate reemployment by a successor to the Company or by a purchaser of its assets, as the case may be, following a change in ownership of the Company or a sale of substantially all of the assets of the Company or of a division or business unit of the Company. For purposes of the foregoing, “immediate reemployment” means that the employee’s employment with the successor to the Company or the purchaser of its assets, as the case may be, results in uninterrupted employment such that the employee does not incur a lapse in pay as a result of the change in ownership of the Company or the sale of its assets.

(7) The employee is rehired by the Company or an affiliate of the Company prior to the date benefits under the Plan are scheduled to commence.

(8) The employee engages in misconduct, violates a Company policy, or acts in a manner deemed harmful to the Company or an affiliate of the Company prior to his or her Termination Date.

Section 3. Amount Of Benefit.

(a) Cash Benefit. Each Eligible Employee shall receive cash payments, in the form defined pursuant to Section 4, equal to the sum of the following base severance benefits:

Exhibit 10.1

Eligible Employee	Amount of Base Severance Benefit

Officers	●	Fifty-two (52) weeks of Base Salary (as defined herein); and
	●	The Bonus Payment (as defined herein)

(b) Definition of “Base Salary.” For purposes of calculating Plan benefits, “Base Salary” shall mean the Eligible Employee’s then-current base salary, excluding incentive pay, premium pay, commissions, overtime, and other forms of variable compensation.

(c) Definition of “Bonus Payment.” For purposes of calculating Plan benefits, “Bonus Payment” shall mean an amount equal to 50% of then-current annual base salary in the case of the Chief Executive Officer and 40% of then-current annual base salary in the case of the Chief Financial Officer.

(d) Career Transition Assistance. Following an Eligible Employee’s termination of employment by the Company, the Company, in its sole discretion, may provide the Eligible Employee with career transition services through an outplacement service provider.

(e) Other Employees. Notwithstanding any other provision of this Plan to the contrary, including, without limitation, Sections 2(a), 3(a) and 7(a), the Company, in its sole discretion, may by an action pursuant to Section 6(b) that is communicated in writing to an employee of the Company who does not qualify as an Eligible Employee, provide Plan benefits to such employee (in which case, references in the Plan to “Eligible Employee” shall be deemed to refer to such employee of the Company). The Company’s decision to provide Plan benefits to an employee of the Company who does not qualify as an Eligible Employee does not obligate the Company to provide similar benefits under this Plan to any other Eligible Employee or employee of the Company, whether or not similarly situated.

(f) Certain Reductions. Notwithstanding any other provision of the Plan to the contrary, any benefits payable to an Eligible Employee under this Plan shall be reduced by any severance benefits payable by the Company or an affiliate of the Company to such individual under any other policy, plan, program or arrangement, including, without limitation, a contract between the Eligible Employee and any entity, covering such individual. Furthermore, to the extent that any federal, state or local laws, including, without limitation, so-called “plant closing” laws, require the Company to give advance notice or make a payment of any kind to an Eligible Employee because of that Eligible Employee’s involuntary termination due to a layoff, reduction in force, plant or facility closing, sale of business, change of control, or any other similar event or reason, the benefits payable under this Plan shall either be reduced or eliminated. The benefits provided under this Plan are intended to satisfy any and all statutory obligations that may arise out of an Eligible Employee’s involuntary termination of employment for the foregoing reasons, and the Plan Administrator shall so construe and implement the terms of the Plan.

Section 4. Time Of Payment And Form Of Benefit.

Exhibit 10.1

(a) All payments provided under this Plan are intended to constitute separate payments for purposes of Treasury Regulation Section 1.409A-2(b)(2). Cash severance payments pursuant to Section 3(a) will be paid in a series of successive equal installments over the regularly scheduled payroll periods occurring during the one year period following the Termination Date.

(b) If an Eligible Employee is a “specified employee” of the Company or any affiliate thereof (or any successor entity thereto) within the meaning of Section 409A(a)(2)(B)(i) of the Internal Revenue Code of 1986, as amended (the “ Code ”) on a Termination Date, then any cash severance payments pursuant to Section 3(a) (the “ Severance Payments ”) shall be delayed until the earlier of: (i) the date that is six (6) months after the Termination Date, or (ii) the date of the Eligible Employee’s death (such date, the “ Delayed Payment Date ”), and the Company (or the successor entity thereto, as applicable) shall (A) pay to the Eligible Employee a lump sum amount equal to the sum of the Severance Payments that otherwise would have been paid to the Eligible Employee on or before the Delayed Payment Date, without any adjustment on account of such delay, and (B) continue the Severance Payments in accordance with any applicable payment schedules set forth for the balance of the period specified herein. Notwithstanding the foregoing, (i) Severance Payments scheduled to be paid from the Termination Date through March 15th of the calendar year following such termination shall be paid to the maximum extent permitted pursuant to the “short-term deferral” rule set forth in Treasury Regulation Section 1.409A-1(b)(4); (ii) Severance Payments scheduled to be paid that are not paid pursuant to the preceding clause (i) shall be paid as scheduled to the maximum extent permitted pursuant to an “involuntary separation from service” as permitted by Treasury Regulation Section 1.409A-1(b)(9)(iii), but in no event later than the last day of the second taxable year following the taxable year of the Termination Date; and (iii) any Severance Payments that are not paid pursuant to either the preceding clause (i) or the preceding clause (ii) shall be subject to delay, if necessary, as provided in the previous sentence. Except to the extent that payments may be delayed until the Delayed Payment Date, on the first regularly scheduled payroll period following the release described in Section 2(a)(3), the Company will pay the Eligible Employee the Severance Payments the Eligible Employee would otherwise have received under the Plan on or prior to such date but for the delay in payment related to the effectiveness of the release described in Section 2(a)(3), with the balance of the Severance Payments being paid as otherwise provided herein.

(c) Amounts paid under Section 3(d) are intended to qualify for the exception provided under Treasury Regulation Sections 1.409A-1(b)(9)(v)(A) and (C). Any amounts paid under Section 7 are not intended to be delayed pursuant to Section 409A(a)(2)(B)(i) of the Code and are intended to be paid pursuant to the exception provided by Treasury Regulation Section 1.409A-1(b)(9)(v)(B).

(d) All payments under the Plan will be subject to applicable withholding for federal, state and local taxes. If a terminating employee is indebted to the Company at his or her Termination Date, the Company reserves the right to offset any severance payments under the Plan by the amount of such indebtedness. In no event shall payment of any Plan benefit be made prior to the Eligible Employee’s Termination Date or prior to the effective date of the release described in Section 2(a)(3).

Exhibit 10.1

Section 5. Reemployment.

(a) Repayment. In the event of an Eligible Employee’s reemployment by the Company or an affiliate of the Company during the Severance Period, as defined below, such Eligible Employee will be required to repay to the Company a prorated portion of the severance pay received under Section 3.

(b) Definition of “Severance Period.” “Severance Period,” for purposes of this Plan, means the number of weeks of Base Salary in respect of which the amount paid to the Eligible Employee under Section 3(a) was calculated.

Section 6. Right To Interpret Plan; Amendment and Termination.

(a) Exclusive Discretion. The Plan Administrator shall have the exclusive discretion and authority to establish rules, forms, and procedures for the administration of the Plan and to construe and interpret the Plan and to decide any and all questions of fact, interpretation, definition, computation or administration arising in connection with the operation of the Plan, including, but not limited to, the eligibility to participate in the Plan and amount of benefits paid under the Plan. The rules, interpretations, computations and other actions of the Plan Administrator shall be binding and conclusive on all persons.

(b) Amendment or Termination. The Company reserves the right to amend or terminate this Plan or the benefits provided hereunder at any time; provided, however, that no such amendment or termination shall affect the right to any unpaid benefit of any Eligible Employee whose Termination Date has occurred prior to amendment or termination of the Plan. Any action amending, terminating or extending the Plan shall be in writing and executed by the Chief Executive Officer or Chief Financial Officer of the Company.

Section 7. Continuation Of Certain Employee Benefits.

(a) COBRA Continuation Coverage. Each Eligible Employee who is enrolled in a health or dental plan sponsored by the Company or an affiliate of the Company may be eligible to continue coverage under such health or dental plan (or to convert to an individual policy), at the time of the Eligible Employee’s termination of employment, under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“ COBRA ”). The Company will notify the individual of any such right to continue such health coverage at the time of termination pursuant to COBRA. No provision of this Plan will affect the continuation coverage rules under COBRA, except that the Company’s payment, if any, of any applicable insurance premiums will be credited as payment by the Eligible Employee for purposes of the Eligible Employee’s payment required under COBRA. Therefore, the period during which an Eligible Employee may elect to continue the Company’s group medical or dental coverage at his or her own expense under COBRA, the length of time during which COBRA coverage will be made available to the Eligible Employee, and all other rights and obligations of the Eligible Employee under COBRA (except the obligation to pay insurance premiums that the Company pays, if any) will be applied in the same manner that such rules would apply in the absence of this Plan. Specifically, if COBRA is elected, the Company will pay COBRA premiums on behalf of an Eligible Employee in accordance with the following schedule or until the eligible employee becomes eligible for group health insurance coverage through a new employer (whichever comes first):

Exhibit 10.1

Eligible Employee	Duration of Premium Payments

Officers	The Severance Period up to a maximum of twelve (12) months.

The Executive must promptly notify the Company in writing if the Executive becomes eligible for group health insurance coverage through a new employer during the Severance Period. At the conclusion of the period of insurance premium payments made by the Company, the Eligible Employee will be responsible for the entire payment of premiums required under COBRA for the duration of the COBRA period. For purposes of this Section 7(a), applicable premiums paid by the Company during the Severance Period shall not include any amounts payable by the Eligible Employee under a Section 125 health care reimbursement plan, which amounts, if any, are the sole responsibility of the Eligible Employee.

(b) Other Employee Benefits. All non-health benefits (such as life insurance, disability and 401(k) plan coverage) terminate as of the employee’s Termination Date (except to the extent that a conversion privilege may be available thereunder).

Section 8. No Implied Employment Contract.

The Plan shall not be deemed (i) to give any employee or other person any right to be retained in the employ of the Company or (ii) to interfere with the right of the Company to discharge any employee or other person at any time with or without cause and with or without advance notice, which right is hereby reserved.

Section 9. Legal Construction.

This Plan is intended to be governed by and shall be construed in accordance with the Employee Retirement Income Security Act of 1974 (“ ERISA ”) and, to the extent not preempted by ERISA, the laws of the State of California.

Section 10. Claims, Inquiries And Appeals.

(a) Applications for Benefits and Inquiries. Any application for benefits, inquiries about the Plan or inquiries about present or future rights under the Plan must be submitted to the Plan Administrator in writing by an applicant (or his or her authorized representative). The Plan Administrator is:

Aradigm Corporation

3929 Point Eden Way

Hayward, CA 94545

(b) Denial of Claims. In the event that any application for benefits is denied in whole or in part, the Plan Administrator must provide the applicant with written or electronic notice of the denial of the application, and of the applicant’s right to review the denial. Any electronic notice will comply with the regulations of the U.S. Department of Labor. The written notice of denial will be set forth in a manner designed to be understood by the employee and will include the following:

Exhibit 10.1

(1) the specific reason or reasons for the denial;

(2) references to the specific Plan provisions upon which the denial is based;

(3) a description of any additional information or material that the Plan Administrator needs to complete the review and an explanation of why such information or material is necessary; and

(4) an explanation of the Plan’s review procedures and the time limits applicable to such procedures, including a statement of the applicant’s right to bring a civil action under section 502(a) of ERISA following a denial on review of the claim, as described in Section 10(d) below.

This written notice will be given to the applicant within ninety (90) days after the Plan Administrator receives the application, unless special circumstances require an extension of time, in which case, the Plan Administrator has up to an additional ninety (90) days for processing the application. If an extension of time for processing is required, written notice of the extension will be furnished to the applicant before the end of the initial ninety (90) day period.

This notice of extension will describe the special circumstances necessitating the additional time and the date by which the Plan Administrator is to render its decision on the application.

(c) Request for a Review. Any person (or that person’s authorized representative) for whom an application for benefits is denied, in whole or in part, may appeal the denial by submitting a request for a review to the Plan Administrator within sixty (60) days after the application is denied. A request for a review shall be in writing and shall be addressed to:

Aradigm Corporation

3929 Point Eden Way

Hayward, CA 94545

A request for review must set forth all of the grounds on which it is based, all facts in support of the request and any other matters that the applicant feels are pertinent. The applicant (or his or her representative) shall have the opportunity to submit (or the Plan Administrator may require the applicant to submit) written comments, documents, records, and other information relating to his or her claim. The applicant (or his or her representative) shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to his or her claim. The review shall take into account all comments, documents, records and other information submitted by the applicant (or his or her representative) relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

Exhibit 10.1

(d) Decision on Review. The Plan Administrator will act on each request for review within sixty (60) days after receipt of the request, unless special circumstances require an extension of time (not to exceed an additional sixty (60) days), for processing the request for a review. If an extension for review is required, written notice of the extension will be furnished to the applicant within the initial sixty (60) day period. This notice of extension will describe the special circumstances necessitating the additional time and the date by which the Plan Administrator is to render its decision on the review. The Plan Administrator will give prompt, written or electronic notice of its decision to the applicant. Any electronic notice will comply with the regulations of the U.S. Department of Labor. In the event that the Plan Administrator confirms the denial of the application for benefits in whole or in part, the notice will set forth, in a manner calculated to be understood by the applicant, the following:

(1) the specific reason or reasons for the denial;

(2) references to the specific Plan provisions upon which the denial is based;

(3) a statement that the applicant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to his or her claim; and

(4) a statement of the applicant’s right to bring a civil action under section 502(a) of ERISA.

(e) Rules and Procedures. The Plan Administrator will establish rules and procedures, consistent with the Plan and with ERISA, as necessary and appropriate in carrying out its responsibilities in reviewing benefit claims. The Plan Administrator may require an applicant who wishes to submit additional information in connection with an appeal from the denial of benefits to do so at the applicant’s own expense.

(f) Exhaustion of Remedies. No legal action for benefits under the Plan may be brought until the claimant (i) has submitted a written application for benefits in accordance with the procedures described by Section 10(a) above, (ii) has been notified by the Plan Administrator that the application is denied, (iii) has filed a written request for a review of the application in accordance with the appeal procedure described in Section 10(c) above, and (iv) has been notified in writing that the Plan Administrator has denied the appeal. Notwithstanding the foregoing, if the Plan Administrator does not respond within the time limits specified in this Section 10, the claimant has the right to bring a civil action under Section 502(a) of ERISA.

Section 11. Basis Of Payments To And From Plan.

All benefits under the Plan shall be paid by the Company. The Plan shall be unfunded, and benefits hereunder shall be paid only from the general assets of the Company.

Section 12. Other Plan Information.

Exhibit 10.1

(a) Employer and Plan Identification Numbers. The Employer Identification Number assigned to the Company (which is the “Plan Sponsor” as that term is used in ERISA) by the Internal Revenue Service is 94-3133088. The Plan Number assigned to the Plan by the Plan Sponsor pursuant to the instructions of the Internal Revenue Service is 513.

(b) Ending Date for Plan’s Fiscal Year. The date of the end of the fiscal year for the purpose of maintaining the Plan’s records is December 31.

(c) Agent for the Service of Legal Process. The agent for the service of legal process with respect to the Plan is Aradigm Corporation, 3929 Point Eden Way, Hayward, CA 94545.

(d) Plan Sponsor and Administrator. The “Plan Sponsor” and the “Plan Administrator” of the Plan is Aradigm Corporation, 3929 Point Eden Way, Hayward, CA 94545. The Plan Sponsor’s and Plan Administrator’s telephone number is (510) 265-9000. The Plan Administrator is the named fiduciary charged with the responsibility for administering the Plan.

Section 13. Statement Of ERISA Rights.

Participants in this Plan (which is a welfare benefit plan sponsored by Aradigm Corporation) are entitled to certain rights and protections under ERISA. If you are an Eligible Employee, you are considered a participant in the Plan and, under ERISA, you are entitled to:

(a) Examine, without charge, at the Plan Administrator’s office and at other specified locations, such as work sites, all Plan documents and copies of all documents filed by the Plan with the U.S. Department of Labor, such as detailed annual reports (to the extent required to be filed) and available at the Public Disclosure Room of the Pension and Welfare Benefit Administration;

(b) Obtain, upon written request to the Plan Administrator, copies of documents governing the operation of the Plan and copies of the latest annual report (Form 5500 Series), to the extent required to be filed, and an updated (as necessary) Summary Plan Description. The Administrator may make a reasonable charge for the copies; and

(c) Receive a summary of the Plan’s annual financial report, to the extent the Plan is required to prepare and distribute the summary.

(d) Receive a summary of the Plan’s annual financial report, in the case of a plan which is required to file an annual financial report with the Department of Labor. (Generally, all pension plans and welfare plans with one hundred (100) or more participants must file these annual reports.)

In addition to creating rights for Plan participants, ERISA imposes duties upon the people responsible for the operation of the employee benefit plan. The people who operate the Plan, called “fiduciaries” of the Plan, have a duty to do so prudently and in the interest of you and other Plan participants and beneficiaries.

Exhibit 10.1

No one, including your employer or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a Plan benefit or exercising your rights under ERISA. If your claim for a Plan benefit is denied in whole or in part, you must receive a written explanation of the reason for the denial. You have the right to have the Plan review and reconsider your claim.

Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request materials from the Plan and do not receive them within thirty (30) days, you may file suit in a federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator. If you have a claim for benefits that is denied or ignored, in whole or in part, you may file suit in a state or federal court. If it should happen that the Plan fiduciaries misuse the Plan’s money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous.

Assistance with Your Questions

If you have any questions about the Plan, you should contact the Plan Administrator. If you have any questions about this statement or about your rights under ERISA, or if you need assistance in obtaining documents from the Plan Administrator, you should contact the nearest office of the Employee Benefits Security Administration, U.S. Department of Labor, listed in your telephone directory or the Division of Technical Assistance and Inquiries, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. You may also obtain certain publications about your rights and responsibilities under ERISA by calling the publications hotline of the Employee Benefits Security Administration.

Section 14. Execution.

To record the adoption of the Plan as set forth herein, effective as of April 15, 2011, Aradigm Corporation has caused its duly authorized officer to execute the same this 18th day of April, 2011.

	Aradigm Corporation

	By:
		Nancy E. Pecota
		CFO

SAMPLE

For Employees Age 40 or Older

(Group Termination)

Exhibit A

RELEASE AGREEMENT

I understand and agree completely to the terms set forth in the Aradigm Corporation Executive Officer Severance Benefit Plan (the “Plan”). I understand that this Release Agreement (“Release”), together with the Plan, constitutes the complete, final and exclusive embodiment of the entire agreement between the Company and me with regard to the subject matter hereof. I am not relying on any promise or representation by the Company that is not expressly stated herein.

In consideration of benefits I will receive under the Plan, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their respective officers, directors, agents, servants, employees, shareholders, attorneys’ successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys’ fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the date I execute this Release, including but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other equity or ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended (“ ADEA ”); the federal Americans with Disabilities Act of 1990; the California Fair Employment and Housing Act, as amended; the California Labor Code; tort law; contract law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing.

I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA. I also acknowledge that the consideration given for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (a) my waiver and release do not apply to any rights or claims that may arise after the date I execute this Release; (b) I have the right to consult with an attorney prior to executing this Release; (c) I have forty-five (45) days from the date I receive this Release and the information specified in (f) below to consider this Release (although I voluntarily may choose to execute this Release earlier); (d) I have seven (7) days following the execution of this Release to revoke the Release; and (e) this Release shall not be effective until the later of (i) the date upon which the revocation period has expired, which shall be the eighth (8 th ) day after I execute this Release, and (ii) the date I return this Release, fully executed, to the Company; and (f) I have received with this Release a detailed list of the job titles and ages of all employees who were terminated in this group termination and the ages of all employees of the Company and its affiliates in the same job classification or organizational unit who were not terminated.

I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.” I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company, its affiliates, and the entities and persons specified above.

	Employee

	Signed:

	Date:

SAMPLE

For Employees Under Age 40

(Individual or Group Termination)

Exhibit B

RELEASE AGREEMENT

In consideration of benefits I will receive under the Plan, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their respective officers, directors, agents, servants, employees, shareholders, attorneys’ successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys’ fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the date I execute this Release, including but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other equity or ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the California Labor Code; the federal Americans with Disabilities Act of 1990; the California Fair Employment and Housing Act, as amended; the California Labor Code; tort law; contract law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing.

I acknowledge that to become effective, I must sign and return this Release to the Company so that it is received not later than fourteen (14) days following the date of my employment termination. I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.” I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company, its affiliates, and the entities and persons specified above.

	Employee

	Signed:

	Date:

SAMPLE

For Employees Age 40 or Older

(Individual Termination)

Exhibit C

RELEASE AGREEMENT

In consideration of benefits I will receive under the Plan, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, attorneys’ successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the date I execute this Release, including, but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other equity or ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended (“ ADEA ”); the federal Employee Retirement Income Security Act of 1974, as amended; the federal Americans with Disabilities Act of 1990; the California Fair Employment and Housing Act, as amended; the California Labor Code; tort law; contract law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing.

I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA. I also acknowledge that the consideration given under the Agreement for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (A) my waiver and release do not apply to any rights or claims that may arise after the date I execute this Release; (B) I have the right to consult with an attorney prior to executing this Release; (C) I have twenty-one (21) days to consider this Release (although I may choose to voluntarily execute this Release earlier); (D) I have seven (7) days following my execution of this Release to revoke the Release; and (E) this Release shall not be effective until the date upon which the revocation period has expired, which shall be the eighth (8 th ) day after I execute this Release (provided that I have returned it to the Company by such date).

	Employee

	Signed:

	Date:

AMENDED AND RESTATED CHANGE OF CONTROL AGREEMENT

This Amended and Restated Change of Control Agreement (the “ Agreement ”) is made and entered into as of April 15, 2011, by and between Aradigm Corporation (the “ Company ”), and Igor Gonda (the “ Executive ”).

Whereas, the Company’s Board of Directors (the “ Board ”) has determined that it would be in the best interests of the Company and its stockholders to provide for certain severance benefits in the event the Executive’s employment is terminated in connection with a Change of Control (as defined below) in order to align further the interests of the Executive with those of the stockholders of the Company;

Now, Therefore, in consideration of the Executive’s continued employment with the Company, the Company and the Executive hereby agree as follows:

1. Definitions . The following terms in this Agreement shall have the meanings set forth below:

1.1 “ Change of Control ” shall mean any one or more of the following events:

(a) The consummation of a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such merger, consolidation or similar transaction, the shareholders of the Company immediately prior thereto do not own, directly or indirectly, either (i) outstanding voting securities representing more than sixty percent (60%) of the combined outstanding voting power of the surviving entity in such merger, consolidation or similar transaction or (ii) more than sixty percent (60%) of the combined outstanding voting power of the parent of the surviving entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions as their ownership of the outstanding voting securities of the Company immediately prior to such transaction.

(b) The consummation of a sale, lease, exclusive license or other disposition of 90% or more of the consolidated assets of the Company and its subsidiaries within a single 12 month period, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its subsidiaries to an entity, more than sixty percent (60%) of the combined voting power of the voting securities of which are owned by the shareholders of the Company in substantially the same proportions as their ownership of the outstanding voting securities of the Company prior to such sale, lease, license or other disposition. The Board shall have the sole discretion to determine whether the event described in this Section 1.1(b) has occurred.

(c) Individuals who, on the date this Agreement is approved by the Board, are members of the Board (the “ Incumbent Board ”) cease for any reason to constitute at least a majority of the members of the Board; provided, however, that if the appointment or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member shall, for purposes of this Agreement, be considered a member of the Incumbent Board.

Exhibit 10.2

The term Change of Control shall not include a sale of assets, merger or other transaction effected exclusively for the purpose of changing the domicile of the Company.

1.2 “ Cause ” shall mean any one or more of the following: (i) the Executive’s commission of any felony or any crime involving fraud, dishonesty or moral turpitude under the laws of the United States or any state thereof; (ii) the Executive’s attempted commission of, or participation in, a fraud or act of dishonesty against the Company; (iii) the Executive’s intentional, material violation of any material contract or agreement between the Executive and the Company or any statutory duty owed to the Company; (iv) the Executive’s unauthorized use or disclosure of the Company’s confidential information or trade secrets; or (v) the Executive’s gross misconduct. The determination that a termination is for Cause shall be made by the Company in its sole discretion.

1.3 “ Constructive Termination ” shall mean the resignation of the Executive due to the occurrence of any of the following without the Executive’s consent:

(a) a material reduction in the Executive’s duties, title, reporting relationships, or responsibilities relative to the Executive’s duties, title, reporting relationships, or responsibilities in effect immediately prior to the effective date of the Change of Control; provided, however , that a change in the Executive’s title or reporting relationships shall not in and of themselves (or collectively) constitute a Constructive Termination;

(b) a material reduction by the Company in the Executive’s annual base salary or benefits, including a reduction in Severance Benefits under the Executive Severance Plans, as in effect on the effective date of the Change of Control or as increased thereafter; provided, however , that Constructive Termination shall not be deemed to have occurred in the event of a reduction in the Executive’s annual base salary or benefits that is pursuant to a salary reduction program or change in Company benefit programs that affects substantially all of the executive officers or employees of the Company and that does not adversely affect the Executive to a greater extent than other similarly situated employees; or

(c) a relocation of the Executive’s primary business office to a location more than fifty (50) miles from the location at which the Executive performed the Executive’s duties as of the effective date of the Change of Control, except for required travel by the Executive with respect to the Company’s business to an extent substantially consistent with the Executive’s business travel obligations prior to the effective date of the Change of Control.

1.4 “ Covered Termination ” shall mean either that an Executive’s employment (a) is terminated without Cause, or (b) terminates as a result of a Constructive Termination, in each case, resulting in a “separation from service” with the Company within the meaning of Treasury Regulation Section 1.409A-1(h) (without regard to any permissible alternative definition of “termination of employment” thereunder).

2.	Change of Control Severance Benefits.

2.1 Severance Benefits. If within eighteen (18) months after the effective date of a Change of Control, the Executive: (a) has a Covered Termination; and (b) provides the Company with a signed general release of all claims in a form acceptable to the Company (the “ Release ”) and allows the Release to become effective within sixty (60) days following the date of the Covered Termination (the “ Release Deadline ”), then the Executive shall be eligible for the following severance benefits:

(a) Severance Payment. The Executive shall receive a single lump sum payment equal to 24 months of the base salary he received as of the date of the Change of Control, or the date of the Covered Termination (whichever is greater). This Severance Payment shall be subject to required deductions and tax withholdings and shall be paid within ten (10) business days of the effective date of the Release.

(b) Bonus Payment . The Executive shall receive a single lump sum payment equal to 12 months of the base salary he received as of the date of the Change of Control, or the date of the Covered Termination (whichever is greater). This Bonus Payment shall be subject to required deductions and tax withholdings and shall be paid within ten (10) business days of the effective date of the Release.

(c) Health Insurance Payments. If, following the date of a Covered Termination, the Executive timely elects continued group health insurance coverage under the federal COBRA law or similar state laws, if applicable, the Company will pay the Executive’s COBRA premium costs to continue such coverage at the level in effect as of the date of the Covered Termination for a period of 24 months after the date of the Covered Termination or until the Executive becomes eligible for group health insurance coverage through a new employer (whichever comes first). The Executive must promptly notify the Company in writing if the Executive becomes eligible for group health insurance coverage through a new employer during the Severance Period.

(d) Career Transition Assistance (Outplacement Services) . The Company will reimburse the Executive up to $20,000 for expenses actually incurred by the Executive within six (6) months of the date of his Covered Termination for reasonable and customary outplacement services for career transition assistance expenses. Such payments shall qualify for the exemption provided by Treasury Regulation Sections 1.409A-1(b)(9)(v)(A) and (C).

(e) Accelerated Vesting. The Company will accelerate the vesting of any stock options or restricted stock awards that remain unvested as of the date of the termination of the Executive’s employment such that all such unvested options or awards shall be deemed vested as of the date of such termination. Except as modified herein, all such options and awards shall continue to be governed by the applicable agreements and stock option plans.

2.2 Ineligibility For Severance Benefits. The Executive will not be eligible for any benefits under this Agreement if the Company (or its successor) terminates the Executive’s employment for Cause or if the Executive resigns for any reason other than a Constructive Termination. Further, the Executive will not be eligible for severance benefits under this Agreement in the event that the Executive’s employment ends for any reason more than eighteen (18) months after the effective date of a Change of Control. If the Release does not become effective by the Release Deadline, Executive will not have any rights to any benefits under this Agreement.

2.3 Other Severance Benefits. Nothing in this Agreement shall affect the right of the Executive to receive any severance benefits pursuant to any other Company severance plan including, without limitation, the Aradigm Corporation Executive Officer Severance Benefit Plan; provided, however , that if the Executive actually receives benefits under this Agreement, he shall not be entitled to receive any other severance benefits of any kind (except for the accelerated vesting set forth in Section 2.1(e) above) pursuant to any other severance benefit plan of the Company (including, without limitation, the Aradigm Corporation Executive Officer Severance Benefit Plan). The Executive acknowledges and agrees that any prior agreement between the Executive and the Company providing for or relating to severance benefits in connection with a Change of Control (as defined herein or therein), except for those contained in the Executive’s stock option agreements with the Company, are hereby expressly superseded and replaced in their entirety by this Agreement and shall have no further force or effect.

Exhibit 10.2

2.4 Deferred Compensation.

(a) All payments provided under this Agreement are intended to constitute separate payments for purposes of Treasury Regulation Section 1.409A-2(b)(2).

(b) If Executive is a “specified employee” of the Company or any affiliate thereof (or any successor entity thereto) within the meaning of Section 409A(a)(2)(B)(i) of the Internal Revenue Code of 1986, as amended (the “ Code ”) on the date of a Covered Termination, then any cash severance payments pursuant to Sections 2.1(a) and 2.1(b) (the “ Severance Payments ”) shall be delayed until the earlier of: (i) the date that is six (6) months after the date of the Covered Termination, or (ii) the date of the Executive’s death (such date, the “ Delayed Payment Date ”), and the Company (or the successor entity thereto, as applicable) shall pay to the Executive a lump sum amount equal to the sum of the Severance Payments that otherwise would have been paid to the Executive on or before the Delayed Payment Date, without any adjustment on account of such delay. Except to the extent that payments may be delayed until the Delayed Payment Date, on the first regularly scheduled payroll period following the date the Release becomes effective by its terms, the Company will pay the Executive the Severance Payments.

(c) Any amounts paid pursuant to Section 2.1(c) are not intended to be delayed pursuant to Section 409A(a)(2)(B)(i) of the Code and are intended to be paid pursuant to the exception provided by Treasury Regulation Section 1.409A-1(b)(9)(v)(B). Amounts paid pursuant to Section 2.1(d) are intended to qualify for the exception provided under Treasury Regulation Sections 1.409A-1(b)(9)(v)(A) and (C).

3.	Parachute Payments .

3.1 Reduction of Severance Benefits. Notwithstanding the above, if any payment or benefit that the Executive would receive under this Agreement, when combined with any other payment or benefit he receives that is contingent upon a Change in Control (“ Payment ”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (“ Excise Tax ”), then such Payment shall be either (x) the full amount of such Payment or (y) such lesser amount as would result in no portion of the Payment being subject to the Excise Tax (the “ Reduced Amount ”), whichever of the foregoing amounts, taking into account the applicable federal, state and local employment taxes, income taxes and the Excise Tax, results in the Executive’s receipt, on an after-tax basis, of the greater economic benefit notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits constituting “parachute payments” is necessary so that the Payment equals the Reduced Amount, reduction shall occur in a manner necessary to provide the Executive with the greatest economic benefit. If more than one manner of reduction of payments or benefits necessary to arrive at the Reduced Amount yields the greatest economic benefit, the payments and benefits shall be reduced pro rata . The Executive shall be solely responsible for the payment of all personal tax liability that is incurred as a result of the payments and benefits received under this Agreement, and the Executive will not be reimbursed by the Company for any such payments.

Exhibit 10.2

3.2 Determination of Excise Tax Liability. The Company shall attempt to cause its accountants to make all of the determinations required to be made under Section 3.1, or, in the event the Company’s accountants will not perform such service, the Company may select another professional services firm to perform the calculations. The Company shall request that the accountants or firm provide detailed supporting calculations both to the Company and the Executive prior to the Change in Control if administratively feasible or subsequent to the Change in Control if events occur that result in parachute payments to the Executive at that time. For purposes of making the calculations required by Section 3.1, the accountants or firm may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith determinations concerning the application of the Code. The Company and the Executive shall furnish to the accountants or firm such information and documents as the accountants or firm may reasonably request in order to make a determination under this Section 3.1. The Company shall bear all costs the accountants or firm may reasonably incur in connection with any calculations contemplated by Section 3.1. Any such determination by the Company’s accountants or other firm shall be binding upon the Company and the Executive, and the Company shall have no liability to the Executive for the determinations of its accountants or other firm.

4.	General Provisions.

4.1 At Will Employment. Nothing in this Agreement alters the Executive’s at-will employment status. Either the Executive or the Company may terminate the Executive’s employment relationship at any time, with or without cause or advance notice. In particular, nothing expressed or implied in this Agreement will create any right or duty on the part of the Company or the Executive to have the Executive remain in the employment of the Company or any subsidiary prior to or following any Change of Control.

4.2 Successors and Binding Agreement . This Agreement will be binding upon and inure to the benefit of the Company and any successor to the Company, including without limitation any persons acquiring directly or indirectly all or substantially all of the business or assets of the Company whether or not through a Change of Control (and such successor shall thereafter be deemed the “Company” for the purposes of this Agreement). This Agreement will inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees and legatees.

4.3 Amendments. No provision of the Agreement may be amended, modified or waived unless such amendment, modification or waiver shall be agreed to in writing and signed by the Executive and a duly authorized officer of the Company.

Exhibit 10.2

4.4 Severability. If any provision of the Agreement shall be determined to be invalid or unenforceable by a court of competent jurisdiction, the remaining provisions of the Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law.

4.5 Notices. Any notice or other communication required or permitted under the Agreement shall be in writing and shall be deemed to have been duly given when delivered by hand, electronic transmission (with a copy following by hand or by overnight courier), by registered or certified mail, postage prepaid, return receipt requested or by overnight courier addressed to the other party. All notices shall be addressed as follows, or to such other address or addresses as may be substituted by notice in writing:

To the Company:

Aradigm Corporation

3929 Point Eden Way

Hayward, CA 94545

To the Executive:

Igor Gonda

c/o Aradigm Corporation

3929 Point Eden Way

Hayward, CA 94545

4.6 Governing Law. The Agreement shall be construed, interpreted and governed in accordance with the laws of the State of California, without reference to rules relating to conflicts of law.

4.7 Independent Counsel. The Executive acknowledges that this Agreement has been prepared on behalf of the Company by counsel to the Company and that this counsel does not represent, and is not acting on behalf of, the Executive. The Executive has been provided with an opportunity to consult with the Executive’s own counsel with respect to this Agreement.

4.8 Amendment and Restatement of Prior Agreement . This agreement replaces any prior agreement between the Company and Executive with respect to the subject matter hereof, and any prior agreement is terminated and of no further force or effect.

4.9 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same agreement.

In Witness Whereof, the parties have executed this Amended and Restated Change of Control Agreement as of the date first written above.

Aradigm Corporation		Executive

By:		Signature:
Name:	Nancy E. Pecota	Print Name:	Igor Gonda
Title:	Chief Financial Officer

Signature Page to Amended and Restated Change of Control Agreement

This Amended and Restated Change of Control Agreement (the “ Agreement ”) is made and entered into as of April 15, 2011, by and between Aradigm Corporation (the “ Company ”), and Nancy Pecota (the “ Executive ”).

Now, Therefore, in consideration of the Executive’s continued employment with the Company, the Company and the Executive hereby agree as follows:

1. Definitions . The following terms in this Agreement shall have the meanings set forth below:

1.1 “ Change of Control ” shall mean any one or more of the following events:

Exhibit 10.3

The term Change of Control shall not include a sale of assets, merger or other transaction effected exclusively for the purpose of changing the domicile of the Company.

1.3 “ Constructive Termination ” shall mean the resignation of the Executive due to the occurrence of any of the following without the Executive’s consent:

2.	Change of Control Severance Benefits.

Exhibit 10.3

(a) Severance Payment. The Executive shall receive a single lump sum payment equal to 12 months of the base salary she received as of the date of the Change of Control, or the date of the Covered Termination (whichever is greater). This Severance Payment shall be subject to required deductions and tax withholdings and shall be paid within ten (10) business days of the effective date of the Release.

(b) Bonus Payment . The Executive shall receive a single lump sum payment equal to 40% of the base salary she received as of the date of the Change of Control, or the date of the Covered Termination (whichever is greater). This Bonus Payment shall be subject to required deductions and tax withholdings and shall be paid within ten (10) business days of the effective date of the Release.

(c) Health Insurance Payments. If, following the date of a Covered Termination, the Executive timely elects continued group health insurance coverage under the federal COBRA law or similar state laws, if applicable, the Company will pay the Executive’s COBRA premium costs to continue such coverage at the level in effect as of the date of the Covered Termination for a period of 12 months after the date of the Covered Termination or until the Executive becomes eligible for group health insurance coverage through a new employer (whichever comes first). The Executive must promptly notify the Company in writing if the Executive becomes eligible for group health insurance coverage through a new employer during the Severance Period.

(d) Career Transition Assistance (Outplacement Services) . The Company will reimburse the Executive up to $10,000 for expenses actually incurred by the Executive within six (6) months of the date of his Covered Termination for reasonable and customary outplacement services for career transition assistance expenses. Such payments shall qualify for the exemption provided by Treasury Regulation Sections 1.409A-1(b)(9)(v)(A) and (C).

2.3 Other Severance Benefits. Nothing in this Agreement shall affect the right of the Executive to receive any severance benefits pursuant to any other Company severance plan including, without limitation, the Aradigm Corporation Executive Officer Severance Benefit Plan; provided, however , that if the Executive actually receives benefits under this Agreement, she shall not be entitled to receive any other severance benefits of any kind (except for the accelerated vesting set forth in Section 2.1(e) above) pursuant to any other severance benefit plan of the Company (including, without limitation, the Aradigm Corporation Executive Officer Severance Benefit Plan). The Executive acknowledges and agrees that any prior agreement between the Executive and the Company providing for or relating to severance benefits in connection with a Change of Control (as defined herein or therein), except for those contained in the Executive’s stock option agreements with the Company, are hereby expressly superseded and replaced in their entirety by this Agreement and shall have no further force or effect.

Exhibit 10.3

2.4 Deferred Compensation.

(a) All payments provided under this Agreement are intended to constitute separate payments for purposes of Treasury Regulation Section 1.409A-2(b)(2).

3.	Parachute Payments .

3.1 Reduction of Severance Benefits. Notwithstanding the above, if any payment or benefit that the Executive would receive under this Agreement, when combined with any other payment or benefit she receives that is contingent upon a Change in Control (“ Payment ”) would (i) constitute a “parachute payment” within ts meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (“ Excise Tax ”), then such Payment shall be either (x) the full amount of such Payment or (y) such lesser amount as would result in no portion of the Payment being subject to the Excise Tax (the “ Reduced Amount ”), whichever of the foregoing amounts, taking into account the applicable federal, state and local employment taxes, income taxes and the Excise Tax, results in the Executive’s receipt, on an after-tax basis, of the greater economic benefit notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits constituting “parachute payments” is necessary so that the Payment equals the Reduced Amount, reduction shall occur in a manner necessary to provide the Executive with the greatest economic benefit. If more than one manner of reduction of payments or benefits necessary to arrive at the Reduced Amount yields the greatest economic benefit, the payments and benefits shall be reduced pro rata . The Executive shall be solely responsible for the payment of all personal tax liability that is incurred as a result of the payments and benefits received under this Agreement, and the Executive will not be reimbursed by the Company for any such payments.

Exhibit 10.3

4.	General Provisions.

Exhibit 10.3

To the Company:

Aradigm Corporation

3929 Point Eden Way

Hayward, CA 94545

To the Executive:

Nancy Pecota

c/o Aradigm Corporation

3929 Point Eden Way

Hayward, CA 94545

4.6 Governing Law. The Agreement shall be construed, interpreted and governed in accordance with the laws of the State of California, without reference to rules relating to conflicts of law.

4.9 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same agreement.

In Witness Whereof, the parties have executed this Amended and Restated Change of Control Agreement as of the date first written above.

Aradigm Corporation		Executive

By:		Signature:
Name:	Igor Gonda	Print Name:	Nancy Pecota
Title:	Chief Executive Officer

Signature Page to Amended and Restated Change of Control Agreement

INDEMNIFICATION AGREEMENT

This Indemnification Agreement (this “ Agreement ”) is dated as of [insert date] , and is between Aradigm Corporation, a California corporation (the “ Company ”), and [ insert name of indemnitee ] (“ Indemnitee ”).

RECITALS

A. Indemnitee’s service to the Company substantially benefits the Company.

B. Individuals are reluctant to serve as directors or officers of corporations or in certain other capacities unless they are provided with adequate protection through insurance or indemnification against the risks of claims and actions against them arising out of such service.

C. The articles of incorporation and bylaws of the Company provide that the Company is authorized to indemnify directors, officers, employees and other agents of the Company to the fullest extent permitted by applicable law, and the Company’s articles of incorporation limit the liability for monetary damages of directors of the Company to the fullest extent permitted by applicable law. In addition, Indemnitee may be entitled to indemnification pursuant to the California General Corporation Law (the “ CGCL ”). The Company’s articles of incorporation, bylaws and the CGCL expressly provide that the indemnification provisions set forth therein are not exclusive and thereby contemplate that contracts may be entered into between the Company and directors, officers and other persons with respect to indemnification.

D. The Company and Indemnitee are parties to an existing indemnification agreement (the “Existing Agreement”).

E. Indemnitee does not regard the protection currently expressly provided by applicable law, the Company’s governing documents, the Existing Agreement and any insurance as adequate under the present circumstances, and Indemnitee may not be willing to serve as a director or officer without additional protection.

E. In order to induce Indemnitee to continue to provide services to the Company, it is reasonable, prudent and necessary for the Company to contractually obligate itself to indemnify, and to advance expenses on behalf of, Indemnitee to the extent permitted by applicable law.

F. This Agreement is a supplement to and in furtherance of the indemnification provided in the Company’s articles of incorporation and bylaws, and any resolutions adopted pursuant thereto, and this Agreement shall not be deemed a substitute therefor, nor shall this Agreement be deemed to limit, diminish or abrogate any rights of Indemnitee thereunder. This Agreement replaces the Existing Agreement in its entirety.

The parties therefore agree as follows:

1. Indemnity in Third-Party Proceedings. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative (a “ Proceeding ”) (other than an action by or in the right of the Company to procure a judgment in its favor) by reason of the fact that Indemnitee is or was a director, officer, employee or other agent of the Company or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against Expenses (as defined below), judgments, fines, settlements and other amounts actually and reasonably incurred by Indemnitee in connection with the Proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company, and, in the case of any criminal Proceeding, had no reasonable cause to believe Indemnitee’s conduct was unlawful. The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that (i) Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in the best interests of the Company or (ii) Indemnitee had reasonable cause to believe that Indemnitee’s conduct was unlawful.

2. Indemnity in Proceedings by or in the Right of the Company. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action by or in the right of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or other agent of the Company or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against Expenses actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action if Indemnitee acted in good faith, in a manner Indemnitee believed to be in the best interests of the Company and its shareholders.

Exhibit 10.4

3. Indemnification for Expenses of a Party Who is Wholly or Partly Successful. To the extent that Indemnitee has been successful on the merits in defense of any Proceeding referred to in Section 1 or 2 or in defense of any claim, issue or matter therein, Indemnitee shall be indemnified against Expenses actually and reasonably incurred by Indemnitee in connection therewith.

4. Indemnification for Expenses of a Witness. To the extent that Indemnitee is, by reason of his or her position as a director, officer, employee or agent of the Company, a witness in any action, suit or proceeding to which Indemnitee is not a party, he or she shall be indemnified to the extent permitted by applicable law against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith.

5. Additional Indemnification Rights. Subject to Section 7 and any other provision of this Agreement that prohibits, limits or conditions indemnification by the Company, the Company agrees to indemnify Indemnitee to the fullest extent permitted by law for any acts, omissions or transactions while acting in the capacity of, or that are otherwise related to the fact that Indemnitee was or is serving as, a director, officer, employee or other agent of the Company or, to the extent Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, such other corporation, partnership, joint venture, trust or other enterprise, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company’s articles of incorporation, the Company’s bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute or rule that expands the right of a California corporation to indemnify a director, officer or other corporate agent beyond that currently permitted under this Agreement, the applicable changes shall be, ipso facto , within the purview of Indemnitee’s rights and Company’s obligations under this Agreement, subject to the restrictions expressly set forth herein or therein. In the event of any change in any applicable law, statute or rule that narrows the right of a California corporation to indemnify a director, officer or other corporate agent, it is the intent of the parties hereto that the rights of the parties in effect prior to such change shall remain in effect to the extent permitted by applicable law.

6. Partial Indemnification. If Indemnitee is entitled under this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines, settlements or other amounts actually and reasonably incurred by Indemnitee in connection with any Proceeding, but not, however, for the total amount thereof, the Company shall indemnify Indemnitee for such portion of the Expenses, judgments, fines, settlements or other amounts to which Indemnitee is entitled in connection with each successfully resolved matter. For purposes of this section and without limitation, the termination of any discrete claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

7. Exceptions. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any Proceeding (or any part of any Proceeding):

(a) for which payment has actually been made to or on behalf of Indemnitee under any statute, insurance policy, indemnity provision, vote or otherwise, except with respect to any excess beyond the amount paid;

(b) initiated by Indemnitee prior to a Change in Control, , including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees, agents or other indemnitees, unless (i) the Company’s board of directors authorized the Proceeding (or the relevant part of the Proceeding) prior to its initiation; (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law; (iii) indemnification is required to be made under Section 10(e); (iv) otherwise required by applicable law; or (v) indemnification is in connection with actions or Proceedings brought to establish or enforce a right to indemnification under this Agreement or any other agreement or insurance policy or under the Company’s articles of incorporation or bylaws now or hereafter in effect relating to such Proceeding;

(c) for any acts or omissions or transactions from which a director may not be relieved of liability as set forth in the exception to Section 204(a)(10) of the California General Corporation Law or as to circumstances in which indemnity is expressly prohibited by Section 317 of the California General Corporation Law;

Exhibit 10.4

(d) for an accounting or disgorgement of profits pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of federal, state or local statutory law or common law, if Indemnitee is held liable therefor (including pursuant to any settlement arrangements);

(e) for Expenses incurred by Indemnitee with respect to any action in which Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in the best interests of the Company;

(f) for any reimbursement of the Company by Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by Indemnitee from the sale of securities of the Company, to the extent required in each case under the Securities Exchange Act of 1934, as amended (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “ Sarbanes-Oxley Act ”), or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act), if Indemnitee is held liable therefor (including pursuant to any settlement arrangements); or

(g) if otherwise prohibited by applicable law.

8. Advancement of Expenses. The Company shall advance, to the extent not prohibited by law, all Expenses actually and reasonably incurred by Indemnitee in defending any Proceeding referenced in Sections 1 or 2 prior to the final disposition of the Proceeding (but not amounts actually paid in settlement of any such Proceeding) upon receipt of a written request therefor (together with documentation reasonably evidencing such Expenses). Advances shall be unsecured and interest free and made without regard to Indemnitee’s ability to repay such advances. Indemnitee hereby undertakes to repay such amounts advanced if it shall be determined ultimately that Indemnitee is not entitled to be indemnified by the Company as authorized hereby or by Sections 204(a)(10) or 317 of the CGCL. The advances to be made hereunder shall be made as soon as reasonably practicable, but in any event no later than 30 days, after the receipt by the Company of a written statement or statements requesting such advances from time to time (which shall include invoices received by Indemnitee in connection with such Expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditure made that would cause Indemnitee to waive any privilege accorded by applicable law shall not be included with the invoice). This Section 8 shall not apply to any claim for which indemnity is not permitted under this Agreement or applicable law.

9. Procedures for Notification and Defense of a Claim.

(a) Notice. Indemnitee shall notify the Company in writing of any matter with respect to which Indemnitee intends to seek indemnification or advancement of Expenses as soon as reasonably practicable following the receipt by Indemnitee of notice thereof. The written notification to the Company shall include, in reasonable detail, a description of the nature of the Proceeding and the facts underlying the Proceeding. The failure by Indemnitee to notify the Company will not relieve the Company from any liability which it may have to Indemnitee hereunder or otherwise, and any delay in so notifying the Company shall not constitute a waiver by Indemnitee of any rights, except to the extent that such failure or delay materially prejudices the Company.

(b) Notice to Insurers. If, at the time of the receipt of a notice of a Proceeding pursuant to the terms hereof, the Company has directors’ and officers’ liability insurance in effect, the Company shall give prompt notice of the commencement of the Proceeding to the insurers in accordance with the procedures set forth in the applicable policies. The Company shall thereafter take all commercially-reasonable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies; provided, however, that nothing in this subsection (b) shall relieve the Company of its obligations hereunder (or allow the Company to delay in its performance of its obligations hereunder) to provide indemnification for or advance any Expenses with respect to any Proceeding referenced in Sections 1 or 2, between the time that it so notifies its insurers and the time that its insurers actually pay any such amounts payable as a result of any such Proceeding to the Company.

(c) Selection of Counsel. The Company shall be entitled to assume the defense of the Proceeding at its own expense. Indemnitee agrees to consult with the Company and to consider in good faith the advisability and appropriateness of joint representation in the event that either the Company or other indemnitees in addition to Indemnitee require representation in connection with any Proceeding. The Company will not be liable to Indemnitee for any fees or expenses of separate counsel subsequently employed by or on behalf of Indemnitee with respect to the same Proceeding; provided, however, that (i) Indemnitee shall have the right to employ Indemnitee’s separate counsel in any such Proceeding at Indemnitee’s expense, and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not continue to retain counsel to defend such Proceeding, then the fees and expenses of Indemnitee’s separate counsel will be expenses for which Indemnitee may receive indemnification or advancement of expenses.

Exhibit 10.4

(d) Cooperation by Indemnitee. Indemnitee shall give the Company such information and cooperation in connection with the Proceeding as may be reasonably appropriate.

(e) Settlements. Indemnitee shall not settle any Proceeding (or any part thereof) which would impose any Expense, judgment, fine, penalty or limitation on the Company without the Company’s prior written consent, which shall not be unreasonably withheld.

(f) Right to Settle Proceedings. The Company shall not settle any Proceeding (or any part thereof) which would impose any Expense, judgment, fine, penalty or limitation on Indemnitee without Indemnitee’s prior written consent, which shall not be unreasonably withheld.

10. Procedures upon Application for Indemnification.

(a) Notice. To obtain indemnification, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and as is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification following the final disposition of the Proceeding. The Company shall, as soon as reasonably practicable after receipt of such a request for indemnification, advise the board of directors that Indemnitee has requested indemnification. Any delay in providing the request will not relieve the Company from its obligations under this Agreement.

(b) Determination . Following a written request by Indemnitee for indemnification pursuant to Section 10(a), a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall be made in the specific case by (i) a majority vote of a quorum consisting of directors who are not parties to the Proceeding; (ii) if such a quorum of directors is not obtainable, by Independent Legal Counsel (as defined below) in a written opinion; (iii) approval by the shareholders in accordance with Section 153 of the California General Corporation Law, with the shares owned by Indemnitee not being entitled to vote thereon; or (iv) the court in which the proceeding is or was pending upon application made by the corporation or the agent or the attorney or other person rendering services in connection with the defense, whether or not the application by the agent, attorney or other person is opposed by the Company; provided, however, that if a Change in Control (as defined below) shall have occurred, by Independent Legal Counsel selected by Indemnitee and approved by the Company (which approval will not be unreasonably withheld) in a written opinion to the Company’s board of directors, a copy of which shall be delivered to Indemnitee. If it is determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within 30 days after such determination. Indemnitee shall cooperate with the person, persons or entity making the determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information that is not privileged or otherwise protected from disclosure and that is reasonably available to Indemnitee and reasonably necessary to such determination. Any Expenses reasonably incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company, to the extent permitted by applicable law.

(c) Disputes. Subject to Section 10(f), if (i) a determination is made that Indemnitee is not entitled to indemnification under this Agreement, (ii) no determination of entitlement to indemnification shall have been made pursuant to this Agreement within 90 days after the later of the receipt by the Company of the request for indemnification or the final disposition of the Proceeding, (iii) payment of indemnification pursuant to this Agreement is not made (A) within 30 days after a determination has been made that Indemnitee is entitled to indemnification, or (B) with respect to indemnification pursuant to Sections 3, 4 or 10(e) of this Agreement, within 30 days after receipt by the Company of a written request therefor, (iv) advancement of Expenses is not timely made pursuant to Section 8 or 10(e) of this Agreement, or (v) the Company or any other person or entity takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, Indemnitee the benefits provided or intended to be provided to Indemnitee hereunder, Indemnitee shall be entitled to an adjudication by a court of competent jurisdiction of his or her entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his or her option, may seek an award in arbitration with respect to his or her entitlement to such indemnification or advancement of Expenses, to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration in accordance with this Agreement.

Exhibit 10.4

(d) Presumptions. Neither (i) the failure of the Company, its board of directors, any committee or subgroup of the board of directors, Independent Legal Counsel or shareholders to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor (ii) an actual determination by the Company, its board of directors, any committee or subgroup of the board of directors, Independent Legal Counsel or shareholders that Indemnitee has not met the applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has or has not met the applicable standard of conduct. In the event that a determination shall have been made pursuant to this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to Section 10(c) shall be conducted in all respects as a de novo trial, or arbitration, on the merits, and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to Section 10(c), the Company shall, to the fullest extent not prohibited by law, have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be. The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Agreement that the procedures and presumptions in this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before such arbitrator that the Company is bound by all the provisions of this Agreement.

(e) Expenses Incurred to Enforce this Agreement. In the event that any action is instituted by Indemnitee under this Agreement or under any liability insurance policies maintained by the Company to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be indemnified for all Expenses incurred by Indemnitee with respect to such action, regardless of whether Indemnitee is ultimately successful in such action, unless as a part of such action a court having jurisdiction over such action makes a final judicial determination; provided, however , that until such final judicial determination is made, Indemnitee shall be entitled to receive advancement of Expenses hereunder with respect to such action. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be indemnified for all Expenses incurred by Indemnitee in defense of such action (including without limitation Expenses incurred with respect to Indemnitee’s counterclaims and cross-claims made in such action), unless as a part of such action a court having jurisdiction over such action makes a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material defenses asserted by Indemnitee in such action was made in bad faith or was frivolous; provided, however , that until such final judicial determination is made, Indemnitee shall be entitled to receive advancement of Expenses hereunder with respect to such action.

(f) Timing of Determination of Entitlement to Indemnification. Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification shall be required to be made prior to the final disposition of the Proceeding.

11. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its directors, officers and other corporate agents or advancing Expenses under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company’s right under public policy to indemnify Indemnitee.

12. Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amounts incurred by Indemnitee, whether for Expenses, judgments, fines or amounts paid or to be paid in settlement, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the events and transactions giving rise to such Proceeding, and (ii) the relative fault of Indemnitee and the Company (and its other directors, officers, employees and agents) in connection with such events and transactions.

13. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.

14. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder (or for which advancement is provided hereunder) if and to the extent that Indemnitee has otherwise actually received payment for such amounts under any insurance policy, contract, agreement or otherwise.

15. Directors’ and Officers’ Liability Insurance. The Company will make commercially reasonable efforts to obtain and maintain liability insurance applicable to directors, officers or fiduciaries in an amount determined by the Company’s board of directors; provided, however , that nothing in this Section 15 shall relieve the Company of its obligations hereunder (or allow the Company to delay in its performance of its obligations hereunder) to provide indemnification for or advance any Expenses with respect to any claim. To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, trustees, general partners, managing members, officers, employees, agents or fiduciaries of the Company or any other enterprise, Indemnitee shall be covered by such policy or policies to the same extent as the most favorably-insured persons under such policy or policies in a comparable position.

Exhibit 10.4

16. Duration. The indemnification and the advancement of Expenses provided under this Agreement will continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though subsequent thereto Indemnitee may have ceased to serve in such capacity.

17. Services to the Company. This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries or any other corporation, partnership, joint venture, trust or enterprise) and Indemnitee.

18. Enforcement. The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director or officer of the Company.

19. Nonexclusivity. The rights of indemnification and to receive advancement of Expenses provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company’s articles of incorporation, its bylaws, any agreement, any vote of shareholders or disinterested directors, the CGCL or otherwise, both as to action in Indemnitee’s official capacity and as to action in another capacity while holding such office. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right or remedy shall be cumulative and in addition to every other right or remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prohibit the concurrent assertion or employment of any other right or remedy.

20. Severability. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company’s inability, pursuant to court order or other applicable law, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (i) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (ii) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (iii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

21. Effectiveness of the Agreement. This Agreement shall be effective as of the date set forth in the introductory sentence of this Agreement and may apply to acts or omissions of Indemnitee that occurred prior to such date if Indemnitee was a director, officer, employee or other agent of the Company, or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, at the time such act or omission occurred.

22. Construction of Certain Phrases.

(a) For purposes of this Agreement, references to the “ Company ” shall also include, in addition to the resulting or surviving 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, employees or agents, so that if Indemnitee 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, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.

(b) For purposes of this agreement, a “ Change in Control ” shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:

(i) Acquisition of Stock by Third Party. Any Person (as defined below) is or becomes the Beneficial Owner (as defined below), directly or indirectly, of securities of the Company representing twenty-five percent (25%) or more of the combined voting power of the Company’s then outstanding securities;

Exhibit 10.4

(ii) Change in Board Composition. During any one (1) year period (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Company’s board of directors, and any new directors (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Sections 22(b)(i), 22(b)(iii) and 22(b)(iv)) whose election by the board of directors or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the members of the Company’s board of directors;

(iii) Corporate Transactions. The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity;

(iv) Asset Sale. All or substantially all of the assets of the Company are sold or disposed of in a transaction or series of related transactions;

(v) Liquidation. The approval by the shareholders of the Company of a complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; and

(vi) Other Events. Any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended, whether or not the Company is then subject to such reporting requirement.

(c) For purposes of this Agreement, “ Person ” shall have the meaning as set forth in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended. and shall include each member of the “group” as defined in such Sections; provided, however, that “ Person ” shall exclude (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (iii) any corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company.

(d) For purposes of this Agreement, “ Beneficial Owner ” shall have the meaning given to such term in Rule 13d-3 under the Securities Exchange Act of 1934, as amended; provided, however, that “ Beneficial Owner ” shall exclude any Person otherwise becoming a Beneficial Owner by reason of (i) the shareholders of the Company approving a merger of the Company with another entity or (ii) the Company’s board of directors approving a sale of securities by the Company to such Person.

(e) For purposes of this Agreement, references to “ other enterprise ” shall include employee benefit plans; references to “ fines ” shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to “ serving at the request of the Company ” shall include any service as a director, officer, employee or agent of the Company 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.

(f) For purposes of this Agreement, Indemnitee shall be deemed to have acted in “ good faith ” if Indemnitee’s action is in good faith reliance or the records or books of account of the Company, including financial statements, or on information supplied to the Indemnitee by officers of the Company in the course of their duties, or on the advice of legal counsel for the Company or on information or records given or reports made to the Company by an independent certified public accountant or by an appraiser or other expert selected by the Company. The provisions of this Section 22(f) shall not be deemed to be exclusive or to limit in any way the other circumstances in which Indemnitee may be deemed or found to have met the applicable standard of conduct set forth in this Agreement.

(g) For purposes of this Agreement, “ Expenses ” means all reasonable direct and indirect costs (including attorneys’ fees, retainers, court costs, transcription costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses) reasonably incurred in connection with (i) presenting, defending, preparing to present or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding, or (ii) establishing or enforcing a right to indemnification under this Agreement, the Company’s Articles of Incorporation or Bylaws or applicable law. Expenses shall also include Expenses incurred in connection with any appeal resulting from any Proceeding, including the premium, security for and other costs relating to any cost bond, or other appeal bond or its equivalent. For the avoidance of doubt, Expenses, however, shall not include any judgments, fines or settlements.

Exhibit 10.4

(h) For purposes of Section 10 of this Agreement, “ Independent Legal Counsel ” means a law firm or a lawyer that is experienced in matters of corporate law and neither currently is, nor in the three years previous to its selection or appointment has been, retained to represent (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceedings giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this agreement.

23. Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company, and shall inure to the benefit of Indemnitee and Indemnitee’s heirs, executors and administrators. The Company shall require and shall cause any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the assets of the Company, by written agreement with the Company expressly to assume and agree to perform this Agreement in the manner and to the same extent that the Company would be requred to perform if no such succession had taken place.

24. Notice. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by facsimile or electronic mail or otherwise delivered by hand, messenger or courier service addressed:

(a) if to Indemnitee, to Indemnitee’s address, facsimile number or electronic mail address as shown on the signature page of this Agreement or in the Company’s records, as may be updated in accordance with the provisions hereof; or

(b) if to the Company, to the attention of the Chief Executive Officer or Chief Financial Officer of the Company at 3929 Point Eden Way, Hayward, CA 94545, or at such other current address as the Company shall have furnished to Indemnitee, with a copy (which shall not constitute notice) to John W. Campbell, Morrison & Foerster LLP, 425 Market Street, San Francisco, California 94105.

Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given (i) if delivered by hand, messenger or courier service, when delivered (or if sent via a nationally-recognized overnight courier service, freight prepaid, specifying next-business-day delivery, one business day after deposit with the courier), (ii) if sent via mail, at the earlier of its receipt or five days after the same has been deposited in a regularly-maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid, or (iii) if sent via facsimile, upon confirmation of facsimile transfer or, if sent via electronic mail, upon confirmation of delivery when directed to the relevant electronic mail address, if sent during normal business hours of the recipient, or if not sent during normal business hours of the recipient, then on the recipient’s next business day.

25. Choice of Law. This Agreement shall be governed by and its provisions construed in accordance with the laws of the State of California as applied to contracts between California residents entered into and to be performed entirely within California.

26. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of California for all purposes in connection with any action or proceeding that arises out of or relates to this Agreement and agree that any action or proceeding instituted under this Agreement shall be brought only in the state courts of the State of California.

27. Amendment and Waiver. No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing, signed by both parties hereto. No amendment, alteration or repeal of this Agreement shall adversely affect any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in an indemnified capacity prior to such amendment, alteration or repeal. No waiver of any of the provisions of this Agreement shall constitute or be deemed a waiver of any other provision of this Agreement nor shall any waiver constitute a continuing waiver.

28. Integration and Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided , however , that this Agreement is a supplement to and in furtherance of the Company’s articles of incorporation and bylaws and applicable law.

29. Captions. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

30. Counterparts. This Agreement may be executed in counterparts, each of which shall constitute an original. This Agreement may also be executed and delivered by facsimile signature and in counterparts, each of which shall constitute an original.

(signature page follows)

Exhibit 10.4

The parties are signing this Indemnification Agreement as of the date stated in the introductory sentence.


	ARADIGM CORPORATION

	By:
			Name:

			Title:



	Address:	3929 Point Eden Way Hayward, CA 94545

Agreed to and accepted:

INDEMNITEE

(type or print name)

(signature)

(street address)

(city, state and zip code)