Exhibit 10.1

CLINICAL SUPPLY AND COMMERCIAL MANUFACTURING SERVICES AGREEMENT

This CLINICAL SUPPLY AND COMMERCIAL MANUFACTURING SERVICES AGREEMENT
(“Agreement”) is made as of the Effective Date, by and between SIGMA-TAU
Pharmasource Inc. (“SIGMA-TAU”), with a place of business of 6925 Guion Road,
Indianapolis, IN, 46268 and Aradigm Corporation, a California corporation with
offices at 3929 Point Eden Way, Hayward, CA, 94545 (“ARADIGM”). The “Effective
Date” shall be the date on which the License and Collaboration Agreement by and
between ARADIGM and Grifols, S.A. (the “Grifols Collaboration Agreement”) is
executed by the parties thereto and delivered to SIGMA-TAU, provided that if the
Grifols Collaboration Agreement has not been executed and delivered by ten
(10) days from the date of execution of this Agreement, this Agreement shall not
become effective.

 

  A. SIGMA-TAU provides contract manufacturing, packaging, and analytical
services to the pharmaceutical industry.

 

  B. ARADIGM is the pharmaceutical developer of Pulmaquin®, inhaled
ciprofloxacin, and seeks assistance from SIGMA-TAU in the formulation,
manufacturing, scale-up, filling, labeling, packaging and testing of Pulmaquin®
as provided in this Agreement and the attachments hereto.

 

  C. ARADIGM desires to engage SIGMA-TAU to provide certain services to ARADIGM
in connection with the processing of ARADIGM’s Product (defined below); and
SIGMA-TAU desires to provide such services pursuant to the terms and conditions
set forth in this Agreement.

SIGMA-TAU and ARADIGM are sometimes referred to herein individually as a “Party”
and collectively as the “Parties,” and references to “SIGMA-TAU” and “ARADIGM”
shall include their respective Affiliates.

NOW, THEREFORE, in consideration of the mutual covenants, terms and conditions
set forth below, the Parties agree as follows:

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Section 1. DEFINITIONS

As used in this Agreement the following terms shall each have the meaning set
forth below:

1.1 “Actual Yield” means the number of vials filled from a Batch after
Processing and delivered to ARADIGM, including any vials used for quality or
stability testing.

1.2 “Adverse Event” shall mean any adverse event associated with the use of a
Product in humans in whatever form, whether or not considered drug-related,
including an adverse event occurring in the course of the use of Product in
professional practice, in studies, in investigations or in tests or an adverse
event occurring from Product overdose (whether accidental or intentional), from
Product abuse, or from Product withdrawal, as well as any toxicity, sensitivity,
failure of expected pharmacological action, or laboratory abnormality that is,
or is thought by the reporter of such event to be, serious or associated with
Product.

1.3 “Affiliate” shall mean any corporation, association or other business entity
which directly or indirectly controls, is controlled by or is under common
control with SIGMA-TAU or ARADIGM and “control,” “controls” or “controlled”
shall mean the legal power to direct or cause the direction of the general
management and policies of such entity whether through the ownership of at least
50% of the voting securities or voting capital stock of such business entity, or
any other comparable controlling equity or controlling ownership interest with
respect to a business entity other than a corporation.

1.4 “Applicable Laws” shall mean all federal, state and local laws, statutes,
rules, regulations, ordinances and guidelines as in effect on the Effective
Date, applicable to each Party’s activities in respect of Services, Processing,
and DP and Product, including for clarity, cGMP; provided, however, with respect
to compliance by SIGMA-TAU with laws, statutes, rules, regulations, ordinances
and guidelines having applicability outside the United States, Applicable Laws
shall include only those laws, statutes, rules, regulations, ordinances and
guidelines satisfying the requirements of Section 7.1(b) herein. In the event of
any conflict between any of the foregoing sources of authority, U.S. federal law
and regulations shall be given priority, unless otherwise agreed to in writing
by the Parties.

1.5 “ARADIGM Equipment” shall have the meaning set forth in Section 2.3.

1.6 “ARADIGM Information” shall mean all technical and other information
provided to SIGMA-TAU by ARADIGM related to the formulation of the DP and
Product including all Materials and Specifications.

1.7 “Batch” shall mean a quantity of DP or Product produced using the Process
that (a) is expected to have uniform character and quality within specified
limits, and (b) is produced according to a single manufacturing run during the
same cycle of the Process as defined in a batch record. Each Batch intended for
commercial sale and distribution to be fifty liters (50L), one-hundred liters
(100L), or any other size, in each case as may be mutually agreed upon by the
Parties.

1.8 “cGMP” shall mean the standards relating to manufacturing practices as
required by the rules and regulations of the FDA under the United States Food,
Drug and Cosmetic Act

 

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C.F.R Part 210 as amended from time to time and the European Medicines
Evaluation Agency of the European Union for fine chemicals, active
pharmaceutical ingredients, intermediates or bulk products as established by the
principles detailed in the guidance document developed by the international
conference on harmonization known as “Q7A good manufacturing practice guidance
for active pharmaceutical ingredients”.

1.9 “Certificate of Analysis” shall mean, with respect to a Batch, that document
setting forth the measured and observable characteristics of DP and Product from
the Batch as required by the Specifications, as dated, executed and provided to
ARADIGM by SIGMA-TAU prior to Delivery of such Product.

1.10 “Certificate of Compliance” shall mean a statement signed by SIGMA-TAU that
certifies that all Processing of a Batch of DP or Product was performed or
otherwise implemented, packaged and tested in accordance with cGMP.

1.11 “Commercially Reasonable Efforts” shall mean, with respect to a Party’s
obligations under this Agreement, the carrying out of such obligations with a
level of effort and resources consistent with those commercially reasonable
efforts and practices of a company comparable with such Party under the
circumstances.

1.12 “Confidential Information” shall have the meaning set forth in Section 9.1.

1.13 “Core Process Records” shall mean those Batch records and test records that
materially relate to the Processing and Release of Product including Master
Batch Records.

1.14 “Defective Batch” shall mean

(a) A Batch that has not been produced in accordance with the Quality Agreement;
or

(b) A Batch that, upon Delivery, does not meet Specifications or was not
Processed according to Applicable Laws or any such other material requirement
agreed upon by the Parties in writing.

1.15 “Deliver” or “Delivery” or “Delivered” shall mean (i) with respect to
Product or any other tangible item, when there is transfer of possession of such
Product in accord with Section 4 of this Agreement and (ii) with respect to
Services, when such Services have been completed and the appropriate report
received by ARADIGM.

1.16 “Drug Product” or “DP” shall mean the formulated product that results from
the Processing of the active pharmaceutical ingredient in combination with
excipients and other Materials that will be Processed to produce Product.

1.17 “Europe” shall mean the member states of the European Union as composed on
the Effective Date.

1.18 “Expected Process Loss” means the expected losses of DP and Product during
Processing, attributable to performing the formulation and filling line set-up,
line and filter

 

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retention, sampling, fill checks and inspection, packaging and preparation for
shipping, in an amount to be determined by mutual agreement of the Parties. The
Parties shall set the percentage after the Processing of ten (10) lots based on
the performance during the Processing of such Batches in accordance in the
Development Plan, and then periodically review and compare the Expected Process
Loss amounts to actual losses sustained during Processing to improve yield, if
possible and to maintain the accuracy of such estimates.

1.19 “FDA” shall mean the United States Food and Drug Administration.

1.20 “Firm Order” shall mean a binding order for the purchase of Product that
ARADIGM is obligated to purchase under the Forecast, as set forth in
Section 3.1.

1.21 “Forecast” shall mean ARADIGM’s forecast of its monthly purchase
requirements of Product as described in Section 3.1.

1.22 “Governmental Authority” shall mean any country, including any political
subdivision thereof, court instrumentality, or agency thereof (including the
U.S. Food and Drug Administration, the European Agency for the Evaluation of
Medicinal Products, and any equivalent governmental regulatory body in any
territory in the world, and any successor entity or entities to any of the
preceding), and any other federal, state, or public authority, domestic or
foreign, exercising governmental powers and having jurisdiction over any
activity of a Party under this Agreement.

1.23 “Late Delivery” shall mean a Batch of Product that Delivery is more than
[*****] after the Delivery date specified in an accepted Purchase Order, where
such a delay in Delivery is due to a cause reasonably under the control of
SIGMA-TAU. A Batch will not be considered a Late Delivery to the extent due to:

(a) the lack of availability of a Material, provided SIGMA-TAU has depleted all
Safety Stocks;

(b) any changes (i) mandated by Governmental Authority or (ii) requested by
ARADIGM, that cause such delay;

(c) with respect to the [*****] Batches Processed by SIGMA-TAU (including the
process validation Batches), a failure of any such Batches to meet
Specifications, provided SIGMA-TAU has, without undue delay, initiated
Processing of an additional Batch to address the shortfall;

(d) SIGMA-TAU Processing Product in [*****] of the Firm Order;

(e) the inability to Release a Batch for which the reason for the Batch not
being a Released Batch cannot be ascribed to a specific cause, provided
SIGMA-TAU has, without undue delay, initiated Processing of an additional Batch
to address the shortfall; or

 

[*****] Confidential portions of this document have been redacted and filed
separately with the Securities and Exchange Commission.

 

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(f) SIGMA-TAU actively pursuing an open investigation on a Batch, provided such
open investigation reasonably prohibits additional Processing.

In addition, a Batch will not be considered a Late Delivery if provided under
the Development Plan set forth in Exhibit A.

1.24 “Latent Defect” shall mean a defect, caused by SIGMA-TAU’s failure to
Process according to the Quality Agreement, the Specifications, or Applicable
Laws, in any Batch that was not, and could not reasonably be expected to have
been, found by exercise of ordinary care in inspection at Delivery by ARADIGM.

1.25 “Manufacturing Facility” shall mean the manufacturing facility at 6925
Guion Road, Indianapolis in which SIGMA-TAU shall Process or have Processed DP
and Product under this Agreement.

1.26 “Master Batch Record” or “MBR” shall mean a written description of the
procedures to be followed for Processing a Batch of the DP or Product, including
but not limited to the history of a Batch from the raw material stage up through
and until completion of the Batch, a complete list of all active and inactive
ingredients, components, weights and measures, process parameters, packaging
materials, and labeling and complete specifications for each, within the meaning
cGMP.

1.27 “Materials” shall mean all raw materials and packaging and shipping
materials for Processing and Services for Product.

1.28 “Minimum Purchase Requirement” shall have the meaning set forth in
Section 3.3.

1.29 “Patents” shall mean, collectively, (a) pending patent applications (and
patents issuing therefrom), issued patents, regional patents, utility models and
designs; and (b) reissues, divisions, substitutions, confirmations, renewals,
extensions, provisionals, registrations, validations, re-examinations,
additions, continuations, continued prosecution applications,
continuations-in-part, divisionals, or Supplementary Protection Certificates or
restoration of patent terms of or to any patents, patent applications, utility
models or designs, in each case being enforced within the applicable territory.

1.30 “Price” shall mean the price(s) and compensation specified in the Terms of
Payment for the Processing and Services in Exhibit E.

1.31 “Process” or “Processing” shall mean the act of manufacturing, handling,
storing, analyzing, testing, packaging, inspecting, labeling and preparing for
shipment of Product.

1.32 “Product” shall mean any product that incorporates or contains the Drug
Product in its final packaged form as Pulmaquin® (where such product is an
inhalation formulation comprising a combination of liposomal ciprofloxacin and
free ciprofloxacin).

1.33 “Purchase Order” shall mean a written request submitted by ARADIGM to
SIGMA-TAU for a specific quantity of Product by a specific delivery date at a
specific location.

 

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1.34 “Quality Agreement” shall mean the quality agreement attached as Exhibit C
that describes the Parties’ quality control, quality assurance and regulatory
responsibilities relating to the Processing and Release of Product by SIGMA-TAU
to ARADIGM (as amended or restated from time to time by written approval of
authorized quality representatives of the Parties).

1.35 “Regulatory Filing” shall mean any and all correspondence or petitions to
Regulatory Authorities for the purpose of registering the Product or the
Process, or modifying or supplementing existing filings and subsequent
amendments and supplements thereto, as required by Applicable Laws, in order to
develop, Process, test, sell or distribute Product or the DP under this
Agreement.

1.36 “Release” or “Released Batch” shall mean the process by which, in respect
of each Batch:

(a) SIGMA-TAU’s quality unit:

(i) reviews and approves completed Batch records;

(ii) reviews and approves all Core Process Records;

(iii) closes out all non-conformances;

(iv) closes out all change controls;

(v) issues a Certificate of Analysis;

(vi) issues a Certificate of Compliance; and

(b) ARADIGM’s Quality Unit:

(i) reviews, and, if appropriate, Accepts all Core Process Records related
manufacturing documentation,

(ii) reviews, and, if appropriate, Accepts the Certificate of Analysis; and

(iii) releases the Batch.

For the purpose of this definition, “Accepts” means SIGMA-TAU has received
written notification from ARADIGM that ARADIGM accepts the documents referred to
in Clause (b) above. In the absence of such written notification that ARADIGM
does or does not Accept such documents, upon the expiration of 30 calendar days
from the date on which ARADIGM receives SIGMA-TAU’s written notification of
SIGMA-TAU’s completion of the tasks referred to in Clause (a) above, ARADIGM is
deemed to have Accepted the documents referred to in Clause (b) above. A Batch
that has been Released may be referred to as a “Released Batch”. A Released
Batch, or set of Released Batches, may also be referred to as “Released
Product”.

1.37 “Services” shall mean all or any part of the services to be performed by
SIGMA-TAU under this Agreement, other than Processing.

 

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1.38 “SIGMA-TAU Supplied Materials” shall mean those Materials supplied by
SIGMA-TAU for use in connection with Services or Processing of the DP or
Product, including but not limited to raw materials, components, labeling
materials and other such resources.

1.39 “Specifications” shall mean the measurable and observable qualities,
characteristics and attributes of DP and Product, the initial version of which
is attached as Exhibit D, as the same may be modified from time to time pursuant
to the terms of this Agreement.

1.40 “Standard Operating Procedures” or “SOP” shall mean written procedures
requiring uniform performance of specific functions, or uniform use of specific
equipment or resources to ensure data, analysis and manufacturing quality and
uniformity.

1.41 “Supply Failure” has the definition in Section 4.5.

1.42 “Technology Transfer” means the transfer by SIGMA-TAU to ARADIGM or any
Third Party designated by ARADIGM of the full and complete Standard Operating
Procedures, all tangible and intangible information relating to the process of
manufacturing Product, all documents, manufacturing instructions,
specifications, and any other relevant documentation, all relevant manufacturing
know-how, licenses and materials (including raw materials specifications) that
is necessary to enable ARADIGM or ARADIGM’s designee to Process DP and Product
using the Process used by SIGMA-TAU for such Processing, to meet all
Specifications, and to comply with applicable regulatory requirements (including
obtaining any necessary regulatory approvals, conducting any required studies
and developing any other regulatory documentation) and all Applicable Laws in
connection with such transfer.

1.43 “Term” shall mean that period outlined in Section 11.

1.44 “Terms of Payment” shall mean the terms of payment specified in Exhibit E.

1.45 “Testing Laboratories” shall mean any Third Party mutually agreed up by the
Parties and instructed by SIGMA-TAU to carry out tests on Materials, DP or
Product with regard to discrepant results pursuant to Section 4.3(c).

1.46 “Theoretical Yield” means the anticipated number of filled vials projected
after Processing a known amount of raw materials after taking into consideration
the Expected Process Loss.

1.47 “Third Party” shall mean any person or entity other than ARADIGM,
SIGMA-TAU, or an Affiliate of either of them.

1.48 “Third Party Manufacturer” shall mean a third party selected by ARADIGM to
Process DP or Product as permitted under the terms of this Agreement.

 

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Section 2. SCOPE OF AGREEMENT

2.1 Development Plan. SIGMA-TAU shall develop and deliver to ARADIGM, and
ARADIGM shall pay SIGMA-TAU for, the deliverables set forth in the plan attached
as Exhibit A (the “Development Plan”). All Product provided in accordance with
the Development Plan shall conform to Applicable Laws and the Specifications.

2.2 Yield. In the event that SIGMA-TAU Processes a Batch of Product i) that is
not a Defective Batch of Product and ii) the Actual Yield per Batch is less than
a percentage (with such percentage to be agreed upon by the Parties after the
Processing of ten (10) Batches) of the Theoretical Yield, ARADIGM will receive a
discount on the cost of such Batch. The percentage discount of such Batch shall
equal the percentage difference between the Theoretical Yield and the Actual
Yield.

2.3 ARADIGM Equipment.

(a) ARADIGM shall provide to SIGMA-TAU, promptly after the Effective Date, and
at ARADIGM’s expense, the equipment listed on Exhibit B, as may be amended from
time to time by signed mutual agreement of the Parties (the “ARADIGM
Equipment”). At ARADIGM’s election, SIGMA-TAU may acquire for ARADIGM additional
or replacement ARADIGM Equipment that will automatically be deemed to be added
Exhibit B. In this case ARADIGM shall reimburse SIGMA-TAU for any ARADIGM
Equipment acquired by SIGMA-TAU at paid cost plus [*****] management fee.
ARADIGM shall be responsible for all freight, insurance and other costs of
transporting ARADIGM Equipment to the Manufacturing FacilitySIGMA-TAU may only
use the ARADIGM Equipment for the purpose of fulfilling its Product Process and
Delivery obligations under this Agreement and for no other purposes or customers
without ARADIGM’s prior written consent. SIGMA-TAU shall use the ARADIGM
Equipment in a careful and proper manner and shall cause the ARADIGM Equipment
to be kept and maintained as recommended by the manufacturer, ordinary wear and
tear resulting from proper and normal use excepted. Except for repairs required
as a result of SIGMA-TAU’s failure to comply with the preceding sentence,
ARADIGM will pay the costs for replacement parts and for repairs made by
SIGMA-TAU personnel at the rates set forth on Exhibit B. All replacement parts
added or incorporated into the ARADIGM Equipment shall become the property of
ARADIGM. SIGMA-TAU shall not make any material alterations to the ARADIGM
Equipment without the prior written consent of ARADIGM. Title to the ARADIGM
Equipment at all times will remain with ARADIGM.

2.4 Specifications.

(a) SIGMA-TAU shall Process DP and Product to be supplied hereunder in all
respects in accordance with the applicable Specifications, Applicable Laws, and
the terms

 

[*****] Confidential portions of this document have been redacted and filed
separately with the Securities and Exchange Commission.

 

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and conditions of this Agreement. Each Party shall promptly notify the other of
any new instructions or specifications or other requirements of Applicable Law
affecting DP or Product of which it becomes aware, and shall confer with each
other in good faith with respect to means for complying with such requirements.

(b) The Parties acknowledge that either Party may seek to change the
Specifications, or that the Specifications may need to be refined and modified,
based upon experience with the manufacturing, testing and use of DP or Product,
the request of a Regulatory Authority, changes in Applicable Laws, or otherwise.
Accordingly, SIGMA-TAU and ARADIGM shall discuss in good faith the need to
modify Specifications from time to time as the Parties’ experience with the
manufacturing, testing and use of DP or Product warrants and as necessary,
appropriate or required by Applicable Laws; provided, however, that ARADIGM
shall have the exclusive right to make any decisions about changes to the
Specifications, MBR or Processing hereunder for DP or Product supplied to them
based upon such considerations.

(c) If a proposed change to the Specifications or Process is mandated by a
change in Applicable Laws or by a Regulatory Authority and failure to comply
with such mandate would render either Party’s performance under this Agreement
or the use of DP or Product contrary to Applicable Law, the Processing of DP or
Product shall be suspended until such time as the Parties confer and SIGMA-TAU
and ARADIGM determine a course of action and responsibilities for implementing
such change in the Processing of DP or Product under this Agreement to comply
with such amended Applicable Laws and the requirements of such Regulatory
Authority. No change in the Specifications shall be implemented by SIGMA-TAU,
without ARADIGM’S express written consent, which shall describe the specific
change.

2.5 Manufacturing Facility Modifications.

(a) In the event that:

(i) a change in Applicable Laws, or

(ii) a change in Specifications proposed by SIGMA-TAU and agreed to by ARADIGM;

relates solely to the United States, Europe, Canada or other territories for
which SIGMA-TAU supplies products necessitates a change to the Manufacturing
Facility, SIGMA-TAU shall design and implement such change at its own expense.

(b) In the event that a change to:

(i) the Specifications that is proposed by ARADIGM, or

(ii) Applicable Law not related to the United States, Europe, Canada or other
territories for which SIGMA-TAU supplies products necessitates a change to the
Manufacturing Facility; then:

 

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SIGMA-TAU shall design such change and propose to ARADIGM the cost and time
reasonably necessary to implement such change. The change shall be implemented
by SIGMA-TAU at ARADIGM’s expense only upon the written approval of ARADIGM.

(c) SIGMA-TAU shall notify ARADIGM in writing at least six (6) months in advance
of initiating work on any planned major change, or as soon as practicable in the
event that such planned change is to be implemented in less than six (6) months,
to its Manufacturing Facility or operations that may impact contamination,
cross-contamination, or the ability to utilize the Manufacturing Facility for
Processing Product. In the event that SIGMA-TAU is required by the FDA or EMEA
to validate or re-validate manufacturing processes that could impact the
Services for the Processing of Product, SIGMA-TAU shall notify ARADIGM regarding
the required activities. SIGMA-TAU shall be responsible for validation or
re-validation costs that are required to keep the Manufacturing Facility
compliant with cGMPs, and ARADIGM shall be responsible for all validation or
revalidation costs actually incurred by SIGMA-TAU solely attributable to keeping
the manufacturing Process for the Product compliant with cGMP. Any such costs or
charges solely attributable to the validation or revalidation of the Process for
the Product for which ARADIGM is responsible are subject to ARADIGM’s prior
written approval, not to be unreasonably withheld. The Parties agree that it
shall not be unreasonable for ARADIGM to withhold its consent for any such
validation or revalidation costs which exceed the lesser of: [*****]. In the
event that ARADIGM reasonably withholds its consent to any such validation or
revalidation costs, ARADIGM will have the right to terminate this Agreement
provided the respective CEOs of the Parties, or their designees, have engaged in
a good faith discussion attempting to resolve the Parties’ disagreement over the
amount or sharing of the validation or revalidation costs. SIGMA-TAU will
provide original receipts for any costs plus [*****] management fee incurred by
it from a Third Party for which it seeks reimbursement from ARADIGM. SIGMA-TAU
may Process DP or Product under this agreement at a facility other than the
Manufacturing Facility only with ARADIGM’s prior written consent.

2.6 Coordinators. Within thirty (30) days after the Effective Date, ARADIGM and
SIGMA-TAU shall each appoint an authorized representative and a back-up
representative (each, a “Coordinator”) for the exchange of all communications,
other than legal notices, related to the Processing of DP, Product and the
Services. Each such Party shall provide notice to the other Party as to the name
and title of the individuals so appointed. Each Party may replace its
Coordinator at any time for any reason by providing written notice to the other
Party.

2.7 Quarterly Meetings. The Parties shall endeavor to meet, either at the
Manufacturing Facility or via teleconference, on at least a quarterly basis to
review progress on the Development Plan and/or the Processing of Product
pursuant to the Forecast. The Coordinators will be responsible for setting the
agenda for such meetings. Such meeting will include the Coordinator, a
representation from program management, supply chain and quality assurance from
each Party.

 

[*****] Confidential portions of this document have been redacted and filed
separately with the Securities and Exchange Commission.

 

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2.8 Process Improvements. Upon request from ARADIGM, SIGMA-TAU shall prepare,
from time to time, a plan which details the agreed Services necessary to
implement improvements or changes to the processes involved in the Processing of
DP or Product or where new or additional equipment is being used in such
Processing. The scope and price of any such a work plan should be agreed in
writing by the Parties and attached to this Agreement in accord with the Price
detailed in Exhibit E.

2.9 License. Subject to the limitations set forth in this Agreement, ARADIGM
hereby grants to SIGMA-TAU a nonexclusive, worldwide, royalty-free license, with
no right to sublicense under all patents, patent applications, trademarks,
non-patented intangible and tangible information, other intellectual property,
and know-how, which are owned or controlled by ARADIGM and which ARADIGM has the
right to disclose and license to Third Parties, including Processing
instructions, copyrights, copyrightable works, know-how and trade secrets, which
are necessary for, and solely for the purpose of, SIGMA-TAU to Process
(including labeling) the Product for ARADIGM under the terms of this Agreement.
Except for the license provided hereby, neither Party will obtain any right,
title, or interest in each other’s intellectual property by virtue of this
Agreement or its performance of services hereunder.

Section 3. FORECASTS; ORDERS

3.1 Forecasts.

ARADIGM shall submit to SIGMA-TAU within ninety (90) days following the
Processing of the process validation lots as described in the Development Plan,
and in any event not later than nine (9) months prior to the anticipated first
commercial sale, and thereafter no later than the fifth (5th) business day of
every month during the Term:

(a) An eighteen (18) month rolling forecast (“Forecast”) organized by months and
Product stock keeping units setting forth the quantities of each Product that
ARADIGM expects to purchase from SIGMA-TAU during the eighteen (18)-month period
commencing with the beginning of said month. Each Forecast shall constitute a
binding commitment of ARADIGM to purchase the percentages of Products detailed
in Table 3.1, below, pursuant to Firm Orders.

(b) A thirty six (36) month rolling forecast (“Long Range Forecast”) organized
by months (except for the last twelve (12) months of each Long Range Forecast,
which shall be organized as one twelve (12)-month period) and Product stock
keeping units setting forth the quantities of each Product that ARADIGM expects
to purchase from SIGMA-TAU during the thirty six (36)-month period commencing
with the beginning of said month. Each Long Range Forecast shall be non-binding
on ARADIGM, provided that ARADIGM shall be required to purchase at least that
percentage of the quantity of each of the Products specified in the Forecast as
follows:

 

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Table 3.1

Period of the Forecast

  

Percentage of Forecast Amount that is a Firm Order

First four months    [*****] Fifth through eighth month    [*****] Eighth
through twelfth month    [*****] Twelfth through thirty-sixth month    [*****]

ARADIGM shall make all Forecasts and Long Range Forecasts in good faith given
market and other information available to ARADIGM. Purchase Orders.

(c) ARADIGM shall purchase Product solely by making Firm Orders, submitted in
the form of a Purchase Order, which must consist of one or more full Batch or
Batches of Product. To the extent Safety Stock is available (provided SIGMA-TAU
has complied with its obligations under Section 3.5), ARADIGM may submit firm
Purchase Orders for quantities of Products up to [*****] of the quantity set
forth in the 100% binding portion of the Forecast (i.e., in the first four
(4) months of the Forecast) most recently submitted for such month (and
modifications to prior Firm Orders) at any time up to forty-five (45) days prior
to the scheduled Delivery date of Product attributable to such month (including,
for clarity, at any time after ARADIGM has submitted a Firm Order but no less
than forty-five (45) days prior the scheduled Delivery of such ordered Product);
provided, however, that if, with respect to any month, ARADIGM orders any
Product in excess of [*****] of the quantity set forth in the binding portion of
the Forecast most recently submitted for such month, SIGMA-TAU shall use
Commercially Reasonable Efforts to supply such excess but shall not be liable
for its inability to do so. By way of example only, if ARADIGM has a quantity of
[*****] lots in the Forecast, it may submit a Firm Order for up to [*****] lots
(i.e. [*****] of the quantity indicated in the Forecast).

(d) ARADIGM shall submit each Firm Order to SIGMA-TAU in connection with its
submission of the Forecast for which the month in which ARADIGM desires Delivery
of the Product is the third month of such Forecast and at least ninety (90) days
prior to such requested Delivery date. All Purchase Orders shall include, in
addition to the number of Batches, the territories to which the Product will be
Delivered. SIGMA-TAU shall, within five (5) business days after receiving each
Firm Order provide a receipt notification to ARADIGM. Within ten (10) days of
receiving each Firm Order, SIGMA-TAU shall accept in writing such Firm Order.

(e) In such written acceptance of a Purchase Order, if SIGMA-TAU requests
changes to a required Delivery date, ARADIGM shall use Commercially Reasonable
Efforts to agree to such change, assuming such requested change to the required
delivery date does not exceed sixty (60) days from the original requested
delivery date.

(f) If ARADIGM requests changes to any Purchase Order previously submitted by
ARADIGM, including any increases or decreases in quantity of Products, required
delivery date, SIGMA-TAU shall use Commercially Reasonable Efforts to comply
with such changes but shall not be liable for its inability to do so.

 

[*****] Confidential portions of this document have been redacted and filed
separately with the Securities and Exchange Commission.

 

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3.2 Minimum Yearly Quantity. ARADIGM must order and purchase a minimum of
[*****] of Product in each calendar year (the “Minimum Purchase Requirement”)
following approval for sale by a Regulatory Authority in the United States or
Europe. In the event ARADIGM does not meet the Minimum Purchase Requirement, on
or before December 31 of each calendar year, ARADIGM shall pay SIGMA-TAU an
amount equal to the difference between the amounts actually paid to SIGMA-TAU
for Product and the Price of [*****] full Batches of Product; provided, however,
in the calendar year during which the first approval for sale by a Regulatory
Authority occurs, the Minimum Purchase Requirement are set forth in Table 3.3
below.

 

Table 3.3

Month of first approval for sale by a Regulatory Authority

  

Minimum Purchase Requirement

(applicable to the calendar year during which approval is received).

January – April    [*****] May – August    [*****] September – December   
[*****]

3.3 Maximum Yearly Quantity. SIGMA-TAU shall not be obligated to Process
quantities of Product in excess of [*****] Batches per year, including Safety
Stock, in such Batch sizes as are reflected in the Forecast.

3.4 Safety Stock. After receipt of the first approval by a Regulatory Authority
for commercial sale of the Product, SIGMA-TAU will, at all times thereafter
during the Term, Process and store at least [*****], Batches of Product to be
used to supplement SIGMA-TAU’s other Processing activities under this Agreement
(the “Safety Stock”). SIGMA-TAU shall invoice ARADIGM and ARADIGM shall pay for
(i) all Batches of Safety Stock shall be invoiced upon the earlier of when
(a) the Batches are Released, or (b) forty (40) days after SIGMA-TAU delivers to
ARADIGM the Core Process Records for any such Batch of Safety Stock, assuming
ARADIGM has not provided SIGMA-TAU notice during such forty (40) day period that
any such Batch is a Defective Batch, as well as (ii) all storage charges plus
[*****] for all Safety Stock Batches in excess of two (2). The Parties
anticipate that the Safety Stock would be used to (i) fulfill Firm Orders which
exceed the Forecast amounts (as set forth in Section 3.2(a)), in the event a
Batch does not meet Specifications, (ii) if a Batch is lost during
transportation to Grifols by ARADIGM, (iii) in the event the Processing of a
Batch is otherwise delayed or (iv) in any other circumstance that would
otherwise constitute a delay in Delivery of the Product, in each case to the
extent SIGMA-TAU’s available Processing abilities are not able to address such
Product needs or shortfalls. SIGMA-TAU shall use Commercially Reasonable Efforts
to ensure that such Safety Stock Batches do not expire or become unusable (e.g.,
through the appropriate rotation of its Product inventory or FIFO). Following
approval for sale by a Regulatory Authority in the United States or Europe, the
amount of Safety Stock will be reviewed by the Parties annually with regard to
the then-current Forecasts and the current Processing parameters and timeframes.
Following use of a Batch of Safety Stock, SIGMA-TAU shall use Commercially
Reasonable Efforts to replace such Safety Stock as soon as is possible.

 

[*****] Confidential portions of this document have been redacted and filed
separately with the Securities and Exchange Commission.

 

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3.5 Raw Materials. Prior to receipt of the first Forecast, the Parties shall
meet and agree upon the quantities of Materials SIGMA-TAU shall have in
inventory, in order to ensure that Firm Orders at [*****] of the Forecast can be
Processed and Delivered during the applicable time frames and the Safety Stock
maintained. ARADIGM agrees to reimburse SIGMA-TAU for all costs related to any
Materials that expire or are otherwise unusable due to ARADIGM not ordering
[*****] of the quantities as Firm Orders from the Forecast, provided SIGMA-TAU
shall use Commercially Reasonable Efforts to ensure that any such excess
Materials do not expire or become unusable (e.g., through the appropriate
rotation of its Materials inventory). SIGMA-TAU-Supplied Materials. SIGMA-TAU
shall provide, at its cost and expense all Materials required in connection with
Processing DP and Product hereunder. SIGMA-TAU represents and warrants to
ARADIGM that SIGMA-TAU and/or its Affiliates currently has access to, and during
the entire Term of this Agreement will make all Commercially Reasonable Efforts
to maintain access to, sufficient supplies of Materials, utilities,
container/closure systems, packaging materials, labor, and all other items
required to supply DP and Product to ARADIGM without interruption to cover the
Forecasts and Safety Stocks agreed by the Parties. If any Materials and/or
components expire due to a change in the Forecast, ARADIGM shall reimburse
SIGMA-TAU at cost plus 10% for any such Materials and/or components.
Notwithstanding the foregoing, at any time during first two (2) years of
commercial supply of Product, either Party may elect, at ARADIGM’s sole cost and
expense up to a maximum of [*****], for SIGMA-TAU to purchase any HSPC and
cholesterol required in the Processing of DP and/or Product for the Batches to
be Processed in such two (2) year period (and maintaining the Safety Stock
required under this Agreement). SIGMA-TAU shall invoice ARADIGM and ARADIGM
shall pay for such materials in accordance with Section 5.2. Labeling and
Packaging.

(a) ARADIGM shall control the content and type of all labeling and packaging,
including package inserts (and any revisions thereto) for each Product worldwide
and shall have the responsibility, at ARADIGM’s expense, for any revisions
thereto. ARADIGM shall provide SIGMA-TAU with drafts of the label content and
consider SIGMA-TAU’s comments in good faith; provided that ARADIGM shall have
the final decision as to such label and package content submitted to the
applicable Governmental Authority for its approval.

(b) With respect to the initial content and type of labeling and packaging
approved by the applicable Governmental Authority and any subsequent revisions
for each Product, SIGMA-TAU shall implement such labeling and packaging as soon
as reasonably practicable following SIGMA-TAU’s receipt of the required
documentation specifying the content to be included in the labeling and
packaging, including all necessary photo-ready art, with respect thereto from
ARADIGM.

Section 4. DELIVERY

4.1 Fulfillment of Purchase Orders and Right to Cure. SIGMA-TAU shall satisfy
ARADIGM’s Purchase Orders in accordance with their terms; provided, however, to
the extent such terms conflict with this Agreement, the terms of this Agreement
will control. Upon receipt of

 

[*****] Confidential portions of this document have been redacted and filed
separately with the Securities and Exchange Commission.

 

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any Purchase Order, SIGMA-TAU shall notify ARADIGM within ten (10) business days
if it becomes aware or believes that it will not be able to satisfy a particular
Purchase Order on time, in full or at all, which notice shall include an
explanation in reasonable detail of the reason(s) for SIGMA-TAU’s failure to
comply with a particular Purchase Order and its proposed course of action for
remedying such failure. Should SIGMA-TAU not be able to deliver the quantity of
Product as requested in the Purchase Order, it shall discuss in good faith with
ARADIGM its requirements in respect of such Purchase Order and, unless ARADIGM
determines that the requested quantity ordered in such Purchase Order (or any of
it) is not required, SIGMA-TAU shall use Commercially Reasonable Efforts to
Process and Deliver the shortfall amount (or such of it as may be required by
ARADIGM) to ARADIGM as soon as possible; provided however, in no event shall
SIGMA-TAU start to Process such shortfall amount (or such of it as may be
required by ARADIGM) later than thirty (30) days after the order date or deliver
the shortfall amount (or such of it as may be required by ARADIGM) later than
ninety (90) days after the original Delivery date. Shipment. All shipments of DP
and Product or other items from SIGMA-TAU will be shipped, at ARADIGM’s expense,
in accordance with the shipping and packaging instructions. Delivery by
SIGMA-TAU shall be made Ex-Works (INCOTERMS 2010). SIGMA-TAU shall be
responsible for providing all quality and commercial shipping documentation as
set forth in the Specifications and the Quality Agreement and ensure that any DP
or Product is not a Defective Batch.

4.2 Inspection; Acceptance or Rejection of Delivery.

(a) Notice of all claims (time being of the essence) arising out of (i) damage
to or total or partial loss of Product or such other item in transit shall be
given in writing to SIGMA-TAU and the carrier within ten (10) days of Delivery
or (ii) non-Delivery shall be given in writing to SIGMA-TAU within ten (10) days
after the date of SIGMA-TAU’s dispatch notice. ARADIGM shall make damaged
Product or other items available for inspection and shall comply with the
requirements of any insurance policy covering Product or other items notified by
SIGMA-TAU to ARADIGM. SIGMA-TAU shall offer ARADIGM all reasonable assistance,
at the cost and expense of ARADIGM, in pursuing any claims arising out of the
transportation of Product or other items.

(b) Except as otherwise provided in paragraph (a) above, ARADIGM shall have
thirty (30) days from the date of Delivery of Product in order to evaluate
Product and accept or reject such Delivery; provided that ARADIGM shall only be
permitted to reject Product if (i) SIGMA-TAU fails to deliver a Certificate of
Analysis with respect to DP and Product, (ii) DP or Product does not meet the
Specifications, (iii) DP or Product is a Defective Batch or (iv) is Delivered
more than sixty (60) days following the completion of Processing as defined as
by disposition to the bulk containers per the appropriate Batch record. If
ARADIGM does not notify SIGMA-TAU of its rejection of DP or Product within 30
days from the date of Delivery of Product, ARADIGM shall be deemed to have
accepted the Delivery of Product.

In the event ARADIGM rejects Delivery of Product as a Defective Batch, SIGMA-TAU
shall have the right to sample and retest DP or Product. In the event of a
discrepancy between ARADIGM’s and SIGMA-TAU’s test results such that one Party’s
results fall within the Specifications and the other Party’s test results fall
outside the Specifications, or there exists a dispute over whether such

 

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failure is due (in whole or in part) to acts or omissions of ARADIGM or any
Third Party after Delivery, the Parties shall cause a testing laboratory
agreeable to both SIGMA-TAU and ARADIGM to perform comparative tests and/or
analyses on samples of the alleged defective DP or Product. The testing
laboratory’s results shall be in writing and shall be final and binding save for
manifest error on the face of its report. Unless otherwise agreed to by the
Parties in writing, the costs associated with such testing and review shall be
borne by the Party against whom the testing laboratory rules. The testing
laboratory shall be required to enter into written undertakings of
confidentiality no less burdensome than set forth herein.

4.3 Rejected Product. In the event ARADIGM properly rejects Delivery of Product
per Section 4.3, or ARADIGM identifies Product with a Latent Defect, upon
ARADIGM’s election (a) SIGMA-TAU shall use Commercially Reasonable Efforts to
either (i) Deliver Safety Stock or (ii) Process and Deliver the replacement
Product to ARADIGM as soon as possible; provided however, in no event shall
SIGMA-TAU start to Process such Safety Stock or replacement Product later than
thirty (30) days after the identification of the Defective Batch or Latent
Defect or deliver the replacement Product later than ninety (90) days after the
identification of the Defective Batch or Latent Defect, at no additional cost to
ARADIGM, including SIGMA-TAU being responsible for the purchase of replacement
Materials or (b) refund to ARADIGM all costs paid by ARADIGM for such affected
Product.

4.4 Continuity of Supply. If the circumstances below in (a) or (b) occur [*****]
(“Supply Failure”), ARADIGM will not be bound by (or have any financial or other
liability for) any Forecast, any previously submitted Purchase Order, or any
Minimum Purchase Requirement and ARADIGM shall, subject to the following
sentence, have the right (but not the obligation) to terminate this Agreement
for-cause under Section 11.2(b), in both cases until SIGMA-TAU has Delivered all
Firm Orders without a Late Delivery for a period of at [*****]. Notwithstanding
the foregoing, ARADIGM may not terminate this Agreement for-cause unless the
respective CEOs of the Parties, or their designees, have engaged in a good faith
discussion attempting to resolve the Supply Failure and prevent future such
occurrences. This Section 4.5 shall not apply to the activities conducted under
the Development Plan.

(a) SIGMA-TAU does not accept a Purchase Order in accordance with Forecast.

(b) There is a Late Delivery of a Batch.

4.5 Failure to Take Delivery. If ARADIGM improperly rejects any Batch of DP or
Product or otherwise refuses to accept Delivery of Product or other items in
accordance with this Agreement, ARADIGM shall be billed at that time for all
such Product or other items, and on the first day of each month thereafter for
reasonable administration and storage costs per pallet with respect to such DP
or Product, if SIGMA-TAU decides to store or arrange for storage of such
Product. For each such Batch of Product or other item, ARADIGM agrees that:
(i) risk of ownership and loss for such Product or other item has passed to
ARADIGM, (ii) such Product or other item shall be on a bill and hold basis for
legitimate business purposes and (iii) ARADIGM will be responsible for any
decrease in market value or the deterioration of such Product or other item that
relates to factors and circumstances outside SIGMA-TAU’s reasonable control.

 

[*****] Confidential portions of this document have been redacted and filed
separately with the Securities and Exchange Commission.

 

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Section 5. PRICE, PAYMENTS AND REPORTS

5.1 Price and Terms of Payment. ARADIGM shall pay SIGMA-TAU the Price for the
Product and Services, set forth in Exhibit E, pursuant to the Forecast. For the
activities conducted pursuant to the Development Plan specified in Section 2.2,
ARADIGM shall pay SIGMA-TAU the payments as outlined in Exhibit A or Exhibit E
as appropriate.

5.2 Invoicing and Payment. SIGMA-TAU shall invoice ARADIGM for Services and
Product following the Delivery of such Services and Product to ARADIGM. ARADIGM
shall remit payment on the Price of Services and Processing within thirty
(30) days of ARADIGM’s receipt and acceptance of a Batch of Product. All
payments owed under this Agreement shall be made by wire transfer to a bank and
account designated in writing by SIGMA-TAU, unless otherwise specified in a
subsequent writing by SIGMA-TAU. SIGMA-TAU shall send its invoices to ARADIGM at
the following address:

Aradigm Corporation

3929 Point Eden Way,

Hayward, CA 94545

Attention: Accounts Payable

5.3 Taxes. All taxes, duties and other amounts assessed on Product prior to or
upon sale to ARADIGM are the responsibility of ARADIGM, and ARADIGM shall
reimburse SIGMA-TAU for any such taxes, duties or other expenses paid by
SIGMA-TAU.

5.4 Late Payment. Time for payment shall be of the essence. In default of
payment on the due date: interest shall accrue on any amount overdue at the rate
of 1% above the rate charged to the most creditworthy borrowers from time to
time of Bank of America NT & SA, San Francisco, California, or at such lesser
maximum rate permitted by law, interest to accrue on a day to day basis both
before and after judgment.

5.5 Price Verification. For a period of two (2) years from the end of the
calendar year in which a payment was due hereunder, upon thirty (30) days prior
notice, SIGMA-TAU shall make such records relating to such payment available,
during regular business hours and not more often than once each calendar year,
for examination by an independent certified public accountant selected by
ARADIGM and reasonably acceptable to SIGMA-TAU, for the purposes of verifying
SIGMA-TAU’s compliance with the calculation of the Price pursuant to Exhibit E
and the accuracy of the invoices furnished pursuant to this Agreement. The
results of any such audit shall be shared by the auditor with both Parties and
shall be considered Confidential Information of both Parties. Any amounts shown
to have been overcharged by SIGMA-TAU shall be re-paid by SIGMA-TAU within
thirty (30) days from the auditor’s report, plus interest accruing (calculated
pursuant to Section 5.4) on such over-paid amounts from the original due date.
ARADIGM shall bear the full cost of such audit unless such audit discloses an
overcharge by SIGMA-TAU of greater than seven point five percent (7.5%) in which
case SIGMA-TAU shall bear the full cost of such audit. ARADIGM shall have the
right to share the results of any audit under this section with

 

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Grifols under confidentiality restrictions no less restrictive that the
confidentiality provisions of this agreement. Notwithstanding anything to the
contrary in this Agreement, if ARADIGM assigns this Agreement to another party,
then ARADIGM shall have no further rights under this Section 5.5.

Section 6. QUALITY CONTROL/QUALITY ASSURANCE

6.1 Quality Agreement. In the event of a conflict between the terms of this
Agreement and the Quality Agreement (Exhibit C), this Agreement shall control
except with respect to matters relating to compliance with cGMPs and related
quality regulations, in which case, the Quality Agreement will control.
SIGMA-TAU shall use Commercially Reasonable Efforts to comply with the Quality
Agreement but in any event shall comply in all material respects with Applicable
Laws.

6.2 Core Process Records. At least [*****] prior to the Delivery of each Batch
SIGMA-TAU shall provide ARADIGM with properly completed copies of Core Process
Records for such Batch prepared in accordance with the Specifications and
Applicable Laws unless otherwise set forth in the Quality Agreement.

6.3 Release Responsibility. ARADIGM shall have control over, and shall be
responsible for, final Release of all DP and Product. ARADIGM shall not Release
any Product if the Certificate of Analysis, Core Process Records, or testing by
ARADIGM indicate that DP or Product does not comply with the applicable
Specifications, or Applicable Laws, or ARADIGM knows of any such non-compliance.

Section 7. REGULATORY

7.1 Compliance.

(a) SIGMA-TAU shall comply in all material respects with all regulatory
requirements with respect to DP or Product imposed by Applicable Law from time
to time upon SIGMA-TAU as the provider of the Processing and the Services, but
not limited to, those relating to environmental, health, and safety matters.
ARADIGM shall comply in all material respects with all regulatory requirements
with respect to DP and Product that are imposed by Applicable Law from time to
time upon ARADIGM as the holder of the Investigational New Drug application and
any similar global applications or marketing authorizations.

(b) If ARADIGM requests SIGMA-TAU to comply with any law, statute, rule,
regulation, ordinance, or guideline having applicability outside the United
States, Canada or Europe, SIGMA-TAU shall use reasonable commercial efforts to
comply in all material respects if it consents to be so bound, but only to the
extent that:

 

[*****] Confidential portions of this document have been redacted and filed
separately with the Securities and Exchange Commission.

 

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(i) ARADIGM informs SIGMA-TAU in writing in the English language of the precise
foreign requirements that ARADIGM is requesting SIGMA-TAU to observe;

(ii) such foreign requirements do not conflict with any mandatory requirements
under the laws of the United States and/or Europe;

(iii) all documented costs and expenses incurred by SIGMA-TAU in complying with
such foreign requirements shall be charged to ARADIGM in addition to the Price.

7.2 Regulatory Filings. SIGMA-TAU shall provide all information related to the
Manufacturing Facility, Processing and testing of the DP and/or Product that are
reasonably required for the filing and maintenance of a plant master file
(“PMF”) of any foreign equivalents of the PMF in jurisdictions outside of the
United States. Any assistance to be provided to ARADIGM by SIGMA-TAU in response
to inquiries of Governmental Authorities shall be provided by SIGMA-TAU on terms
to be agreed upon by the Parties and at SIGMA-TAU’s standard rates then in
effect. The Parties shall discuss and cooperate in good faith regarding the
filing and maintenance of any foreign equivalents of the PMF in jurisdictions
outside of the United States.

7.3 Recalls. SIGMA-TAU shall reasonably cooperate with ARADIGM in connection
with any recall, withdrawal, or modification. ARADIGM shall be responsible for
the cost of and all losses associated with any recall or Product withdrawal or
modification; provided, however, that to the extent that any such recall or
Product withdrawal is due to a Latent Defect, the gross negligence or willful
misconduct on the part of SIGMA-TAU, then SIGMA-TAU shall reimburse ARADIGM for
all direct costs associated with such recall or withdrawal, but in any case only
to the extent attributable to SIGMA-TAU and subject to a cumulative cap of the
amount paid by ARADIGM for the affected Batch and the maximum cumulative
liability of SIGMA TAU under Section 10.6. ARADIGM shall share with SIGMA-TAU
all relevant information relating to any such recall, withdrawal, or
modification. In addition, ARADIGM shall also promptly and fully detail for
SIGMA-TAU any Product complaints or field alerts it receives insofar as any such
complaints relate to the Process or Services rendered by SIGMA-TAU hereunder.

7.4 Regulatory Inspections. SIGMA-TAU shall promptly inform ARADIGM following
receipt of any regulatory inquiry or communication, or the occurrence of any
inspection, regarding the Processing of DP and Product. In the event SIGMA-TAU
receives a notice of inspection or an inspection visit by any Governmental
Authority which directly involves DP or Product or is likely to materially
impact SIGMA-TAU’s ability to produce DP or Product, SIGMA-TAU shall give
ARADIGM such notice as is practicable under the circumstances. In the event
there are written observations or any other written communication by a
Governmental Authority which directly involve DP or Product or would likely
materially impact SIGMA-TAU’s ability to produce DP or Product, or any proposed
written response by SIGMA-TAU to any such inspection, ARADIGM shall be informed
promptly and be provided with copies of applicable documentation, and shall have
a reasonable opportunity to review and comment on the proposed response. Such
opportunity to review and comment shall not be extended so as to cause any
response of SIGMA-TAU to be later than is required by such Governmental
Authority.

 

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7.5 Recordkeeping. SIGMA-TAU shall maintain true and accurate books, records,
test and laboratory data, reports and all other information relating to
Processing and the Services performed under this Agreement, including all
information required to be maintained by Applicable Laws. Such information shall
be maintained in forms, notebooks and records for a period of at least two
(2) years from the relevant Product expiration date or longer if required under
Applicable Laws.

7.6 Licenses and Permits. ARADIGM shall, at its expense, be solely responsible
for obtaining and maintaining all permits, licenses, registrations and other
authorizations required from Governmental Authorities with respect to Product;
provided that SIGMA-TAU shall, at its expense, be responsible for obtaining and
maintaining any permits, licenses, registrations or other authorizations from
U.S. Governmental Authorities for the Manufacturing Facility as are required for
the Processing of Product.

7.7 Regulatory Compliance. During the Term of this Agreement, SIGMA-TAU will use
Commercially Reasonable Efforts to provide information to ARADIGM in support of
regulatory matters with respect to activities under this Agreement, at ARADIGM’s
request and at ARADIGM’s expense for SIGMA-TAU’s assistance and out-of-pocket
costs.

7.8 Adverse Event Reporting. ARADIGM shall be responsible for all reporting to
Governmental Authorities of Adverse Events. If SIGMA-TAU becomes aware of any
Adverse Events, it shall report all information in its possession regarding such
event to ARADIGM as soon as practicable in order to allow ARADIGM to fulfill its
regulatory reporting obligations within the time frames required by Governmental
Authorities and Applicable Laws after becoming aware of such information, and
shall cooperate with ARADIGM as necessary to report such event to Governmental
Authorities.

7.9 Audit Rights. ARADIGM shall have the right to perform up to [*****] per
calendar year of SIGMA TAU’s Manufacturing Facility relating to the Product
(including access to manufacturing, quality, Processing, packaging and
regulatory matters and records relating to the Product) during normal business
hours and upon at least ninety (90) days’ prior notice to SIGMA-TAU. In such
audits, ARADIGM may utilize its employees, consultants and/or representatives
(including from partners), provided such participants will be bound by a
confidentiality agreement that is at least as stringent as the confidentiality
terms set forth herein. The first such audit in a given calendar year shall
occur with each Party bearing its own costs and expenses associated with
participating in or facilitating such audit. Any second audit in a given
calendar year shall be conducted at ARADIGM’s sole expense (in accordance with
the fee schedule in Exhibit E).

7.10 Person in the Plant. SIGMA-TAU shall permit ARADIGM at maximum of two
employees, consultants and/or representatives (including from partners) to have
access to the Manufacturing Facility during the Processing of the DP or Product
for the purposes of (i) observing the manufacturing process and (ii) reviewing
all Batch records and other documents, including, without limitation, all
production logs, reagent preparation records, column packing

 

[*****] Confidential portions of this document have been redacted and filed
separately with the Securities and Exchange Commission.

 

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records, deviation reports, Materials and components testing and release data,
SOPs, and the like (individually and collectively, “Access”). ARADIGM employees,
consultants and/or representatives shall not be auditing the operations but
shall merely observe the Process activities. All such ARADIGM, consultants
and/or representatives receiving Access will be bound by a confidentiality
agreement that is at least as stringent as the confidentiality terms set forth
herein. SIGMA-TAU shall consider, in good faith, any suggestions that ARADIGM or
its onsite, consultants and/or representatives have regarding the design or
operation of the Manufacturing Facility and will promptly respond to ARADIGM
regarding such suggestions.

7.11 Regulatory Approval Inspections. SIGMA-TAU shall reasonably accommodate
requests made on behalf of ARADIGM by a Governmental Authority such as the FDA,
Health Canada and the EMEA, to inspect the SIGMA-TAU Facility in the course of
reviewing ARADIGM’s Product filing or approved application. SIGMA-TAU shall
reasonably accommodate GMP audits by a Governmental Authority and by ARADIGM in
preparation for such inspections if necessary. SIGMA-TAU shall use Commercially
Reasonable Efforts to support such audits.

To the extent that SIGMA-TAU requires the reasonable assistance of ARADIGM in
order to fulfill its obligations pursuant to this Section, ARADIGM agrees to
fully cooperate with and assist SIGMA-TAU.

Section 8. REPRESENTATIONS AND WARRANTIES

8.1 SIGMA-TAU. SIGMA-TAU hereby represents and warrants to ARADIGM as follows:

(a) All Product Delivered by SIGMA-TAU to ARADIGM under this Agreement, at the
time of Delivery, (i) shall conform with the DP and Product Specifications and
(ii) shall have been Processed in accordance with Applicable Laws (including,
for clarity, cGMP).

(b) The Services will be performed consistent with standards then customary in
the biopharmaceutical industry, and, in any event, with at least the degree of
care that SIGMA-TAU uses to perform similar activities for itself.

(c) It is not debarred and has not and will not use, in performing its
obligations under this Agreement in any capacity, the services of any person
debarred under subsections 306(a) or (b) of the Generic Drug Enforcement Act of
1992.

(d) It has full authority to enter into this Agreement, and there is no
provision contained in any other agreements to which it is a party, which
prohibits or restricts it from entering into or performing under this Agreement.

(e) It will at all times, keep all Materials secure and safe from loss and
damage in such manner as SIGMA-TAU stores its own Materials of a similar nature.

 

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(f) It will require that all Testing Laboratories or other Third Parties that
receive any DP or Product enter into written undertakings of confidentiality no
less burdensome than set forth herein.

(g) Each Certificate of Analysis will reflect the results of the tests conducted
on the sample of DP or Product to which it relates.

(h) The Batch records and written Standard Operating Procedures maintained by
SIGMA-TAU will accurately reflect in all material regards the processes and
procedures followed by it in Processing the DP and Product.

(i) It has, or will timely obtain, and will maintain, and comply at all relevant
times throughout the Term of this Agreement, with all applicable federal, state,
and local permits, licenses, registrations, and other governmental
authorizations and approvals as may be required by Applicable Law in order for
it to perform its obligations under this Agreement.

(j) Except with respect to the specific Process aspects requested or provided by
ARADIGM, it has all the rights necessary to permit it to perform the Services
and Process, and otherwise carry out its obligations hereunder without
infringing the intellectual property rights of any Third Party.

8.2 ARADIGM. ARADIGM hereby represents and warrants to SIGMA-TAU as follows:

(a) It is not debarred and has not and will not use, in performing its
obligations under this Agreement in any capacity, the services of any employee
debarred under subsections 306(a) or (b) of the Generic Drug Enforcement Act of
1992;

(b) It has, or will timely obtain, and will maintain and comply at all relevant
times throughout the Term of this Agreement in all material respects, with all
applicable federal, state, and local permits, licenses, registrations and other
governmental authorizations and approvals as may be required by Applicable Laws
in order for it to perform its obligations under this Agreement;

(c) It has full authority to enter into this Agreement, and there is no
provision contained in any other agreement to which it is a party that prohibits
or restricts it from entering into or performing under this Agreement; and

(d) It has all the rights necessary to permit SIGMA-TAU to perform the specific
Process aspects requested or provided by ARADIGM without infringing the
intellectual property rights of any Third Party.

Section 9. CONFIDENTIAL INFORMATION AND PROPRIETARY RIGHTS AND TECHNOLOGY
TRANSFER

9.1 Confidentiality. Unless otherwise set forth in this Agreement, “Confidential
Information” means, (A) with respect to ARADIGM, the items set forth on Schedule
9.1(A) and

 

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any other trade secret, know-how, process, technique, equipment, device, design,
schematic, drawing, formula, data, plan, strategy and forecast specifically
related to the Product, DP or the business of ARADIGM disclosed by ARADIGM to
SIGMA-TAU pursuant to this Agreement, either in writing or orally and (B) with
respect to Sigma Tau the items set forth on Schedule 9.1(B) and any other trade
secret, know-how, process, technique, equipment, device, design, schematic,
drawing, formula, data, plan, and strategy that have general use in
biopharmaceutical manufacturing or related to the business of Sigma Tau, to the
extent not specific to the DP or Product, or the Confidential Information of
ARADIGM and, in each case, disclosed by Sigma Tau to ARADIGM pursuant to this
Agreement, either in writing or orally. The Party receiving Confidential
Information shall maintain the confidential and proprietary status of such
Confidential Information, keep such Confidential Information and each part
thereof within its possession or under its control, and use all reasonable
efforts to ensure that such Confidential Information is used only for those
purposes specifically authorized by this Agreement. These mutual obligations of
confidentiality shall apply as of the Effective Date until ten (10) years
following the later of expiration or termination of this Agreement, but such
obligations shall not apply to any information to the extent that such
information is:

(a) independently developed by such Party without the use of any of the other
Party’s Confidential Information outside the scope and not in violation of this
Agreement, as evidenced by such Party’s contemporaneous written records;

(b) in the public domain at the time of its receipt or thereafter becomes part
of the public domain through no fault of the recipient;

(c) received without an obligation of confidentiality from a Third Party having
the right to disclose such information; or

 

(d) released from the restrictions of this Section 9.1 by the express written
consent of the disclosing Party.

Notwithstanding the provisions of Section 9.1 hereof, the Parties may, to the
extent necessary, disclose and use Confidential Information (i) to obtain
institutional or government approval to clinically test or market a Product, or
(ii) as required by law, statute, rule or court order to be disclosed, provided
that in making such disclosure, the disclosing Party conforms with Section 9.3.

9.2 Disclosure of Agreement. Except for disclosures expressly permitted under
this Agreement, neither Party may release any information to any Third Party
regarding the terms of this Agreement without the prior written consent of the
other Party; provided however that ARADIGM may disclose this Agreement, and the
terms thereof, to Grifols, S. A. Without limitation, this prohibition applies to
press releases, educational and scientific conferences, quarterly investor
updates, promotional materials, governmental filings and discussions with public
officials, the media, security analysts and investors. This provision, however,
shall not apply to any disclosures regarding this Agreement or related
information to regulatory agencies (such as the FDA, the Securities and Exchange
Commission (the “SEC”) or Federal Trade Commission and/or Department of Justice)
that may be required by law, including requests for a copy of this Agreement or
related information by tax authorities.

 

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9.3 Required Disclosure. If any Party to this Agreement determines a release of
Confidential Information is required by Applicable Law (including releases that
may be required to be filed to or with the SEC), that Party will notify the
other Party as soon as practicable and give as much detail as possible in
relation to the disclosure required. The Parties will then cooperate with
respect to determining what information should actually be released, provided
that in no event shall a Party be required to delay any such filing or release
unreasonably hereunder.

9.4 Proprietary Rights.

(a) No conveyance of any license or other right to use intellectual property
rights is made hereunder by the Parties except as explicitly set forth herein.
Subject to Section 9.4(b), all inventions related specifically to the DP or the
Product, conceived or reduced to practice during the Term, and as a result of
this Agreement, whether or not patentable, and whether or not invented solely by
or on behalf of ARADIGM or jointly by or on behalf of ARADIGM and SIGMA-TAU
shall be owned solely by ARADIGM. Subject to section 9.4(b), all know-how
related specifically to the DP or the Product, arising during the Term, and as a
result of this Agreement, whether arising as a result of the activities by or on
behalf of ARADIGM alone or by or on behalf of ARADIGM and SIGMA-TAU jointly,
shall be owned solely by ARADIGM. SIGMA-TAU shall cooperate in vesting ownership
of the foregoing inventions and know-how in ARADIGM including, but not limited
to, delivering such acknowledgements, assignments, and conveyance documents as
ARADIGM shall request.

(b) Notwithstanding Section 9.4(a), SIGMA-TAU shall own all rights to any
invention and/or know-how (whether or not patentable) relating to manufacturing,
in-process testing, and analytical methods and processes developed by SIGMA-TAU
in connection with Services or Processing performed hereunder that have general
use in biopharmaceutical manufacturing, to the extent not specific to the DP or
Product, or the Confidential Information of ARADIGM or ARADIGM Equipment used in
the Services or in the Processing of the Drug Product and provided by ARADIGM,
and to the extent not directed to or derived from any pre-existing know-how or
Confidential Information provided by ARADIGM to SIGMA-TAU (“Process Invention”);
provided that the provisions of this Section 9.4(b) shall not apply to
manufacturing, in-process testing, and analytical methods and processes
developed by SIGMA-TAU at the direction of ARADIGM. SIGMA-TAU reserves the right
to use data that relates to analytical methods and/or in process testing
developed during the course of performing the Process or Services hereunder to
support applications, assignments or other instruments necessary to apply for
and obtain patent or other intellectual property protection with respect to
Process Inventions so long as no information which SIGMA-TAU is required to keep
confidential under this Agreement or any other previously executed agreement
between the Parties relating to confidentiality of information is disclosed in
any such application, assignment, or other instrument without the prior consent
of ARADIGM (not to be unreasonably withheld). For Process Inventions developed
by SIGMA-TAU in connection with performing the Process or Services hereunder,
SIGMA-TAU will grant to ARADIGM a perpetual, world-wide, royalty-free,
non-exclusive license for ARADIGM to use such Process Inventions and have such
Process Inventions practiced on ARADIGM’s behalf.

 

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9.5 Technology Transfer. With three (3) months advanced written notice, ARADIGM
may request at its sole expense SIGMA-TAU to make a Technology Transfer to Third
Parties. Upon receipt of this request SIGMA-TAU shall appoint a project manager
for the Technology Transfer who shall provide ARADIGM with a project plan
detailing the timelines of, and necessary resources for, the Technology
Transfer. Upon written approval of the project plan by ARADIGM, SIGMA-TAU shall
perform the related activities and provide adequate resources.

9.6 Non-Competition. During the Term and for an additional period of either:

(i) [*****] if :

(1) SIGMA-TAU terminates this Agreement, or

(2) ARADIGM terminates this Agreement under Section 11.2 (c), (d), (e) , or
(f) (but, with respect to Section 11.2(f), only if ARADIGM is acting with
respect to Section 2.5(c)); or

(ii) [*****]

SIGMA-TAU shall not Process any [*****] product for itself or for or on behalf
of any Third Party. The Parties agree that at ARADIGM may waive this restriction
generally or for a specific Third Party at any time during the Term or after the
expiration of the Term.

Section 10. INDEMNIFICATION, LIMITATION OF LIABILITY, AND INSURANCE

10.1 Responsibility and Control. ARADIGM and SIGMA-TAU shall each be solely
responsible for the safety of its own employees, agents, Affiliates, or
independent contractors with respect to its performance under this Agreement.

10.2 ARADIGM’s Right to Indemnification. SIGMA-TAU shall indemnify and hold
harmless ARADIGM, its Affiliates, and their respective directors, officers,
employees and agents (“ARADIGM Indemnitees”) from and against any and all suits,
claims, losses, demands, liabilities, damages, costs and expenses (including
reasonable attorneys’ fees) in connection with any suit, demand or action by any
Third Party (“Losses”) arising out of or resulting from (A) any breach of its
representations, warranties or obligations set forth in this Agreement
(including, for clarity, a breach of Section 8.1(a) and 8.1(b)); (B) any actual
or alleged infringement or violation of any patent, trade secret, copyright,
trademark or other proprietary rights by SIGMA-TAU; or (C) any gross negligence
or willful misconduct by SIGMA-TAU, except to the extent that any of the
foregoing (A) through (C) arises out of or results from any ARADIGM Indemnitee’s
negligence, willful misconduct or breach of this Agreement.

10.3 SIGMA-TAU’s Right to Indemnification. ARADIGM shall indemnify and hold
harmless SIGMA-TAU, its Affiliates, and their respective directors, officers,
employees and agents (“SIGMA-TAU Indemnitees”) from and against all Losses
arising out of or resulting from (A) any breach of its representations,
warranties or obligations set forth in this Agreement; (B) any

 

[*****] Confidential portions of this document have been redacted and filed
separately with the Securities and Exchange Commission.

 

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sale, promotion, distribution, use of or exposure to the Product, including,
without limitation, product liability or strict liability relating to design
defects or the labeling/marketing of the Product; (C) ARADIGM’s exercise of
control over the Processing to the extent that ARADIGM’s instructions or
directions violate Applicable Law; (D) any actual or alleged infringement or
violation of any patent, trade secret, copyright, trademark or other proprietary
rights by ARADIGM; or (E) any negligence or willful misconduct by ARADIGM,
except to the extent that any of the foregoing (A) through (E) arises out of or
results from any SIGMA-TAU Indemnitee’s gross negligence, willful misconduct or
breach of this Agreement.

10.4 Indemnification Procedures. Promptly after receipt by a ARADIGM Indemnitee
or an SIGMA-TAU Indemnitee (together or individually, an “Indemnitee”) of notice
of any pending or threatened claim against it (an “Action”), such Indemnitee
shall give written notice to the Person to whom the Indemnitee is entitled to
look for indemnification pursuant to this Article 10 (the “Indemnifying Party”)
of the commencement thereof, provided that the failure so to notify the
Indemnifying Party shall not relieve it of any liability that it may have to any
Indemnitee hereunder, except to the extent the Indemnifying Party demonstrates
that it is prejudiced thereby. In case any Action that is subject to
indemnification under Section 10.2 or Section 10.3 above shall be brought
against an Indemnitee and it shall give written notice to the Indemnifying Party
of the commencement thereof, the Indemnifying Party shall be entitled to
participate therein and, if it so desires, to assume the defense thereof with
counsel reasonably satisfactory to such Indemnitee and, after notice from the
Indemnifying Party to the Indemnitee of its election to assume the defense
thereof, the Indemnifying Party shall not be liable to such Indemnitee under
this Section 10.4 for any fees of other counsel or any other expenses, in each
case subsequently incurred by such Indemnitee in connection with the defense
thereof, other than reasonable costs of investigation. Notwithstanding an
Indemnifying Party’s election to assume the defense of any such Action that is
subject to indemnification under Section 10.2 or Section 10.3 above, the
Indemnitee shall have the right to employ separate counsel and to participate in
the defense of such Action at its own expense. If an Indemnifying Party assumes
the defense of such Action, no compromise or settlement thereof may be effected
by the Indemnifying Party without the Indemnitee’s written consent, which
consent shall not be unreasonably withheld or delayed, unless (i) there is no
finding or admission of any violation of law or any violation of the rights of
any Person and no effect on any other claims that may be made against the
Indemnitee and (ii) the sole relief provided is monetary damages that are paid
in full by the Indemnifying Party.

10.5 Except as otherwise expressly provided in this Agreement, ARADIGM’s sole
remedy for breach of SIGMA-TAU’s warranty in Section 8.1(a) or 8.1(b) shall be
to require SIGMA-TAU to re-perform the relevant services at SIGMA-TAU’s cost.

10.6 SIGMA TAU’S MAXIMUM CUMULATIVE LIABILITY FOR DAMAGES IN CONNECTION WITH ALL
CLAIMS RELATED TO THIS AGREEMENT, REGARDLESS OF THE CAUSE OF ACTION, WILL NOT
EXCEED THE SUM TOTAL OF THE AMOUNTS PAID OR PAYABLE BY ARADIGM TO SIGMA-TAU IN
THE PRECEDING TWELVE (12) MONTHS.

10.7 EXCEPT AS EXPRESSLY STATED HEREIN, SIGMA-TAU DOES NOT PROVIDE ARADIGM WITH
ANY WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE PROCESSING OR THE
SERVICES PROVIDED HEREUNDER, AND

 

26

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ALL SUCH WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY
IMPLIED WARRANTIES OF MERCHANTIBILITY OR FITNESS FOR A PARTICULAR PURPOSE ARE
WAIVED, OTHER THAN AGREED HEREIN. SIGMA-TAU MAKES NO WARRANTIES THAT THE
EXECUTION OF THIS AGREEMENT WILL RESULT IN ANY SPECIFIC QUANTITY OR QUALITY OF
PRODUCT. NO PARTY WILL BE ENTITLED TO RECOVER FROM THE OTHER PARTY ANY INDIRECT,
SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OF ANY KIND OR NATURE IN
CONNECTION WITH THIS AGREEMENT.

10.8 Insurance. Each Party will, at all times during the Term of this Agreement,
maintain in full force and effect, for the benefit of itself and the other,
commercial general liability insurance policy which (i) is sufficient to
adequately protect against the risks associated with its ongoing business,
including the risks which might possibly arise in connection with the
transactions contemplated by this Agreement and which is at least Ten Million
Dollars ($10,000,000), and (ii) provides that it cannot be terminated or
canceled without giving the other Party thirty (30) days prior written notice.
Each Party shall furnish the other with a certificate of insurance evidencing
that such insurance coverage is in force upon the other’s request from time to
time.

Section 11. TERM AND TERMINATION-PENDING OTHER TERMS

11.1 Term. The term of this Agreement shall commence on the Effective Date and
remain in effect for a period of five (5) years (the “Initial Term”), unless
sooner terminated as expressly provided under the terms of this Agreement. The
Initial Term will be automatically renewed for additional two year period(s)
(each a “Renewal Term”) unless one Party delivers notice to the other Party no
later than twenty four (24) months prior to the commencement of each Renewal
Term. The term of this Agreement shall consist of the Initial Term and any
Renewal Term (together, the “Term”).

11.2 Termination. Except as expressly set forth below, neither Party shall have
the right to terminate this Agreement prior to the expiration of the Term:

(a) ARADIGM may terminate the Agreement for convenience by providing notice to
the other Party [*****] in advance of the intended date of termination.

(b) At any time (i) [*****] after the Effective Date, ARADIGM may terminate the
Development Plan with six (6) months advanced written notice to SIGMA-TAU.

(c) If a Party has materially breached any of its other obligations hereunder,
and such material breach shall continue for thirty (30) days after written
notice of such breach was provided to the breaching Party by the non-breaching
Party, the non-breaching Party shall have the right at its option to terminate
this Agreement effective at the end of such thirty (30) day period.

 

[*****] Confidential portions of this document have been redacted and filed
separately with the Securities and Exchange Commission.

 

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(d) ARADIGM may terminate this Agreement with thirty (30) days’ notice to
SIGMA-TAU in the event of a Supply Failure or failure to receive regulatory
approval from a Governmental Authority in both the United States and Europe,
subject to the requirement of a prior good faith discussion between CEOs, as set
forth in Section 4.5.

(e) ARADIGM shall have the right to terminate this Agreement in the event that
any inspection or audit rights reveal that SIGMA-TAU’s Processing facilities or
processes are not materially in compliance with Applicable Law and such
non-compliance is not cured within thirty (30) days by SIGMA-TAU after written
notice is given to SIGMA-TAU by ARADIGM, except in the case of any
non-compliance that cannot be cured within such thirty (30) day period, if
SIGMA-TAU without undue delay commences good faith, diligent actions to cure
such non-compliance, in which event the cure period shall be extended for so
long as SIGMA-TAU is thereafter diligently continuing such good faith, diligent
actions to cure such non-compliance.

(f) ARADIGM shall have the right to terminate this Agreement pursuant to
Sections 2.5(c) and 13.

11.3 Effect of Termination.

(a) Upon termination of this Agreement by ARADIGM pursuant to Section 11.2 (c),
(d), (e) or (f), (i) SIGMA-TAU shall grant ARADIGM a non-exclusive license under
SIGMA-TAU’s patents and know-how solely to make and have made DP and Product and
not for any other purpose, (ii) SIGMA-TAU shall provide to ARADIGM a copy of all
data, or information generated during the performance of the Processing or
Services that is reasonably necessary to make and have made DP and Product, and
(iii) SIGMA-TAU shall provide reasonable assistance required to enable an
expeditious Technology Transfer for ARADIGM to Process DP and Product for itself
(or through a Third Party Manufacturer) at no cost to ARADIGM.

(b) Upon termination of this Agreement by SIGMA-TAU pursuant to Section 11.2(c),
ARADIGM shall pay to SIGMA-TAU all amounts set forth in the Development Plan (if
then in effect), all amounts due under any Firm Order then in place and for any
remaining amounts of Safety Stock; provided SIGMA-TAU shall deliver to ARADIGM
or ARADIGM’s designee all inventory of Product as well as all DP and
intermediates related to such affected Firm Orders and all Safety Stock in SIGMA
TAU’s possession.

(c) Upon termination of this Agreement by ARADIGM pursuant to Section 11.2(a),
ARADIGM shall pay to SIGMA-TAU all amounts due under any Firm Order to be
Delivered before the effective date of Termination and for any amounts of Safety
Stock remaining upon the termination;

(d) Upon termination of this Agreement for any reason, SIGMA-TAU shall promptly
deliver all ARADIGM Equipment to ARADIGM, at ARADIGM’s expense and in accordance
with ARADIGM’s shipping instructions.

 

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(e) Upon termination of this Agreement for any reason (whether due to breach of
either Party or otherwise), SIGMA-TAU will furnish to ARADIGM a complete
inventory of all Materials and work in progress for the Processing of DP and
Product.

(f) The provisions of Articles 9, 10, 11, 14 shall survive any expiration or
termination of this Agreement.

11.4 Continuing Obligations. Termination of this Agreement for any reason will
not relieve the Parties of any obligation accruing prior thereto and will be
without prejudice to the rights and remedies of either Party with respect to any
antecedent breach of the provisions of this Agreement.

11.5 Returned Materials. By no later than the date on which the termination of
this Agreement becomes effective, ARADIGM and SIGMA-TAU each will return to the
other all information (including without limitation Confidential Information)
and other materials in its possession or control that belongs to the other
Party, except that each Party may retain a copy of such information of such
other Party in its legal department for record keeping purposes, and, if
required by Applicable Laws, SIGMA-TAU may retain samples of DP and Product as
necessary to meet its legal and regulatory requirements.

Section 12. NOTICES

12.1 Notices. Notices shall be effective upon receipt if personally delivered,
on the third business day following the date of mailing if sent by registered or
certified mail, and on the second business day following the date of
transmission or delivery to the express mail service if sent by facsimile or
express mail. A Party may change its address listed above by notice to the other
Party. Any notices required or permitted under this Agreement shall be directed
as follows:

 

For SIGMA-TAU:   

Sigma-Tau PharmaSource, Inc.

6925 Guion Road

Indianapolis, IN 46268

 

Fax:

with a copy to:   

Sigma-Tau Pharmaceuticals, Inc.

Attn: Legal Dept.

9841 Washingtonian Blvd.

Gaithersburg, MD 20878

Fax: 301-354-5348

For ARADIGM:   

Aradigm Corporation

3929 Point Eden Way,

Hayward, CA 94545

Attn: Chief Executive Officer”

Fax: 510-265-8875

 

29

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with a copy to:   

Aradigm Corporation

3929 Point Eden Way,

Hayward, CA 94545

Attn: Chief Financial Officer

Fax: 510-265-8879

or to such other addresses as shall have been subsequently furnished by written
notice to the other Party.

Section 13. FORCE MAJEURE

13.1 Force Majeure. If either Party shall be delayed or hindered in or prevented
from the performance of any act required hereunder by reason of Third Party
strike, Third Party lockouts, Third Party labor troubles, restrictive
governmental or judicial orders or decrees, riots, insurrection, war, terrorist
acts, acts of God, inclement weather, or other reason or cause reasonably beyond
such Party’s control (each a “Force Majeure”), then performance of such act
shall be excused for the period of such Force Majeure. The Party affected by the
Force Majeure shall provide notice to the other of the commencement and
termination of the Force Majeure. Should a Force Majeure continue for more than
two (2) months, the Party unaffected by the Force Majeure may terminate this
Agreement upon prior written notice to the affected Party. If the Force Majeure
equally affects the ability of each Party to perform under this Agreement, then
such termination shall only be by mutual written agreement. In the event of any
other type of unforeseen material change in circumstances (that does not qualify
as Force Majeure), both Parties agree to negotiate in good faith to find a
commercially reasonable solution.

Section 14. MISCELLANEOUS

14.1 Press Release. The Parties shall issue a press release promptly after
signature of this Agreement, the content of which shall be agreed upon by the
Parties in good faith.

14.2 Modifications. No change, modification or amendment of any obligation, term
or provision contained herein shall be valid or enforceable unless same is
reduced to writing and signed by a duly authorized representative of each of the
Parties to be bound hereby.

14.3 Independent Contractors. This Agreement shall not constitute or give rise
to any agency (except as set forth in Section 4.1), partnership or joint venture
relationship among or between the Parties, and each Party’s performance
hereunder is that of a separate, independent entity.

14.4 No Implied Rights. Nothing in this Agreement shall be deemed or implied to
be the grant by one Party to the other of any right, title or interest in any
proprietary right of the other except as is expressly provided for herein.

14.5 Severability. To the extent any provision or term set forth herein is or
becomes unenforceable by operation of Applicable Laws, such unenforceability
shall not affect the remaining provisions of this Agreement. The Parties shall
renegotiate in good faith any such unenforceable provision or term held to be
unenforceable and to be bound by the mutually agreed substitute provision.

 

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14.6 Governing Law. The validity and interpretation of this Agreement and the
legal relations of the Parties to it shall be governed by the laws of the New
York, with the exception of its choice of laws provisions.

14.7 Counterparts. This Agreement may be executed in two (2) counterparts, each
of which is to be considered an original, and taken together as one and the same
document.

14.8 Agency. Neither Party is, nor shall be deemed to be, an employee, agent,
co-venturer or legal representative of the other Party for any purpose. Neither
Party shall be entitled to enter into any contracts in the name of, or on behalf
of the other Party, nor shall either Party be entitled to pledge the credit of
the other Party in any way or hold itself out as having the authority to do so.

14.9 Assignment. Except as otherwise provided herein, neither this Agreement nor
any interest hereunder shall be assignable by either Party without the prior
written consent of the other (which consent shall not be unreasonably withheld);
provided, however, that either Party may assign this Agreement to (i) any
wholly-owned subsidiary in a manner such that the assignor (if it continues as a
separate entity) shall remain liable and responsible for the performance and
observance of all its duties and obligations hereunder or (ii) to any successor
by merger or sale of substantially all of its business unit to which this
Agreement relates. Notwithstanding the foregoing, ARADIGM may assign this
Agreement and any obligations and rights hereunder, in whole and/or in part, to
Grifols S.A. (and/or any of its affiliates) with three (3) months’ written
notice to SIGMA-TAU. This Agreement shall be binding upon the successors and
permitted assignees of the Parties and the name of a Party appearing herein
shall be deemed to include the names of such Party’s successors and permitted
assigns to the extent necessary to carry out the intent of this Agreement. Any
assignment not in accordance with this Section shall be void.

14.10 Further Actions. Each Party shall execute, acknowledge and deliver such
further instruments, and to do all such other acts, as may be necessary or
appropriate in order to carry out the purposes and intent of the Agreement.

14.11 Waiver. No provision of the Agreement shall be waived by any act, omission
or knowledge of a Party or its agents or employees except by an instrument in
writing expressly waiving such provision and signed by a duly authorized officer
of the waiving Party. The waiver by either Party to this Agreement of a breach
of any provision set forth herein or of any right contained herein shall not
operate as or be construed as a continuing waiver or a waiver of any subsequent
breach or right granted herein.

14.12 Descriptive Headings. The section headings of this Agreement are for
convenience only, and shall be of no force or effect in construing or
interpreting any of the provisions of this Agreement.

14.13 Entire Agreement of the Parties. This Agreement, including the Exhibits
attached hereto, constitute and contain the complete, final and exclusive
understanding and agreement of the Parties hereto, and cancels and supersedes
any and all prior negotiations, correspondence, understandings, representations
and agreements, whether oral or written, between the Parties respecting the
Processing of DP and Product.

 

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14.14 Jointly Prepared. This Agreement has been prepared jointly and shall not
be strictly construed against either Party.

14.15 Dispute Resolution.

(a) In the event of disputes arising in connection with this Agreement, the
Parties shall try to come to an amicable settlement by submitting the dispute in
writing to the Chief Executive Officers (“CEOs”) of ARADIGM and SIGMA-TAU (or
such persons’ designee of equivalent or superior position). Should they fail to
settle the dispute amicably within thirty (30) days, the dispute shall be
finally settled by binding arbitration, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association Rules in effect. Each
Party shall appoint one arbitrator and the arbitrators so chosen shall appoint a
third arbitrator.

(b) The arbitration decision shall be final and binding upon the Parties
involved and may not be appealed to any court in any jurisdiction. The
prevailing Party may enter such decision in any court having competent
jurisdiction should the non-prevailing Party not comply with the binding
decisions awarded to the prevailing Party by the agreed upon arbitrator (as
agreed upon in section 21.12(a)).

(c) Each Party shall pay its own expenses of arbitration and the expenses of the
arbitrators shall be equally shared, provided that if, in the opinion of the
arbitrators, any claim by a Party hereto or any defense or objection thereto by
the other Party was unreasonable, the arbitrators may in their discretion as
part of the award allot any part of the arbitration expenses of the other Party
(including reasonable attorney’s fees) and expenses of the arbitrators against
the Party raising such unreasonable claim, defense or objection.

(d) Either Party may, without inconsistency with this Agreement, apply to any
court having jurisdiction hereof and seek injunctive relief so as to maintain
the status quo until such time as the arbitration award is rendered or the
controversy is otherwise resolved.

14.16 Injunctive Relief. Notwithstanding the foregoing, either Party shall have
the right to pursue an action in a court of competent jurisdiction to obtain
injunctive or other equitable remedy, in order to preserve the status quo during
the resolution of any dispute under Section 14.15.

The Remainder of this Page is Intentionally Blank.

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in
duplicate by their duly authorized representatives in the places provided below:

 

ARADIGM CORPORATION     SIGMA-TAU PHARMASOURCE, INC. By:   /s/ Nancy E. Pecota  
  By:   /s/ David Lemus Title:   CFO     Title:   CEO Date:   26 August 2013    
Date:   8/25/13

 

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EXHIBIT A

DEVELOPMENT PLAN

This Exhibit ‘A’ has been redacted in its entirety.*

 

*  Confidential portions of this document have been redacted and filed
separately with the Securities and Exchange Commission.

 

34

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EXHIBIT B

EQUIPMENT LIST

 

50L Liposomal process

equipment Description

  

Asset #

  

Date acquired

LIPEX extrusion system    3783    2/1/2009 Diafiltration system    3801   
2/11/2008 Peristaltic pumps    3809    2/1/2009 200L ASME portable tank    3810
   2/1/2009 200L ASME portable tank    3811    2/1/2009 200L ASME portable tank
   3812    2/1/2009 30L ASME portable tank    3813    2/1/2009 50L ASME portable
tank    3814    2/29/2008 Ultrafiltration diafiltration system    3830   
2/1/2009

 

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EXHIBIT C

QUALITY AGREEMENT

[The Quality Agreement will be finalized and executed promptly after the
Effective Date by the Parties]

 

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EXHIBIT D

SPECIFICATIONS

Specification for Ciprofloxacin for Inhalation, 50 mg/mL (3 mL fill)

 

Test

  

Acceptance Criteria

  

Analytical
Method #

Description    White, to off white translucent dispersion free of visible
particulates    ACM-2002 Identification of Ciprofloxacin HCl    Retention time
within ±5% of that of the reference compound    ACM-2001 Ciprofloxacin HCl
content by HPLC   

Release: 47.5 to 52.5 mg/mL (95.0 to 105.0%LC*) (target = 50.0 mg/mL)

Shelf-life: 45.0 to 55.0 mg/mL (90.0 to 110.0%LC*)

   ACM-2001 Ciprofloxacin HCl degradation products by HPLC    Report values as %
peak area identified by relative retention time    ACM-2001 Ciprofloxacin
Encapsulation    ³ 90.0% (target > 98.0%)    ACM-2001 Identification of
Cholesterol    Retention time within ±5% of that of the reference compound   
ACM-2000 Cholesterol content by HPLC    Release: 25.0 to 29.0 mg/mL (target =
27.0 mg/mL) Shelf-life: 23.7 to 30.3 mg/mL    ACM-2000 Cholesterol degradation
products by HPLC    Report values as % peak area identified by relative
retention time    ACM-2000 Identification of HSPC    Retention time within ±5%
of that of the reference compound    ACM-2004 HSPC content by HPLC   

Release: 55.0 to 76.8 mg/mL (target = 65.9 mg/mL)

Shelf-life: 46.9 to 80.1 mg/mL

   ACM-2004 HSPC degradation products by HPLC    Report values as % peak area
identified by relative retention time    ACM-2004 Vesicle size    Mean of
primary peak is between 75 to 120 nm    ACM-2002 pH    5.1 to 6.9 (target = 6.0)
   ACM-2002 Osmolality by vapor pressure osmometer    255 to 345 mOsm/Kg (target
= 300)    ACM-2002

Residual solvents by GC

(t-butyl alcohol)

   No more than 0.1% (v/v)    ACM-2003

Residual solvents by GC

(ethyl alcohol)

   No more than 0.1% (v/v)    ACM-2003 Sterility    No growth as per USP<71>   
ACM-0071

 

*LC= Label Claim

 

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Specification for Free Ciprofloxacin for Inhalation, 20 mg/mL (3 mL fill)

 

Test

  

Acceptance Criteria

  

Analytical
Method #

Description    A pale yellow solution free of visible particulates. If solution
appears cloudy, shake well at room temperature to obtain a clear solution.   
ACM-2002 Identification of Ciprofloxacin HCl    Retention time within ±5% of
that of the reference compound    ACM-2001 Ciprofloxacin HCl content by HPLC   

Release: 19.0 to 21.0 mg/mL (95.0 to 105.0% LC*)

(target = 20.0 mg/mL)

Shelf-life: 18.0 to 22.0 mg/mL (90.0 to 110.0%LC*)

   ACM-2001 Ciprofloxacin HCl degradation products by HPLC    Report values as %
peak area identified by relative retention time    ACM-2001 pH   

3.0 to 3.4 (target = 3.2)

Shelf-life: 2.9 to 3.5

   ACM-2002 Sterility    No growth as per USP<71>    ACM-0071

 

*LC= Label Claim

 

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EXHIBIT E

RATE FOR PROFESSIONAL FEES/SERVICES

 

  •   [*****] for professional services

  •   [*****] for technician services

  •   A second annual quality audit shall be billed at [*****]/day for the first
Sigma-Tau professional staffed on the audit, plus administrative support.
Additional Sigma-Tau staffing is subject to additional professional service
fees. An estimated 7-10 professionals is anticipated for a typical quality
audit.

  •   [*****] for QC testing services

SIGMA-TAU shall have the right to increase such rates for professional
fees/services on an annual basis, not to exceed the pharmaceutical Producer
Price Index (as published by Bureau of Labor Statistics, Industry Code 325412).

PRICING OF COMMERCIAL BATCHES

“Price” means the Processing cost of each Batch of Product, plus [*****]. The
Processing cost of each Product shall mean the sum of Direct Expenses, Indirect
Expenses and Overhead Costs actually incurred in, and allocable to, the
Processing of such Product. As used herein:

“Direct Expenses” means those direct materials (“Direct Materials”) and direct
labor (“Direct Labor”) and direct expenses (“Direct Expenses) involved in the
Processing of the Product. Direct Materials will be the standard cost to
purchase the raw materials including freight cost and all raw material
components used in manufacturing the product. Direct labor will include the four
SIGMA-TAU departments that Process the Product: manufacturing, chemistry,
microbiology and quality assurance. SAP routing hours will be established for
the standard labor hours to perform each task in the Processing of a Batch.
Those standard hours times a costing rate will equate to the total Direct Labor
costs. The Direct Labor costing rate will be based upon salaries and fringe
benefits for the personnel directly involved in the Processing the Product.
Direct Expenses also includes reasonable out-of-pocket payments to Third Parties
for services related to the Processing of such Product or components thereof.

“Indirect Expenses” means a reasonable allocation of expenses associated with
personnel supporting the direct Processing of such Product for supply to
ARADIGM, and includes labor and overhead raw material acquisition and
acceptance, document control, calibration/validation, and non-R&D expenses for
process development and analytical methods development, but shall not include
any Direct Expenses.

 

[*****] Confidential portions of this document have been redacted and filed
separately with the Securities and Exchange Commission.

 

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“Overhead Costs” means a reasonable allocation of direct and indirect
manufacturing costs that cannot be identified in a practical manner with
specific units of production and, therefore, cannot be included in Cost of Goods
Sold as either Direct Expenses or Indirect Expenses. Such Overhead Costs shall
include any fees paid to the FDA, and costs actually incurred in connection with
direct and indirect logistics; import and export duties; applicable taxes;
reasonable and customary brokerage fees, port fees, and storage fees; shipping
and handling; quality control; and quality assurance. Overhead Costs shall
exclude any costs allocable to excess manufacturing capacity of manufacturing
facilities, and any royalties or license fees payable to Third Parties.

However, under no circumstances should the Price of a Batch exceed the Prices
stated in the Development Plan: Liposomal Ciprofloxacin for Inhalation shall be
capped at [*****] US Dollars per 100L Batch, and Free Ciprofloxacin for
Inhalation shall be capped at $250,616 US Dollars per 100L Batch.

 

[*****] Confidential portions of this document have been redacted and filed
separately with the Securities and Exchange Commission.

 

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Schedule 9.1(A)

ARADIGM Confidential Information

Product Processing information for Drug Product and/or Product:

 

  •   The Process description for all bulk drug products Processed in the
Development Plan and revisions thereof.

  •   Development reports and all Product-specific research and development
information provided to Sigma-Tau by Aradigm or on behalf of Aradigm or such
information generated pursuant to the Development Plan.

  •   MBRs and Batch Records used in the Processing of the Product

  •   Product and Material Specifications

  •   Product storage and transportation procedures, conditions, protocols,
SOPs, data and related information.

  •   Validation and qualification protocols, reports and related
Product-specific documents.

  •   Product-specific SOPs and Product-specific information contained within
any SOP.

  •   Product-specific waste disposal protocols used during the processing of
Product.

  •   Product-specific process optimization and scale-up related information.

  •   All Product-specific modification to Sigma-Tau equipment, facility, SOPs,
procedure and practices as they relate directly to the Drug Product or Product.

Aradigm Equipment:

 

  •   Equipment Specifications

  •   Operation instructions and SOPS

  •   Cleaning procedures

  •   Maintenance schedules and records

  •   Utility requirements

  •   All upgrades and customizations of Aradigm Equipment.

 

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Quality Control, Testing and Stability:

 

  •   Product-specific test methods for:

 

Identification of Ciprofloxacin HCl Ciprofloxacin HCl content by HPLC
Ciprofloxacin HCl degradation products by HPLC Ciprofloxacin Encapsulation
Identification of Cholesterol Cholesterol content by HPLC Cholesterol
degradation products by HPLC Identification of HSPC HSPC content by HPLC HSPC
degradation products by HPLC

Vesicle size

pH

Osmolality by vapor pressure osmometer

 

  •   Product raw material testing methods for:-

 

Ciprofloxacin HCl Cholesterol HP HSPC Ammonium Sulfate L-Histidine

 

  •   The results of all testing and stability studies performed under the
Development Plan or during the performance of the Services, Processing and
Delivery of Drug Product and Product.

Quality Assurance:

 

  •   All Product-specific deviations, investigations, or similar information
and interactions between the quality departments including E-mails and phone
calls, which are directly related to the Product

  •   All Product-specific information in deviations, investigations or similar
information or interactions, including E-mails and phone calls, between the
quality departments that are indirectly related to the Product

Regulatory Information:

 

  •   All regulatory filings related to the Product

  •   All communications with Regulatory Authorities related directly related to
the product.

  •   All Product-specific information in communications with Regulatory
Authorities indirectly related to the product.

  •   Labeling information.

 

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Clinical Information

 

  •   All information related to the Processing, manufacture, packaging and
disposition of the clinical Materials described in the Development Plan.

Business-related Information

 

  •   Product Forecasts

  •   Sales forecasts

  •   Patents applications made by Aradigm.

  •   Product-specific costs including Processing, Raw Materials, Equipment and
Delivery.

  •   Pricing and reimbursement information.

 

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Schedule 9.1(B)

SIGMA-TAU Confidential Information

Except, in all cases, (i) for the information and equipment described in
Schedule 9.1(A) and (i) to the extent not specific to the Drug Product or
Product, SIGMA-TAU Confidential Information will include:

Product processing information for all drug products and/or products of
SIGMA-TAU and its third party customers:

 

  •   The process description for all bulk drug products processed at SIGMA-TAU
(for drug products other than the Drug Product).

  •   Development reports and all product-specific research and development
information (for products other than the Product).

  •   Master batch records and batch records used in the processing of the
SIGMA-TAU and other third party customers products

  •   Product and raw material specifications for products of SIGMA-TAU and
other third party customers.

  •   Product storage and transportation procedures, conditions, protocols,
SOPs, data and related information.

  •   Validation and qualification protocols, reports and related
product-specific documents (for products other than the Product).

  •   Product-specific SOPs and product-specific information contained within
any SOP (for products other than the Product).

  •   Product-specific waste disposal protocols used during the processing of
product (for products other than the Product).

  •   Product-specific process optimization and scale-up related information
(for products other than the Product).

  •   All product-specific modification to Sigma-Tau equipment, facility, SOPs,
procedure and practices as they relate directly to the drug product or product
(for drug products and products other than the Drug Product and Product).

SIGMA-TAU Equipment:

 

  •   Equipment Specifications

  •   Operation instructions and SOPS

  •   Cleaning procedures

  •   Maintenance schedules and records

  •   Utility requirements

 

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Quality Control, Testing and Stability:

 

  •   All test methods for all materials and products of SIGMA-TAU and of other
third party customers.

  •   The results of all testing and stability studies performed at SIGMA-TAU.

Quality Assurance:

 

  •   All deviations, investigations, or similar information and interactions
between the quality departments including E-mails and phone calls.

  •   All product-specific information in deviations, investigations or similar
information or interactions, including E-mails and phone calls, between the
quality departments of SIGMA-TAU and other third party customers.

Regulatory Information:

 

  •   All regulatory filings related to products of SIGMA-TAU and other third
party customers

  •   All communications with Regulatory Authorities

  •   Labeling information.

Clinical Information

 

  •   All information related to the processing, manufacture, packaging and
disposition of the clinical materials processed at SIGMA-TAU (for products other
than the Product).

Business-related Information

 

  •   All SIGMA-TAU documents

  •   Product forecasts (for products other than the Product)

  •   Sales forecasts

  •   Patents applications made by SIGMA-TAU and other third party customers

  •   All SIGMA-TAU owned information on costs including Personnel, processing,
raw materials, equipment and delivery.

  •   Pricing and reimbursement information.

 

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