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EXHIBIT
10.16




CHANGE OF CONTROL AGREEMENT




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



     Whereas, the Company’s Board of Directors (the “Board”) has determined that it would
be in the best interests of the Company and its stockholders to provide for certain severance
benefits in the event the Executive’s employment is terminated in connection with a Change of
Control (as defined below) in order to align further the interests of the Executive with those of
the stockholders of the Company;



     Now, Therefore, in consideration of the Executive’s continued employment with the
Company, the Company and the Executive hereby agree as follows:



1. Definitions. The following terms in this Agreement shall have the meanings set forth
below:




     1.1 “Change of Control” shall mean any one or more of the following events:



          (a) The consummation of a merger, consolidation or similar transaction involving (directly or
indirectly) the Company and, immediately after the consummation of such merger, consolidation or
similar transaction, the shareholders of the Company immediately prior thereto do not own, directly
or indirectly, either (i) outstanding voting securities representing more than sixty percent (60%)
of the combined outstanding voting power of the surviving entity in such merger, consolidation or
similar transaction or (ii) more than sixty percent (60%) of the combined outstanding voting power
of the parent of the surviving entity in such merger, consolidation or similar transaction, in each
case in substantially the same proportions as their ownership of the outstanding voting securities
of the Company immediately prior to such transaction.




          (b) The consummation of a sale, lease, exclusive license or other disposition of 90% or more
of the consolidated assets of the Company and its subsidiaries within a single 12 month period,
other than a sale, lease, license or other disposition of all or substantially all of the
consolidated assets of the Company and its subsidiaries to an entity, more than sixty percent (60%)
of the combined voting power of the voting securities of which are owned by the shareholders of the
Company in substantially the same proportions as their ownership of the outstanding voting
securities of the Company prior to such sale, lease, license or other disposition. The Board shall
have the sole discretion to determine whether the event described in this Section 1.1(b) has
occurred.




          (c) Individuals who, on the date this Agreement is approved by the Board, are members of the
Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the members
of the Board; provided, however, that if the appointment or election (or nomination for election)
of any new Board member was approved or recommended by a majority vote of the members of the
Incumbent Board then still in office, such new member shall, for purposes of this Agreement, be
considered a member of the Incumbent Board.




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The term Change of Control shall not include a sale of assets, merger or other transaction effected
exclusively for the purpose of changing the domicile of the Company.




     1.2 “Cause” shall mean any one or more of the following: (i) the Executive’s commission of
any felony or any crime involving fraud, dishonesty or moral turpitude under the laws of the United
States or any state thereof; (ii) the Executive’s attempted commission of, or participation in, a
fraud or act of dishonesty against the Company; (iii) the Executive’s intentional, material
violation of any material contract or agreement between the Executive and the Company or any
statutory duty owed to the Company; (iv) the Executive’s unauthorized use or disclosure of the
Company’s confidential information or trade secrets; or (v) the Executive’s gross misconduct. The
determination that a termination is for Cause shall be made by the Company in its sole discretion.



     1.3 “Constructive Termination” shall mean the resignation of the Executive due to the
occurrence of any of the following without the Executive’s consent:



          (a) a material reduction in the Executive’s duties, title, reporting relationships, or
responsibilities relative to the Executive’s duties, title, reporting relationships, or
responsibilities in effect immediately prior to the effective date of the Change of Control;
provided, however, that a change in the Executive’s title or reporting relationships shall not in
and of themselves (or collectively) constitute a Constructive Termination;




          (b) a material reduction by the Company in the Executive’s annual base salary or benefits as
in effect on the effective date of the Change of Control or as increased thereafter; provided,
however, that Constructive Termination shall not be deemed to have occurred in the event of a
reduction in the Executive’s annual base salary or benefits,
including severance benefits under the Executive Officer Severance
Benefit Plan, that is pursuant to a salary reduction
program or change in Company benefit programs that affects substantially all of the executive
officers or employees of the Company and that does not adversely affect the Executive to a greater
extent than other similarly situated employees; or




          (c) a relocation of the Executive’s primary business office to a location more than fifty (50)
miles from the location at which the Executive performed the Executive’s duties as of the effective
date of the Change of Control, except for required travel by the Executive with respect to the
Company’s business to an extent substantially consistent with the Executive’s business travel
obligations prior to the effective date of the Change of Control.




2. Change of Control Severance Benefits.




     2.1 Severance Benefits. If within eighteen (18) months after the effective date of a Change
of Control, the Executive: (a) is either terminated by the Company without Cause or suffers a
Constructive Termination; and (b) provides the Company with a signed general release of all claims
in a form acceptable to the Company and allows this release to become effective, then the Executive
shall be eligible for the following severance benefits:



          (a) Severance Payment. The Executive shall receive a single lump sum payment equal to [24
(for CEO); 18 (for CFO, CMO and CSO); 12 (for SVP positions; VP
Clinical and Regulatory Affairs; and VP
Corporate Planning and Program Management)] months of the base salary he received as of the date of
the Change of Control, or the termination of his employment (whichever is greater). This Severance
Payment shall be subject to required





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deductions and tax withholdings and shall be paid within ten
(10) business days of the effective date of the release required by this Section 2.1.




          (b) Bonus Payment. The Executive shall receive a single lump sum payment equal to [two times
(for CEO); 1.5 times (for CFO, CMO and CSO); or 1 times (for SVP Operations; VP Clinical and Regulatory
Affairs; and VP Corporate Planning and Program Management)] the following sum: The Executive’s target
bonus for the year in which the termination occurs multiplied by the average annual percentage
achievement of corporate goals over each fiscal year for the three complete fiscal years preceding
the termination date. This Bonus Payment shall be subject to required deductions and tax
withholdings and shall be paid within ten (10) business days of the effective date of the release
required by this Section 2.1.




          (c) Health Insurance Payments. If, following the termination of Executive’s employment, the
Executive timely elects continued group health insurance coverage under the federal COBRA law or
similar state laws, if applicable, the Company will pay the Executive’s COBRA premium costs to
continue such coverage at the level in effect as of the Executive’s termination date for a period
of [24 (for CEO); 18 (for CFO, CMO and CSO); or 12 (for SVP
Operations; VP Clinical and Regulatory
Affairs; and VP Corporate Planning and Program Management)] months after the Executive’s termination
date or until the Executive becomes eligible for group health insurance coverage through a new
employer (whichever comes first). The Executive must promptly notify the Company in writing if the
Executive becomes eligible for group health insurance coverage through a new employer during the
Severance Period.




          (d) Career Transition Assistance (Outplacement Services). The Company will reimburse the
Executive up to [$20,000 (for CEO) or $10,000 (for all others)] for expenses actually incurred by
the Executive within six (6) months of his termination date for reasonable and customary
outplacement services for career transition assistance expenses.




          (e) Accelerated Vesting. The Company will accelerate the vesting of any stock options or
restricted stock awards that remain unvested as of the date of the termination of the Executive’s
employment such that all such unvested options or awards shall be deemed vested as of the date of
such termination. Except as modified herein, all such options and awards shall continue to be
governed by the applicable agreements and stock option plans.




     2.2 Ineligibility For Severance Benefits. The Executive will not be eligible for any benefits
under this Agreement if the Company (or its successor) terminates the Executive’s employment for
Cause or if the Executive resigns for any reason other than a Constructive Termination. Further,
the Executive will not be eligible for severance benefits under this Agreement in the event that
the Executive’s employment ends for any reason more than eighteen (18) months after the effective
date of a Change of Control.



     2.3 Other Severance Benefits. Nothing in this Agreement shall affect the right of the
Executive to receive any severance benefits pursuant to any other Company severance plan including,
without limitation, the Aradigm Corporation Executive Officer Severance Benefit Plan; provided,
however, that if the Executive actually receives benefits under this Agreement, he shall not be
entitled to receive any other severance benefits of any kind (except for the accelerated vesting
set forth in Section 2.1(e) above) pursuant to any other severance benefit plan



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of the Company
(including, without limitation, the Aradigm Corporation Executive Officer Severance Benefit Plan).
The Executive acknowledges and agrees that any prior agreement between the Executive and the
Company providing for or relating to severance benefits in connection with a Change of Control (as
defined herein or therein), except for those contained in the Executive’s stock option agreements
with the Company, are
hereby expressly superseded and replaced in their entirety by this Agreement and shall have no
further force or effect




     2.4 Deferred Compensation. In the event that the Company determines that any cash severance
payment benefit provided under Sections 2.1(a) and 2.1(b), or continued group health insurance
coverage benefit provided under Section 2.1(c) fails to satisfy the distribution requirement of
Section 409A(a)(2)(A) of the Code as a result of Section 409A(a)(2)(B)(i) of the Code, the payment
of such benefits shall be accelerated to the minimum extent necessary so that the benefit is not
subject to the provisions of Section 409A(a)(1) of the Code. (The payment schedule as revised
after the application of the preceding sentence shall be referred to as the “Revised Payment
Schedule.”) However, in the event the payment of benefits pursuant to the Revised Payment Schedule
would be subject to Section 409A(a)(1) of the Code, the payment of such benefits shall not be paid
pursuant to the original payment schedule or the Revised Payment Schedule and instead the payment
of such benefits shall be delayed to the minimum extent necessary so that such benefits are not
subject to the provisions of Section 409A(a)(1) of the Code. The Board may attach conditions to or
adjust the amounts paid pursuant to this Section 2.3 to preserve, as closely as possible, the
economic consequences that would have applied in the absence of this Section 2.3; provided,
however, that no such condition or adjustment shall result in the payments being subject to Section
409A(a)(1) of the Code.



3. Parachute Payments.




     3.1 Reduction of Severance Benefits. Notwithstanding the above, if any payment or benefit
that the Executive would receive under this Plan, when combined with any other payment or benefit
he receives that is contingent upon a Change in Control (“Payment”) would (i) constitute a
“parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence,
be subject to the excise tax imposed by Section 4999 of the Code (“Excise Tax”), then such Payment
shall be either (x) the full amount of such Payment or (y) such lesser amount (with Payments being
reduced in the order and priority established by the Board) as would result in no portion of the
Payment being subject to the Excise Tax, whichever of the foregoing amounts, taking into account
the applicable federal, state and local employment taxes, income taxes and the Excise Tax, results
in the Executive’s receipt, on an after-tax basis, of the greater amount notwithstanding that all
or some portion of the Payment may be subject to the Excise Tax. The Executive shall be solely
responsible for the payment of all personal tax liability that is incurred as a result of the
payments and benefits received under this Plan, and the Executive will not be reimbursed by the
Company for any such payments.



     3.2 Determination of Excise Tax Liability. The Company shall attempt to cause its accountants
to make all of the determinations required to be made under Section 3.1, or, in the event the
Company’s accountants will not perform such service, the Company may select another professional
services firm to perform the calculations. The Company shall request that the accountants or firm
provide detailed supporting calculations both to the Company and the Executive prior to the Change
in Control if administratively feasible or subsequent to the Change in Control if events occur that
result in parachute payments to the Executive at that time. For



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purposes of making the
calculations required by Section 3.1, the accountants or firm may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable, good faith determinations
concerning the application of the Code. The Company and the Executive shall furnish to the
accountants or firm such information and documents as the accountants or firm may reasonably
request in order to make a determination under this Section 3.1. The Company shall bear all costs
the accountants or firm may reasonably incur in connection with any calculations contemplated by
Section 3.1. Any such determination by the
Company’s accountants or other firm shall be binding upon the Company and the Executive, and
the Company shall have no liability to the Executive for the determinations of its accountants or
other firm.




4. General Provisions.




     4.1 At Will Employment. Nothing in this Agreement alters the Executive’s at-will employment
status. Either the Executive or the Company may terminate the Executive’s employment relationship
at any time, with or without cause or advance notice. In particular, nothing expressed or implied
in this Agreement will create any right or duty on the part of the Company or the Executive to have
the Executive remain in the employment of the Company or any subsidiary prior to or following any
Change of Control.



     4.2 Successors and Binding Agreement. This Agreement will be binding upon and inure to the
benefit of the Company and any successor to the Company, including without limitation any persons
acquiring directly or indirectly all or substantially all of the business or assets of the Company
whether or not through a Change of Control (and such successor shall thereafter be deemed the
“Company” for the purposes of this Agreement). This Agreement will inure to the benefit of and be
enforceable by the Executive’s personal or legal representatives, executors, administrators,
successors, heirs, distributees and legatees.



     4.3 Amendments. No provision of the Agreement may be amended, modified or waived unless such
amendment, modification or waiver shall be agreed to in writing and signed by the Executive and a
duly authorized officer of the Company.



     4.4 Severability. If any provision of the Agreement shall be determined to be invalid or
unenforceable by a court of competent jurisdiction, the remaining provisions of the Agreement shall
be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by
law.



     4.5 Notices. Any notice or other communication required or permitted under the Agreement
shall be in writing and shall be deemed to have been duly given when delivered by hand, electronic
transmission (with a copy following by hand or by overnight courier), by registered or certified
mail, postage prepaid, return receipt requested or by overnight courier addressed to the other
party. All notices shall be addressed as follows, or to such other address or addresses as may be
substituted by notice in writing:



	 	 	 	 	 	 	 
	 

	 	To the Company:
	 	To the Executive:
	 	 
	 

	 	Aradigm Corporation	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	3929 Point Eden Way	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 





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	 	Hayward, CA 94545	 	 	 	 






     4.6 Governing Law. The Agreement shall be construed, interpreted and governed in accordance
with the laws of the State of California, without reference to rules relating to conflicts of law.



     4.7 Independent Counsel. The Executive acknowledges that this Agreement has been prepared on
behalf of the Company by counsel to the Company and that this counsel does not represent,
and is not acting on behalf of, the Executive. The Executive has been provided with an
opportunity to consult with the Executive’s own counsel with respect to this Agreement.



     4.8 Counterparts. This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original but all of which together will constitute one and the same
agreement.



     In Witness Whereof, the parties have executed this Change of Control Agreement as of
the date first written above.



	 	 	 	 	 	 	 	 	 
	Aradigm Corporation	 	 	 	Executive
	 
	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	Signature:	 	 
	 

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Name:

	 	 	 	 	 	Print Name:	 	 
	 

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Title:
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 





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