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 and is hereby amended and restated effective December 31, 2008. 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.

(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:

•

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 Eligible Employee’s target bonus for the year in which the Termination Date occurs multiplied by the average annual percentage achievement of corporate goals over each fiscal year for the three complete fiscal years preceding the Termination Date.

(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.

(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).

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):

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:

(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.

(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.

(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.

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 December 31, 2008, Aradigm Corporation has caused its duly authorized officer to execute the same this 31st day of December, 2008.

Aradigm Corporation

By: /s/ Nancy Pecota

Nancy E. Pecota

CFO

1

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:

2

Exhibit B

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 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

3

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:

4

Exhibit C

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 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).

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:

5

CHANGE OF CONTROL AGREEMENT

This Change of Control Agreement (the “ Agreement ”) is made and entered into as of December 31, 2008, by and between Aradigm Corporation (the “ Company ”), and (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.

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 (for CEO); 18 (for CMO); 12 (CFO, VP — Legal Affairs)] 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 [two times (for CEO); 1.5 times (for CMO); or 1 times (for CFO, VP — Legal Affairs)] the following sum: The Executive’s target bonus for the year in which the Covered Termination occurs multiplied by the average annual percentage achievement of corporate goals over each fiscal year for the three complete fiscal years preceding the date of the Covered Termination. 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 (for CEO); 18 (for CMO); or 12 (for CFO; VP — Legal Affairs)] 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 CEO) or $10,000 (for all others)] 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

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.

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.

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:

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 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 Change of Control Agreement as of the date first written above.