ARADIGM CORP (Form: S-8, Received: 07/10/2015 16:58:30)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

As filed with the Securities and Exchange Commission on July 10, 2015

Registration No. 333-

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-8

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

ARADIGM CORPORATION

(Exact name of registrant as specified in its charter)


California		94-3133088
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

3929 Point Eden Way, Hayward, CA		94545
(Address of Principal Executive Offices)		(Zip Code)

Aradigm Corporation 2015 Equity Incentive Plan

Aradigm Corporation Employee Stock Purchase Plan

(Full titles of the plans)

Igor Gonda, Ph.D.

President and Chief Executive Officer

3929 Point Eden Way

Hayward, CA 94545

(510) 265-9000

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Laura I. Bushnell, Esq.

King & Spalding LLP

601 South California Avenue

Palo Alto, CA 94304-1050

Tel: (650) 422-6713

Fax: (650) 422-6800

Nancy E. Pecota

Vice President of Finance, Chief Financial Officer

3929 Point Eden Way

Hayward, CA 94545

(510) 265-9000

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

CALCULATION OF REGISTRATION FEE



Title of Each Class of Securities to be Registered	Amount of Shares to be Registered (1)(2)	Proposed Maximum Offering Price per Share	Proposed Maximum Aggregate Offering Price (3)	Amount of Registration Fee
Aradigm Corporation 2015 Equity Incentive Plan Common Stock, no par value per share	999,220 (4)	$7.21	$7,204,376.20	$837.15
Aradigm Corporation Employee Stock Purchase Plan Common Stock, no par value per share	110,000	$7.21	$793,100.00	$92.16

(1)

Shares registered pursuant to this Registration Statement include associated rights (the “ Preferred Share Purchase Rights ”) to purchase shares of the Registrant’s Series A Junior Participating Preferred Stock, without par value per share. The Preferred Share Purchase Rights are attached to shares of the Registrant’s common stock, no par value per share (the “ Common Stock ”), in accordance with the Amended and Restated Rights Agreement, dated as of September 5, 2008 (the “ Rights Agreement ”), as amended from time to time, by and between the Registrant and Computershare Trust Company, N.A., as Rights Agent. The Preferred Share Purchase Rights are not exercisable until the occurrence of certain events specified in the Rights Agreement, are evidenced by the stock certificates representing the Common Stock and are transferable solely with the Common Stock. The value attributable to the Preferred Share Purchase Rights, if any, is reflected in the value of the Common Stock.

(2)

Pursuant to Rule 416(a) under the Securities Act of 1933, as amended (the “ Securities Act ”), this Registration Statement shall also cover any additional shares of Common Stock that become issuable under the plans by reason of any stock dividend, stock split, recapitalization or other similar transaction.

(3)	This estimate is made pursuant to Rule 457(h) and Rule 457(c) of the Securities Act solely for purposes of calculating the registration fee, and is based on the average high and low reported market prices for shares of Common Stock on July 8, 2015, which is $7.21.

(4)

Represents the shares of Common Stock that were available for issuance or subject to forfeiture, settlement, or termination under the Aradigm Corporation 2005 Equity Incentive Plan (the “ 2005 Plan ”), which have been carried over to the Aradigm Corporation 2015 Equity Incentive Plan (the “ 2015 Plan ”). The 2005 Plan terminated in March 2015.

EXPLANATORY NOTE

This Registration Statement is being filed for the purpose of registering an additional 110,000 shares of the Common Stock issuable under the Aradigm Corporation Employee Stock Purchase Plan for which Registration Statements of the Registrant on Forms S-8 (File Nos. 333-15947, 333-62039, 333-92169, 333-43152, 333- 63116, 333-85244, 333-107157, 333-128525, 333-152501, 333-161142) (collectively, the “ Prior Registration Statements ”) are effective. Pursuant to General Instruction E to Form S-8, the contents of the Prior Registration Statements, including any amendments thereto or filings incorporated therein, are incorporated herein by reference and made part of this Registration Statement, except as amended hereby.

In addition, this Registration Statement is being filed for the purpose of registering 999,220 shares of the Common Stock, which shares have been carried over from the 2005 Plan, or that may be added to the shares available for issuance under the 2015 Plan to the extent that awards outstanding under the 2005 Plan are forfeited or settled or terminate without a distribution, if any, and that were previously registered under a Registration Statement filed with the Securities Exchange Commission (the “ Commission ”) on June 19, 2006 (File No. 333-135122), that may be issued under the 2015 Plan.

PART I

INFORMATION REQUIRED IN THE SECTION 10(A) PROSPECTUS

Item 1. Plan Information.

Not required to be filed with this Registration Statement.

Item 2. Registrant Information and Employee Plan Annual Information.

Not required to be filed with this Registration Statement.

PART II

INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

Item 3. Incorporation of Documents by Reference.

The following documents previously filed by the Registrant with the Commission pursuant to the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), are incorporated herein by reference:

(a)

the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014;

(b)

the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015;

(c)

the Registrant’s Current Report on Form 8-K filed on May 18, 2015;

(d)

the Registrant’s Proxy Statement relating to the 2015 Annual Meeting of Shareholders of the Registrant held on May 14, 2015, and filed on March 19, 2015; and

(e)

the description of the Registrant’s Common Stock contained in the Registrant’s Registration Statement on Form 8-A filed with the SEC on June 5, 2014 (File No. 001-36480), including any amendments or reports filed for the purpose of updating such description.

All documents, reports and definitive proxy or information statements filed pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Registration Statement and prior to the filing of a post-effective amendment which indicates that all securities offered hereby have been sold or which deregisters all securities then remaining unsold, shall be deemed to be incorporated by reference into this Registration Statement and to be a part hereof from the date of filing of such documents; provided, however, that documents, reports and definitive proxy or information statements, or portions thereof, which are furnished and not filed in accordance with the rules of the Commission shall not be deemed incorporated by reference into this Registration Statement.

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Any statement contained herein or in a document, all or a portion of which is incorporated or deemed to be incorporated by reference herein, shall be deemed to be modified or superseded for purposes of this Registration Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or amended, to constitute a part of this Registration Statement.

Item 4. Description of Securities

Not applicable.

Item 5. Interests of Named Experts and Counsel.

Not applicable.

Item 6. Indemnification of Directors and Officers.

The Registrant’s Amended and Restated Articles of Incorporation and Bylaws include provisions to (i) eliminate the personal liability of its directors for monetary damages resulting from breaches of their fiduciary duty to the extent permitted by California law and (ii) permit the Registrant to indemnify its directors and officers, employees and other agents to the fullest extent permitted by the California Corporations Code (the “ Corporations Code ”). Pursuant to Section 317 of the Corporations Code, a corporation generally has the power to indemnify its present and former directors, officers, employees and agents against any expenses incurred by them in connection with any suit to which they are, or are threatened to be made, a party by reason of their serving in such positions so long as they acted in good faith and in a manner they reasonably believed to be in, or not opposed to, the best interests of a corporation, and with respect to any criminal action, they had no reasonable cause to believe their conduct was unlawful. The Registrant believes that these provisions are necessary to attract and retain qualified persons as directors and officers. These provisions do not eliminate liability for breach of the director’s duty of loyalty to the Registrant or its shareholders, for acts or omissions not in good faith or involving intentional misconduct or knowing violations of law, for any transaction from which the director derived an improper personal benefit or for any willful or negligent payment of any unlawful dividend.

The Registrant has entered into agreements with its directors and executive officers that require the Registrant to indemnify such persons against expenses, judgments, fines, settlements and other amounts that such person becomes legally obligated to pay (including expenses of a derivative action) in connection with any proceeding, whether actual or threatened, to which any such person may be made a party by reason of the fact that such person is or was a director or officer of the Registrant or any of its affiliated enterprises, provided such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Registrant. The indemnification agreements also set forth certain procedures that will apply in the event of a claim for indemnification thereunder.

Item 7. Exemption from Registration Claimed.

Not Applicable.

Item 8. Exhibits.

The exhibits listed below in the “Exhibit Index” are part of this Registration Statement and are numbered in accordance with Item 601 of Regulation S-K.

Item 9. Undertakings.

(a)

The undersigned Registrant hereby undertakes:

(1)

To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement to:

(i)

include any prospectus required by Section 10(a)(3) of the Securities Act;

(ii)

reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represents a fundamental change in the information set forth in this Registration Statement; and

II-3

(iii)

include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in this Registration Statement; provided, however , that paragraphs (a)(1)(i) and (a)(1)(ii) shall not apply if the information required to be included in a post-effective amendment by those paragraph is incorporated by reference from periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in this Registration Statement.

(2)

That, for the purpose of determining any liability pursuant to the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities offered at that time shall be deemed to be the initial bona fide offering thereof.

(3)

To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(b)

The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by reference in this Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(c)

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

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SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-8 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Hayward, State of California, on the 10 ^th day of July, 2015.


ARADIGM CORPORATION

By:		/s/ Igor Gonda
		Igor Gonda, Ph.D.
		President and Chief Executive Officer

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Igor Gonda and Nancy E. Pecota, and each of them, his or her true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to file the same, with all exhibits thereto and all documents in connection therewith, with the Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents or any of them, or his or her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


Signature	Title	Date

/s/ Igor Gonda	President, Chief Executive	July 10, 2015
Igor Gonda, Ph.D.	Officer and Director (Principal Executive Officer)

/s/ Nancy E. Pecota	Vice President, Finance and	July 10, 2015
Nancy E. Pecota	Chief Financial Officer (Principal Financial and Accounting Officer)

/s/ Virgil D. Thompson	Chairman of the Board and Director	July 10, 2015
Virgil D. Thompson

/s/ John M. Siebert	Director	July 10, 2015
John M. Siebert, Ph.D.

/s Frederick Hudson	Director	July 10, 2015
Frederick Hudson

/s/ Lafmin Morgan	Director	July 10, 2015
Lafmin Morgan

/s/ David Bell	Director	July 10, 2015
David Bell

EXHIBIT INDEX


Exhibit No.	Description	Filed Herewith or Incorporated by Reference

4.1	Amended and Restated Articles of Incorporation of the Registrant	Incorporated by reference to the Registrant’s Form S-1 (No. 333-4236) filed on April 30, 1996, as amended.

4.2	Amended and Restated Bylaws of the Registrant	Incorporated by reference to the Registrant’s Form 10-Q filed on August 14, 1998, as amended.

4.3	Certificate of Determination of Series A Junior Participating Preferred Stock.	Incorporated by reference to the Company’s Form 10-K filed on March 29, 2002.

4.4	Amended and Restated Certificate of Determination of Preferences of Series A Convertible Preferred Stock.	Incorporated by reference to the Company’s Form S-3 (No. 333-76584) filed on January 11, 2002, as amended.

4.5	Certificate of Amendment of Amended and Restated Articles of Incorporation of the Company.	Incorporated by reference to the Company’s Form 10-K filed on March 29, 2002.

4.6	Certificate of Amendment of Certificate of Determination of Series A Junior Participating Preferred Stock.	Incorporated by reference to the Company’s Form 10-K filed on March 29, 2002.

4.7	Certificate of Amendment of Amended and Restated Articles of Incorporation of the Company.	Incorporated by reference to the Company’s Form 10-Q filed on August 13, 2004.

4.8	Certificate of Amendment of Certificate of Determination of Series A Junior Participating Preferred Stock.	Incorporated by reference to the Company’s Form 10-Q filed on August 13, 2004.

4.9	Certificate of Amendment of Amended and Restated Articles of Incorporation of the Company.	Incorporated by reference to the Company’s Form 10-K filed on March 31, 2006.

4.10	Certificate of Correction to Certificate of Amendment of Articles of Incorporation of the Company.	Incorporated by reference to the Company’s Form 8-K filed on September 20, 2010.

4.11	Certificate of Amendment of Articles of Incorporation of the Company.	Incorporated by reference to the Company’s Form 8-K filed on February 4, 2014.

4.12	Certificate of Amendment of Amended and Restated Articles of Incorporation of the Company.	Incorporated by reference to the Company’s Form 10-Q filed on May 14, 2014.

4.13	Form of Common Stock certificate of Registrant	Incorporated by reference to the Registrant’s Form S-1 (No. 333-4236) filed on April 30, 1996, as amended.

5.1	Opinion of King & Spalding LLP	Filed herewith.

23.1	Consent of King & Spalding LLP (included as part of Exhibit 5.1)	Filed herewith.

23.2	Consent of OUM & Co. LLP	Filed herewith.

24.1	Power of Attorney (included on signature page)	Filed herewith.

99. 1#	Aradigm Corporation 2015 Equity Incentive Plan	Incorporated by reference to Registrant’s Proxy Statement (No. 001-36480) filed on March 19, 2015, as Appendix B.


Exhibit No.	Description	Filed Herewith or Incorporated by Reference

99.2#	Form of Stock Option Agreement pursuant to Aradigm Corporation 2015 Equity Incentive Plan	Filed herewith.

99.3#	Aradigm Corporation Employee Stock Purchase Plan	Incorporated by reference to the Registrant’s Proxy Statement (No. 000-28402) filed on April 7, 2005, as Appendix B.

#	Indicates management contract or compensatory plan.

Exhibit 5.1

LOGO

King & Spalding LLP

601 South California Avenue

Palo Alto, CA 94304 USA

July 10, 2015

Aradigm Corporation

3929 Point Eden Way

Hayward, CA 94545

Re: Aradigm Corporation — Registration Statement on Form S-8

Ladies and Gentlemen:

We have acted as special counsel to Aradigm Corporation, a California corporation (the “ Company ”), in connection with the Registration Statement on Form S-8 (the “ Registration Statement ”) being filed with the Securities and Exchange Commission (the “ Commission ”) regarding the registration under the Securities Act of 1933, as amended (the “ Securities Act ”). The Registration Statement relates to an additional 110,000 shares Company’s common stock, no par value per share (the “ Common Stock ”), issuable under the Company’s Employee Stock Purchase Plan (the “ Purchase Plan ”) and 999,220 shares of the Common Stock, which shares have been carried over from the Company’s 2005 Equity Incentive Plan, as amended and restated, and that were previously registered under a Registration Statement filed with the Commission, that may be issued under the Company’s 2015 Equity Incentive Plan (the “ 2015 Plan ”).

In connection with this opinion, we have examined the Registration Statement, the Purchase Plan, the 2015 Plan, a copy of the Company’s amended and restated articles of incorporation, a copy of the Company’s amended and restated bylaws, each as amended to date, and such other corporate records, documents, instruments, certificates of public officials and of the Company and such questions of law as we have deemed necessary for the purpose of rendering the opinions set forth herein. In all such examinations, we have assumed the genuineness of signatures on all documents submitted to us as originals and the conformity to original documents of all copies submitted to us as certified, conformed or photographic copies, and as to certificates of public officials, we have assumed the same to have been properly given and to be accurate. As to matters of fact material to this opinion, we have relied, without independent verification, upon statements and representations of representatives of the Company and public officials.

Aradigm Corporation

July 10, 2015

Page 2

This opinion is limited in all respects to the corporate law of the State of California (including the General Corporation Law of the State of California, the relevant portions of California’s constitution, statutes, as of the date hereof and reported judicial interpretations concerning those laws), and no opinion is expressed with respect to the laws of any other jurisdiction or any effect which such laws may have on the opinions expressed herein. This opinion is limited to the matters stated herein, and no opinion is implied or may be inferred beyond the matters expressly stated herein.

Based upon, subject to and limited by the foregoing, we are of the opinion that the Shares will be validly issued, fully paid and non-assessable when issued and sold pursuant to the terms and conditions set forth in the Purchase Plan or 2015 Plan, as the case may be.

This opinion is given as of the date hereof, and we assume no obligation to advise you after the date hereof of facts or circumstances that come to our attention or changes in law that occur which could affect the opinions contained herein. This opinion is being rendered for the benefit of the Company in connection with the matters addressed herein.

We consent to the use of this opinion as an Exhibit to the Registration Statement and to the use of our name in the Registration Statement. In giving such consent, we do not hereby admit that we are acting within the category of persons whose consent is required under Section 7 of the Securities Act or the rules or regulations of the Commission thereunder.

Very truly yours,

/s/ King & Spalding LLP

King & Spalding LLP

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference, in this Registration Statement on Form S-8 of Aradigm Corporation, of our report dated March 16, 2015 relating to the consolidated financial statements of Aradigm Corporation included in its Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission.

/s/ OUM & Co. LLP

San Francisco, California

July 9, 2015

Exhibit 99.2

ARADIGM CORPORATION 2015 EQUITY INCENTIVE PLAN

STOCK OPTION AGREEMENT

You (“ you ” or “ Participant ”) have been awarded an Option to purchase Shares granted under the Aradigm Corporation 2015 Equity Incentive Plan (the “ Plan ”) and subject to the terms and conditions of the Plan, this Stock Option Agreement (the “ Option Agreement ”), including that you consent to electronic delivery as set forth in the Option Agreement. Unless otherwise defined herein, the terms defined in the Plan shall have the same meaning in this Option Agreement.



Name:

Grant Number:

Grant Date:
		[Nonqualified Stock Option or Incentive Stock Option]

Type of Option:

Vesting Commencement Date:

Total Number of Shares:

Option Price per Share:

Expiration Date:

Vesting Schedule:		Subject to the limitations set forth in this Option Agreement, and so long as your Service continues, the Shares shall vest as follows: [INSERT VESTING SCHEDULE]. On the vesting dates, the number of Shares vested shall be rounded down to the next whole number of Shares.

Additional Terms:

By the signatures below, you and Aradigm Corporation, a California corporation (the “ Company ”), agree that this Option is subject to the Plan and this Option Agreement, including all attached exhibits and documents incorporated by reference to both. In the event there is a conflict or inconsistency between any provision in this Option Agreement, and one or more provisions of the Plan, the Plan provision(s) will govern. You acknowledge receipt of copies of this Option Agreement and the Plan, and you hereby accept this Option subject to all of the terms and conditions of the aforementioned documents. You acknowledge that the vesting of the Shares pursuant to this Option Agreement is earned only by continuing Service as an Employee, Consultant, Independent Contractor or Non-Employee Director of the Company, unless the Committee determines otherwise in its discretion.

Participant has been granted an option to purchase Shares (the “ Option ”) by the Company. The Company and Participant entered into this Option Agreement (this “ Option Agreement ”) pursuant to the Plan. The Option is subject to the terms, restrictions and conditions of the Plan and this Option Agreement. Unless otherwise defined herein, the terms defined in the Plan shall have the same meaning in this Option Agreement.

1. Grant of Option . Participant has been granted an Option to purchase the number of Shares set forth in this Option Agreement at the exercise price per Share set forth in this Option Agreement (the “ Option Price ”). In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan shall prevail. If this Option is designated as an Incentive Stock Option (“ ISO ”), then this Option is intended to qualify as an Incentive Stock Option under Section 422 of the Code. However, if this Option is intended to be an ISO, to the extent that it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as a Nonqualified Stock Option (“ NSO ”).

2. Termination Period .

(a) General Rule . If Participant’s Service terminates for any reason, the unvested portion of the Option shall be forfeited to the Company upon termination, and all rights Participant has to Shares subject to the unvested portion of this Option shall immediately terminate. Except as provided is this Section 2 and subject to the Plan, the Shares subject to the outstanding and vested portion of the Option Award may be exercised for ninety (90) days after Participant’s termination of Service. Notwithstanding the foregoing, in no event shall this Option be exercised later than the Expiration Date set forth in this Option Agreement.

(b) Death; Disability . If Participant dies before Participant’s Service terminates, then the Participant’s beneficiary may exercise the outstanding and vested portion of this Option until one (1) year after the date of Participant’s death. If Participant’s Service terminates due to Disability, then the Participant may exercise the outstanding and vested portion of this Option until one (1) year after the Participant’s termination date. Notwithstanding the foregoing, in no event shall this Option be exercised later than the Expiration Date set forth in this Option Agreement.

(c) No Notice . Participant is responsible for keeping track of these exercise periods following Participant’s termination of Service for any reason. The Company may not provide further notice of such periods. In no event shall this Option be exercised later than the Expiration Date set forth in this Option Agreement.

(d) Occurrence of a Termination of Service . In case of any dispute as to whether Participant’s termination of Service has occurred, the Committee shall have sole discretion to determine whether such termination has occurred and the effective date of such termination.

3. Exercise of Option .

(a) Right to Exercise . This Option is exercisable during its term in accordance with the Vesting Schedule set forth in this Option Agreement and the applicable provisions of the Plan and this Option Agreement. In the event of Participant’s death, Disability, or other cessation of Service, the exercisability of the Option is governed by the applicable provisions of the Plan and this Option Agreement. This Option may not be exercised for a fraction of a Share.

(b) Method of Exercise . This Option is exercisable by delivery of an exercise notice in a form specified by the Company (the “ Exercise Notice ”), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the “ Exercised Shares ”), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be delivered in person, by mail, via electronic mail or facsimile or by other authorized method to the Secretary of the Company or other person designated by the Company. The Exercise Notice shall be accompanied by payment of the aggregate Option Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of a fully executed Exercise Notice accompanied by the aggregate Option Price and any applicable tax withholding due upon exercise of the Option.

4. Method of Payment . Payment of the aggregate Option Price shall be by any of the methods provided in Section 6.6 of the Plan.

5. Non-Transferability of Option . Participant may not sell, transfer, assign, pledge, hypothecate or otherwise dispose of this Option, except as provided below, and any attempt to do so will immediately render this Option invalid. Participant may designate a beneficiary who will receive the vested and outstanding portion of this Option in the event of the Participant’s death. This Option may be transferred by will or by the laws of descent and distribution or court order and may be exercised during the lifetime of Participant only by Participant, Participant’s guardian, or legal representative. The Committee may, in its sole discretion, allow Participant to transfer this Option to Participant’s spouse or former spouse pursuant to a domestic relations order in settlement of marital property rights, provided that this Option is not an ISO. The Committee will allow Participant to transfer this Option only if both Participant and the transferee(s) execute the forms prescribed by the Committee, which include the consent of the transferee(s) to be bound by this Option Agreement. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs and successors of Participant.

6. Tax Consequences . Participant should consult a tax advisor for tax consequences relating to this Option in the jurisdiction in which Participant are subject to tax. Participant should consult a tax adviser before exercising the Option or disposing of the Shares acquired in exercising the Option.

(a) Exercising the Option . Participant will not be allowed to exercise this Option unless Participant makes arrangements acceptable to the Company to pay any withholding taxes that may be due as a result of the Option exercise.

(b) Notice of Disqualifying Disposition of ISO Shares . If Participant sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on or before the later of (i) two years after the grant date, or (ii) one year after the exercise date, Participant shall immediately notify the Company in writing of such disposition. Participant agrees that he or she may be subject to income tax withholding by the Company on the compensation income recognized from such early disposition of ISO Shares by payment in cash or out of the current compensation paid to Participant.

7. Withholding Taxes and Stock Withholding . Regardless of any action the Company or Participant’s actual employer (the “ Employer ”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (“ Tax-Related Items ”), Participant acknowledges that the ultimate liability for all Tax-Related Items legally due by Participant is and remains Participant’s responsibility and that the Company and/or the Employer (a) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Option grant, including the grant, vesting or exercise of the Option, the subsequent sale of Shares acquired pursuant to such exercise and the receipt of any dividends; and (b) do not commit to structure the terms of the grant or any aspect of the Option to reduce or eliminate Participant’s liability for Tax-Related Items.

Prior to exercise of the Option, Participant shall pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding and payment on account obligations of the Company and/or the Employer. In this regard, Participant authorizes the Company and/or the Employer to withhold all applicable Tax-Related Items legally payable by Participant from Participant’s wages or other cash compensation paid to Participant by the Company and/or the Employer. With the Company’s consent, these arrangements may also include, if permissible under local law, (i) withholding Shares that otherwise would be issued to Participant when Participant exercises this Option, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum statutory withholding amount, (ii) having the Company withhold taxes from the proceeds of the sale of the Shares, either through a voluntary sale or through a mandatory sale arranged by the Company (on Participant’s behalf pursuant to this authorization), or (iv) any other arrangement approved by the Company. The Fair Market Value of these Shares, determined as of the effective date of the Option exercise, will be applied as a credit against the withholding taxes. Finally, Participant shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of Participant’s participation in the Plan or Participant’s purchase of Shares that cannot be satisfied by the means previously described. The Company may refuse to honor the exercise and refuse to deliver the Shares if Participant fails to comply with Participant’s obligations in connection with the Tax-Related Items as described in this Section.

8. Acknowledgement . The Company and Participant agree that the Option is granted under and governed by this Option Agreement and by the provisions of the Plan (incorporated herein by reference). Participant: (a) acknowledges receipt of a copy of the Plan and the Plan prospectus, (b) represents that Participant have carefully read and are familiar with their provisions, (c) hereby accepts the Option subject to all of the terms and conditions set forth herein and those set forth in the Plan and this Option Agreement and (d) acknowledges receipt of the Company’s Insider Trading Policy. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions relating to the Plan and this Option Agreement.

9. Consent to Electronic Delivery of All Plan Documents and Disclosures . By Participant’s acceptance of this Option, Participant consents to the electronic delivery of this

Option Agreement, the Plan, account statements, Plan prospectuses required by the Securities and Exchange Commission, U.S. financial reports of the Company, and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements) or other communications or information related to the Option. Electronic delivery may include the delivery of a link to a Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other delivery determined at the Company’s discretion. Participant acknowledges that Participant may receive from the Company a paper copy of any documents delivered electronically at no cost if Participant contacts the Company by telephone, through a postal service or electronic mail at investor@aradigm.com. Participant further acknowledges that Participant will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, Participant understands that Participant must provide on request to the Company or any designated third party a paper copy of any documents delivered electronically if electronic delivery fails. Also, Participant understands that Participant’s consent may be revoked or changed, including any change in the electronic mail address to which documents are delivered (if Participant has provided an electronic mail address), at any time by notifying the Company of such revised or revoked consent by telephone, postal service or electronic mail at investor@aradigm.com. Finally, Participant understands that Participant is not required to consent to electronic delivery.

10. Entire Agreement; Enforcement of Rights . This Option Agreement and the Plan constitute the entire agreement and understanding of the parties relating to the subject matter herein and supersede all prior discussions between them. Except for applicable terms in an employment agreement by and between Participant and the Employer, any prior agreements, commitments or negotiations concerning the Option are superseded. No modification of or amendment to this Option Agreement, nor any waiver of any rights under this Option Agreement, shall be effective unless in writing and signed by the parties to this Option Agreement. The failure by either party to enforce any rights under this Option Agreement shall not be construed as a waiver of any rights of such party.

11. Compliance with Laws and Regulations . The Company will not permit anyone to exercise this Option if the issuance of shares at that time would violate any law or regulation, including without limitation all applicable state, federal and foreign laws and regulations and all applicable requirements of any stock exchange or automated quotation system on which the Company’s Common Stock may be listed or quoted at the time of such issuance or transfer. The Shares issued pursuant to this Option Agreement shall be endorsed with appropriate legends, if any, determined by the Company.

12. Governing Law; Severability . This Option Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. For purposes of litigating any dispute that may arise directly or indirectly from the Plan and this Option Agreement, the parties hereby submit and consent to litigation in the exclusive jurisdiction of the State of California and agree that any such litigation shall be conducted only in the courts of California or the federal courts of the United States for the Northern District of California and no other courts; provided, however, if there is an arbitration agreement between the Employer and Participant that covers disputes related to

compensation, then such arbitration agreement will govern. If one or more provisions of this Option Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision shall be excluded from this Option Agreement, (b) the balance of this Option Agreement shall be interpreted as if such provision were so excluded and (c) the balance of this Option Agreement shall be enforceable in accordance with its terms.

13. No Rights as Employee, Consultant or Director . Subject to applicable law, nothing in this Option Agreement shall affect in any manner whatsoever the right or power of the Company, or a Parent or Subsidiary of the Company, to terminate Participant’s Service, for any reason, with or without cause.

14. Award Subject to Company Policies . To the extent permitted by applicable law, the Option and any Shares issued under the Option shall be subject to the following Company policies, which are incorporated herein by reference: Insider Trading Policy.

15. Notice . Any written notice to the Company required by any provisions of the Plan or this Option Agreement shall be addressed to the Corporate Secretary, Aradigm Corporation, 3929 Point Eden Way, Hayward, CA 94545. Any written notice to the Participant required by any provision of this Plan or the applicable Option Agreement shall be addressed to the Participant at the address on record with the Company’s Human Resources department. Notice shall be sent to either party prepaid by certified or registered mail or overnight courier, or delivered in person.

BY ACCEPTING THE OPTION, PARTICIPANT AGREES TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.