**Exhibit 10.5****[ * ] = Certain confidential information contained in this document, marked by brackets, hasbeen omitted and filed separately with the Securities and Exchange Commission pursuant to Rule24b-2 of the Securities Exchange Act of 1934, as amended.****COLLABORATION AGREEMENT**     **This Collaboration Agreement**(the “**Agreement**”) is entered into and made effective asof August 31, 2007 (the “**Effective Date**”) by and between **Aradigm Corporation**, a Californiacorporation 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 ofbusiness at 10513 W. 84th Terrace, Lenexa, KS 66214 (**“CyDex”**). Aradigm and CyDex are sometimesreferred to herein individually as a “Party” and collectively as the “Parties.”**Recitals**     **Whereas,** Aradigm possesses proprietary rights related to the pulmonary deliverytechnology known as AERx® technology, as well as expertise and know-how relating to theuse and manufacture of such technology; and     **Whereas,**CyDex possesses proprietary rights related to certain solubilization andformulation enabling technology known as Captisol, as well as expertise and know-how relating tothe use of and manufacture with such technology; and     **Whereas,** CyDex and Aradigm desire to collaborate on the development andcommercialization of certain pharmaceutical preparations for pulmonary delivery and to share in therevenue from sales, and from licensing of such pharmaceutical preparations to a third party forfurther 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 oftherapeutic 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. Forthe purposes of the definition in this Section 1.2, the word “control” (including, with correlativemeaning, 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 andpolicies of such entity, whether by the ownership of at least fifty percent (50%) of the votingstock 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
 

 
patent-related costs to the extent applicable pursuant to Section 8.3(c), which ratio isagreed 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 otherInformation (including physical, chemical or biological materials), and all Patents relatingthereto, made, conceived or reduced to practice by a Party, both Parties jointly, or the ThirdParty Partner in the performance of the Research Program (as defined below) that representimprovements or modifications to the Aradigm Technology (as defined below) existing as of theEffective Date.     **1.6 “Aradigm Generic Third Party Agreement”**means an agreement between Aradigm and a ThirdParty 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 ofperforming its obligations under the Research Program.     **1.8 “Aradigm Specific Third Party Agreement”**means an agreement between Aradigm and a ThirdParty that relates solely to a particular Collaboration Product.     **1.9 “Aradigm Technology”**means all Information and Patents under Aradigm Control (as definedbelow) as of the Effective Date or during the Term that relate directly to or claim a CollaborationProduct, or the manufacture or use of a Collaboration Product, including AERx Technology, butexcluding Program IP.     **1.10 “Collaboration”**means all activities performed by or on behalf of Aradigm or CyDex or theThird Party Partner in the course of performing the activities described in, or fulfilling of theirobligations pursuant to, this Agreement or the Partnering Agreement.     **1.11 “Collaboration Product”**means a pharmaceutical preparation, excluding agents whoseprinciple therapeutic effect is to control blood glucose levels in humans, delivered via aportable, hand held device, comprising one or more compounds selected by the JSC (or otherwisedescribed in the then-current Research Plan) that has been formulated for use in AERx Technologyusing, or otherwise incorporates, Formulation Technology.     **1.12 “Compound”**means a compound that has been selected by the JSC (or is otherwise describedin the then-current Research Plan) as a potential active ingredient in a Collaboration Product.Compounds are expected to include, without limitation, inhalation corticosteroids, beta adrenergicagonists, 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 propertyright, 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 andgrant a license or sublicense as provided for in this Agreement under such item or right withoutviolating 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 otherinformation (including physical, chemical or biological materials), and all Patents relatingthereto, made, conceived or reduced to practice by a Party, both Parties jointly, or the ThirdParty Partner in the performance of the Research Program (as defined below) that representimprovements or modifications to CyDex Technology (as defined below) existing as of the EffectiveDate.     **1.16 “CyDex Generic Third Party Agreement”**means an agreement between CyDex and a Third Partythat 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 ofperforming its obligations under the Research Program.     **1.18 “CyDex Specific Third Party Agreement”**means an agreement between CyDex and a Third Partythat relates solely to a particular Collaboration Product.     **1.19 “CyDex Technology”**means all Information and Patents under CyDex Control as of theEffective Date or during the Term that relate directly to or claim the Collaboration Product, orthe manufacture or use of the Collaboration Product, including Formulation Technology, butexcluding Program IP.     **1.20 “Diligent Efforts”**means the carrying out of obligations or tasks in a sustained mannerconsistent with the efforts a Party devotes to a research project for a pharmaceutical product orproducts of similar market potential, profit potential or strategic value resulting from its ownresearch 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 heldaccountable for progress and monitor such progress on an on-going basis, (b) set and consistentlyseek 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 withrespect to such objectives.     **1.21 “Directly Competitive Product”**means a pharmaceutical preparation that is not aCollaboration Product but comprises as an active ingredient (a) the same Compound as aCollaboration 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 CollaborationProduct that contains multiple Compounds).     **1.22 “Field”**means pulmonary delivery via a portable, hand held device of pharmaceuticalagents, other than agents whose principle therapeutic effect is to control bloodglucose levels in humans, using [*] delivery of liquid formulations containing FormulationTechnology whereby [*] delivery here means pulmonary delivery of the medication in which a dose isadministered 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 tangibleor 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, toxicologicaland clinical test data, analytical and quality control data, stability data, studies andprocedures, 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 providedfor in Article 4.     **1.27 “Licensing Revenues”**means any and all forms of consideration that either Party receivesfrom a Third Party Partner in connection with a Partnering Agreement, which may include upfrontlicense fees, annual license or maintenance payments, milestone payments, royalties, imputed incomeon interest-free loans received from such Third Party and other similar payments. Subject to theprovisions of Section 4.3(b) Licensing Revenues do not include payments made by any third partylicensee to either Party for manufacture and supply agreements for Aradigm Technology and/or CydexTechnology, licenses for the right to manufacture Aradigm Technology or CyDex Technology or costsassociated with the transfer of manufacturing technology.     **1.28 “Partnering Agreement”**means an executed and in-force written agreement between, on theone hand, one or both of the Parties, and, on the other hand, a Third Party, wherein such ThirdParty obtains a license granting a Third Party the right to develop and/or commercialize aCollaboration 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 costsincurred by the Parties in connection with identifying and negotiating with potential Third PartyPartners and preparing, negotiating, and executing a Partnering Agreement for a CollaborationProduct.     **1.30 “Patent”**means (a) unexpired letters patent (including inventor’s certificates) whichhave not been held invalid or unenforceable by a court of competent jurisdiction from which noappeal can be taken or has been taken within the required time period, including without limitationany substitution, extension, registration, confirmation, reissue, re-examination, renewal or any like filing thereof and (b) pending applications for letterspatent,including without limitation any continuation, division or continuation-in-part thereof andany provisional applications.     **1.31 “Program IP”**means any and all inventions, developments, results, know-how and otherInformation (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.**
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propertyrelating thereto, that is (a) made, conceived or reduced to practice by employee(s) or agent(s) ofone or both Parties in the performance of the Research Program and that is (b) neither (i) AradigmCore 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 accountin connection with the Research Program that are specified in the Research Plan and ResearchBudget. Notwithstanding the foregoing, Research Costs shall exclude any overhead expenses of aParty, except to the extent such overhead expenses are included in the FTE rate set forth inSection 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 Affiliateof either of them.**2. Management of the Collaboration**     **2.1 Overall Management Structure**. The overall management of the Collaboration shall be vestedin a Joint Steering Committee (the “**JSC**”), with responsibility, as further discussed inSection 2.2, for establishing the strategic direction of the Collaboration and for managing anddirecting the overall research program to be jointly established by the Parties (the “**ResearchProgram**”) and the Parties’ efforts to commercialize and to out-license the technology developedthereunder. The JSC may further establish one or more subcommittees as it deems appropriate anddelegate one or more of its responsibilities to such subcommittee, provided that the subcommittee’sactions 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 tothe JSC. Each Party may replace its JSC representatives at any time upon written notice to theother 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.**
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preparing and circulating anagenda 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 otherelectronic means. The JSC will make its decisions by unanimous vote, with each Party’srepresentatives collectively having one vote. The JSC shall determine the overall strategy for theCollaboration, including the Research Program. Without limiting the generality of the foregoing,the JSC shall be responsible for (i) selecting the Collaboration Products, (ii) creating theResearch 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 aCollaboration Product, making a recommendation to the senior management of each Party regarding thepotential for further development and commercialization of such Collaboration Product.     **2.3 Obligations of Parties.**Aradigm and CyDex shall provide the JSC and all subcommitteesthereof that are formed, and their authorized representatives, with reasonable access duringregular business hours to all records, documents, and Information relating to the Research Programthat 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 ofconfidentiality to a Third Party, then Aradigm or CyDex, as the case may be, may withhold accessthereto 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 bystandards of reasonableness in economic terms and fairness to each of the Parties, striving tobalance the legitimate interests and concerns of the Parties, to further the Research Program, andto realize the economic potential of the Collaboration Products.          **(b) Independence.**Subject to the terms of this Agreement, the activities and resources ofeach 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 Partyshall have the power to bind or obligate the other Party in any manner, other than as is expresslyset 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 vitroproof-of-concept data regarding such Collaboration Products. It is anticipated that theCollaboration Products will either comprise two or more off-patent compounds. Notwithstandingthe foregoing, the JSC may agree, on a case-by-case basis, to include Collaboration Products thatdo not fall within these categories. The JSC shall determine from time to time whether clinicaltesting of Collaboration Products will be conducted under this Agreement; provided, however, suchclinical 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 toprovide 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 particularCollaboration Product will be governed by a written research plan (each, a “**Research Plan”**). EachResearch Plan shall specifically identify the Collaboration Product (and the relevant Compounds) towhich it pertains and shall include a budget (each, a “**Research Budget**”) describing each Party’sfunding obligations with respect to the work specified in the Research Plan. Such fundingobligations may consist of cash payments or in-kind contributions of materials, equipment, orlabor, and the Research Budget shall indicate the dollar value associated with any in-kindcontributions. For the purpose of establishing a Research Budget, the dollar value of any in-kindcontribution of labor by the employees of a Party shall be calculated on an average fully burdenedFTE basis that includes estimated overheads using a rate of $[*]/hour per FTE. The JSC will reviewsuch reimbursement rate on an annual basis and, if necessary, may elect to change suchreimbursement rate to reflect changes in costs. Each Research Plan shall allocate between theParties responsibility for each of the Research Program activities described therein in a mannerconsistent with this Agreement. In each Research Plan, it is anticipated that Aradigm shall beprimarily responsible for the supply of the AERx Technology, optimizing the formulation for use inthe AERx Technology, including adjusting the [*] parameters, in vitro and in vivo preclinicalstudies, and that CyDex shall be primarily responsible for developing the formulations andanalytical methods, and for supplying Captisol or other substituted cyclodextrins, for the bulkformulations.          **(b)**A specimen Research Plan (and Research Budget) covering expected in vitro activities forthe initial Collaboration Product is attached to this Agreement and incorporated by this referenceand 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 CollaborationProducts, as required. During the Research Term, the JSC shall review each then-existing ResearchPlan 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 withthe terms of this Agreement and the goals of the Research Program. Once approved by the JSC, suchrevised Research Plan shall replace the prior Research Plan. Significant changes in the scope ordirection of the work and, any increase or decrease in either Party’s funding requirements inexcess of fifteen percent (15%), or any changes to the funding requirements that would cause theallocation of budgeted Research Costs to deviate from the Allocation Ratio must be approved inwriting by a member of the senior management of each Party. In the absence of approval of aResearch Plan by the JSC or the senior management of each Party (as the case may be), the mostrecently approved Research Plan shall remain in effect.          **(c)**The Parties acknowledge that such Research Plan and Research Budget allocate the budgetedResearch Costs between the Parties in accordance with the Allocation Ratio. For the avoidance ofdoubt, it is the intent of the Parties (a) to ensure that additional or revised Research Plansand/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.**
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between the Parties in accordancewith the Allocation Ratio and (b) to make adjustments over time as may be necessary and appropriateto align actual Research Costs with budgeted Research Costs in accordance with the AllocationRatio. To the extent that the JSC decides that it is not possible or in the best interests of theCollaboration Product to allocate budgeted Research Costs between the Parties according to theAllocation Ratio, then the Party contributing less than its portion under the Allocation Ratio willmake cash payments on a quarterly basis to the party contributing more than its portion under theAllocation Ration to bring the sum contribution of resources plus cash in line with the AllocationRatio.     **3.3 Research Term.**The Research Term shall commence on the Effective Date and shall continuefor 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 setforth in Section 3.8 shall remain in force during the Research Term and shall terminate at the endof the Research Term.     **3.4 Conduct of Research Program.**The Parties shall use Diligent Efforts to conduct theirrespective tasks assigned pursuant to the Research Plan and to attempt to achieve the objectives ofthe Research Program efficiently and expeditiously. Each Party shall conduct its portion of theResearch Program in good scientific manner, and in compliance in all material respects with therequirements of applicable laws, rules and regulations and all applicable good laboratorypractices.     **3.5 Reports to JSC.**At each meeting of the JSC during the Research Term and the six-monthperiod following the end of the Research Term, each Party shall submit to the JSC a writtenprogress 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 allocatedto it under the Research Plan to any of its Affiliates, or to a Third Party, provided that suchThird 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 ResearchProgram 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 conductedunder the Research Program and all results, data and developments made pursuant to its effortsunder the Research Program. Such records shall be complete and accurate and shall fully andproperly reflect all work done and results achieved in the performance of the Research Program insufficient 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 reasonabletimes 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 inthe course of performing Research Program activities. For clarity, Partnering Costs, even ifincurred 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 provideto 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 Partyshall use the other Party’s Materials solely for the purposes of performing under the ResearchProgram and in compliance with all applicable legal requirements. Neither Party shall use theother Party’s Materials for any other purposes. Neither Party shall sell, transfer, disclose orotherwise provide access to the other Party’s Materials, without the prior express written consentof the other Party. However, each Party may allow access, on a need-to-know basis, to the otherParty’s Materials to such first Party’s employees and agents for purposes of performance of theResearch Program in accordance with the Research Plan, *provided*that such employees and agents aremade 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 remainingquantities of the other Party’s Materials to such other Party, or otherwise dispose of suchMaterials as directed by such other Party. Each Party acknowledges and agrees that the Materialsof the other Party may have biological and/or chemical properties that are unpredictable andunknown as the time of transfer, that they are to be used with caution and prudence, and that theyare 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 ANYPARTICULAR PURPOSE OR EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT ANY WARRANTY THAT THE USE OFTHE MATERIALS WILL NOT INFRINGE OR VIOLATE ANY PATENT OR OTHER PROPRIETARY RIGHTS OF ANY THIRDPARTY.**4. Partnering**     **4.1 General.**The Parties shall cooperate, via the JSC, to identify potential Third PartyPartners for further development and commercialization of Collaboration Products in the Field inthe Territory.     **4.2 Partnering Agreement**. The Liaison Party shall have direct responsibility for identifyingand negotiating with potential Third Party Partners for development and commercialization ofCollaboration Products in the Field in the Territory. The Liaison Party shall keep the other Partyinformed regarding such negotiations and shall provide the other Party with an opportunity tocomment thereon. The ultimate form of the Partnering Agreement shall be presented to both Partiesfor review and approval. It is anticipated that, under the Partnering Agreement, (a) each Partywill 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 inthe Territory; (b) CyDex would be responsible for manufacturing (or having manufactured)Formulation Technology and (c) Aradigm would be responsible formanufacturing (or having manufactured) AERx Strips® dosage packets and AERXEssence® 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 Revenuesrealized and Partnering Costs incurred in respect to the Collaboration Product in accordance withAllocation Ratio.          **(b)**Any payments or other compensation provided by a Third Party Partner to either Aradigm orCyDex 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 aPartnering Agreement) shall not be considered Licensing Revenues hereunder, provided that the otherParty is given the opportunity to review the financial and non-financial terms under which suchservices will be provided and (ii) such compensation does not exceed the normal rates charged bythe contracting Party in other, unrelated arms-length transactions.     **4.4 Reporting and Reconciliation.**Within fifteen (15) days after the end of each calendarquarter during negotiation of, or following the execution of, a Partnering Agreement, each Partyshall provide a written report to the JSC (with a copy to the other Party) specifying anddocumenting, both in reasonable detail, the Licensing Revenues it received, and Partnering Coststhat 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 anaccounting in reasonable detail of the Parties’ Partnering Costs and Licensing Revenues for suchquarter, and the JSC shall promptly direct by written notice the remittance between the Parties ofa payment that will result in the sharing of Licensing Revenues and Partnering Costs as set forthin Section 4.3. All payments required by this Section 4.4 shall be made within thirty (30) daysafter receipt of a written notice. Each Party shall keep detailed records of the Partnering Costsit incurs, and all Licensing Revenues it receives, including all supporting documentation for suchcosts and revenues. Each Party shall keep such records for at least three (3) years after the datethat such expense was incurred or revenue received. Either Party may audit, in accordance with theprocedures set forth in Section 7.4, such records for the sole purpose of verifying the accuracy ofthe 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), alldevelopment of Collaboration Products beyond the activities that are part of the Research Programand all commercialization of Collaboration Products shall be governed by a separate development andcommercialization agreement between the Parties, which will be negotiated in good faith by theParties at a mutually agreeable time and shall include commercially reasonable terms.     **5.2 Partnering Agreement**. To the extent that a Partnering Agreement covers a CollaborationProduct, the development and commercialization of such Collaboration Product in the Field in theTerritory 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 CyDexa worldwide, co-exclusive (with Aradigm) license during the Term, without the right to grantsublicenses (except to Third Party subcontractors approved by the JSC), under the AradigmTechnology, to use, make, have made and import Collaboration Products in the Field solely for thepurpose of performing CyDex’s responsibilities under the Research Plan.     **6.2 License to Aradigm**. Subject to the terms of this Agreement, CyDex hereby grants toAradigm a worldwide, co-exclusive (with CyDex) license during the Term, without the right to grantsublicenses (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 ofperforming 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, orlicense a Third Party to do any of the foregoing, in each case for a purpose other than thatexpressly 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, orlicense a Third Party to do any of the foregoing, in each case for a purpose other than thatexpressly permitted in Section 6.2.     **6.4 Exclusivity.**During the Term, each Party agrees not to pursue outside the Collaborationthe development or commercialization of a Collaboration Product in any field, or the development orcommercialization of any Directly Competitive Product for use in the Field, either itself or withor through an Affiliate or a Third Party. By way of illustration and example only, for purposes ofclarity, a product that is a solution for nebulization using currently or potentially availablecommercial nebulization devices would not constitute a Directly Competitive Product as long as thenebulizer used is not a hand-held device.     **6.5 Third Party License Obligations.**Subject to the terms of the Partnering Agreement, theJSC shall be responsible for evaluating whether, when, and how to enter into licensing agreementswith Third Parties. To the extent that any license fee, royalty or other payment obligationaccrues under any license agreement between Aradigm or CyDex and a Third Party that is needed forthe manufacture, use, sale or importation of a CollaborationProduct, responsibility for such payments shall be shared by the Parties in accordance withthe Allocation Ratio and shall be shared with the Third Party Partner to the extent permitted bythe Partnering Agreement. In the event that the JSC elects not to enter into a license and suchdecision results in an enforcement action being brought against one or both of the Parties, anycosts and liabilities that arise shall be shared by the Parties in accordance with the AllocationRatio, 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 andAradigm Information as it is generated.          **(b)**Notwithstanding Section 6.5(a), if CyDex terminates this Agreement pursuant to Section10.2(a), Aradigm shall cease to have any obligation to provide CyDex with access to any AradigmInformation with respect to the Collaboration Product, and Aradigm shall have the right tocontinued access to CyDex Information for the Collaboration Product for the sole purpose ofdetermining whether it wishes to exercise the option set forth in Section 10.3 with respect to suchProduct and whether it can identify a Third Party partner interested in licensing from Aradigm orcollaborating with Aradigm with respect to such Product..          **(c)**Notwithstanding Section 6.5(a), if Aradigm terminates this Agreement pursuant to Section10.2(a), CyDex shall cease to have any obligation to provide Aradigm with access to any CyDexInformation with respect to the Collaboration Product, and CyDex shall have the right to continuedaccess to Aradigm Information for the Collaboration Product for the sole purpose of determiningwhether it wishes to exercise the option set forth in Section 10.4 with respect to such Product andwhether it can identify a Third Party partner interested in licensing from Aradigm or collaboratingwith 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 bankwire transfer in immediately available funds to an account designated by such Party. All paymentshereunder shall be made in U.S. dollars.     **7.2 Taxes**. Each Party shall pay any and all taxes levied on account of all payments itreceives under this Agreement. If laws or regulations require that taxes be withheld, theremitting Party will (a) deduct those taxes from the remittable payment, (b) pay the taxes to theproper taxing authority, and (c) send evidence of the obligation together with proof of tax paymentto 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 willbe performed in a manner consistent with the terms of the Partnering Agreement, or if not specifiedtherein, with the Liaison Party’s normal practices used to prepare its audited financial statementsfor internal and external reporting purposes, which use a widely accepted source of publishedexchange rates.     **7.4 Records; Inspection**. Both Parties shall keep complete, true and accurate books ofaccounts 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 calendarquarter to which they pertain. Such records will be open for inspection during such three (3) yearperiod by independent accountants, solely for the purpose of verifying payment statementshereunder. Such inspections shall be made no more than once each calendar year, at reasonable timeand 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 thecourse 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 theinspecting Party would have received in the absence of such errors. Inspections conducted underthis Section 7.4 shall be at the expense of the inspecting Party, unless a variation or error infavor of the inspected Party exceeding [*] percent ([*]%) of the amount stated for any periodcovered by the inspection is established in the course of such inspection, whereupon all costsrelating 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 determinedunder the patent laws of the United States. Intellectual property conceived before the EffectiveDate and after the Term, as evidenced by written records, will be the sole property of theapplicable Party.          **(b)**Aradigm shall own the entire right, title and interest in and to any and all Aradigm CoreIP. CyDex hereby transfers and assigns to Aradigm any and all right, title and interest to allAradigm Core IP. At the request of Aradigm, CyDex shall execute all documents necessary ordesirable 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 CyDexCore IP. At the request of CyDex, Aradigm shall execute all documents necessary or desirable toeffectuate 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 tothe extent necessary to implement such ownership rights. At the request of a Party, the otherParty 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 underProgram 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 periodof 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 ThirdParties 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 ofthe end of each quarter describing any Aradigm Core IP, CyDex Core IP, or Program IP arising duringthe 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 tofile, prosecute, maintain or extend any Program Patent, CyDex shall notify Aradigm in writing nolater 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 writtennotification to CyDex, that Aradigm will take over the preparation, filing, prosecution, andmaintenance of such Program Patent. The filing Party shall control the preparation, filing,prosecution, maintenance and issuance, including any interference proceeding or post grant or postissuance proceeding, including any opposition, reexamination or reissue or extension, of anyProgram 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 Partyshall (a) keep the non-filing Party promptly informed as to the filing, prosecution, maintenanceand extension of any Program Patent, such that the non-filing Party has reasonable time to reviewand 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 ondocuments filed with any patent office with respect to a Program Patent. All costs incurred afterthe Effective Date in relation to the filing, prosecution, or maintenance of Program Patents shallbe shared by the Parties in accordance with the Allocation Ratio; provided, however, that thenon-filing Party may opt-out of such cost-sharing with respect to a particular Program Patent bynotifying the filing Party of such intention and assigning its entire right, title, and interest insuch 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 AradigmTechnology or the CyDex Technology, the Party first obtaining knowledge of such infringement shallimmediately provide the other Party notice of such infringement and the related facts in reasonabledetail.          **(b)**Aradigm shall have the exclusive right with respect to enforcing any Patent within theAradigm Technology, and with respect to settling any action brought relating to such infringement,Aradigm may grant a license to such Patent in conjunction with suchsettlement, subject to the licenses granted to CyDex hereunder. All costs, liabilities andproceeds (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 CyDexTechnology, and with respect to settling any action brought relating to such infringement, CyDexmay grant a license to such Patent in conjunction with such settlement, subject to the licensesgranted to Aradigm hereunder. All costs, liabilities and proceeds (each, if any) associated withsuch 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 analleged infringer. If, with the approval of the JSC, either Party brings any action or proceedingto enforce a Program Patent, the other Party agrees to be joined as a Party plaintiff and to givethe first Party reasonable assistance and authority to control, file and prosecute the suit asnecessary. All costs, liabilities and proceeds (each, if any) associated with such action orproceeding shall be shared by the Parties in accordance with the Allocation Ratio. No settlementor consent judgment or other voluntary final disposition of such action or proceeding may beentered 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, toassert claims of infringement with respect to Patents in the Aradigm Technology or CyDexTechnology, and/or with respect to the Program Patents, may be superseded by the terms of aPartnering 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 themanufacture, research, development, import, use, sale or offer for sale of any CollaborationProduct, the Party first obtaining knowledge of such a claim shall immediately provide the otherParty with notice of such claim and the related facts in reasonable detail. The JSC shalldetermine 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 Productshall be shared by the Parties in accordance with the Allocation Ratio, provided that neither Partyshall enter into a settlement agreement with such Third Party without the written consent of theother Party, which shall not be unreasonably withheld.          **(b)**For clarity, the Parties agree that the rights of each Party to defend claims ofinfringement under this Agreement and the sharing of costs associated therewith may be madesubordinate 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 theother Party pursuant to this Agreement shall be “**Confidential Information**,” provided that it ismarked or otherwise identified as “confidential” or “proprietary.” The Parties agree that duringthe Term, and for a period of [*] ([*]) years thereafter, a Party receiving ConfidentialInformation of the other Party will (i) maintain inconfidence such Confidential Information to the same extent such Party maintains its ownproprietary industrial information of similar kind and value (but at a minimum each Party shall usecommercially reasonable efforts), (ii) not disclose such Confidential Information to any ThirdParty without prior written consent of the other Party, except for disclosures made in confidenceto 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 thisAgreement.     **9.2 Exceptions**. The obligations in Section 9.1 shall not apply with respect to any portion ofthe 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 tothe receiving Party hereunder; or          **(b)**Was known to the receiving Party, without obligation to keep it confidential, prior todisclosure by the disclosing Party; or          **(c)**Is subsequently disclosed to the receiving Party by a Third Party lawfully in possessionthereof 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 oruse of Confidential Information.     **9.3 Authorized Disclosure**. A Party may disclose the Confidential Information belonging to theother 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 todisclosure must be bound by similar obligations of confidentiality and non-use at least equivalentin scope to those set forth in this Article 9.     The Parties acknowledge that the terms of this Agreement shall be treated as ConfidentialInformation 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 eitherParty with the Securities and Exchange Commission if such filing is required by law orregulation. In connection with any such filing, such Party shall endeavor to obtain confidentialtreatment of economic and trade secret information.     In any event, the Parties agree to take all reasonable action to avoid disclosure ofConfidential Information except as permitted hereunder.     **9.4 Publicity**. Any publication, news release or other public announcement relating to thisAgreement 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 disclosingParty’s counsel may be made without the prior consent of the other Party, although the other Partyshall be given prompt notice of any such legally required disclosure and to the extent practicableshall 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 orother disclosures sent to stockholders or filed with or submitted to any governmental authority orstock exchange.     **9.5 Publications**. Neither Party shall publish or present the results of studies carried outunder this Agreement without the opportunity for prior review by the other Party. Subject toSection 9.3, each Party agrees to provide the other Party the opportunity to review any proposedabstracts, manuscripts or presentations (including verbal presentations) which relate to theCollaboration Product at least thirty (30) days prior to its intended submission for publicationand agrees, upon request, not to submit any such abstract or manuscript for publication until theother Party is given a reasonable period of time to secure patent protection for any material insuch publication which it believes to be patentable. Both Parties understand that a reasonablecommercial strategy may require delay of publication of information or filing of patentapplications. The Parties agree to review and consider delay of publication and filing of patentapplications under certain circumstances. The JSC will review such requests and recommendsubsequent action. Neither Party shall have the right to publish or present ConfidentialInformation of the other Party. Nothing contained in this Section 9.5 shall prohibit the inclusionof information necessary for a patent application, except for Confidential Information of thenonfiling Party, provided the nonfiling Party is given a reasonable opportunity to review theinformation to be included prior to submission of such patent application. Any disputes betweenthe Parties regarding delaying a publication or presentation to permit the filing of a patentapplication 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 duringwhich 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 shallexpire at any time after the second anniversary of the Effective Date that there are (i) noCollaboration 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 PartneringAgreement; and (iii) no Partnering Agreements under which either Party or the Third Party Partnerhas any outstanding obligations.     **10.2 Voluntary Termination.**          **(a)**Prior to the expiration of the Term, either Party may terminate this Agreement in itsdiscretion, with respect to one or more Collaboration Products, upon sixty (60) days’ prior writtennotice to the other Party.          **(b)**If CyDex terminates this Agreement pursuant to Section 10.2(a), then (i) Aradigm shallhave the right to exercise the options set forth in Section 10.3; (ii) CyDex shall not perform anywork on, collaborate with a Third Party with respect to, or grant any licenses or other rights to aThird Party with respect to, the applicable Collaboration Product(s) in the Field; and (iii) thefollowing additional provisions of this Agreement shall survive such termination (in addition tothose 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 shallhave the right to exercise the option set forth in Section 10.3; (ii) Aradigm shall not perform anywork on, collaborate with a Third Party with respect to, or grant any licenses or other rights to aThird Party with respect to, the applicable Collaboration Product(s) in the Field; and (iii) thefollowing provisions of this Agreement shall survive such termination (in addition to those setforth 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 toany particular Collaboration Product or with respect to all Collaboration Products at any timeduring the Research Term upon written notice to the other Party. The date that a writtentermination notice is delivered to the non-terminating Party shall be referred to as the“Collaboration Product Termination Date.” The term “Terminated Collaboration Product” shall meanthe same combination of drugs that would otherwise have been referred to as the CollaborationProduct if no termination had occurred. If a Party elects to exercise its right to terminate thisAgreement under this Section 10.2(d) then the other Party shall deliver to the terminating Partywithin 30 days after receipt of such written notice a [*]. Within fifteen (15) days after receiptof such accounting the terminating Party shall pay to the non-terminating Party a termination feeequal to [*]. Notwithstanding any other provisions of this Agreement, and in consideration of thepayment of the termination fee, upon the exercise of the right of a Party to terminate thisAgreement with respect to a Collaboration Product under this Section 10.2(d), the non-terminatingParty shall not be entitled to utilize any of the terminating Party’s Technology to further developthe affected Collaboration Product. If CyDex is the terminating Party, then CyDex shall beprohibited from further developing, manufacturing or distributing the affectedTerminated Collaboration Product for use with a hand-held inhalation device for [*]. IfAradigm is the terminating Party, then Aradigm shall be prohibited from further developing,manufacturing or distributing the affected Terminated Collaboration Product using AqueousFormulations 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) anassignment of all its Information solely and exclusively pertaining to a Collaboration Product thatis the subject of a termination pursuant to Section 10.2, (ii) an assignment of all its SpecificThird Party Agreements for such Collaboration Product, (iii) a right, under all its Generic ThirdParty Agreements for such Collaboration Product, to receive products or services related to suchCollaboration Product, and (iv) an exclusive, worldwide, royalty bearing (in accordance withSection 10.3(e) below), irrevocable license (with the right to grant further sublicenses), underits Technology, to develop, make, have made, use, sell and offer for sale such CollaborationProduct 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 shallmaintain and preserve all its Technology, Generic Third Party Agreements, and Specific Third PartyAgreements, in each case to the extent that they would reasonably be expected to be the subject ofsuch option.          **(c)**The other Party may exercise such option by written notification to the terminating Partyat any time during the period commencing on the date of termination pursuant to Section 10.2(a) andending ninety (90) days thereafter. During this ninety (90) day option period, the other Party mayuse the terminating Party Information pertaining to the applicable Collaboration Product toevaluate whether it wishes to exercise such option and may disclose such Information to a ThirdParty in confidence for such Third Party to evaluate whether it wishes to collaborate, or enterinto 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 Partyprovide it with a listing of all pertinent Information, Generic Third Party Agreements, SpecificThird Party Agreements, and Technology, to the extent not previously reported in performance of theResearch Program, that would be assigned, licensed or otherwise conveyed if a Party were to electto exercise its option.          **(e)**The other Party may choose to exercise its option by giving written notice to theterminating Party. Upon receipt of such notice, the terminating Party shall (i) be deemed to havegranted 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 anycomponents 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 suchassignments, rights and licenses and (2) to provide the other Party with access to any otherdocuments required to develop and commercialize the Collaboration Productindependent of the terminating Party, and the other Party shall be obligated to commence andcontinue paying the royalty as set forth in Section 10.3(e) on the attached Schedule of commercialterms.**[ * ] = 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 anymaterial breach of a representation or warranty made in this Agreement), then the other Party maydeliver notice of such breach to the breaching Party. In such notice, the non-breaching Partyshall identify the actions or conduct that such Party would consider to be an acceptable cure ofsuch breach. The allegedly breaching Party shall have thirty (30) days to either cure such breachor, if cure cannot be reasonably effected within such thirty (30) day period, to deliver to theother Party a plan for curing such breach which is reasonably sufficient to effect a cure. Such aplan shall set forth a program for achieving cure as rapidly as practicable. Following delivery ofsuch plan, the breaching Party shall use Diligent Efforts to carry out the plan and cure thebreach.          **(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 correctiveplan or the actions being taken to carry it out is not commercially practicable, the Partyoriginally delivering the notice may terminate this Agreement upon thirty (30) days advance writtennotice.          **(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 CollaborationProduct 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 forthin 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) CyDexshall have the option set forth in Section 10.3 with respect to all Collaboration Products and mayexercise such option at one-half of the cost set forth in Section 10.3; and (iii) the followingprovisions 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 theParties of any liability which accrued hereunder prior to the effective date of such terminationnor preclude either Party from pursuing all rights and remedies it may have hereunder or at law orin equity with respect to any breach of this Agreement nor prejudice either Party’s right to obtainperformance of any obligation. The following provisions of this Agreement shall survive anytermination or expiration: Sections 7.4 (Records and Inspections), 8.1 (Ownership of intellectualproperty), 8.2 (Disclosure of intellectual property) (solely to the extent necessary to completedisclosure 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 ofLiability, 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 provisionshereof; (ii) this Agreement is a legal and valid obligation binding upon it and enforceable inaccordance with its terms; and (iii) its execution, delivery and performance of this Agreement willnot conflict in any material fashion with the terms of any other agreement, instrument, orunderstanding, oral or written, to which it is or becomes a Party or by which it is or becomesbound.     **11.2 DISCLAIMER.**EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTYMAKES ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOTLIMITED 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 otherParty and its directors, officers, agents and employees (the “**Indemnitees**”) from and against anyand all damages, liabilities, expenses and/or loss, including reasonable legal expenses andreasonable attorneys’ fees (“Losses”) resulting from suits, claims, proceedings or causes of actionbrought by a Third Party against such Indemnitee based on: (i) breach by the indemnifying Party ofthis 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 suchParty’s rights under this Agreement; except to the extent such Losses result from (1) breach ofthis Agreement by the non-indemnifying Party; and/or (2) the negligence or willful misconduct of anIndemnitee.          **(b)**In the event that an Indemnitee is seeking indemnification under Section 12.1(a), it shallinform the indemnifying Party of a claim as soon as reasonably practicable after it receives noticeof the claim, shall permit the indemnifying Party to assume direction and control of the defense ofthe claim (including the right to settle the claim, subject to the remainder of this section), andshall 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 representedby counsel of its choice in any action or proceeding with respect to a claim. The indemnifyingParty shall not be liable for any litigation costs or expenses incurred by the indemnified Partywithout 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 andunconditionally release the indemnified Party from allliability relating thereto or (ii) adversely impacts the rights granted to the indemnifiedParty 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 SPECIFICALLYPROVIDED 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, EXEMPLARYOR CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT LIMITATION LOST PROFITS, WHETHER BASED UPON A CLAIM ORACTION OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER TORT, OR OTHERWISE, ARISING OUTOF 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 suchcoverage to the other Party upon request.**13. Dispute Resolution.**     **13.1 Disputes.**The Parties recognize that disputes as to certain matters may from time totime arise during the term of this Agreement which relate to either Party’s rights and/orobligations hereunder. It is the objective of the Parties to establish procedures to facilitatethe resolution of disputes arising under this Agreement in an expedient manner by mutualcooperation and without resort to litigation. To accomplish this objective, the Parties agree tofollow the procedures set forth in this Article 13 if and when a dispute arises under thisAgreement. The JSC shall serve as the initial forum for resolving all such disputes. If the JSCis unable to resolve any dispute within thirty (30) days, any Party may, by written notice to theother, 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 thenhave 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 toresolve such dispute within such thirty (30) day period, either Party may then invoke theprovisions of Section 13.2.     **13.2 Arbitration**. Any dispute that is not resolved by the Parties by negotiation pursuant toSection 13.1 above shall, upon the submission of a written request of either Party to the otherParty, 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 ArbitrationAssociation for commercial disputes (the “**Rules**”), except to the extent that such Rules areinconsistent 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 Arbitratorwithin twenty (20) days after receipt by one Party of the other Party’s written request for bindingarbitration. 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 inaccordance with this Agreement and the substantive rules of law (but not the rules of procedure orconflicts of laws) that would be applied by a federal court sitting in California. The finaldecision of the Panel shall be the sole and exclusive remedy of the Parties, shall be finaland shall be fully and irrevocably accepted by the Parties. The prevailing Party may enforce suchdecision against the other Party in any court having jurisdiction. The arbitration shall takeplace in California, and shall be conducted in the English language. The Parties agree that theyshall share equally the cost of the arbitration filing and hearing fees, and the cost of thearbitrators 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 feesand all associated costs and expenses.     **13.3 Court Actions**. Notwithstanding the above, to the full extent allowed by law, eitherParty may bring an action in any court of competent jurisdiction for injunctive relief (or anyother provisional remedy) to protect the Parties’ rights or enforce the Parties’ obligations underthis Agreement pending final resolution of any claims related thereto in an arbitration proceedingas provided above. In addition, either Party may bring an action in any court of competentjurisdiction 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 underthis 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 orthe performance, enforcement, breach or termination of this Agreement and any remedies relatingthereto, 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 ajurisdiction outside California.**14. Miscellaneous**     **14.1 Entire Agreement; Amendment**. This Agreement sets forth the complete, final and exclusiveagreement and all the covenants, promises, agreements, warranties, representations, conditions andunderstandings between the Parties hereto and supersedes and terminates all prior agreements andunderstandings between the Parties. There are no covenants, promises, agreements, warranties,representations, conditions or understandings, either oral or written, between the Parties otherthan as are set forth herein and therein. No subsequent alteration, amendment, change or additionto this Agreement shall be binding upon the Parties unless reduced to writing and signed by anauthorized officer of each Party.     **14.2 Force Majeure**. Both Parties shall be excused from the performance of their obligationsunder this Agreement to the extent that such performance is prevented by force majeure and thenonperforming Party promptly provides notice of the prevention to the other Party. Such excuseshall be continued so long as the condition constituting force majeure continues and thenonperforming Party takes reasonable efforts to remove the condition. For purposes of thisAgreement, force majeure shall include conditions beyond the control of the Parties, includingwithout limitation, an act of God, voluntary or involuntary compliance with any regulation, law ororder of any government, war, civil commotion, labor strike or lock-out, epidemic, failure ordefault of public utilities or common carriers, destruction of production facilities or materialsby fire, earthquake, storm or likecatastrophe; provided, however, the payment of invoices due and owing hereunder shall not bedelayed 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 inwriting, shall specifically refer to this Agreement and shall be deemed to have been sufficientlygiven 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, themailing 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 thelegal tender of the United States of America.     **14.5 No Strict Construction**. This Agreement has been prepared jointly and shall not bestrictly construed against either Party.     **14.6 Assignment**. Neither Party may assign or transfer this Agreement or any rights orobligations hereunder without the prior written consent of the other, which consent may be withheldin the consenting Party’s discretion; *provided, however*, that a Party may make such an assignmentwithout the other Party’s consent to an Affiliate or to a successor to substantially all of thebusiness 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 Section14.6 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 thisAgreement.     **14.7 Further Actions**. Each Party agrees to execute, acknowledge and deliver such furtherinstruments, and to do all such other acts, as may be necessary or appropriate in order to carryout the purposes and intent of this Agreement.     **14.8 Severability**. If any one or more of the provisions of this Agreement is held to beinvalid or unenforceable by any court of competent jurisdiction from which no appeal can be or istaken, the provision shall be considered severed from this Agreement and shall not serve toinvalidate any remaining provisions hereof. The Parties shallmake a good faith effort to replace any invalid or unenforceable provision with a valid andenforceable one such that the objectives contemplated by the Parties when entering this Agreementmay be realized.     **14.9 Headings**. The headings for each article and section in this Agreement have been insertedfor convenience of reference only and are not intended to limit or expand on the meaning of thelanguage 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 waiveras to a particular default or other matter shall not constitute a waiver of such Party’s rights tothe future enforcement of its rights under this Agreement, excepting only as to an express writtenand 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 whichshall be deemed an original, but all of which together shall constitute one and the sameinstrument.     **In Witness Whereof**, the Parties have executed this Collaboration Agreement induplicate 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 GondaTitle: Chairman and Chief Executive Officer Title: President and ChiefExecutive Officer