Exhibit 10.4
 
ARADIGM CORPORATION
INDEMNIFICATION AGREEMENT
 
This Indemnification Agreement (this “Agreement”) is dated as of [insert date],
and is between Aradigm Corporation, a California corporation (the “Company”),
and [insert name of indemnitee] (“Indemnitee”).
 
RECITALS
 
A.        Indemnitee’s service to the Company substantially benefits the
Company.
 
B.        Individuals are reluctant to serve as directors or officers of
corporations or in certain other capacities unless they are provided with
adequate protection through insurance or indemnification against the risks of
claims and actions against them arising out of such service.
 
C.        The articles of incorporation and bylaws of the Company provide that
the Company is authorized to indemnify directors, officers, employees and other
agents of the Company to the fullest extent permitted by applicable law, and the
Company’s articles of incorporation limit the liability for monetary damages of
directors of the Company to the fullest extent permitted by applicable law. In
addition, Indemnitee may be entitled to indemnification pursuant to the
California General Corporation Law (the “CGCL”). The Company’s articles of
incorporation, bylaws and the CGCL expressly provide that the indemnification
provisions set forth therein are not exclusive and thereby contemplate that
contracts may be entered into between the Company and directors, officers and
other persons with respect to indemnification.
 
D.        The Company and Indemnitee are parties to an existing indemnification
agreement (the “Existing Agreement”).
 
E.        Indemnitee does not regard the protection currently expressly provided
by applicable law, the Company’s governing documents, the Existing Agreement and
any insurance as adequate under the present circumstances, and Indemnitee may
not be willing to serve as a director or officer without additional protection.
 
E.        In order to induce Indemnitee to continue to provide services to the
Company, it is reasonable, prudent and necessary for the Company to
contractually obligate itself to indemnify, and to advance expenses on behalf
of, Indemnitee to the extent permitted by applicable law.
 
F.        This Agreement is a supplement to and in furtherance of the
indemnification provided in the Company’s articles of incorporation and bylaws,
and any resolutions adopted pursuant thereto, and this Agreement shall not be
deemed a substitute therefor, nor shall this Agreement be deemed to limit,
diminish or abrogate any rights of Indemnitee thereunder. This Agreement
replaces the Existing Agreement in its entirety.
 
The parties therefore agree as follows:
 
1.        Indemnity in Third-Party Proceedings. The Company shall indemnify
Indemnitee if Indemnitee was or is a party or is threatened to be made a party
to any threatened, pending or completed action or proceeding, whether civil,
criminal, administrative or investigative (a “Proceeding”) (other than an action
by or in the right of the Company to procure a judgment in its favor) by reason
of the fact that Indemnitee is or was a director, officer, employee or other
agent of the Company or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against Expenses (as defined below), judgments, fines, settlements and other
amounts actually and reasonably incurred by Indemnitee in connection with the
Proceeding if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in the best interests of the Company, and, in the case
of any criminal Proceeding, had no reasonable cause to believe Indemnitee’s
conduct was unlawful. The termination of any Proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that (i) Indemnitee did not act in
good faith and in a manner which Indemnitee reasonably believed to be in the
best interests of the Company or (ii) Indemnitee had reasonable cause to believe
that Indemnitee’s conduct was unlawful.
 
2.        Indemnity in Proceedings by or in the Right of the Company. The
Company shall indemnify Indemnitee if Indemnitee was or is a party or is
threatened to be made a party to any threatened, pending or completed action by
or in the right of the Company to procure a judgment in its favor by reason of
the fact that Indemnitee is or was a director, officer, employee or other agent
of the Company or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
Expenses actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of such action if Indemnitee acted in good faith, in a
manner Indemnitee believed to be in the best interests of the Company and its
shareholders.
 
 
 

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Exhibit 10.4
 
3.        Indemnification for Expenses of a Party Who is Wholly or Partly
Successful. To the extent that Indemnitee has been successful on the merits in
defense of any Proceeding referred to in Section 1 or 2 or in defense of any
claim, issue or matter therein, Indemnitee shall be indemnified against Expenses
actually and reasonably incurred by Indemnitee in connection therewith.
 
4.        Indemnification for Expenses of a Witness. To the extent that
Indemnitee is, by reason of his or her position as a director, officer, employee
or agent of the Company, a witness in any action, suit or proceeding to which
Indemnitee is not a party, he or she shall be indemnified to the extent
permitted by applicable law against all Expenses actually and reasonably
incurred by him or her or on his or her behalf in connection therewith.
 
5.        Additional Indemnification Rights. Subject to Section 7 and any other
provision of this Agreement that prohibits, limits or conditions indemnification
by the Company, the Company agrees to indemnify Indemnitee to the fullest extent
permitted by law for any acts, omissions or transactions while acting in the
capacity of, or that are otherwise related to the fact that Indemnitee was or is
serving as, a director, officer, employee or other agent of the Company or, to
the extent Indemnitee is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, such other corporation, partnership, joint
venture, trust or other enterprise, notwithstanding that such indemnification is
not specifically authorized by the other provisions of this Agreement, the
Company’s articles of incorporation, the Company’s bylaws or by statute. In the
event of any change, after the date of this Agreement, in any applicable law,
statute or rule that expands the right of a California corporation to indemnify
a director, officer or other corporate agent beyond that currently permitted
under this Agreement, the applicable changes shall be, ipso facto, within the
purview of Indemnitee’s rights and Company’s obligations under this Agreement,
subject to the restrictions expressly set forth herein or therein. In the event
of any change in any applicable law, statute or rule that narrows the right of a
California corporation to indemnify a director, officer or other corporate
agent, it is the intent of the parties hereto that the rights of the parties in
effect prior to such change shall remain in effect to the extent permitted by
applicable law.
 
6.        Partial Indemnification. If Indemnitee is entitled under this
Agreement to indemnification by the Company for some or a portion of the
Expenses, judgments, fines, settlements or other amounts actually and reasonably
incurred by Indemnitee in connection with any Proceeding, but not, however, for
the total amount thereof, the Company shall indemnify Indemnitee for such
portion of the Expenses, judgments, fines, settlements or other amounts to which
Indemnitee is entitled in connection with each successfully resolved matter. For
purposes of this section and without limitation, the termination of any discrete
claim, issue or matter in such a Proceeding by dismissal, with or without
prejudice, shall be deemed to be a successful result as to such claim, issue or
matter.
 
7.        Exceptions. Notwithstanding any provision in this Agreement, the
Company shall not be obligated under this Agreement to make any indemnity in
connection with any Proceeding (or any part of any Proceeding):
 
    (a)        for which payment has actually been made to or on behalf of
Indemnitee under any statute, insurance policy, indemnity provision, vote or
otherwise, except with respect to any excess beyond the amount paid;
 
    (b)        initiated by Indemnitee prior to a Change in Control, , including
any Proceeding (or any part of any Proceeding) initiated by Indemnitee against
the Company or its directors, officers, employees, agents or other indemnitees,
unless (i) the Company’s board of directors authorized the Proceeding (or the
relevant part of the Proceeding) prior to its initiation; (ii) the Company
provides the indemnification, in its sole discretion, pursuant to the powers
vested in the Company under applicable law; (iii) indemnification is required to
be made under Section 10(e); (iv) otherwise required by applicable law; or
(v) indemnification is in connection with actions or Proceedings brought to
establish or enforce a right to indemnification under this Agreement or any
other agreement or insurance policy or under the Company’s articles of
incorporation or bylaws now or hereafter in effect relating to such Proceeding;
 
    (c)        for any acts or omissions or transactions from which a director
may not be relieved of liability as set forth in the exception to
Section 204(a)(10) of the California General Corporation Law or as to
circumstances in which indemnity is expressly prohibited by Section 317 of the
California General Corporation Law;
 
 
 

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Exhibit 10.4
 
(d)        for an accounting or disgorgement of profits pursuant to
Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar
provisions of federal, state or local statutory law or common law, if Indemnitee
is held liable therefor (including pursuant to any settlement arrangements);
 
    (e)        for Expenses incurred by Indemnitee with respect to any action in
which Indemnitee did not act in good faith and in a manner which Indemnitee
reasonably believed to be in the best interests of the Company;
 
    (f)        for any reimbursement of the Company by Indemnitee of any bonus
or other incentive-based or equity-based compensation or of any profits realized
by Indemnitee from the sale of securities of the Company, to the extent required
in each case under the Securities Exchange Act of 1934, as amended (including
any such reimbursements that arise from an accounting restatement of the Company
pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley
Act”), or the payment to the Company of profits arising from the purchase and
sale by Indemnitee of securities in violation of Section 306 of the
Sarbanes-Oxley Act), if Indemnitee is held liable therefor (including pursuant
to any settlement arrangements); or
 
    (g)        if otherwise prohibited by applicable law.
 
8.        Advancement of Expenses. The Company shall advance, to the extent not
prohibited by law, all Expenses actually and reasonably incurred by Indemnitee
in defending any Proceeding referenced in Sections 1 or 2 prior to the final
disposition of the Proceeding (but not amounts actually paid in settlement of
any such Proceeding) upon receipt of a written request therefor (together with
documentation reasonably evidencing such Expenses). Advances shall be unsecured
and interest free and made without regard to Indemnitee’s ability to repay such
advances. Indemnitee hereby undertakes to repay such amounts advanced if it
shall be determined ultimately that Indemnitee is not entitled to be indemnified
by the Company as authorized hereby or by Sections 204(a)(10) or 317 of the
CGCL. The advances to be made hereunder shall be made as soon as reasonably
practicable, but in any event no later than 30 days, after the receipt by the
Company of a written statement or statements requesting such advances from time
to time (which shall include invoices received by Indemnitee in connection with
such Expenses but, in the case of invoices in connection with legal services,
any references to legal work performed or to expenditure made that would cause
Indemnitee to waive any privilege accorded by applicable law shall not be
included with the invoice). This Section 8 shall not apply to any claim for
which indemnity is not permitted under this Agreement or applicable law.
 
9.        Procedures for Notification and Defense of a Claim.
 
    (a)        Notice. Indemnitee shall notify the Company in writing of any
matter with respect to which Indemnitee intends to seek indemnification or
advancement of Expenses as soon as reasonably practicable following the receipt
by Indemnitee of notice thereof. The written notification to the Company shall
include, in reasonable detail, a description of the nature of the Proceeding and
the facts underlying the Proceeding. The failure by Indemnitee to notify the
Company will not relieve the Company from any liability which it may have to
Indemnitee hereunder or otherwise, and any delay in so notifying the Company
shall not constitute a waiver by Indemnitee of any rights, except to the extent
that such failure or delay materially prejudices the Company.
 
    (b)        Notice to Insurers. If, at the time of the receipt of a notice of
a Proceeding pursuant to the terms hereof, the Company has directors’ and
officers’ liability insurance in effect, the Company shall give prompt notice of
the commencement of the Proceeding to the insurers in accordance with the
procedures set forth in the applicable policies. The Company shall thereafter
take all commercially-reasonable action to cause such insurers to pay, on behalf
of Indemnitee, all amounts payable as a result of such Proceeding in accordance
with the terms of such policies; provided, however, that nothing in this
subsection (b) shall relieve the Company of its obligations hereunder (or allow
the Company to delay in its performance of its obligations hereunder) to provide
indemnification for or advance any Expenses with respect to any Proceeding
referenced in Sections 1 or 2, between the time that it so notifies its insurers
and the time that its insurers actually pay any such amounts payable as a result
of any such Proceeding to the Company.
 
    (c)        Selection of Counsel. The Company shall be entitled to assume the
defense of the Proceeding at its own expense. Indemnitee agrees to consult with
the Company and to consider in good faith the advisability and appropriateness
of joint representation in the event that either the Company or other
indemnitees in addition to Indemnitee require representation in connection with
any Proceeding. The Company will not be liable to Indemnitee for any fees or
expenses of separate counsel subsequently employed by or on behalf of Indemnitee
with respect to the same Proceeding; provided, however, that (i) Indemnitee
shall have the right to employ Indemnitee’s separate counsel in any such
Proceeding at Indemnitee’s expense, and (ii) if (A) the employment of separate
counsel by Indemnitee has been previously authorized by the Company,
(B) Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense,
or (C) the Company shall not continue to retain counsel to defend such
Proceeding, then the fees and expenses of Indemnitee’s separate counsel will be
expenses for which Indemnitee may receive indemnification or advancement of
expenses.
 
 
 

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Exhibit 10.4    
 
(d)        Cooperation by Indemnitee. Indemnitee shall give the Company such
information and cooperation in connection with the Proceeding as may be
reasonably appropriate.
 
    (e)        Settlements. Indemnitee shall not settle any Proceeding (or any
part thereof) which would impose any Expense, judgment, fine, penalty or
limitation on the Company without the Company’s prior written consent, which
shall not be unreasonably withheld.
 
    (f)        Right to Settle Proceedings. The Company shall not settle any
Proceeding (or any part thereof) which would impose any Expense, judgment, fine,
penalty or limitation on Indemnitee without Indemnitee’s prior written consent,
which shall not be unreasonably withheld.
 
10.        Procedures upon Application for Indemnification.
 
    (a)        Notice. To obtain indemnification, Indemnitee shall submit to the
Company a written request, including therein or therewith such documentation and
information as is reasonably available to Indemnitee and as is reasonably
necessary to determine whether and to what extent Indemnitee is entitled to
indemnification following the final disposition of the Proceeding. The Company
shall, as soon as reasonably practicable after receipt of such a request for
indemnification, advise the board of directors that Indemnitee has requested
indemnification. Any delay in providing the request will not relieve the Company
from its obligations under this Agreement.
 
    (b)        Determination. Following a written request by Indemnitee for
indemnification pursuant to Section 10(a), a determination, if required by
applicable law, with respect to Indemnitee’s entitlement thereto shall be made
in the specific case by (i) a majority vote of a quorum consisting of directors
who are not parties to the Proceeding; (ii) if such a quorum of directors is not
obtainable, by Independent Legal Counsel (as defined below) in a written
opinion; (iii) approval by the shareholders in accordance with Section 153 of
the California General Corporation Law, with the shares owned by Indemnitee not
being entitled to vote thereon; or (iv) the court in which the proceeding is or
was pending upon application made by the corporation or the agent or the
attorney or other person rendering services in connection with the defense,
whether or not the application by the agent, attorney or other person is opposed
by the Company; provided, however, that if a Change in Control (as defined
below) shall have occurred, by Independent Legal Counsel selected by Indemnitee
and approved by the Company (which approval will not be unreasonably withheld)
in a written opinion to the Company’s board of directors, a copy of which shall
be delivered to Indemnitee. If it is determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within 30 days after such
determination. Indemnitee shall cooperate with the person, persons or entity
making the determination with respect to Indemnitee’s entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information that is not
privileged or otherwise protected from disclosure and that is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
Expenses reasonably incurred by Indemnitee in so cooperating with the person,
persons or entity making such determination shall be borne by the Company, to
the extent permitted by applicable law.
 
    (c)        Disputes. Subject to Section 10(f), if (i) a determination is
made that Indemnitee is not entitled to indemnification under this Agreement,
(ii) no determination of entitlement to indemnification shall have been made
pursuant to this Agreement within 90 days after the later of the receipt by the
Company of the request for indemnification or the final disposition of the
Proceeding, (iii) payment of indemnification pursuant to this Agreement is not
made (A) within 30 days after a determination has been made that Indemnitee is
entitled to indemnification, or (B) with respect to indemnification pursuant to
Sections 3, 4 or 10(e) of this Agreement, within 30 days after receipt by the
Company of a written request therefor, (iv) advancement of Expenses is not
timely made pursuant to Section 8 or 10(e) of this Agreement, or (v) the Company
or any other person or entity takes or threatens to take any action to declare
this Agreement void or unenforceable, or institutes any litigation or other
action or proceeding designed to deny, or to recover from, Indemnitee the
benefits provided or intended to be provided to Indemnitee hereunder, Indemnitee
shall be entitled to an adjudication by a court of competent jurisdiction of his
or her entitlement to such indemnification or advancement of Expenses.
Alternatively, Indemnitee, at his or her option, may seek an award in
arbitration with respect to his or her entitlement to such indemnification or
advancement of Expenses, to be conducted by a single arbitrator pursuant to the
Commercial Arbitration Rules of the American Arbitration Association. The
Company shall not oppose Indemnitee’s right to seek any such adjudication or
award in arbitration in accordance with this Agreement.
 
 
 

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Exhibit 10.4    
 
(d)        Presumptions. Neither (i) the failure of the Company, its board of
directors, any committee or subgroup of the board of directors, Independent
Legal Counsel or shareholders to have made a determination that indemnification
of Indemnitee is proper in the circumstances because Indemnitee has met the
applicable standard of conduct, nor (ii) an actual determination by the Company,
its board of directors, any committee or subgroup of the board of directors,
Independent Legal Counsel or shareholders that Indemnitee has not met the
applicable standard of conduct, shall be a defense to the action or create a
presumption that Indemnitee has or has not met the applicable standard of
conduct. In the event that a determination shall have been made pursuant to this
Agreement that Indemnitee is not entitled to indemnification, any judicial
proceeding or arbitration commenced pursuant to Section 10(c) shall be conducted
in all respects as a de novo trial, or arbitration, on the merits, and
Indemnitee shall not be prejudiced by reason of that adverse determination. In
any judicial proceeding or arbitration commenced pursuant to Section 10(c), the
Company shall, to the fullest extent not prohibited by law, have the burden of
proving Indemnitee is not entitled to indemnification or advancement of
Expenses, as the case may be. The Company shall be precluded from asserting in
any judicial proceeding or arbitration commenced pursuant to this Agreement that
the procedures and presumptions in this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before such arbitrator that
the Company is bound by all the provisions of this Agreement.
 
    (e)        Expenses Incurred to Enforce this Agreement. In the event that
any action is instituted by Indemnitee under this Agreement or under any
liability insurance policies maintained by the Company to enforce or interpret
any of the terms hereof or thereof, Indemnitee shall be entitled to be
indemnified for all Expenses incurred by Indemnitee with respect to such action,
regardless of whether Indemnitee is ultimately successful in such action, unless
as a part of such action a court having jurisdiction over such action makes a
final judicial determination; provided, however, that until such final judicial
determination is made, Indemnitee shall be entitled to receive advancement of
Expenses hereunder with respect to such action. In the event of an action
instituted by or in the name of the Company under this Agreement to enforce or
interpret any of the terms of this Agreement, Indemnitee shall be entitled to be
indemnified for all Expenses incurred by Indemnitee in defense of such action
(including without limitation Expenses incurred with respect to Indemnitee’s
counterclaims and cross-claims made in such action), unless as a part of such
action a court having jurisdiction over such action makes a final judicial
determination (as to which all rights of appeal therefrom have been exhausted or
lapsed) that each of the material defenses asserted by Indemnitee in such action
was made in bad faith or was frivolous; provided, however, that until such final
judicial determination is made, Indemnitee shall be entitled to receive
advancement of Expenses hereunder with respect to such action.
 
    (f)        Timing of Determination of Entitlement to Indemnification.
Notwithstanding anything in this Agreement to the contrary, no determination as
to entitlement to indemnification shall be required to be made prior to the
final disposition of the Proceeding.
 
11.        Mutual Acknowledgement. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers and other corporate agents
or advancing Expenses under this Agreement or otherwise. Indemnitee understands
and acknowledges that the Company has undertaken or may be required in the
future to undertake with the Securities and Exchange Commission to submit the
question of indemnification to a court in certain circumstances for a
determination of the Company’s right under public policy to indemnify
Indemnitee.
 
12.        Contribution. To the fullest extent permissible under applicable law,
if the indemnification provided for in this Agreement is unavailable to
Indemnitee, the Company, in lieu of indemnifying Indemnitee, shall contribute to
the amounts incurred by Indemnitee, whether for Expenses, judgments, fines or
amounts paid or to be paid in settlement, in connection with any claim relating
to an indemnifiable event under this Agreement, in such proportion as is deemed
fair and reasonable in light of all of the circumstances of such Proceeding in
order to reflect (i) the relative benefits received by the Company and
Indemnitee as a result of the events and transactions giving rise to such
Proceeding, and (ii) the relative fault of Indemnitee and the Company (and its
other directors, officers, employees and agents) in connection with such events
and transactions.
 
13.        Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
 
14.        No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment of amounts otherwise indemnifiable hereunder
(or for which advancement is provided hereunder) if and to the extent that
Indemnitee has otherwise actually received payment for such amounts under any
insurance policy, contract, agreement or otherwise.
 
15.        Directors’ and Officers’ Liability Insurance. The Company will make
commercially reasonable efforts to obtain and maintain liability insurance
applicable to directors, officers or fiduciaries in an amount determined by the
Company’s board of directors; provided, however, that nothing in this Section 15
shall relieve the Company of its obligations hereunder (or allow the Company to
delay in its performance of its obligations hereunder) to provide
indemnification for or advance any Expenses with respect to any claim. To the
extent that the Company maintains an insurance policy or policies providing
liability insurance for directors, trustees, general partners, managing members,
officers, employees, agents or fiduciaries of the Company or any other
enterprise, Indemnitee shall be covered by such policy or policies to the same
extent as the most favorably-insured persons under such policy or policies in a
comparable position.
 
 
 

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Exhibit 10.4
 
16.        Duration. The indemnification and the advancement of Expenses
provided under this Agreement will continue as to Indemnitee for any action
taken or not taken while serving in an indemnified capacity even though
subsequent thereto Indemnitee may have ceased to serve in such capacity.
 
17.        Services to the Company. This Agreement shall not be deemed an
employment contract between the Company (or any of its subsidiaries or any other
corporation, partnership, joint venture, trust or enterprise) and Indemnitee.
 
18.        Enforcement. The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on it hereby in
order to induce Indemnitee to serve as a director or officer of the Company, and
the Company acknowledges that Indemnitee is relying upon this Agreement in
serving as a director or officer of the Company.
 
19.        Nonexclusivity. The rights of indemnification and to receive
advancement of Expenses provided by this Agreement shall not be deemed exclusive
of any rights to which Indemnitee may be entitled under the Company’s articles
of incorporation, its bylaws, any agreement, any vote of shareholders or
disinterested directors, the CGCL or otherwise, both as to action in
Indemnitee’s official capacity and as to action in another capacity while
holding such office. No right or remedy herein conferred is intended to be
exclusive of any other right or remedy, and every other right or remedy shall be
cumulative and in addition to every other right or remedy given hereunder or now
or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prohibit
the concurrent assertion or employment of any other right or remedy.
 
20.        Severability. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company’s inability, pursuant to court order or
other applicable law, to perform its obligations under this Agreement shall not
constitute a breach of this Agreement. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (i) the validity, legality and enforceability of the remaining
provisions of this Agreement (including without limitation, each portion of any
section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby and shall remain
enforceable to the fullest extent permitted by law; (ii) such provision or
provisions shall be deemed reformed to the extent necessary to conform to
applicable law and to give the maximum effect to the intent of the parties
hereto; and (iii) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of any section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall be
construed so as to give effect to the intent manifested thereby.
 
21.        Effectiveness of the Agreement. This Agreement shall be effective as
of the date set forth in the introductory sentence of this Agreement and may
apply to acts or omissions of Indemnitee that occurred prior to such date if
Indemnitee was a director, officer, employee or other agent of the Company, or
was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, at the time such act or omission occurred.
 
22.        Construction of Certain Phrases.
 
    (a)        For purposes of this Agreement, references to the “Company” shall
also include, in addition to the resulting or surviving corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents, so that if Indemnitee is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, Indemnitee
shall stand in the same position under the provisions of this Agreement with
respect to the resulting or surviving corporation as Indemnitee would have with
respect to such constituent corporation if its separate existence had continued.
 
    (b)        For purposes of this agreement, a “Change in Control” shall be
deemed to occur upon the earliest to occur after the date of this Agreement of
any of the following events:
 
        (i)        Acquisition of Stock by Third Party. Any Person (as defined
below) is or becomes the Beneficial Owner (as defined below), directly or
indirectly, of securities of the Company representing twenty-five percent
(25%) or more of the combined voting power of the Company’s then outstanding
securities;
 
 
 

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Exhibit 10.4
        
(ii)        Change in Board Composition. During any one (1) year period (not
including any period prior to the execution of this Agreement), individuals who
at the beginning of such period constitute the Company’s board of directors, and
any new directors (other than a director designated by a person who has entered
into an agreement with the Company to effect a transaction described in Sections
22(b)(i), 22(b)(iii) and 22(b)(iv)) whose election by the board of directors or
nomination for election by the Company’s shareholders was approved by a vote of
at least two-thirds of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute at least
a majority of the members of the Company’s board of directors;
 
        (iii)        Corporate Transactions. The effective date of a merger or
consolidation of the Company with any other entity, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior to such merger or consolidation continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50% of the combined voting power
of the voting securities of the surviving entity outstanding immediately after
such merger or consolidation and with the power to elect at least a majority of
the board of directors or other governing body of such surviving entity;
 
        (iv)        Asset Sale. All or substantially all of the assets of the
Company are sold or disposed of in a transaction or series of related
transactions;
 
        (v)        Liquidation. The approval by the shareholders of the Company
of a complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company’s assets;
and
 
        (vi)        Other Events. Any other event of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A (or in response to any similar item on any similar schedule or form)
promulgated under the Securities Exchange Act of 1934, as amended, whether or
not the Company is then subject to such reporting requirement.
 
    (c)        For purposes of this Agreement, “Person” shall have the meaning
as set forth in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended. and shall include each member of the “group” as defined in such
Sections; provided, however, that “Person” shall exclude (i) the Company,
(ii) any trustee or other fiduciary holding securities under an employee benefit
plan of the Company, and (iii) any corporation owned, directly or indirectly, by
the shareholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
 
    (d)        For purposes of this Agreement, “Beneficial Owner” shall have the
meaning given to such term in Rule 13d-3 under the Securities Exchange Act of
1934, as amended; provided, however, that “Beneficial Owner” shall exclude any
Person otherwise becoming a Beneficial Owner by reason of (i) the shareholders
of the Company approving a merger of the Company with another entity or (ii) the
Company’s board of directors approving a sale of securities by the Company to
such Person.
 
    (e)        For purposes of this Agreement, references to “other enterprise”
shall include employee benefit plans; references to “fines” shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to “serving at the request of the Company” shall include any
service as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants or beneficiaries.
 
    (f)        For purposes of this Agreement, Indemnitee shall be deemed to
have acted in “good faith” if Indemnitee’s action is in good faith reliance or
the records or books of account of the Company, including financial statements,
or on information supplied to the Indemnitee by officers of the Company in the
course of their duties, or on the advice of legal counsel for the Company or on
information or records given or reports made to the Company by an independent
certified public accountant or by an appraiser or other expert selected by the
Company. The provisions of this Section 22(f) shall not be deemed to be
exclusive or to limit in any way the other circumstances in which Indemnitee may
be deemed or found to have met the applicable standard of conduct set forth in
this Agreement.
 
    (g)        For purposes of this Agreement, “Expenses” means all reasonable
direct and indirect costs (including attorneys’ fees, retainers, court costs,
transcription costs, fees of experts, witness fees, travel expenses, duplicating
costs, printing and binding costs, telephone charges, postage, delivery service
fees, and all other disbursements or expenses) reasonably incurred in connection
with (i) presenting, defending, preparing to present or defend, investigating,
being or preparing to be a witness in, or otherwise participating in, a
Proceeding, or (ii) establishing or enforcing a right to indemnification under
this Agreement, the Company’s Articles of Incorporation or Bylaws or applicable
law. Expenses shall also include Expenses incurred in connection with any appeal
resulting from any Proceeding, including the premium, security for and other
costs relating to any cost bond, or other appeal bond or its equivalent. For the
avoidance of doubt, Expenses, however, shall not include any judgments, fines or
settlements.
 
 
 

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Exhibit 10.4    
 
(h)        For purposes of Section 10 of this Agreement, “Independent Legal
Counsel” means a law firm or a lawyer that is experienced in matters of
corporate law and neither currently is, nor in the three years previous to its
selection or appointment has been, retained to represent (i) the Company or
Indemnitee in any matter material to either such party (other than with respect
to matters concerning Indemnitee under this Agreement or of other indemnitees
under similar indemnification agreements), or (ii) any other party to the
Proceedings giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term “Independent Counsel” shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee’s rights under this
agreement.
 
23.        Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns, including any direct or indirect
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company, and shall inure to
the benefit of Indemnitee and Indemnitee’s heirs, executors and administrators.
The Company shall require and shall cause any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the assets of the Company, by written agreement with the
Company expressly to assume and agree to perform this Agreement in the manner
and to the same extent that the Company would be requred to perform if no such
succession had taken place.
 
24.        Notice. All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by registered or certified
mail, postage prepaid, sent by facsimile or electronic mail or otherwise
delivered by hand, messenger or courier service addressed:
 
    (a)        if to Indemnitee, to Indemnitee’s address, facsimile number or
electronic mail address as shown on the signature page of this Agreement or in
the Company’s records, as may be updated in accordance with the provisions
hereof; or
 
    (b)        if to the Company, to the attention of the Chief Executive
Officer or Chief Financial Officer of the Company at 3929 Point Eden Way,
Hayward, CA 94545, or at such other current address as the Company shall have
furnished to Indemnitee, with a copy (which shall not constitute notice) to John
W. Campbell, Morrison & Foerster LLP, 425 Market Street, San Francisco,
California 94105.
 
Each such notice or other communication shall for all purposes of this Agreement
be treated as effective or having been given (i) if delivered by hand, messenger
or courier service, when delivered (or if sent via a nationally-recognized
overnight courier service, freight prepaid, specifying next-business-day
delivery, one business day after deposit with the courier), (ii) if sent via
mail, at the earlier of its receipt or five days after the same has been
deposited in a regularly-maintained receptacle for the deposit of the United
States mail, addressed and mailed as aforesaid, or (iii) if sent via facsimile,
upon confirmation of facsimile transfer or, if sent via electronic mail, upon
confirmation of delivery when directed to the relevant electronic mail address,
if sent during normal business hours of the recipient, or if not sent during
normal business hours of the recipient, then on the recipient’s next business
day.
 
25.        Choice of Law. This Agreement shall be governed by and its provisions
construed in accordance with the laws of the State of California as applied to
contracts between California residents entered into and to be performed entirely
within California.
 
26.        Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of California
for all purposes in connection with any action or proceeding that arises out of
or relates to this Agreement and agree that any action or proceeding instituted
under this Agreement shall be brought only in the state courts of the State of
California.
 
27.        Amendment and Waiver. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing, signed by
both parties hereto. No amendment, alteration or repeal of this Agreement shall
adversely affect any right of Indemnitee under this Agreement in respect of any
action taken or omitted by such Indemnitee in an indemnified capacity prior to
such amendment, alteration or repeal. No waiver of any of the provisions of this
Agreement shall constitute or be deemed a waiver of any other provision of this
Agreement nor shall any waiver constitute a continuing waiver.
 
28.        Integration and Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings, oral, written and
implied, between the parties hereto with respect to the subject matter hereof;
provided, however, that this Agreement is a supplement to and in furtherance of
the Company’s articles of incorporation and bylaws and applicable law.
 
29.        Captions. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
 
30.        Counterparts. This Agreement may be executed in counterparts, each of
which shall constitute an original. This Agreement may also be executed and
delivered by facsimile signature and in counterparts, each of which shall
constitute an original.
 
(signature page follows)
 
 
 
 
 
 

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Exhibit 10.4

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

         
ARADIGM CORPORATION
       
By:
         
Name:
             
Title:

 

             
Address:
3929 Point Eden Way
Hayward, CA 94545

 
Agreed to and accepted:
 
INDEMNITEE
 

     
(type or print name)
   
(signature)
   
(street address)
   
(city, state and zip code)