Exhibit 10.5
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
COLLABORATION AGREEMENT
     This Collaboration Agreement (the “Agreement”) is entered into and made
effective as of August 31, 2007 (the “Effective Date”) by and between Aradigm
Corporation, a California corporation having its principal place of business at
3929 Point Eden Way, Hayward, CA 94545 (“Aradigm”), and CyDex, Inc., a Delaware
corporation having its principal place of business at 10513 W. 84th Terrace,
Lenexa, KS 66214 (“CyDex”). Aradigm and CyDex are sometimes referred to herein
individually as a “Party” and collectively as the “Parties.”
Recitals
     Whereas, Aradigm possesses proprietary rights related to the pulmonary
delivery technology known as AERx® technology, as well as expertise and know-how
relating to the use and manufacture of such technology; and
     Whereas, CyDex possesses proprietary rights related to certain
solubilization and formulation enabling technology known as Captisol, as well as
expertise and know-how relating to the use of and manufacture with such
technology; and
     Whereas, CyDex and Aradigm desire to collaborate on the development and
commercialization of certain pharmaceutical preparations for pulmonary delivery
and to share in the revenue from sales, and from licensing of such
pharmaceutical preparations to a third party for further development and
commercialization.
     Now, Therefore, the Parties agree as follows:
1. Definitions
     The following terms shall have the following meanings as used in this
Agreement:
     1.1 “AERx Technology” means the AERx® Pulmonary Drug Delivery System for
pulmonary delivery of therapeutic compounds.
     1.2 “Affiliate” means, with respect to a particular Party, a person,
corporation, partnership, or other entity that controls, is controlled by or is
under common control with such Party. For the purposes of the definition in this
Section 1.2, the word “control” (including, with correlative meaning, the terms
“controlled by” or “under the common control with”) means the actual power,
either directly or indirectly through one or more intermediaries, to direct the
management and policies of such entity, whether by the ownership of at least
fifty percent (50%) of the voting stock of such entity, or by contract or
otherwise.
     1.3 “Allocation Ratio” means the ratio at which Aradigm and CyDex will
share Research Costs, Partnering Costs, and Licensing Revenue (all as defined
below), together with

 

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patent-related costs to the extent applicable pursuant to Section 8.3(c), which
ratio is agreed to be as set forth in Section 1.3 on the attached Schedule of
commercial terms.
     1.4 “Aqueous Formulation” means a formulation containing Compounds in a
vehicle consisting of [*]. For clarity, “Aqueous Formulations” do not include
[*].
     1.5 “Aradigm Core IP” means any and all inventions, developments, results,
know-how and other Information (including physical, chemical or biological
materials), and all Patents relating thereto, made, conceived or reduced to
practice by a Party, both Parties jointly, or the Third Party Partner in the
performance of the Research Program (as defined below) that represent
improvements or modifications to the Aradigm Technology (as defined below)
existing as of the Effective Date.
     1.6 “Aradigm Generic Third Party Agreement” means an agreement between
Aradigm and a Third Party that relates to a particular Collaboration Product and
to other products as well.
     1.7 “Aradigm Information” means all raw data produced solely by Aradigm in
the course of performing its obligations under the Research Program.
     1.8 “Aradigm Specific Third Party Agreement” means an agreement between
Aradigm and a Third Party that relates solely to a particular Collaboration
Product.
     1.9 “Aradigm Technology” means all Information and Patents under Aradigm
Control (as defined below) as of the Effective Date or during the Term that
relate directly to or claim a Collaboration Product, or the manufacture or use
of a Collaboration Product, including AERx Technology, but excluding Program IP.
     1.10 “Collaboration” means all activities performed by or on behalf of
Aradigm or CyDex or the Third Party Partner in the course of performing the
activities described in, or fulfilling of their obligations pursuant to, this
Agreement or the Partnering Agreement.
     1.11 “Collaboration Product” means a pharmaceutical preparation, excluding
agents whose principle therapeutic effect is to control blood glucose levels in
humans, delivered via a portable, hand held device, comprising one or more
compounds selected by the JSC (or otherwise described in the then-current
Research Plan) that has been formulated for use in AERx Technology using, or
otherwise incorporates, Formulation Technology.
     1.12 “Compound” means a compound that has been selected by the JSC (or is
otherwise described in the then-current Research Plan) as a potential active
ingredient in a Collaboration Product. Compounds are expected to include,
without limitation, inhalation corticosteroids, beta adrenergic agonists, and
cholinergic antagonists.
     1.13 “Confidential Information” has the meaning assigned to it in
Section 9.1.
     1.14 “Control” means, with respect to an item of Information or an
intellectual property right, that a Party owns or has a license to such item or
right and has the ability to
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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disclose and grant a license or sublicense as provided for in this Agreement
under such item or right without violating the terms of any agreement or other
arrangement with any Third Party.
     1.15 “CyDex Core IP” means any and all inventions, developments, results,
know-how and other information (including physical, chemical or biological
materials), and all Patents relating thereto, made, conceived or reduced to
practice by a Party, both Parties jointly, or the Third Party Partner in the
performance of the Research Program (as defined below) that represent
improvements or modifications to CyDex Technology (as defined below) existing as
of the Effective Date.
     1.16 “CyDex Generic Third Party Agreement” means an agreement between CyDex
and a Third Party that relates to a particular Collaboration Product and to
other products as well.
     1.17 “CyDex Information” means all raw data produced solely by CyDex in the
course of performing its obligations under the Research Program.
     1.18 “CyDex Specific Third Party Agreement” means an agreement between
CyDex and a Third Party that relates solely to a particular Collaboration
Product.
     1.19 “CyDex Technology” means all Information and Patents under CyDex
Control as of the Effective Date or during the Term that relate directly to or
claim the Collaboration Product, or the manufacture or use of the Collaboration
Product, including Formulation Technology, but excluding Program IP.
     1.20 “Diligent Efforts” means the carrying out of obligations or tasks in a
sustained manner consistent with the efforts a Party devotes to a research
project for a pharmaceutical product or products of similar market potential,
profit potential or strategic value resulting from its own research efforts,
based on conditions then prevailing. Diligent Efforts requires that the Party:
(a) promptly assign responsibility for such obligations to specific employee(s)
who are held accountable for progress and monitor such progress on an on-going
basis, (b) set and consistently seek to achieve specific and meaningful
objectives for carrying out such obligations, and (c) consistently make and
implement decisions and allocate resources designed to advance progress with
respect to such objectives.
     1.21 “Directly Competitive Product” means a pharmaceutical preparation that
is not a Collaboration Product but comprises as an active ingredient (a) the
same Compound as a Collaboration Product (in the case of a Collaboration Product
that contains a single Compound); or (b) one or more of the same Compounds as in
a Collaboration Product (in the case of a Collaboration Product that contains
multiple Compounds).
     1.22 “Field” means pulmonary delivery via a portable, hand held device of
pharmaceutical agents, other than agents whose principle therapeutic effect is
to control blood glucose levels in humans, using [*] delivery of liquid
formulations containing Formulation Technology whereby [*] delivery here means
pulmonary delivery of the medication in which a dose is administered in [*].
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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     1.23 “Formulation Technology” means CyDex’s solubilization and
stabilization technology, including its Captisol®
(sulfobutylether-7-beta-cyclodextrin) technology.
     1.24 “Information” means information, results and data of any type
whatsoever, in any tangible or intangible form whatsoever, including without
limitation, databases, inventions, practices, methods, techniques,
specifications, formulations, formulae, knowledge, know-how, skill, experience,
test data including pharmacological, biological, chemical, biochemical,
toxicological and clinical test data, analytical and quality control data,
stability data, studies and procedures, and patent and other legal information
or descriptions.
     1.25 “JSC,” or “Joint Steering Committee,” has the meaning set forth in
Section 2.1.
     1.26 “Liaison Party” means the Party identified by the JSC for partnering
purposes as provided for in Article 4.
     1.27 “Licensing Revenues” means any and all forms of consideration that
either Party receives from a Third Party Partner in connection with a Partnering
Agreement, which may include upfront license fees, annual license or maintenance
payments, milestone payments, royalties, imputed income on interest-free loans
received from such Third Party and other similar payments. Subject to the
provisions of Section 4.3(b) Licensing Revenues do not include payments made by
any third party licensee to either Party for manufacture and supply agreements
for Aradigm Technology and/or Cydex Technology, licenses for the right to
manufacture Aradigm Technology or CyDex Technology or costs associated with the
transfer of manufacturing technology.
     1.28 “Partnering Agreement” means an executed and in-force written
agreement between, on the one hand, one or both of the Parties, and, on the
other hand, a Third Party, wherein such Third Party obtains a license granting a
Third Party the right to develop and/or commercialize a Collaboration Product
for its own account or in collaboration with one or both of the Parties.
     1.29 “Partnering Costs” means the out-of-pocket legal and consultant fees
and travel costs incurred by the Parties in connection with identifying and
negotiating with potential Third Party Partners and preparing, negotiating, and
executing a Partnering Agreement for a Collaboration Product.
     1.30 “Patent” means (a) unexpired letters patent (including inventor’s
certificates) which have not been held invalid or unenforceable by a court of
competent jurisdiction from which no appeal can be taken or has been taken
within the required time period, including without limitation any substitution,
extension, registration, confirmation, reissue, re- examination, renewal or any
like filing thereof and (b) pending applications for letters patent, including
without limitation any continuation, division or continuation-in-part thereof
and any provisional applications.
     1.31 “Program IP” means any and all inventions, developments, results,
know-how and other Information (including physical, chemical or biological
materials), and all intellectual
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

4

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property relating thereto, that is (a) made, conceived or reduced to practice by
employee(s) or agent(s) of one or both Parties in the performance of the
Research Program and that is (b) neither (i) Aradigm Core IP nor (ii) CyDex Core
IP.
     1.32 “Program Patents” has the meaning set forth in Section 8.3(c).
     1.33 “Research Budget” has the meaning set forth in Section 3.2.
     1.34 “Research Costs” means the unreimbursed expenses incurred by a Party
or for its account in connection with the Research Program that are specified in
the Research Plan and Research Budget. Notwithstanding the foregoing, Research
Costs shall exclude any overhead expenses of a Party, except to the extent such
overhead expenses are included in the FTE rate set forth in Section 3.2(a).
     1.35 “Research Plan” has the meaning set forth in Section 3.2.
     1.36 “Research Program” has the meaning set forth in Section 2.1.
     1.37 “Term” has the meaning assigned to it in Section 10.1.
     1.38 “Territory” means the world.
     1.39 “Third Party Partner” means a Third Party that has entered into a
Partnering Agreement.
     1.40 “Third Party” means any entity other than (i) Aradigm, (ii) CyDex or
(iii) an Affiliate of either of them.
2. Management of the Collaboration
     2.1 Overall Management Structure. The overall management of the
Collaboration shall be vested in a Joint Steering Committee (the “JSC”), with
responsibility, as further discussed in Section 2.2, for establishing the
strategic direction of the Collaboration and for managing and directing the
overall research program to be jointly established by the Parties (the “Research
Program”) and the Parties’ efforts to commercialize and to out-license the
technology developed thereunder. The JSC may further establish one or more
subcommittees as it deems appropriate and delegate one or more of its
responsibilities to such subcommittee, provided that the subcommittee’s actions
will be subject to review and approval by the JSC.
     2.2 Joint Steering Committee.
          (a) Membership. The JSC shall be composed of two (2) representatives
from each Party. Promptly following the Effective Date, the Parties shall
appoint their initial representatives to the JSC. Each Party may replace its JSC
representatives at any time upon written notice to the other Party. Each Party
will designate one of its representatives as a co- chairperson of the JSC. The
co-chairpersons shall be responsible for scheduling meetings,
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

5

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preparing and circulating an agenda in advance of each meeting, and preparing
and issuing minutes of each meeting within thirty (30) days thereafter.
          (b) Responsibilities. During the term of this Agreement, the JSC shall
meet a minimum of four (4) times per year at a location mutually agreeable to
the Parties or by telephonic or other electronic means. The JSC will make its
decisions by unanimous vote, with each Party’s representatives collectively
having one vote. The JSC shall determine the overall strategy for the
Collaboration, including the Research Program. Without limiting the generality
of the foregoing, the JSC shall be responsible for (i) selecting the
Collaboration Products, (ii) creating the Research Plan and Research Budget for
each Collaboration Product, (iii) evaluating the Parties’ performance under the
Research Plan, and (iv) upon completion of a Research Program for a
Collaboration Product, making a recommendation to the senior management of each
Party regarding the potential for further development and commercialization of
such Collaboration Product.
     2.3 Obligations of Parties. Aradigm and CyDex shall provide the JSC and all
subcommittees thereof that are formed, and their authorized representatives,
with reasonable access during regular business hours to all records, documents,
and Information relating to the Research Program that any such committee may
reasonably require in order to perform its obligations hereunder, provided that
if such records, documents or Information are under a bona fide obligation of
confidentiality to a Third Party, then Aradigm or CyDex, as the case may be, may
withhold access thereto to the extent necessary to satisfy such obligation.
     2.4 Collaboration Guidelines.
          (a) General. In all matters related to the Collaboration, the Parties
shall be guided by standards of reasonableness in economic terms and fairness to
each of the Parties, striving to balance the legitimate interests and concerns
of the Parties, to further the Research Program, and to realize the economic
potential of the Collaboration Products.
          (b) Independence. Subject to the terms of this Agreement, the
activities and resources of each Party shall be managed by such Party, acting
independently and in its individual capacity. The relationship between Aradigm
and CyDex is that of independent contractors and neither Party shall have the
power to bind or obligate the other Party in any manner, other than as is
expressly set forth in this Agreement.
3. Research Program
     3.1 Scope. The goal of the Research Program will be to identify and select,
via the JSC, potential Collaboration Products that are of interest to the
Parties and to obtain in vitro proof-of-concept data regarding such
Collaboration Products. It is anticipated that the Collaboration Products will
either comprise two or more off-patent compounds. Notwithstanding the foregoing,
the JSC may agree, on a case-by-case basis, to include Collaboration Products
that do not fall within these categories. The JSC shall determine from time to
time whether clinical testing of Collaboration Products will be conducted under
this Agreement; provided, however, such clinical testing shall not be conducted
unless and until the
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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Parties have amended this Agreement to provide for the terms and conditions
relating to such clinical testing.
     3.2 Selection of Compounds; Research Plan.
          (a) The work performed by the Parties under the Research Program with
respect to a particular Collaboration Product will be governed by a written
research plan (each, a “Research Plan”). Each Research Plan shall specifically
identify the Collaboration Product (and the relevant Compounds) to which it
pertains and shall include a budget (each, a “Research Budget”) describing each
Party’s funding obligations with respect to the work specified in the Research
Plan. Such funding obligations may consist of cash payments or in-kind
contributions of materials, equipment, or labor, and the Research Budget shall
indicate the dollar value associated with any in-kind contributions. For the
purpose of establishing a Research Budget, the dollar value of any in-kind
contribution of labor by the employees of a Party shall be calculated on an
average fully burdened FTE basis that includes estimated overheads using a rate
of $[*]/hour per FTE. The JSC will review such reimbursement rate on an annual
basis and, if necessary, may elect to change such reimbursement rate to reflect
changes in costs. Each Research Plan shall allocate between the Parties
responsibility for each of the Research Program activities described therein in
a manner consistent with this Agreement. In each Research Plan, it is
anticipated that Aradigm shall be primarily responsible for the supply of the
AERx Technology, optimizing the formulation for use in the AERx Technology,
including adjusting the [*] parameters, in vitro and in vivo preclinical
studies, and that CyDex shall be primarily responsible for developing the
formulations and analytical methods, and for supplying Captisol or other
substituted cyclodextrins, for the bulk formulations.
          (b) A specimen Research Plan (and Research Budget) covering expected
in vitro activities for the initial Collaboration Product is attached to this
Agreement and incorporated by this reference and is intended to be used by the
JSC in developing specific Research Plans (and Research Budgets). The JSC shall
be responsible for drafting additional Research Plans for additional
Collaboration Products, as required. During the Research Term, the JSC shall
review each then-existing Research Plan at least semiannually and may generate
and approve revised versions of each Research Plan (including revisions to the
list of Collaboration Products, as required) that are consistent with the terms
of this Agreement and the goals of the Research Program. Once approved by the
JSC, such revised Research Plan shall replace the prior Research Plan.
Significant changes in the scope or direction of the work and, any increase or
decrease in either Party’s funding requirements in excess of fifteen percent
(15%), or any changes to the funding requirements that would cause the
allocation of budgeted Research Costs to deviate from the Allocation Ratio must
be approved in writing by a member of the senior management of each Party. In
the absence of approval of a Research Plan by the JSC or the senior management
of each Party (as the case may be), the most recently approved Research Plan
shall remain in effect.
          (c) The Parties acknowledge that such Research Plan and Research
Budget allocate the budgeted Research Costs between the Parties in accordance
with the Allocation Ratio. For the avoidance of doubt, it is the intent of the
Parties (a) to ensure that additional or revised Research Plans and/or Research
Budgets also allocate the budgeted Research Costs
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

7

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between the Parties in accordance with the Allocation Ratio and (b) to make
adjustments over time as may be necessary and appropriate to align actual
Research Costs with budgeted Research Costs in accordance with the Allocation
Ratio. To the extent that the JSC decides that it is not possible or in the best
interests of the Collaboration Product to allocate budgeted Research Costs
between the Parties according to the Allocation Ratio, then the Party
contributing less than its portion under the Allocation Ratio will make cash
payments on a quarterly basis to the party contributing more than its portion
under the Allocation Ration to bring the sum contribution of resources plus cash
in line with the Allocation Ratio.
     3.3 Research Term. The Research Term shall commence on the Effective Date
and shall continue for a period of two (2) years unless both parties agree in
writing to extend the Research Term. Each Party’s obligations under the Research
Plan and each Party’s research funding commitments set forth in Section 3.8
shall remain in force during the Research Term and shall terminate at the end of
the Research Term.
     3.4 Conduct of Research Program. The Parties shall use Diligent Efforts to
conduct their respective tasks assigned pursuant to the Research Plan and to
attempt to achieve the objectives of the Research Program efficiently and
expeditiously. Each Party shall conduct its portion of the Research Program in
good scientific manner, and in compliance in all material respects with the
requirements of applicable laws, rules and regulations and all applicable good
laboratory practices.
     3.5 Reports to JSC. At each meeting of the JSC during the Research Term and
the six-month period following the end of the Research Term, each Party shall
submit to the JSC a written progress report summarizing the work performed under
the Research Plan since the last meeting.
     3.6 Use of Subcontractors. Either Party may subcontract portions of the
activities allocated to it under the Research Plan to any of its Affiliates, or
to a Third Party, provided that such Third Party is approved by the JSC prior to
commencing any work. Notwithstanding the foregoing, the JSC may expressly waive
this requirement with respect to the subcontracting of certain Research Program
activities that the Parties mutually agree should be within the sole discretion
of a Party.
     3.7 Records. Each Party shall maintain complete and accurate records of all
work conducted under the Research Program and all results, data and developments
made pursuant to its efforts under the Research Program. Such records shall be
complete and accurate and shall fully and properly reflect all work done and
results achieved in the performance of the Research Program in sufficient detail
and in good scientific manner appropriate for patent and regulatory purposes.
Each Party shall have the right to review and copy such records of the other
Party at reasonable times to the extent necessary for such Party to conduct its
obligations under the Agreement.
     3.8 Research Costs. Each Party shall bear all costs and expenses incurred
by such Party in the course of performing Research Program activities. For
clarity, Partnering Costs, even if incurred during the Research Term, will be
shared in accordance with Section 4.3.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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     3.9 Materials Transfer. In order to facilitate the Research Program, either
Party may provide to the other Party, at no charge, certain biological
materials, chemical compounds, devices, equipment, or other research materials
owned or controlled by the supplying Party (collectively, the “Materials”) for
use by the other Party in furtherance of the Research Program. Each Party shall
use the other Party’s Materials solely for the purposes of performing under the
Research Program and in compliance with all applicable legal requirements.
Neither Party shall use the other Party’s Materials for any other purposes.
Neither Party shall sell, transfer, disclose or otherwise provide access to the
other Party’s Materials, without the prior express written consent of the other
Party. However, each Party may allow access, on a need-to-know basis, to the
other Party’s Materials to such first Party’s employees and agents for purposes
of performance of the Research Program in accordance with the Research Plan,
provided that such employees and agents are made aware of the restrictions on
the use of such Materials that are set forth in this Agreement. Upon expiration
or early termination of the Research Term, each Party will return any remaining
quantities of the other Party’s Materials to such other Party, or otherwise
dispose of such Materials as directed by such other Party. Each Party
acknowledges and agrees that the Materials of the other Party may have
biological and/or chemical properties that are unpredictable and unknown as the
time of transfer, that they are to be used with caution and prudence, and that
they are not to be used for testing in or treatment of humans. Except as
expressly set forth herein, THE MATERIALS ARE PROVIDED “AS IS” AND WITHOUT ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY
IMPLIED WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR ANY PARTICULAR PURPOSE OR
EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT ANY WARRANTY THAT THE USE OF THE
MATERIALS WILL NOT INFRINGE OR VIOLATE ANY PATENT OR OTHER PROPRIETARY RIGHTS OF
ANY THIRD PARTY.
4. Partnering
     4.1 General. The Parties shall cooperate, via the JSC, to identify
potential Third Party Partners for further development and commercialization of
Collaboration Products in the Field in the Territory.
     4.2 Partnering Agreement. The Liaison Party shall have direct
responsibility for identifying and negotiating with potential Third Party
Partners for development and commercialization of Collaboration Products in the
Field in the Territory. The Liaison Party shall keep the other Party informed
regarding such negotiations and shall provide the other Party with an
opportunity to comment thereon. The ultimate form of the Partnering Agreement
shall be presented to both Parties for review and approval. It is anticipated
that, under the Partnering Agreement, (a) each Party will grant the relevant
Third Party Partner an exclusive license to research, develop, use, register,
make, have made, sell, have sold, and distribute Collaboration Products in the
Field in the Territory; (b) CyDex would be responsible for manufacturing (or
having manufactured) Formulation Technology and (c) Aradigm would be responsible
for manufacturing (or having manufactured) AERx Strips® dosage packets and AERX
Essence® devices.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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     4.3 Sharing of Licensing Revenue.
          (a) Except as provided in Section 4.3(b), the Parties will share all
Licensing Revenues realized and Partnering Costs incurred in respect to the
Collaboration Product in accordance with Allocation Ratio.
          (b) Any payments or other compensation provided by a Third Party
Partner to either Aradigm or CyDex in consideration for such Party undertaking
contract services relating to the development, manufacture, or commercialization
of a Collaboration Product (whether or not made pursuant to a Partnering
Agreement) shall not be considered Licensing Revenues hereunder, provided that
the other Party is given the opportunity to review the financial and
non-financial terms under which such services will be provided and (ii) such
compensation does not exceed the normal rates charged by the contracting Party
in other, unrelated arms-length transactions.
     4.4 Reporting and Reconciliation. Within fifteen (15) days after the end of
each calendar quarter during negotiation of, or following the execution of, a
Partnering Agreement, each Party shall provide a written report to the JSC (with
a copy to the other Party) specifying and documenting, both in reasonable
detail, the Licensing Revenues it received, and Partnering Costs that it
incurred, during such quarter with respect to such Partnering Agreement. Within
thirty (30) days after the end of each such calendar quarter, the JSC shall
provide each Party with an accounting in reasonable detail of the Parties’
Partnering Costs and Licensing Revenues for such quarter, and the JSC shall
promptly direct by written notice the remittance between the Parties of a
payment that will result in the sharing of Licensing Revenues and Partnering
Costs as set forth in Section 4.3. All payments required by this Section 4.4
shall be made within thirty (30) days after receipt of a written notice. Each
Party shall keep detailed records of the Partnering Costs it incurs, and all
Licensing Revenues it receives, including all supporting documentation for such
costs and revenues. Each Party shall keep such records for at least three
(3) years after the date that such expense was incurred or revenue received.
Either Party may audit, in accordance with the procedures set forth in
Section 7.4, such records for the sole purpose of verifying the accuracy of the
other Party’s reports pursuant to this Section 4.4.
5. Development and Commercialization
     5.1 In General. Subject to Section 5.2 and subject to Section 10.3 (as
appropriate), all development of Collaboration Products beyond the activities
that are part of the Research Program and all commercialization of Collaboration
Products shall be governed by a separate development and commercialization
agreement between the Parties, which will be negotiated in good faith by the
Parties at a mutually agreeable time and shall include commercially reasonable
terms.
     5.2 Partnering Agreement. To the extent that a Partnering Agreement covers
a Collaboration Product, the development and commercialization of such
Collaboration Product in the Field in the Territory shall be governed by the
terms and conditions of such Partnering Agreement.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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6. Licenses and Related Rights
     6.1 License to CyDex. Subject to the terms of this Agreement, Aradigm
hereby grants to CyDex a worldwide, co-exclusive (with Aradigm) license during
the Term, without the right to grant sublicenses (except to Third Party
subcontractors approved by the JSC), under the Aradigm Technology, to use, make,
have made and import Collaboration Products in the Field solely for the purpose
of performing CyDex’s responsibilities under the Research Plan.
     6.2 License to Aradigm. Subject to the terms of this Agreement, CyDex
hereby grants to Aradigm a worldwide, co-exclusive (with CyDex) license during
the Term, without the right to grant sublicenses (except to Third Party
subcontractors approved by the JSC), under the CyDex Technology, to use, make,
have made and import Collaboration Products in the Field solely for the purpose
of performing Aradigm’s responsibilities under the Research Plan.
     6.3 Negative Covenants.
          (a) CyDex hereby covenants that it will not practice any Aradigm
Technology, or use, make, have made, import, sell, have sold, and offer for sale
Collaboration Product in the Field, or license a Third Party to do any of the
foregoing, in each case for a purpose other than that expressly permitted in
Section 6.1.
          (b) Aradigm hereby covenants that it will not practice any CyDex
Technology, or use, make, have made, import, sell, have sold, and offer for sale
Collaboration Product in the Field, or license a Third Party to do any of the
foregoing, in each case for a purpose other than that expressly permitted in
Section 6.2.
     6.4 Exclusivity. During the Term, each Party agrees not to pursue outside
the Collaboration the development or commercialization of a Collaboration
Product in any field, or the development or commercialization of any Directly
Competitive Product for use in the Field, either itself or with or through an
Affiliate or a Third Party. By way of illustration and example only, for
purposes of clarity, a product that is a solution for nebulization using
currently or potentially available commercial nebulization devices would not
constitute a Directly Competitive Product as long as the nebulizer used is not a
hand-held device.
     6.5 Third Party License Obligations. Subject to the terms of the Partnering
Agreement, the JSC shall be responsible for evaluating whether, when, and how to
enter into licensing agreements with Third Parties. To the extent that any
license fee, royalty or other payment obligation accrues under any license
agreement between Aradigm or CyDex and a Third Party that is needed for the
manufacture, use, sale or importation of a Collaboration Product, responsibility
for such payments shall be shared by the Parties in accordance with the
Allocation Ratio and shall be shared with the Third Party Partner to the extent
permitted by the Partnering Agreement. In the event that the JSC elects not to
enter into a license and such decision results in an enforcement action being
brought against one or both of the Parties, any costs and liabilities that arise
shall be shared by the Parties in accordance with the Allocation Ratio, unless
otherwise agreed in writing between the Parties.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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     6.6 Sharing of Data.
          (a) During the Term, both Parties shall have the right to access all
CyDex Information and Aradigm Information as it is generated.
          (b) Notwithstanding Section 6.5(a), if CyDex terminates this Agreement
pursuant to Section 10.2(a), Aradigm shall cease to have any obligation to
provide CyDex with access to any Aradigm Information with respect to the
Collaboration Product, and Aradigm shall have the right to continued access to
CyDex Information for the Collaboration Product for the sole purpose of
determining whether it wishes to exercise the option set forth in Section 10.3
with respect to such Product and whether it can identify a Third Party partner
interested in licensing from Aradigm or collaborating with Aradigm with respect
to such Product..
          (c) Notwithstanding Section 6.5(a), if Aradigm terminates this
Agreement pursuant to Section 10.2(a), CyDex shall cease to have any obligation
to provide Aradigm with access to any CyDex Information with respect to the
Collaboration Product, and CyDex shall have the right to continued access to
Aradigm Information for the Collaboration Product for the sole purpose of
determining whether it wishes to exercise the option set forth in Section 10.4
with respect to such Product and whether it can identify a Third Party partner
interested in licensing from Aradigm or collaborating with Aradigm with respect
to such Product.
7. Payments; Records
     7.1 Payment Method. All payments due under this Agreement to a Party shall
be made by bank wire transfer in immediately available funds to an account
designated by such Party. All payments hereunder shall be made in U.S. dollars.
     7.2 Taxes. Each Party shall pay any and all taxes levied on account of all
payments it receives under this Agreement. If laws or regulations require that
taxes be withheld, the remitting Party will (a) deduct those taxes from the
remittable payment, (b) pay the taxes to the proper taxing authority, and
(c) send evidence of the obligation together with proof of tax payment to
receiving Party within thirty (30) days following that tax payment.
     7.3 Foreign Exchange. Conversion of sales recorded in local currencies to
U.S. dollars will be performed in a manner consistent with the terms of the
Partnering Agreement, or if not specified therein, with the Liaison Party’s
normal practices used to prepare its audited financial statements for internal
and external reporting purposes, which use a widely accepted source of published
exchange rates.
     7.4 Records; Inspection. Both Parties shall keep complete, true and
accurate books of accounts and records for the purpose of determining the
payments to be made under this Agreement. Such books and records shall be kept
for at least three (3) years following the end of the calendar quarter to which
they pertain. Such records will be open for inspection during such three
(3) year period by independent accountants, solely for the purpose of verifying
payment statements hereunder. Such inspections shall be made no more than once
each calendar year, at reasonable time and on reasonable notice. If any errors
in favor of the inspected Party are
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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discovered in the course of such inspection, then within thirty (30) days of its
receipt of the inspection report, such inspected Party will pay the inspecting
Party those amounts (plus interest) that the inspecting Party would have
received in the absence of such errors. Inspections conducted under this
Section 7.4 shall be at the expense of the inspecting Party, unless a variation
or error in favor of the inspected Party exceeding [*] percent ([*]%) of the
amount stated for any period covered by the inspection is established in the
course of such inspection, whereupon all costs relating to the inspection for
such period will be paid promptly by the inspected Party.
8. Intellectual Property
     8.1 Ownership.
          (a) Inventorship of all Aradigm Core IP, CyDex Core IP, and Program IP
will be determined under the patent laws of the United States. Intellectual
property conceived before the Effective Date and after the Term, as evidenced by
written records, will be the sole property of the applicable Party.
          (b) Aradigm shall own the entire right, title and interest in and to
any and all Aradigm Core IP. CyDex hereby transfers and assigns to Aradigm any
and all right, title and interest to all Aradigm Core IP. At the request of
Aradigm, CyDex shall execute all documents necessary or desirable to effectuate
or record such assignment.
          (c) CyDex shall own the entire right, title and interest in and to any
and all CyDex Core IP. Aradigm hereby transfers and assigns to CyDex any and all
right, title and interest to all CyDex Core IP. At the request of CyDex, Aradigm
shall execute all documents necessary or desirable to effectuate or record such
assignment.
          (d) Each Party shall own an undivided one-half interest in and to any
and all Program IP. Each Party hereby transfers and assigns to the other Party
sufficient rights in the Program IP to the extent necessary to implement such
ownership rights. At the request of a Party, the other Party shall execute all
documents necessary or desirable to effectuate or record such assignment.
Aradigm and CyDex as joint owners shall each have the right to exploit and to
grant licenses under Program IP (without an accounting or obligation to, or
consent required from, the other Party), unless otherwise specified in this
Agreement; provided, however, during the Term and for a period of eighteen
(18) months after the expiration of the Term, except as contemplated in
Sections 4 (Partnering) and 6.5 (Third Party License Obligations), Program IP
may only be licensed to Third Parties with the mutual consent of both Aradigm
and CyDex.
     8.2 Disclosure. Each Party shall submit a written report to the JSC within
sixty (60) days of the end of each quarter describing any Aradigm Core IP, CyDex
Core IP, or Program IP arising during the prior quarter in the course of the
Program that it believes may be patentable.
     8.3 Patent Prosecution and Maintenance.
          (a) Aradigm Core IP. Aradigm shall have the sole right and
responsibility for preparing, filing, prosecuting and maintaining patent rights
relating to Aradigm Core IP.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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          (b) CyDex Core IP. CyDex shall have the sole right and responsibility
for preparing, filing, prosecuting and maintaining patent rights relating to
CyDex Core IP.
          (c) Program IP. CyDex shall have the first right, but not the
obligation, to prepare, file, prosecute, and maintain Patents covering Program
IP (“Program Patents”). If CyDex elects not to file, prosecute, maintain or
extend any Program Patent, CyDex shall notify Aradigm in writing no later than
sixty (60) days prior to any required action relating to the preparation,
filing, prosecution, maintenance of such Program Patent. In such event, Aradigm
may elect, with written notification to CyDex, that Aradigm will take over the
preparation, filing, prosecution, and maintenance of such Program Patent. The
filing Party shall control the preparation, filing, prosecution, maintenance and
issuance, including any interference proceeding or post grant or post issuance
proceeding, including any opposition, reexamination or reissue or extension, of
any Program Patent. The non-filing Party shall, at the reasonable request of the
filing Party, cooperate in such preparation, filing, prosecution, maintenance,
and issuance. The filing Party shall (a) keep the non-filing Party promptly
informed as to the filing, prosecution, maintenance and extension of any Program
Patent, such that the non-filing Party has reasonable time to review and comment
upon any documents intended for submission to any patent office with respect
thereto; (b) furnish to the non-filing party copies of documents relevant to any
such filing, prosecution, maintenance and extension; and (c) incorporate all
reasonable comments of the non-filing party on documents filed with any patent
office with respect to a Program Patent. All costs incurred after the Effective
Date in relation to the filing, prosecution, or maintenance of Program Patents
shall be shared by the Parties in accordance with the Allocation Ratio;
provided, however, that the non-filing Party may opt-out of such cost-sharing
with respect to a particular Program Patent by notifying the filing Party of
such intention and assigning its entire right, title, and interest in such
Program Patent to the filing Party.
     8.4 Enforcement of Patent Rights.
          (a) If a Third Party is apparently infringing a Program Patent or a
Patent within the Aradigm Technology or the CyDex Technology, the Party first
obtaining knowledge of such infringement shall immediately provide the other
Party notice of such infringement and the related facts in reasonable detail.
          (b) Aradigm shall have the exclusive right with respect to enforcing
any Patent within the Aradigm Technology, and with respect to settling any
action brought relating to such infringement, Aradigm may grant a license to
such Patent in conjunction with such settlement, subject to the licenses granted
to CyDex hereunder. All costs, liabilities and proceeds (each, if any)
associated with such enforcement shall be borne or realized by Aradigm.
          (c) CyDex shall have the exclusive right with respect to enforcing any
Patent within the CyDex Technology, and with respect to settling any action
brought relating to such infringement, CyDex may grant a license to such Patent
in conjunction with such settlement, subject to the licenses granted to Aradigm
hereunder. All costs, liabilities and proceeds (each, if any) associated with
such enforcement shall be borne or realized by CyDex.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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          (d) The JSC shall determine how to best control the enforcement of a
Program Patent against an alleged infringer. If, with the approval of the JSC,
either Party brings any action or proceeding to enforce a Program Patent, the
other Party agrees to be joined as a Party plaintiff and to give the first Party
reasonable assistance and authority to control, file and prosecute the suit as
necessary. All costs, liabilities and proceeds (each, if any) associated with
such action or proceeding shall be shared by the Parties in accordance with the
Allocation Ratio. No settlement or consent judgment or other voluntary final
disposition of such action or proceeding may be entered into without the joint
written consent of Aradigm and CyDex.
          (e) For clarity, the Parties agree that the rights of each Party, as
set forth above, to assert claims of infringement with respect to Patents in the
Aradigm Technology or CyDex Technology, and/or with respect to the Program
Patents, may be superseded by the terms of a Partnering Agreement.
     8.5 Defense of Third Party Claims.
          (a) If a Third Party asserts that a patent or other right owned by it
is infringed by the manufacture, research, development, import, use, sale or
offer for sale of any Collaboration Product, the Party first obtaining knowledge
of such a claim shall immediately provide the other Party with notice of such
claim and the related facts in reasonable detail. The JSC shall determine how to
best control the defense of any such claim. All costs, liabilities and proceeds
(each, if any) associated with the defense of a given claim with respect to a
Collaboration Product shall be shared by the Parties in accordance with the
Allocation Ratio, provided that neither Party shall enter into a settlement
agreement with such Third Party without the written consent of the other Party,
which shall not be unreasonably withheld.
          (b) For clarity, the Parties agree that the rights of each Party to
defend claims of infringement under this Agreement and the sharing of costs
associated therewith may be made subordinate to the terms of a subsequent
Partnering Agreement.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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9. Confidentiality
     9.1 Nondisclosure of Confidential Information. All Information disclosed by
one Party to the other Party pursuant to this Agreement shall be “Confidential
Information,” provided that it is marked or otherwise identified as
“confidential” or “proprietary.” The Parties agree that during the Term, and for
a period of [*] ([*]) years thereafter, a Party receiving Confidential
Information of the other Party will (i) maintain in confidence such Confidential
Information to the same extent such Party maintains its own proprietary
industrial information of similar kind and value (but at a minimum each Party
shall use commercially reasonable efforts), (ii) not disclose such Confidential
Information to any Third Party without prior written consent of the other Party,
except for disclosures made in confidence to any Third Party pursuant to
arrangements approved by the JSC or permitted by this Agreement, and (iii) not
use such Confidential Information for any purpose except those permitted by this
Agreement.
     9.2 Exceptions. The obligations in Section 9.1 shall not apply with respect
to any portion of the Confidential Information that the receiving Party can show
by competent written proof:
          (a) Is publicly disclosed by the disclosing Party, either before or
after it is disclosed to the receiving Party hereunder; or
          (b) Was known to the receiving Party, without obligation to keep it
confidential, prior to disclosure by the disclosing Party; or
          (c) Is subsequently disclosed to the receiving Party by a Third Party
lawfully in possession thereof and without obligation to keep it confidential;
or
          (d) Has been published by a Third Party; or
          (e) Has been independently developed by the receiving Party without
the aid, application or use of Confidential Information.
     9.3 Authorized Disclosure. A Party may disclose the Confidential
Information belonging to the other Party to the extent such disclosure is
reasonably necessary in the following instances:
          (a) Filing or prosecuting Patents relating to Program IP or Aradigm
Core IP;
          (b) Regulatory filings for Collaboration Products;
          (c) Prosecuting or defending litigation relating to this Agreement or
a Collaboration Product;
          (d) Complying with applicable governmental regulations; and
          (e) Disclosure, in connection with the performance of this Agreement,
to Affiliates, sublicensees, research collaborators, employees, consultants, or
agents, each of whom
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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prior to disclosure must be bound by similar obligations of confidentiality and
non-use at least equivalent in scope to those set forth in this Article 9.
     The Parties acknowledge that the terms of this Agreement shall be treated
as Confidential Information of both Parties. Such terms may be disclosed by a
Party to investment bankers, investors, and potential investors. In addition, a
copy of this Agreement may be filed by either Party with the Securities and
Exchange Commission if such filing is required by law or regulation. In
connection with any such filing, such Party shall endeavor to obtain
confidential treatment of economic and trade secret information.
     In any event, the Parties agree to take all reasonable action to avoid
disclosure of Confidential Information except as permitted hereunder.
     9.4 Publicity. Any publication, news release or other public announcement
relating to this Agreement or to the performance hereunder, shall first be
reviewed and approved by both Parties; provided, however, that any disclosure
which is required by law as advised by the disclosing Party’s counsel may be
made without the prior consent of the other Party, although the other Party
shall be given prompt notice of any such legally required disclosure and to the
extent practicable shall provide the other Party an opportunity to comment on
the proposed disclosure. Notwithstanding the foregoing, each Party consents to
references to it in reports or documents or other disclosures sent to
stockholders or filed with or submitted to any governmental authority or stock
exchange.
     9.5 Publications. Neither Party shall publish or present the results of
studies carried out under this Agreement without the opportunity for prior
review by the other Party. Subject to Section 9.3, each Party agrees to provide
the other Party the opportunity to review any proposed abstracts, manuscripts or
presentations (including verbal presentations) which relate to the Collaboration
Product at least thirty (30) days prior to its intended submission for
publication and agrees, upon request, not to submit any such abstract or
manuscript for publication until the other Party is given a reasonable period of
time to secure patent protection for any material in such publication which it
believes to be patentable. Both Parties understand that a reasonable commercial
strategy may require delay of publication of information or filing of patent
applications. The Parties agree to review and consider delay of publication and
filing of patent applications under certain circumstances. The JSC will review
such requests and recommend subsequent action. Neither Party shall have the
right to publish or present Confidential Information of the other Party. Nothing
contained in this Section 9.5 shall prohibit the inclusion of information
necessary for a patent application, except for Confidential Information of the
nonfiling Party, provided the nonfiling Party is given a reasonable opportunity
to review the information to be included prior to submission of such patent
application. Any disputes between the Parties regarding delaying a publication
or presentation to permit the filing of a patent application shall be referred
to the JSC.
10. Term and Termination
     10.1 Term. Unless earlier terminated in accordance with Section 10.2 or
10.5, the term during which this Agreement is in effect (the “Term”) shall
commence on the Effective
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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Date and shall expire at any time after the second anniversary of the Effective
Date that there are (i) no Collaboration Products for which either Party has
outstanding obligations under a Research Plan; (ii) no Collaboration Products
for which the Parties are endeavoring to enter into a Partnering Agreement; and
(iii) no Partnering Agreements under which either Party or the Third Party
Partner has any outstanding obligations.
     10.2 Voluntary Termination.
          (a) Prior to the expiration of the Term, either Party may terminate
this Agreement in its discretion, with respect to one or more Collaboration
Products, upon sixty (60) days’ prior written notice to the other Party.
          (b) If CyDex terminates this Agreement pursuant to Section 10.2(a),
then (i) Aradigm shall have the right to exercise the options set forth in
Section 10.3; (ii) CyDex shall not perform any work on, collaborate with a Third
Party with respect to, or grant any licenses or other rights to a Third Party
with respect to, the applicable Collaboration Product(s) in the Field; and
(iii) the following additional provisions of this Agreement shall survive such
termination (in addition to those set forth in Section 10.5): Section 10.3 and
this Section 10.2(b).
          (c) If Aradigm terminates this Agreement pursuant to Section 10.2(a),
then (i) CyDex shall have the right to exercise the option set forth in
Section 10.3; (ii) Aradigm shall not perform any work on, collaborate with a
Third Party with respect to, or grant any licenses or other rights to a Third
Party with respect to, the applicable Collaboration Product(s) in the Field; and
(iii) the following provisions of this Agreement shall survive such termination
(in addition to those set forth in Section 10.5): Section 10.3 and this
Section 10.2(c).
          (d) In addition to the foregoing, either Party may terminate this
Agreement with respect to any particular Collaboration Product or with respect
to all Collaboration Products at any time during the Research Term upon written
notice to the other Party. The date that a written termination notice is
delivered to the non-terminating Party shall be referred to as the
“Collaboration Product Termination Date.” The term “Terminated Collaboration
Product” shall mean the same combination of drugs that would otherwise have been
referred to as the Collaboration Product if no termination had occurred. If a
Party elects to exercise its right to terminate this Agreement under this
Section 10.2(d) then the other Party shall deliver to the terminating Party
within 30 days after receipt of such written notice a [*]. Within fifteen
(15) days after receipt of such accounting the terminating Party shall pay to
the non-terminating Party a termination fee equal to [*]. Notwithstanding any
other provisions of this Agreement, and in consideration of the payment of the
termination fee, upon the exercise of the right of a Party to terminate this
Agreement with respect to a Collaboration Product under this Section 10.2(d),
the non-terminating Party shall not be entitled to utilize any of the
terminating Party’s Technology to further develop the affected Collaboration
Product. If CyDex is the terminating Party, then CyDex shall be prohibited from
further developing, manufacturing or distributing the affected Terminated
Collaboration Product for use with a hand-held inhalation device for [*]. If
Aradigm is the terminating Party, then Aradigm shall be prohibited from further
developing, manufacturing or distributing the affected Terminated Collaboration
Product using Aqueous Formulations for [*] ([*]) years from the Collaboration
Product Termination Date.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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     10.3 Option.
          (a) The terminating Party hereby grants the other Party the exclusive
option to acquire (i) an assignment of all its Information solely and
exclusively pertaining to a Collaboration Product that is the subject of a
termination pursuant to Section 10.2, (ii) an assignment of all its Specific
Third Party Agreements for such Collaboration Product, (iii) a right, under all
its Generic Third Party Agreements for such Collaboration Product, to receive
products or services related to such Collaboration Product, and (iv) an
exclusive, worldwide, royalty bearing (in accordance with Section 10.3(e)
below), irrevocable license (with the right to grant further sublicenses), under
its Technology, to develop, make, have made, use, sell and offer for sale such
Collaboration Product in the Field. Such option shall be exercisable solely as
provided in this Section 10.3.
          (b) In anticipation of the potential exercise of such option, the
terminating Party shall maintain and preserve all its Technology, Generic Third
Party Agreements, and Specific Third Party Agreements, in each case to the
extent that they would reasonably be expected to be the subject of such option.
          (c) The other Party may exercise such option by written notification
to the terminating Party at any time during the period commencing on the date of
termination pursuant to Section 10.2(a) and ending ninety (90) days thereafter.
During this ninety (90) day option period, the other Party may use the
terminating Party Information pertaining to the applicable Collaboration Product
to evaluate whether it wishes to exercise such option and may disclose such
Information to a Third Party in confidence for such Third Party to evaluate
whether it wishes to collaborate, or enter into a license agreement, with
respect to the applicable Collaboration Product.
          (d) At any time during the option period, either Party may request
that the other Party provide it with a listing of all pertinent Information,
Generic Third Party Agreements, Specific Third Party Agreements, and Technology,
to the extent not previously reported in performance of the Research Program,
that would be assigned, licensed or otherwise conveyed if a Party were to elect
to exercise its option.
          (e) The other Party may choose to exercise its option by giving
written notice to the terminating Party. Upon receipt of such notice, the
terminating Party shall (i) be deemed to have granted to the other Party the
assignments, rights and licenses set forth in Section 10.3(a), (ii) negotiate in
good faith a supply agreement under which the terminating Party will supply any
components of its Technology necessary for manufacture of the applicable
Collaboration Product; and (iii) be obligated to promptly take all steps
(1) necessary to record or otherwise effectuate such assignments, rights and
licenses and (2) to provide the other Party with access to any other documents
required to develop and commercialize the Collaboration Product independent of
the terminating Party, and the other Party shall be obligated to commence and
continue paying the royalty as set forth in Section 10.3(e) on the attached
Schedule of commercial terms.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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     10.4 Termination for Material Breach.
          (a) If either Party is in material breach of this Agreement (including
without limitation any material breach of a representation or warranty made in
this Agreement), then the other Party may deliver notice of such breach to the
breaching Party. In such notice, the non-breaching Party shall identify the
actions or conduct that such Party would consider to be an acceptable cure of
such breach. The allegedly breaching Party shall have thirty (30) days to either
cure such breach or, if cure cannot be reasonably effected within such thirty
(30) day period, to deliver to the other Party a plan for curing such breach
which is reasonably sufficient to effect a cure. Such a plan shall set forth a
program for achieving cure as rapidly as practicable. Following delivery of such
plan, the breaching Party shall use Diligent Efforts to carry out the plan and
cure the breach.
          (b) If the Party receiving notice of breach fails to cure such breach
within the thirty (30) day period, or the Party providing the notice reasonably
determines that the proposed corrective plan or the actions being taken to carry
it out is not commercially practicable, the Party originally delivering the
notice may terminate this Agreement upon thirty (30) days advance written
notice.
          (c) In the event of termination of this Agreement by Aradigm pursuant
to this Section 10.4: (i) all licenses granted by Aradigm to CyDex will
automatically terminate and revert to Aradigm; (ii) Aradigm shall have the
option set forth in Section 10.3 with respect to the Collaboration Product and
may exercise such option at one-half of the cost set forth in Section 10.3; and
(iii) the following additional provisions of this Agreement shall survive (in
addition to those set forth in Section 10.6): Section 10.3 and this
Section 10.4(c).
          (d) In the event of termination of this Agreement by CyDex pursuant to
this Section 10.4: (i) all licenses granted by CyDex will automatically
terminate and revert to CyDex; (ii) CyDex shall have the option set forth in
Section 10.3 with respect to all Collaboration Products and may exercise such
option at one-half of the cost set forth in Section 10.3; and (iii) the
following provisions of this Agreement shall survive (in addition to those set
forth in Section 10.6): Section 10.3 and this Section 10.4(d).
     10.5 Effect of Termination. In any event, termination of this Agreement
shall not relieve the Parties of any liability which accrued hereunder prior to
the effective date of such termination nor preclude either Party from pursuing
all rights and remedies it may have hereunder or at law or in equity with
respect to any breach of this Agreement nor prejudice either Party’s right to
obtain performance of any obligation. The following provisions of this Agreement
shall survive any termination or expiration: Sections 7.4 (Records and
Inspections), 8.1 (Ownership of intellectual property), 8.2 (Disclosure of
intellectual property) (solely to the extent necessary to complete disclosure of
Program IP, Aradigm Core IP, or CyDex Core IP arising during the Research
Program), 8.3 (Patent Prosecution and Maintenance), and 10.5 (Effect of
Termination), and Articles 9 (Confidentiality), 12 (Indemnification, Limitation
of Liability, and Insurance), 13 (Dispute Resolution), and 14 (Miscellaneous).
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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11. Representations and Covenants
     11.1 Mutual Authority. Aradigm and CyDex each represents and warrants to
the other that (i) it has full power and authority to enter into this Agreement
and to carry out the provisions hereof; (ii) this Agreement is a legal and valid
obligation binding upon it and enforceable in accordance with its terms; and
(iii) its execution, delivery and performance of this Agreement will not
conflict in any material fashion with the terms of any other agreement,
instrument, or understanding, oral or written, to which it is or becomes a Party
or by which it is or becomes bound.
     11.2 DISCLAIMER. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT,
NEITHER PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND, EITHER
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE.
12. Indemnification; Limitation of Liability; Insurance
     12.1 Indemnification
          (a) Subject to Section 12.1(b), each Party hereby agrees to defend and
hold harmless the other Party and its directors, officers, agents and employees
(the “Indemnitees”) from and against any and all damages, liabilities, expenses
and/or loss, including reasonable legal expenses and reasonable attorneys’ fees
(“Losses”) resulting from suits, claims, proceedings or causes of action brought
by a Third Party against such Indemnitee based on: (i) breach by the
indemnifying Party of this Agreement (including without limitation breach of a
representation or warranty herein); and/or (ii) the gross negligence or willful
misconduct of the indemnifying Party or any of its directors, officers, agents
and employees in the performance of such Party’s obligations or exercise of such
Party’s rights under this Agreement; except to the extent such Losses result
from (1) breach of this Agreement by the non-indemnifying Party; and/or (2) the
negligence or willful misconduct of an Indemnitee.
          (b) In the event that an Indemnitee is seeking indemnification under
Section 12.1(a), it shall inform the indemnifying Party of a claim as soon as
reasonably practicable after it receives notice of the claim, shall permit the
indemnifying Party to assume direction and control of the defense of the claim
(including the right to settle the claim, subject to the remainder of this
section), and shall cooperate as requested by the indemnifying Party (at the
expense of the indemnifying Party) in the defense of the claim. The indemnified
Party may, at its option and expense, be represented by counsel of its choice in
any action or proceeding with respect to a claim. The indemnifying Party shall
not be liable for any litigation costs or expenses incurred by the indemnified
Party without the indemnifying Party’s written consent, such consent not to be
unreasonably withheld. The indemnifying Party shall not settle any claim if such
settlement (i) does not fully and unconditionally release the indemnified Party
from all liability relating thereto or (ii) adversely impacts the rights granted
to the indemnified Party under this Agreement, unless the indemnified Party
otherwise agrees in writing.
     12.2 Limitation of Liability. EXCEPT FOR A BREACH OF SECTION 6.3 OR 9.1 OR
AS SPECIFICALLY PROVIDED IN SECTION 12.1, IN NO EVENT SHALL EITHER
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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PARTY, ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR AFFILIATES BE LIABLE TO THE
OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, SPECIAL, EXEMPLARY OR CONSEQUENTIAL
DAMAGES, INCLUDING WITHOUT LIMITATION LOST PROFITS, WHETHER BASED UPON A CLAIM
OR ACTION OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER TORT, OR
OTHERWISE, ARISING OUT OF THIS AGREEMENT.
     12.3 Insurance. Each Party, at its own expense, shall maintain product
liability insurance (or self-insure) in an amount consistent with industry
standards during the term of the Agreement. Each Party shall provide a
certificate of insurance (or evidence of self-insurance) evidencing such
coverage to the other Party upon request.
13. Dispute Resolution.
     13.1 Disputes. The Parties recognize that disputes as to certain matters
may from time to time arise during the term of this Agreement which relate to
either Party’s rights and/or obligations hereunder. It is the objective of the
Parties to establish procedures to facilitate the resolution of disputes arising
under this Agreement in an expedient manner by mutual cooperation and without
resort to litigation. To accomplish this objective, the Parties agree to follow
the procedures set forth in this Article 13 if and when a dispute arises under
this Agreement. The JSC shall serve as the initial forum for resolving all such
disputes. If the JSC is unable to resolve any dispute within thirty (30) days,
any Party may, by written notice to the other, have such dispute referred to
Chief Executive Officers, or other designated senior officers, of the Parties
(or the most senior member of the Party’s management, if such Party does not
then have a Chief Executive Officer) for attempted resolution by good faith
negotiations within thirty (30) days after such notice is received. In the event
the Chief Executive Officers are not able to resolve such dispute within such
thirty (30) day period, either Party may then invoke the provisions of
Section 13.2.
     13.2 Arbitration. Any dispute that is not resolved by the Parties by
negotiation pursuant to Section 13.1 above shall, upon the submission of a
written request of either Party to the other Party, be resolved exclusively by
binding arbitration before a three-person panel of arbitrators (the “Panel”),
conducted in accordance with the rules of arbitration of the American
Arbitration Association for commercial disputes (the “Rules”), except to the
extent that such Rules are inconsistent with this Agreement. Each Party shall
select one independent, neutral arbitrator (a “Party Arbitrator”), and shall
notify the other Party of its selection of such Party Arbitrator within twenty
(20) days after receipt by one Party of the other Party’s written request for
binding arbitration. The two (2) Party Arbitrators shall then mutually select a
third arbitrator (a “Neutral Arbitrator”) in accordance with the Rules. The
Panel shall resolve the dispute in accordance with this Agreement and the
substantive rules of law (but not the rules of procedure or conflicts of laws)
that would be applied by a federal court sitting in California. The final
decision of the Panel shall be the sole and exclusive remedy of the Parties,
shall be final and shall be fully and irrevocably accepted by the Parties. The
prevailing Party may enforce such decision against the other Party in any court
having jurisdiction. The arbitration shall take place in California, and shall
be conducted in the English language. The Parties agree that they shall share
equally the cost of the arbitration filing and hearing fees, and the cost of the
arbitrators that
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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constitute the Panel. Each Party shall bear its own attorneys’ and expert fees
and all associated costs and expenses.
     13.3 Court Actions. Notwithstanding the above, to the full extent allowed
by law, either Party may bring an action in any court of competent jurisdiction
for injunctive relief (or any other provisional remedy) to protect the Parties’
rights or enforce the Parties’ obligations under this Agreement pending final
resolution of any claims related thereto in an arbitration proceeding as
provided above. In addition, either Party may bring an action in any court of
competent jurisdiction to resolve disputes pertaining to the validity,
construction, scope, enforceability, infringement or other violations of patents
or other proprietary or intellectual property rights. The Parties shall use
their reasonable efforts to conduct all dispute resolution procedures under this
Agreement as expeditiously, efficiently and cost-effectively as possible.
     13.4 Governing Law. Resolution of all disputes arising out of or related to
this Agreement or the performance, enforcement, breach or termination of this
Agreement and any remedies relating thereto, shall be governed by and construed
under the substantive laws of the State of California, without regard to
conflicts of law rules that would provide for application of the law of a
jurisdiction outside California.
14. Miscellaneous
     14.1 Entire Agreement; Amendment. This Agreement sets forth the complete,
final and exclusive agreement and all the covenants, promises, agreements,
warranties, representations, conditions and understandings between the Parties
hereto and supersedes and terminates all prior agreements and understandings
between the Parties. There are no covenants, promises, agreements, warranties,
representations, conditions or understandings, either oral or written, between
the Parties other than as are set forth herein and therein. No subsequent
alteration, amendment, change or addition to this Agreement shall be binding
upon the Parties unless reduced to writing and signed by an authorized officer
of each Party.
     14.2 Force Majeure. Both Parties shall be excused from the performance of
their obligations under this Agreement to the extent that such performance is
prevented by force majeure and the nonperforming Party promptly provides notice
of the prevention to the other Party. Such excuse shall be continued so long as
the condition constituting force majeure continues and the nonperforming Party
takes reasonable efforts to remove the condition. For purposes of this
Agreement, force majeure shall include conditions beyond the control of the
Parties, including without limitation, an act of God, voluntary or involuntary
compliance with any regulation, law or order of any government, war, civil
commotion, labor strike or lock-out, epidemic, failure or default of public
utilities or common carriers, destruction of production facilities or materials
by fire, earthquake, storm or like catastrophe; provided, however, the payment
of invoices due and owing hereunder shall not be delayed by the payer because of
a force majeure affecting the payer.
     14.3 Notices. Any notice required or permitted to be given under this
Agreement shall be in writing, shall specifically refer to this Agreement and
shall be deemed to have been sufficiently given for all purposes if mailed by
first class certified or registered mail, postage
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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prepaid, express delivery service or personally delivered. Unless otherwise
specified in writing, the mailing addresses of the Parties shall be as described
below.

         
 
  For Aradigm:   Aradigm Corporation
 
      3929 Point Eden Way
 
      Hayward, CA 94545
 
      Fax: 510 265 5035
 
      Attention: General Counsel
 
       
 
  For CyDex:   CyDex, Inc.
 
      10513 West 84th Terrace
 
      Lenexa, Kansas 66214
 
      Fax: 913-685-8856
 
      Attention: Chief Executive Officer

     14.4 United States Dollars. References in this Agreement to “Dollars” or
“$” shall mean the legal tender of the United States of America.
     14.5 No Strict Construction. This Agreement has been prepared jointly and
shall not be strictly construed against either Party.
     14.6 Assignment. Neither Party may assign or transfer this Agreement or any
rights or obligations hereunder without the prior written consent of the other,
which consent may be withheld in the consenting Party’s discretion; provided,
however, that a Party may make such an assignment without the other Party’s
consent to an Affiliate or to a successor to substantially all of the business
of such Party, whether in a merger, sale of stock, sale of assets or other
transaction. Any assignment or attempted assignment by either Party in violation
of the terms of this Section 14.6 shall be null and void and of no legal effect.
As a condition to any permitted assignment, the assignor must guarantee the
performance of any assignee to the terms and obligations of this Agreement.
     14.7 Further Actions. Each Party agrees to 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 this Agreement.
     14.8 Severability. If any one or more of the provisions of this Agreement
is held to be invalid or unenforceable by any court of competent jurisdiction
from which no appeal can be or is taken, the provision shall be considered
severed from this Agreement and shall not serve to invalidate any remaining
provisions hereof. The Parties shall make a good faith effort to replace any
invalid or unenforceable provision with a valid and enforceable one such that
the objectives contemplated by the Parties when entering this Agreement may be
realized.
     14.9 Headings. The headings for each article and section in this Agreement
have been inserted for convenience of reference only and are not intended to
limit or expand on the meaning of the language contained in the particular
article or section.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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     14.10 No Waiver. Any delay in enforcing a Party’s rights under this
Agreement or any waiver as to a particular default or other matter shall not
constitute a waiver of such Party’s rights to the future enforcement of its
rights under this Agreement, excepting only as to an express written and signed
waiver as to a particular matter for a particular period of time.
     14.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
     In Witness Whereof, the Parties have executed this Collaboration Agreement
in duplicate originals by their proper officers as of the Effective Date.

     
CyDex, Inc.
  Aradigm Corporation  
By: /s/ John M. Sibert
  By: /s/ Igor Gonda
 
 
 
Name: John M. Sibert
  Name: Igor Gonda
Title: Chairman and Chief Executive Officer
  Title: President and Chief Executive Officer

[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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SCHEDULE
OF
COMMERCIAL TERMS
     Section 1.3 “Allocation Ratio” means the ratio at which Aradigm and CyDex
will share Research Costs, Partnering Costs, and Licensing Revenue, which ratio
is agreed to be Sixty Percent (60%) to Aradigm and Forty Percent (40%) to CyDex.
     Section 10.3(e) The other Party may choose to exercise its option by giving
written notice to the terminating Party. Upon receipt of such notice, the
terminating Party shall (i) be deemed to have granted to the other Party the
assignments, rights and licenses set forth in Section 10.3(a), (ii) negotiate in
good faith a supply agreement under which the terminating Party will supply any
components of its Technology necessary for manufacture of the applicable
Collaboration Product; and (iii) be obligated to promptly take all steps
(1) necessary to record or otherwise effectuate such assignments, rights and
licenses and (2) to provide the other Party with access to any other documents
required to develop and commercialize the Collaboration Product independent of
the terminating Party, and the other Party shall be obligated to commence and
continue paying a royalty of [*] percent [*] (%) on net sales of the applicable
Collaboration Product, up to a maximum cumulative amount equal to [*] times
([*]X) the terminating Party’s documented Research Costs.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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SPECIMEN
RESEARCH PLAN AND RESEARCH BUDGET
[*]1
 

1   Four pages redacted.

[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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