Document:

exv10w4

 

Exhibit 10.4

[ * ] = 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.

EXCLUSIVE LICENSE, DEVELOPMENT, AND

COMMERCIALIZATION AGREEMENT

     This Exclusive License, Development, and Commercialization Agreement (the
“Agreement”) is entered into as of August 30, 2007 (the “Effective Date”) by and between
Aradigm Corporation, a California corporation having its principal office at 3929 Point
Eden Way, Hayward, California 94545 (“Aradigm”), and Lung Rx, Inc., a wholly-owned
subsidiary of United Therapeutics Corporation, a Delaware corporation, having an address of 1110
Spring Street, Silver Spring, Maryland 20910 (“Lung Rx”). Aradigm and Lung Rx may be referred to
individually as a “Party”, and collectively as the “Parties”.

Recitals

     Whereas, Aradigm possesses certain proprietary rights related to a pulmonary drug
delivery technology known as AERx® technology, as well as expertise and know-how relating to the
use and manufacture of such technology; and

     Whereas, Lung Rx possesses certain proprietary rights related to the compound known
as treprostinil, as well as expertise and know-how relating to the use and manufacture of such
compound;

     Whereas, Lung Rx wishes to obtain, and Aradigm is willing to grant to Lung Rx, an
exclusive license throughout the universe to develop and commercialize products comprising
treprostinil incorporated into the AERx pulmonary drug delivery system, and improvements thereto,
including new formulations, subject to the terms and conditions set forth herein.

     Now, Therefore, in consideration of the foregoing premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Parties agree as follows:

ARTICLE 1

Definitions

     1.1 “Affiliate” means, with respect to a Party, any company or other entity controlled by,
controlling, or under common control with such Party. As used in this definition, the term
“controlling” a particular entity (with correlative meanings for the terms “controlled by” and
“under common control with”) means that the applicable Party owns, directly or indirectly, stock of
the subject entity representing more than 50% of the voting power for electing Board (or similar
management) members, or otherwise has the actual power to direct and control the management and
affairs of such entity, whether by contract or otherwise.

     1.2 “Aradigm FTE Rate” means the fully burdened cost (defined as overhead, salaries, bonuses
and related payroll taxes and the cost of direct benefits) to Aradigm of one full-time equivalent
employee performing Development activities hereunder, which for clarity may

 

 

vary based on the
duties and experience of such employee. The Aradigm FTE Rate for each position will be fixed for
[*]. Thereafter the Parties will renegotiate the Aradigm FTE Rate for each position; provided
however, the overhead for each position shall be no greater than [*]. Furthermore, if during any
calendar year greater than [*] full-time equivalent employees are required to perform Development
activities and it is anticipated to continue for more than [*] of the following year, the Parties
will renegotiate the Aradigm FTE Rate for each position. If Aradigm reduces its total full-time
equivalent employees such that it would impact the percentage of the total full-time equivalent
employees performing Development activities, then Aradigm shall provide Lung Rx sixty (60) days
advance written notice of such reduction. The methodology to be used in calculating the fully
burdened cost referred to above shall be as elaborated in Exhibit A of this Agreement.

     1.3 “Aradigm Improvements” means any and all improvements to the Aradigm Technology for use in
the Field, whether or not patentable, including intellectual property rights, improvements,
modifications, variations, revisions, versions and derivatives, as well as all data, know-how,
methods, Information, processes, machines, or compositions of matter pertaining to the Aradigm
Technology, which Aradigm may conceive, discover, Develop, acquire or Commercialize at any time
before or after the Effective Date of this Agreement and during the term hereof, and which Aradigm
Controls.

     1.4 “Aradigm Know-How” means all Information (other than Patents and whether or not
patentable) that (a) is Controlled by Aradigm or any of its Affiliates as of the Effective Date or
during the Term and (b) relates directly to the manufacture, use, sale, or importation of the
Product and is necessary or useful for the research, Development, regulatory approval, manufacture,
or Commercialization of Products, or otherwise useful or necessary for Lung Rx to practice the
Aradigm Technology.

     1.5 “Aradigm Patents” means all Patents that (a) include one or more claims that cover a
Product or the manufacture, importation, use, offer for sale or sale of such Product and (b) are
Controlled by Aradigm or any of its Affiliates as of the Effective Date or during the Term. The
Aradigm Patents include those Patents set forth on Exhibit B of this Agreement. To the
extent that any Patent or Improvement Controlled by Aradigm is necessary to practice any Patent as
defined above, then such necessary Patent or Improvement will be included as Aradigm Patents.

     1.6 “Aradigm Technology” means, only if it relates to the AERx pulmonary drug delivery system
and collectively, the (i) Aradigm Patents, (ii) Aradigm Know-How, (iii) Aradigm New Intellectual
Property, (iv) all Information relating to the Aradigm Patents, Aradigm Know-How, and Aradigm New
Intellectual Property in the course of any work conducted pursuant to this Agreement, and (v)
Aradigm Improvements.

     1.7 “Commercialization” means the marketing, promotion, sale or distribution of the Product.
“Commercialize” has a correlative meaning.

     1.8 “Commercially Reasonable Efforts” means, with respect to the efforts of a particular Party
to complete specific tasks or obligations under this Agreement, the efforts and resources that
would be used, consistent with prevailing biopharmaceutical industry standards,

[ * ] = 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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generally by
companies of similar size and profitability as such Party with respect to products or potential
products at a similar stage in development or product life and of similar market potential.

     1.9 “Confidential Information” has the meaning provided in Section 10.1.

     1.10 “Control” means, with respect to any Improvements, Information, Patent, know-how or other
intellectual property right, that the applicable Party exclusively owns or has a license to such
Information or intellectual property right and has the ability to grant to the other Party access
to and a license (or sublicense, as applicable) to same without violating the terms of any
agreement with a Third Party.

     1.11 “Development” means all activities that relate to (a) obtaining, maintaining or expanding
a Regulatory Approval for the Product or (b) developing the ability to manufacture clinical and
commercial quantities of the Product. “Develop” has a correlative meaning.

     1.12 “Development Plan” has the meaning set forth in Section 4.2(a).

     1.13 “Development Timeline” has the meaning set forth in Section 4.2(a).

     1.14 “FDA” means the U.S. Food and Drug Administration, or any successor agency thereto.

     1.15 “Field” means pulmonary delivery of prostacyclin drugs for the treatment of pulmonary
arterial hypertension and any and all other therapeutic indications and uses other than control of
glucose levels in humans.

     1.16 “First Commercial Sale” means, with respect to any Product, the first sale for use or
consumption by the general public of such Product following Regulatory Approval on a country by
country basis. A transfer of the Product by Lung Rx, its Affiliates or its sublicensees (i) for
research and Development purposes, or (ii) prior to Lung Rx’s receipt of Regulatory Approval for
use of such Product in humans, shall not be considered a First Commercial Sale.

     1.17 “IND” means an Investigational New Drug Application filed with the FDA, or the equivalent
application or filing filed with any equivalent agency or governmental authority outside the U.S.
(including any supra-national agency such as in the European Union) necessary to commence human
clinical trials in such jurisdiction.

     1.18 “Information” means all tangible and intangible (a) techniques, technology, practices,
procedures, methods, processes, protocols, formulations, formulae, knowledge, trade secrets,
inventions (whether patentable or not), methods, knowledge, ideas, concepts, know-how, skill,
experience, test data and results of any type whatsoever (including pharmacological, biological,
toxicological, clinical and pre-clinical test data and results), analytical and quality control
data, specifications, results or descriptions, reports, analyses, software and algorithms and the
like, (b) compositions of matter, cells, cell lines, assays, animal models and physical, biological
or chemical material and results of experimentation, (c) the Regulatory Dossier related

[ * ] = 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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to the
Aradigm Technology, and (d) all intellectual property rights in those items described in (a)
through (c) of this Section 1.18.

     1.19 “Licensed Molecule” means the compound known as treprostinil, having the structure set
forth in Exhibit C of the Agreement, or any of its pharmaceutically acceptable salts or
stereoisomers.

     1.20 “Lung Rx Know-How” means all Information (other than Patents and whether or not
patentable) that (a) is Controlled by Lung Rx or any of its Affiliates as of the Effective Date or
during the Term and (b) relates directly to the manufacture, use, sale, or importation of the
Licensed Molecule or the Product and is necessary or useful for the research, Development,
regulatory approval, manufacture, or Commercialization of the Product, or otherwise useful or
necessary for Aradigm to fulfill its obligations for the Development of the Product.

     1.21 “Lung Rx Patents” means all Patents that (a) include one or more claims that cover the
Licensed Molecule or the Product or the manufacture, importation, use, offer for sale or sale of
Licensed Molecule or the Product and (b) are Controlled by Lung Rx or any of its Affiliates as of
the Effective Date or during the Term. To the extent that any Patent or Improvement Controlled by
Lung Rx is necessary to practice any Patent as defined above, then such necessary Patent or
Improvement will be included as Lung Rx Patents.

     1.22 “Lung Rx Technology” means, collectively, the (i) Licensed Molecule, (ii) Lung Rx
Patents, (iii) Lung Rx Know-How, (iv) Lung Rx New Intellectual Property, (v) all Information
relating to the Lung Rx Patents, Lung Rx Know-How, and Lung Rx New Intellectual Property in the
course of any work conducted pursuant to this Agreement, and (vi) Lung Rx Improvements.

     1.23 “NDA” means a New Drug Application filed with the FDA, or the equivalent application or
filing filed with any equivalent agency or governmental authority outside the U.S. (including any
supra-national agency such as in the European Union) necessary to market pharmaceutical products in
such jurisdiction.

     1.24 “Net Sales” means the gross amounts invoiced by Lung Rx, its Affiliates and their
respective sublicensees for sales of all Products to Third Parties that are not Affiliates or
sublicensees of Lung Rx (unless such Affiliate or sublicensee is the end user of such Products, in
which case the amount billed therefor shall be deemed to be the amount that would be billed to a
Third Party purchaser in an arm’s length transaction) following First Commercial Sale of a Product
in any country in the Territory, less the following items, to the extent actually allowed or
incurred with respect to sales of, and allocable to, such Products: (i) trade, cash, or quantity
discounts off of the invoiced price (including cash, governmental (e.g., Medicare/Medicaid and
other insurance rebates and managed care rebates), and hospitals or other buying group chargebacks;
(ii) credits, allowances discounts, rebates and other price reductions, chargebacks, and
adjustments, granted upon returns, rejections, or recalls; (iii) freight, insurance, exportation,
importation and transportation charges; (iv) taxes, duties or other governmental tariffs or charges
(other than income taxes); and (vi) bad debts or uncollectible accounts.

[ * ] = 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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     1.25 “New Intellectual Property” means (i) any and all Information specific to the
Development and/or Commercialization of Aradigm Technology or Lung Rx Technology solely
conceived, reduced to practice, made, Developed, discovered or created by or on behalf of one
Party or jointly developed by or on behalf of the Parties and all intellectual property rights
therein, including any Patents and Improvements to the extent claiming such Information, and (ii)
any and all other Information solely invented by or on behalf of one Party or jointly developed
by or on behalf of the Parties pursuant to this Agreement and all intellectual property rights
therein, including any Patents and Improvements claiming such Information.

     1.26 “Patents” means (a) patents, including any and all re-examinations, reissues, renewals,
revalidations, extensions, confirmations, registrations, term restorations, and supplementary
patent certificates, (b) patent applications, including provisional applications, additions,
continuations, continuations-in-part, divisional and substitute applications, and inventors’
certificates, and (c) any international counterparts of the forgoing.

     1.27 “POC Study” means the proof-of-concept study described in the Development Plan, all
expenses of conducting the study being the sole responsibility of Aradigm.

     1.28 “Product” means any product, use, application, administration, method of administration
or treatment for use in the Field consisting of a Licensed Molecule (including any formulations
thereof) incorporated into the AERx pulmonary drug delivery system and any future improvements to
the AERx pulmonary drug delivery system made during the Term.

     1.29 “PSC” means the Product Steering Committee that has the meaning set forth in Section 3.1.

     1.30 “Regulatory Approval” means any and all approvals (including price and reimbursement
approvals, if required), licenses, registrations, or authorizations of a Regulatory Authority that
are necessary to market and sell the Product in the Field in the applicable country or regulatory
jurisdiction.

     1.31 “Regulatory Authority” means any supra-national, national (e.g., the FDA), state,
provincial or local regulatory agency, department, bureau, commission, council or other
governmental entity involved in or responsible for regulation of the manufacture, promotion and/or
sale of medicinal products in the Field that are intended for human use in the applicable country
or regulatory jurisdiction.

     1.32 “Regulatory Dossier” means (a) all INDs, NDAs and equivalent foreign applications or
registrations for authority to conduct clinical trials on the Product or for Regulatory Approval,
anywhere in the Territory; (b) all Regulatory Approvals and any other technical, medical and
scientific registrations, authorizations and approvals (including approvals of NDAs or foreign
equivalents, supplements and amendments, pre- and post- approvals, pricing and Third Party
reimbursement approvals, and labeling approvals) of any Regulatory Authority necessary for or
applicable to the Development (including the conduct of clinical trials), Commercialization,
manufacture, distribution, marketing, promotion, offer for sale, use, import, reimbursement, export
or sale of a Product in any regulatory jurisdiction in the Territory, together with all related
correspondence to or from any Regulatory Authority and all documents

[ * ] = 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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referenced in the complete
regulatory chronology for each NDA or foreign equivalent, including the drug master file (if any)
or device master file (if any), IND, NDA and supplemental NDA, or foreign equivalents; and (c) all
data and other Information contained in either (a) or (b) above.

     1.33 “Senior Executive” means, with respect to a particular Party, the Chief Executive Officer
of such Party, or the representative designated by such individual (provided that such
representative is a senior executive officer of such Party with authority to settle the applicable
issue or dispute submitted for resolution under Section 13.2).

     1.34 “Successful” means, with respect to the POC Study, that the results thereof satisfy the
criteria set forth in Exhibit D.

     1.35 “Term” means the term of this Agreement, as provided in Section 11.1.

     1.36 “Territory” means the entire universe.

     1.37 “Third Party” means any entity other than Aradigm or Lung Rx or an Affiliate of Aradigm
or Lung Rx.

     1.38 “U.S.” means the United States of America.

     1.39 “Valid Claim” means an unexpired claim of an issued Patent within the Aradigm Patents or
New Intellectual Property which has not been canceled or otherwise found to be unpatentable,
invalid or unenforceable by a court or other authority in the subject country, from which decision
no appeal is taken or can be taken, has been admitted to be invalid or unenforceable through
reissue, disclaimer or otherwise, or been abandoned.

ARTICLE 2

Licenses and Options

     2.1 Licenses to Lung Rx.

          (a) Subject to the terms and conditions of this Agreement, and solely upon satisfaction of
Lung Rx’s payment and investment obligations set forth in Section 6.2, Aradigm hereby grants to
Lung Rx a royalty-bearing, exclusive (even as to Aradigm) license for the Aradigm Technology in the
Territory to research, Develop, Commercialize, use, import, register, sell, have sold, and
distribute Products in the Field within the Territory. The license granted in this Section 2.1(a)
shall be sublicensable by Lung Rx solely to the extent necessary to exercise Lung Rx’s rights under
this Agreement.

          (b) Subject to the terms and conditions of this Agreement, and solely upon satisfaction of
Lung Rx’s payment and investment obligations set forth in Section 6.2, Aradigm hereby grants to
Lung Rx a royalty-bearing, non-exclusive license for the Aradigm Technology in the Territory to
make and have made Products in the Field in the Territory. The license granted in this Section
2.1(b) shall not be sublicensable without Aradigm’s prior written consent,

[ * ] = 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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which consent may be
withheld in good faith and, if Aradigm does not consent, Aradigm shall identify the basis for its
objection to Lung Rx in writing within 10 days; provided, however that Lung Rx may, without such
consent but with prior written notice to Aradigm, engage one or more bona fide subcontractors to
manufacture Products on Lung Rx’s behalf.

     2.2 License to Aradigm. Subject to the terms and conditions of this Agreement, Lung Rx hereby
grants to Aradigm a non-exclusive, royalty-free license for the Lung Rx Technology solely to the
extent necessary to conduct its obligations under this Agreement, including those Development
responsibilities assigned to Aradigm under the Development Plan, and for no other use. The license
granted in this Section 2.2 shall be sublicensable by Aradigm solely to subcontractors approved by
Lung Rx and solely to the extent necessary to fulfill Aradigm’s obligations under this Agreement.

     2.3 Aradigm Retained Rights. Notwithstanding anything in this Agreement to the contrary,
Aradigm shall retain the right under the Aradigm Technology to conduct its obligations under this
Agreement, including those Development responsibilities assigned to Aradigm under the Development
Plan.

     2.4 Third Party Licenses.

          (a) Lung Rx shall be solely responsible for obtaining, at its sole expense (subject to Section
6.5), any licenses from Third Parties that Lung Rx determines, in its sole discretion, are required
in order to lawfully research, Develop, manufacture, and Commercialize Products in the Field in the
Territory.

          (b) Aradigm shall promptly notify Lung Rx in writing of any license agreement entered into by
Aradigm after the Effective Date pursuant to which Aradigm obtains a license to enhance Aradigm
Technology from a Third Party, which license was not obtained in order to avoid infringing such
Third Party Patent or other intellectual property, as more fully discussed in Section 6.5(b).
Notwithstanding anything to the contrary herein other than Section 6.5(b), such subsequently
in-licensed Aradigm Technology shall be excluded from the licenses granted to Lung Rx in Section
2.1. Lung Rx shall have a right of first option to negotiate for any enhancement to the Aradigm
Technology in the Field that Aradigm obtains from a Third Party . At Aradigm’s sole discretion and
to the extent practical, Lung Rx shall have the opportunity to participate in the negotiation of
such license agreements in conjunction with Aradigm.

     2.5 No Non-Permitted Use.

          (a) Lung Rx hereby covenants that it shall not, nor shall it cause or permit any Affiliate or
sublicensee to, use or practice any Aradigm Technology for any purposes other than those expressly
permitted in Section 2.1; provided, however, Lung Rx does not have a duty to enforce any breach.

          (b) Aradigm hereby covenants that it shall not, nor shall it cause or permit any Affiliate or
sublicensee to, use or practice any Lung Rx Technology for any purposes other than

[ * ] = 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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those expressly
permitted in Section 2.2; provided, however, Aradigm does not have a duty to enforce any breach.

     2.6 No Other Licenses. Nothing in this Agreement shall be interpreted to grant either Party
any rights under any Patents or Information of the other Party that are not expressly granted
herein.

     2.7 Covenant Not to Sue.

          (a) Aradigm agrees that it will not assert nor cause to be asserted against Lung Rx, its
Affiliates or its sublicensees any existing invention, Information, patent or know-how not
included in the Aradigm Technology that is or might be infringed by reason of Lung Rx, its
Affiliates or its sublicensees’ exercise of rights granted to Lung Rx under Section 2.1.

          (b) Lung Rx agrees that it will not assert nor cause to be asserted against Aradigm, its
Affiliates or its sublicensees any existing invention, Information, patent or know-how not
included in the Lung Rx Technology that is or might be infringed by reason of Lung Rx, its
Affiliates or its sublicensees’ exercise of rights granted to Aradigm under Section 2.2.

     2.8 Right of First Option to Alternate Technology Subject to the terms and conditions of
this Agreement, and solely upon satisfaction of Lung Rx’s payment and investment obligations set
forth in Section 6.2, Aradigm hereby grants, subject to any limitations it may have to Third
Parties, to Lung Rx an exclusive right of first option to negotiate a license agreement for any
alternate superior technology in the Field to the AERx pulmonary drug delivery system (“Alternate
Technology”) Controlled by Aradigm on or after the Effective Date. If the Parties do not reach
an agreement for an Alternate Technology within sixty (60) days after Aradigm gives Lung Rx
detailed written notice of an Alternate Technology, the right of first option shall expire for
such Alternate Technology and Aradigm may exploit each such Alternate Technology as described in
the notice to Lung Rx in any manner whatsoever.

ARTICLE 3

Governance

     3.1 PSC; Meetings. Aradigm and Lung Rx shall form a product steering committee (the “PSC”)
consisting of two (2) representatives from Aradigm and two (2) representatives from Lung Rx, all
such representatives having an appropriate level of skill, experience and familiarity with the
Development Plan.

          (a) The initial representatives for Aradigm shall be Igor Gonda and Tunde Otulana. The
initial representatives for Lung Rx shall be [*] and [*]. Each Party may replace its PSC
representatives at any time upon prior written notice to the other Party.

          (b) Unless otherwise agreed to by the Parties, the PSC shall meet not less than twice every
calendar year, on such dates and at such times as agreed to by Lung Rx and

[ * ] = 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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Aradigm, with all
scheduled in-person meetings to alternate between the offices of the Parties, or at such other
locations as mutually agreed upon by the Parties. Meetings may be held by audio or video
conference at the request of either Party, provided that at least one (1) meeting per calendar year
shall be held in person. Visitors may attend meetings of the PSC upon the consent of the Parties.
Each Party shall be responsible for its own expenses for participating in the PSC, including the
fully burdened cost of its personnel.

          (c) Meetings of the PSC shall be effective only if at least one representative of each Party
is present or participating. The members of the PSC will designate one (1) representative at each
meeting to serve as secretary for such meeting, who will promptly prepare and distribute to the
Parties written minutes summarizing the matters discussed and actions taken, if any, at such
meeting. The meeting minutes will be approved by each of Lung Rx and Aradigm promptly following
the applicable PSC meeting and will reflect any agreement or disagreement of the Parties with
regard to the matters therein.

     3.2 Responsibilities of the PSC. The PSC shall have the responsibility and authority to:

          (a) review each of the Parties’ Development activities conducted in connection with the
Development Plan;

          (b) propose amendments or updates to the Development Plan to the Parties;

          (c) review and discuss draft amendments or updates to the Development Plan;

          (d) monitor progress toward achieving goals set forth in the Development Plan;

          (e) address and attempt to resolve conflicts or disputes between the Parties that may arise
during the course of performing the Development Plan;

          (f) serve as a forum for communication between the Parties for the activities performed
pursuant to the Development Plan;

          (g) monitor all regulatory, manufacturing, and commercial activities involving the Product
that are conducted by a Party, its Affiliates, or their respective licensees; and

          (h) perform such other functions as the Parties may agree in writing.

     3.3 Limitation on PSC’s Authority. The PSC shall have no authority other than that expressly
set forth in Section 3.2 and, specifically, shall have no authority to amend this Agreement,
determine whether a Party has complied with its obligations under this Agreement, or enter into
subsequent agreements on behalf of either Party.

     3.4 PSC Decisions.

[ * ] = 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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          (a) Consensus; Good Faith; Action Without Meeting. Subject to Section 3.4(b), the PSC shall
decide all matters by consensus, with each Party having one collective vote. The members of the
PSC shall act reasonably and in good faith to cooperate with one another and to reach agreement
with respect to issues to be decided by the PSC. Action that may be taken at a meeting of the PSC
also may be taken without a meeting if a written consent setting forth the action so taken is
signed by all members of the PSC.

          (b) Failure to Reach Consensus. If the members of the PSC cannot reach consensus with respect
to any matter over which the PSC has authority and responsibility, then the Senior Executive of
Lung Rx shall have the right to decide such matter in his or her sole discretion, provided that (i)
such Senior Executive takes into consideration the reasonable commercial interests of Aradigm among
all other factors bearing on the decision, and (ii) such decision is consistent with Lung Rx’s
obligations under Section 4.11. Notwithstanding the foregoing, Aradigm’s approval shall be
necessary prior to the amendment of the Development Plan in a manner that materially increases
Aradigm’s obligations under such Development Plan or narrows the patient population as specified
in such Development Plan. If Aradigm does not agree to a material increase in its obligations, but
Lung Rx nevertheless deems such activity necessary, Lung Rx may arrange for the services or
activities to be provided otherwise.

ARTICLE 4

Development and Commercialization

     4.1 Development — Overview.

          (a) Promptly following the Effective Date, Aradigm shall use Commercially Reasonable Efforts
to perform the POC Study at its sole cost and expense in close consultation with Lung Rx, with the
complete final report describing the results of the POC Study to be delivered to Lung Rx within a
commercially reasonable period of time.

          (b) Following Lung Rx’s satisfaction of its payment and investment obligations set forth in
Section 6.2, Lung Rx shall be primarily responsible for the Development of the Product in the Field
in the Territory and shall bear all costs associated with Development of the Product in the Field
in the Territory, as set forth in more detail in Section 4.6 below.

          (c) With respect to those Development activities assigned to a Party, such Party shall perform
such Development activities using its Commercially Reasonable Efforts in accordance with the
Development Plan. In addition, the Parties shall closely cooperate on all matters involved in and
arising from the Development and Commercialization process of Products and the AERx pulmonary drug
delivery system (and its future improvements, successors and alternatives) that may materially
affect the other Party’s efforts to obtain Regulatory Approvals.

     4.2 Development Plan.

[ * ] = 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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          (a) Scope. The Development of each Product under this Agreement shall be governed by a
worldwide development plan (each, a “Development Plan”). Each Development Plan shall be created
(and updated from time to time) in good faith with the overall objective of reasonably optimizing
the commercial potential of the Product. The Development Plan shall describe the proposed overall
program of Development for the Product in the Territory, including preclinical studies, toxicology,
formulation, process development, clinical studies, regulatory plans and other elements of
obtaining Regulatory Approval(s) in major markets, as well as an overall timeline of the estimated
target dates for completing the various development tasks described within the Development Plan
(the “Development Timeline”). A pro forma budget for one year with a non-binding three year
look-ahead shall be created by the Parties no later than [*] days following completion of the POC
study, based on the assumptions and particulars of the Development Plan. Thereafter, the Parties
shall prepare pro forma budgets showing twelve-month projected estimated Development expenses for
each subsequent twelve-month period. In the event of any inconsistency between the Development
Plan and this Agreement, the terms of this Agreement shall prevail.

          (b) Initial Development Plan. The Parties have agreed on the form of the initial Development
Plan, a copy of which is attached hereto as Exhibit E.

          (c) Updates to the Development Plans and Additional Development Plans. The Parties will work
together to evaluate from time to time in light of then-current circumstances the status of
implementing a Development Plan and progress compared to the Development Timeline. The PSC, Lung
Rx or Aradigm may propose modifications to the Development Plan and new Development Plans, which
will be discussed in good faith by the Parties or the PSC and shall become effective solely upon
written approval of Lung Rx in its sole discretion. The PSC also will review any modifications to
any Development Plan suggested or required by any Regulatory Authority, and Lung Rx will be
responsible for amending such Development Plan as necessary to incorporate feedback from any
Regulatory Authority about Development of such Product and to comply with any legal requirement or
formal action imposed or suggested by any Regulatory Authority. In addition, and without limiting
the generality of the foregoing, Lung Rx shall, as early as necessary in each calendar year,
prepare a revision of each Development Plan for the following calendar year to take into account
completion, commencement or cessation of Development activities not contemplated by each
then-current Development Plan, and submit such proposed revised Development Plan to the PSC no
later than October 15 of such year for review. Notwithstanding anything to the contrary herein,
written approval of both Lung Rx and Aradigm shall only be necessary prior to the amendment of the
Development Plan in a manner that materially increases Aradigm’s financial obligations under such
Development Plan or narrows the patient population as specified in such Development Plan.

          (d) Diligence. In addition to the specific diligence obligations of Lung Rx pursuant to
Section 4.11, each of Aradigm and Lung Rx will use Commercially Reasonable Efforts to carry out the
activities set forth in a Development Plan for which such Party is responsible in accordance with
the Development Timeline.

     4.3 Development Reports and Records.

[ * ] = 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.

11

 

          (a) Each Party will keep the PSC fully informed regarding the progress and results of such
Party’s Development activities and those of its Affiliates, licensees, and Third Party contractors.
Within thirty (30) days after the end of each calendar quarter, each Party shall provide the PSC
with a written report that summarizes, in reasonable detail, all Development activities performed
by such Party and its Affiliates, licensees, and Third Party contractors during such quarter, and
compares such performance with the goals and Development Timeline set forth in the Development
Plan. Each Party shall also promptly provide the PSC or the other Party with any additional
information regarding its Development of the Product reasonably requested thereby. Subject to its
confidentiality obligations to Third Parties and to the degree it is able, Aradigm shall provide
the PSC with semi-annual written progress reports, summarizing in detail Aradigm’s Development and
Commercialization activities relating to the AERx pulmonary drug delivery system (and its future
improvements, successors and alternatives) other than in connection with the Licensed Molecule, and
shall provide such other information reasonably requested by Lung Rx. Each party shall give the
other prompt written notice with respect to information that would materially affect the Product.
The Parties shall maintain such reports and the information disclosed therein in confidence in
accordance with Article 10.

          (b) Records. Each Party shall maintain records, in sufficient detail and in good scientific
manner appropriate for patent and regulatory purposes, which shall accurately reflect all work done
and results achieved in the performance of the Development Plan by such Party. Each Party shall
have the right, during normal business hours and upon reasonable prior written notice, to inspect
all such records of the other Party, and to obtain copies of such records to the extent reasonably
needed by such Party in exercising its rights under this Agreement. Each Party shall maintain such
records and the information disclosed therein in confidence in accordance with Article 10. Each
Party shall have the right to arrange for its employees involved in the activities contemplated
hereunder to visit the offices and laboratories of the other Party and any of its Affiliates as may
reasonably be desirable during normal business hours and upon reasonable prior written notice, to
discuss the Development work and its results in detail with the technical personnel and consultants
of the other Party.

          (c) Disclosure of Inventions and Development Results. Each Party shall provide to the other
Party a complete written disclosure for each and every invention or other discovery, whether or
not patentable, first conceived or reduced to practice in the performance of a Development Plan
including Improvements and New Intellectual Property, promptly after each such invention is
made.

     4.4 Standards of Conduct. Each Party shall perform, and shall ensure that its Affiliates,
licensees, and Third Party contractors perform, the Development activities for which it is
responsible under the Development Plan in good scientific manner and in compliance with applicable
laws, rules and regulations.

     4.5 Development Limitations. Neither Party may conduct or have conducted on its behalf, or
enable any Third Party to conduct, any activities with respect to the Product that are not approved
under the Development Plan or by the PSC, without the prior written consent of the other Party,
such consent not to be unreasonably withheld or delayed.

[ * ] = 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.

12

 

     4.6 Development Expenses.

          (a) To the extent that the Development Plan in Exhibit E provides that Aradigm will
perform Development activities after satisfaction of Lung Rx’s payment and investment obligations
set forth in Section 6.2, Lung Rx shall be responsible for all reasonable costs and expenses
incurred by or on behalf of Aradigm in connection with such authorized Development activities in
accordance with the Development Plan and corresponding budget that have been pre-approved by Lung
Rx in writing.

               (i) In particular, Lung Rx shall pay for such costs and expenses as follows: (a) any Aradigm
personnel time will be paid for at the Aradigm FTE Rate; and (b) any out-of-pocket expenses
incurred by Aradigm will be reimbursed in full, at Aradigm’s reasonable and direct cost without
markup.

               (ii) Unless the Parties agree in writing otherwise, payments for Development work to be
performed by Aradigm in a particular calendar quarter shall be made in advance prior to the first
day of such calendar quarter. Such payments shall be based on estimated costs and expenses for the
relevant Development work, as specified in the most recent written forecast for the applicable
quarter submitted by Aradigm to Lung Rx in accordance with the Development Plan and corresponding
budget. Any advance payments made by Lung Rx under this Section 4.6 will be reconciled on a
quarterly basis against actual costs and expenses incurred by Aradigm for the relevant Development
work as reported by Aradigm in a detailed monthly statement of costs incurred, and any payments
made by Lung Rx under this Section 4.6 that are not applied to actual costs and expenses during a
particular quarter may be credited by Lung Rx against payments owed by Lung Rx in a subsequent
quarter. In the event that the actual costs and expenses incurred by Aradigm in a particular
quarter in connection with Development work exceed the advance payment made by Lung Rx for such
quarter, Lung Rx shall reimburse any such undisputed excess costs and expenses no later than thirty
(30) days following Lung Rx’s receipt of written accounting of such costs and expenses from
Aradigm.

               (iii) Aradigm shall provide Lung Rx with a detailed monthly invoice within 20 days of the end
of each month listing of all costs and expenses incurred by category of the Development Plan
budget. Aradigm shall provide Lung Rx with copies of all vendor invoices being passed through on
the monthly invoice. The Parties agree that Aradigm shall be solely responsible for payment of any
cost or expense incurred by or on behalf of Aradigm following the Effective Date that is not (i) in
accordance with a Development Plan and corresponding budget approved by Lung Rx, or (ii) with the
prior written approval of Lung Rx.

          (b) As between the Parties, Lung Rx shall be responsible for all costs and expenses incurred
by or on behalf of Lung Rx, its Affiliates, or their respective licensees in connection with the
Development of Products with the exception of all costs and expenses incurred by or on behalf of
Aradigm relating to the POC Study. If the POC Study is materially changed from that described in
the Development Plan and Lung Rx agrees to such changes in writing, Lung Rx shall be responsible
for all the specified additional costs and expenses incurred by or on behalf of Aradigm because of
such changes.

[ * ] = 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.

13

 

     4.7 Regulatory Coordination.

          (a) Lung Rx shall be responsible for preparing, filing and managing all regulatory filings and
efforts seeking all Regulatory Approvals in the Territory. All regulatory filings for the Product
in the Territory shall be filed in the name of Lung Rx, and Lung Rx alone shall be responsible for
all communications and other dealings with Regulatory Authorities relating to the Product in the
Territory. As between the Parties, Lung Rx shall be the sole and exclusive legal and beneficial
owner of all regulatory applications, clinical data, Regulatory Dossiers and Regulatory Approvals
in the Territory. Lung Rx shall have the final authority to make all clinical and regulatory
decisions with respect to the registration of Products within the Territory in its sole discretion.
Lung Rx shall have the right to reference any of Aradigm’s regulatory files Controlled by Aradigm
relating to the AERx pulmonary drug delivery system, in connection with regulatory filings made by
or on behalf of Lung Rx and Aradigm shall reasonably cooperate with Regulatory Authorities in
connection therewith.

          (b) The PSC shall develop and implement procedures for drafting and review of any applications
for Regulatory Approval for the Product in the Territory, which shall provide sufficient time for
Aradigm to provide substantive comments. Unless otherwise agreed upon by the Parties, Aradigm
shall provide any comments it may have to Lung Rx within 20 days of its receipt of each
application. Lung Rx shall consider Aradigm’s comments on any such applications in good faith;
provided, however, that Lung Rx shall have the right to make all final decisions relating to the
content of each such application.

          (c) Lung Rx shall promptly notify Aradigm of all regulatory filings that it submits and all
communications from Regulatory Authorities that it receives relating to Products, and shall
promptly provide Aradigm with a copy (which may be wholly or partly in electronic form) of such
regulatory filings or communications. Lung Rx will provide Aradigm with reasonable advance notice
of any scheduled meetings with any regulatory agencies relating to Development and/or any
application for Regulatory Approval of the Product in the Territory, and Aradigm shall have the
right to participate in any such meeting, to the extent permitted by law. Lung Rx also shall
promptly furnish Aradigm with summaries of all material correspondence or material meetings with
any regulatory agency relating to Development, regulatory filings and/or a Regulatory Approval in
the Territory, and Lung Rx shall promptly furnish Aradigm with copies of such correspondence or
copies of minutes of such meetings.

          (d) Following receipt of Regulatory Approval of the Product, Lung Rx shall retain primary
responsibility for dealings with the applicable regulatory agency with respect to the Product,
including filing all supplements and other documents with such agency with respect to such
Regulatory Approval.

          (e) Aradigm shall promptly notify Lung Rx of all regulatory filings that it submits and all
communications from Regulatory Authorities that it receives relating to Products and, shall
promptly provide Lung Rx with a copy (which may be wholly or partly in electronic form) of such
regulatory filings. Aradigm will provide Lung Rx with reasonable advance notice of any scheduled
meetings with any regulatory agencies relating to Development and/or any application for Regulatory
Approval of the Product in the Territory, and Lung Rx shall have 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.

14

 

right to participate in any
such meeting, to the extent permitted by law. Aradigm also shall promptly furnish Lung Rx with
summaries of all material correspondence or material meetings with any regulatory agency relating
to Development, regulatory filings and/or a Regulatory Approval in the Territory, and Aradigm shall
promptly furnish Lung Rx with copies of such correspondence or copies of minutes of such meetings.

          (f) Subject to its confidentiality obligations to Third Parties and to the degree it is able,
Aradigm shall promptly notify Lung Rx of all regulatory filings that it submits and all
communications from Regulatory Authorities that it receives relating to the AERx pulmonary drug
delivery system (and its future improvements, successors and alternatives) other than Products,
and, at Lung Rx’s request, shall promptly provide Lung Rx with a copy (which may be wholly or
partly in electronic form) of such regulatory filings or communications. Aradigm will provide Lung
Rx with reasonable advance notice of any scheduled meetings with any regulatory agencies relating
to Development and/or any application for Regulatory Approval of any product incorporating the AERx
pulmonary drug delivery system (and its future improvements, successors and alternatives) in the
Territory. Subject to its confidentiality obligations to Third Parties and to the degree it is
able, Aradigm also shall promptly furnish Lung Rx with summaries of all material correspondence or
material meetings with any regulatory agency relating to Development, regulatory filings and/or a
Regulatory Approval in the Territory of any product incorporating the AERx pulmonary drug delivery
system (and its future improvements, successors and alternatives), and Aradigm shall, at Lung Rx’s
request, promptly furnish Lung Rx with copies of such correspondence or copies of minutes of such
meetings.

          (g) Lung Rx may, at its expense, register the exclusive license granted under this Agreement
in any country, or community or association of countries within the Territory, where the use, sale
or manufacture of a Product in such country would be covered by a Valid Claim. Upon request of
Lung Rx, Aradigm agrees, after Aradigm reviews for accuracy, promptly to execute any “short form”
licenses in a form submitted to it by Lung Rx from time to time in order to effect the foregoing
registration in such country.

     4.8 Product Withdrawals and Recalls. In the event that any regulatory agency (a) threatens or
initiates any action to remove the Product from the market in any country in the Territory or (b)
requires Lung Rx, its Affiliates, or its sublicensees to distribute a “Dear Doctor” letter or its
equivalent regarding use of the Product in the Field, Lung Rx shall notify Aradigm of such event
within two (2) business days after Lung Rx becomes aware of the action, threat, or requirement (as
applicable). Lung Rx shall consult with Aradigm prior to initiating a recall or withdrawal of the
Product; provided, however, that the final decision as to whether to recall or withdraw the Product
in the Territory shall be made by Lung Rx in its sole discretion. Lung Rx shall be responsible, at
its sole expense, for conducting any recalls or taking such other necessary remedial action, unless
the remedial action relates to a medical device manufactured by or on behalf of Aradigm, in which
event Aradigm shall be solely responsible for all expenses in conducting any recalls or taking such
other necessary remedial action.

     4.9 Adverse Event Reporting.

[ * ] = 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.

15

 

          (a) Each Party shall, and shall require its respective Affiliates to:

               (i) notify the other Party promptly of all information coming into its possession concerning
any adverse events associated with clinical or commercial uses of the Product, the Licensed
Molecule, or an AERx pulmonary drug delivery system device (and its future improvements,
successors and alternatives) (an “Adverse Event”), subject to any applicable confidentiality
obligations to Third Parties;

               (ii) provide to the other Party a copy of any written submission made by such Party to a
Regulatory Authority regarding Adverse Events no later than five (5) days following finalization of
such written submission (and, to the extent permissible under time constraints and reporting
requirements, in advance of submission to the applicable Regulatory Authority); and

               (iii) adhere to all requirements of applicable laws, rules and regulations that relate to the
reporting and investigation of Adverse Events.

          (b) If a Party contracts with a Third Party for research to be performed by such Third Party
on the Product, that Party shall require such Third Party to report to the contracting Party the
information set forth above.

     4.10 Commercialization of Product. Subject to the terms and conditions of this Agreement
(including Section 4.11 and Section 4.12), Lung Rx shall control, and be solely responsible for the
costs and expenses associated with, the Commercialization of the Product in the Territory.

     4.11 Diligence Obligations.

          (a) Lung Rx shall use Commercially Reasonable Efforts to Develop, and if in Lung Rx’s opinion
the results of the Development Plan so justify, to seek Regulatory Approval for, and Commercialize
Products in major markets throughout the Territory as Lung Rx determines are commercially feasible
in its sole discretion. The Development Plan shall include such Product Development work as Lung
Rx may, in its sole discretion, consider necessary to support Regulatory Approval.

          (b) In the event that Lung Rx fails to materially comply with the diligence obligations set
forth in Section 4.11(a), and Lung Rx fails to cure its material non-compliance within thirty (30)
days following written notice from Aradigm providing a detailed explanation of such material
non-compliance, Aradigm may, in its sole discretion, elect to convert the exclusive license granted
to Lung Rx pursuant to Section 2.1(a) to a non-exclusive license with respect to a given Product,
with all other terms and conditions of this Agreement remaining unchanged. Any such conversion to
a non-exclusive license for a Product shall be effective upon Lung Rx’s receipt of written notice
from Aradigm, but shall not affect other Products which are being Developed and/or Commercialized
under this 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.

16

 

          (c) Notwithstanding the non-exclusivity conversion provision in Section 4.11(b), the diligence
obligations set forth in this Section 4.11 shall not apply to the extent (i) Aradigm’s failure to
perform its obligations under this Agreement in a timely manner causes a delay in Lung Rx’s
Development, efforts to seek Regulatory Approval for, or Commercialization of such Product; or (ii)
there exists any material regulatory action affecting such Product; or (iii) there exists any
material issue relating to the toxicology, safety, bioavailability or efficacy of such Product and
the absence of any impediments caused by formulation, material sourcing, manufacturing, or other
technical issues related to Product; in each case that leads Lung Rx to conclude, in exercising
reasonable business judgment, that Development or Commercialization of such Product should be
suspended or stopped altogether. Upon the occurrence of circumstances described in either
subsection (i), (ii) or (iii), the following terms shall apply: (A) Lung Rx shall notify Aradigm
in writing of the existence of such circumstances, specifying the details thereof and (in the case
of circumstances described in subsection (ii) or (iii) the reasons why Lung Rx concluded that
Development or Commercialization of such Product should be suspended or stopped, (B) Lung Rx’s
obligations to Develop or Commercialize such Product shall be suspended so long as any such
circumstances exists, and (C) the obligations set forth in Section 4.11(a) shall be extended by the
period of any such suspension with respect to such Product.

     4.12 Other Inhalation Devices.

          (a) If the AERx pulmonary drug delivery system is commercially viable in the reasonable
opinion of the PSC, Lung Rx and its Affiliates shall not spend more in cash and/or in kind
cumulatively on Developing the Licensed Molecule for a product involving an inhalation device that
is handheld and able to deliver a therapeutic dose of the Licensed Molecule in less than 10
breaths, than is spends on Development activities for the product. The restriction in this Section
4.12(a) shall end upon the date of the last patient visit in the Phase III registration trial of
the Product as defined in the Development Plan. The restrictions in this section 4.12(a) shall not
apply to nebulizers, or their improvements, used in current clinical trials by Lung Rx, or similar
devices and their improvements.

          (b) In the event that a Product has received Regulatory Approval in a given country in the
Territory and Lung Rx performs sales and marketing activities in such country with respect to an
inhalation device for the Licensed Molecule other than the Product, [*].

     4.13 Additional Obligations of Aradigm.

          (a) Information. Aradigm, at its sole expense (excluding those expenses to be paid by Lung
Rx under this Agreement), shall be responsible for the timely delivery to Lung Rx of all
Information that Aradigm Controls regarding the Aradigm Technology and reasonably required by
Lung Rx to fulfill its obligations under this Agreement.

          (b) Cooperation. Aradigm shall, upon the request by Lung Rx, provide Lung Rx with reasonable
assistance and consultation regarding the Aradigm Technology, including reasonable access to
sample materials and data and the execution of necessary and appropriate instruments and
documents.

[ * ] = 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.

17

 

          (c) AERx Expenses. Notwithstanding any other provision of this Agreement to the contrary,
Aradigm shall be solely responsible for all costs and expenses related to meeting and maintaining
regulatory requirements with respect to the design and operation of the AERx pulmonary drug
delivery system as distinguished from those costs incurred and paid by Lung Rx in connection with
meeting and maintaining regulatory requirements with respect to the Product.

ARTICLE 5

Manufacturing

     5.1 Manufacturing Responsibility.

          (a) Following Lung Rx’s satisfaction of its payment and investment obligations set forth in
Section 6.2, Lung Rx will begin preparations to manufacture the Product in bulk and finished form
for use by Lung Rx, its Affiliates, and its sublicensees in the Field in the Territory and for
secondary conditional use by Aradigm pursuant to Section 5.3 and the Development Plan. Lung Rx
will not make any material changes to the specifications for Products or components of Products
without the prior written approval of Aradigm, such approval not to be unreasonably withheld or
delayed. Lung Rx will not make any material changes to the specifications for the Aradigm
Technology without the prior written approval of Aradigm. Following Lung Rx’s satisfaction of its
payment and investment obligations set forth in Section 6.2, all supplier relationships will be
managed solely by Lung Rx, with the participation of Aradigm in its discretion.

          (b) Following the date that Lung Rx reasonably agrees that the POC Study was Successful until
the (i) full and complete validation of a manufacturing plant operated by Lung Lx or a Third Party
and (ii) full and complete validation of the manufacturing process used at any such plant, Aradigm
shall, to the degree it is able individually and/or through a Third Party manufacturer, supply the
necessary Products or components thereof for clinical trials in such quantities as Lung Rx shall
from time to time require in accordance with the Development Plan and corresponding budgets. If
Aradigm is not able to supply the necessary Products or components thereof for clinical trials,
then Lung Rx shall be responsible for obtaining such Products or components. If Aradigm supplies
the Products for clinical trials, the cost of such clinical Products shall be at Lung Rx’s expense
and determined in accordance with Section 4.6. If Aradigm is able to supply the Products for
clinical trials, it shall supply the Product to Lung Rx in accordance with the agreed-upon
specifications and any relevant additional requirements specified in the Development Plan, and
shall comply with all applicable laws, rules, and regulations in the manufacture of Product.

     5.2 Transfer of Manufacturing Technology.

          (a) As soon as reasonably possible after satisfaction of Lung Rx’s payment and investment
obligations set forth in Section 6.2, Aradigm shall transfer to Lung Rx and/or Third Party
manufacturers designated by Lung Rx and reasonably acceptable to Aradigm all

[ * ] = 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.

18

 

Aradigm Technology
that is reasonably related to, or otherwise desirable to support, Lung Rx’s establishment of
clinical and commercial manufacturing capabilities with respect to Products in the Field that
comply with the cGMP regulations set forth in 21 C.F.R. Parts 210 – 211, 820 and 21 C.F.R.
Subchapter C (Drugs), Quality System Regulations and the requirements thereunder imposed by the
FDA, and, as applicable, the equivalent regulations and requirements in jurisdictions outside the
United States. The costs and expenses incurred by Aradigm in carrying out such transfer and
subsequent assistance in accordance with the Development Plan and corresponding budget that have
been pre-approved by Lung Rx in writing shall be reimbursed by Lung Rx in accordance with Section
4.6, with such transfer being deemed to be a Development activity for the purpose of such Section.

          (b) Lung Rx and/or its Third Party manufacturers shall use any Aradigm Technology transferred
pursuant to Section 5.2(a) in accordance with the license granted in Section 2.1 solely for the
purpose of manufacturing Products for uses permitted under this Agreement, and for no other
purpose.

          (c) Lung Rx acknowledges and agrees that Aradigm may reasonably condition its agreement to
transfer any Aradigm Technology and any other manufacturing technology to a Third Party
manufacturer on the execution of a confidentiality agreement between such Third Party manufacturer
and Aradigm that contains terms substantially equivalent to those of Article 10 of this Agreement.

     5.3 Lung Rx Supply Obligations. In the event that Lung Rx reasonably agrees that the POC
Study was Successful, Lung Rx shall thereafter begin preparations and, at its sole expense, fund
the construction of a manufacturing plant that it will operate to manufacture AERx pulmonary drug
delivery system devices (and any future improvements, successors and alternatives) for use as
Product components. At Aradigm’s reasonable written request from time to time in accordance with
rolling-forecast procedures to be mutually developed, during the three (3) years following both (i)
full and complete validation of such plant and (ii) full and complete validation of the
manufacturing process, Lung Rx will supply Aradigm with AERx pulmonary drug delivery system devices
and/or AERx Strip® dosage forms (for use in products other than the Product) at mutually agreed
volumes and pursuant to a mutually agreed price schedule. Notwithstanding the foregoing sentence,
Lung Rx shall only be obligated to provide such supply to the extent that it has excess capacity
available which does not jeopardize in any manner the cost, quality and timely delivery of
Products, such excess capacity, if any, to be determined after Lung Rx’s projected requirements
have been met and subject to the mutually agreeable successful completion of a cleaning
validation/QA protocol.

ARTICLE 6

Fees and Payments

     6.1 Upfront Fee.

          (a) No later than five (5) business days after the Effective Date, Lung Rx shall pay to
Aradigm the non-creditable, non-refundable sum of $440,000.

[ * ] = 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.

19

 

          (b) No later than One Hundred and Twenty (120) days after the Effective Date, Lung Rx shall
pay to Aradigm the additional non-creditable and non-refundable sum of $440,000.

     6.2 Additional Consideration.

          (a) License Fee. No later than fifteen (15) days after Aradigm’s delivery of a complete final
report to Lung Rx describing the results of the POC Study, and Lung Rx reasonably agrees that the
POC Study was Successful, Lung Rx shall pay to Aradigm the non-creditable, non-refundable sum of
$[*]. Lung Rx shall have no more than thirty (30) days from delivery of the complete final report
describing the results of the POC Study to determine whether the POC Study was Successful.

          (b) Purchase of Shares. No later than fifteen (15) days after Aradigm’s delivery of a
complete final report to Lung Rx describing the results of the POC Study, and Lung Rx reasonably
agrees that the POC Study was Successful, Aradigm shall issue to Lung Rx, and Lung Rx shall
purchase, shares of Aradigm common stock for an aggregate purchase price of $3,470,000 and at a per
share price equal to the average closing price as quoted on the OTC Bulletin Board for the thirty
(30) days prior to either (i) the date of entry into such stock purchase agreement, or (ii) the
45th day following delivery to Lung Rx of the complete final POC Study report, whichever first
occurs. Lung Rx shall have no more than thirty (30) days from delivery of the complete final
report describing the results of the POC Study to determine whether the POC Study was Successful.
The issuance and purchase of such shares shall be subject to the terms of a separate stock purchase
agreement (and other agreements and related documents executed pursuant thereto) which contains the
usual and customary terms for such stock purchase agreements and also provides for customary
piggyback registration rights.

     6.3 Milestone Payments. Within thirty (30) days following the first occurrence of each of the
events set forth below, Lung Rx shall pay to Aradigm the applicable milestone payment set forth
below (whether such milestone is achieved by Lung Rx, its Affiliate or any of their respective
licensees):

	 	 	 
	Milestone Event	 	Milestone Payment
	First to occur of (i) the issuance of purchasing
requisitions for a [*]; and (ii) the first anniversary
of the Effective Date;

	 	[*]
	 
	 	 
	First to occur of (i) the completion of the [*]; and
(ii) the second anniversary of the Effective Date;

	 	[*]
	 
	 	 
	First to occur of (i) [*], and (ii) the third
anniversary of the Effective Date.

	 	[*]

Each of the milestone payments described in this Section 6.3 shall be payable only one time (i.e.,
upon the first achievement of the applicable milestone event by a Product). All payments made to
Aradigm pursuant to this Section 6.3 are non-refundable and non-creditable. In the event of a

[ * ] = 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.

20

 

delay in Development or Commercialization that occurs prior to achievement of a particular
milestone event that is the result of the action of a Regulatory Agency, the date set forth in
clause (ii) of the description of each such milestone event in the chart above shall be
automatically extended by an amount equal to the duration of such delay. Following the occurrence
of such a delay, (a) Lung Rx shall promptly notify Aradigm in writing of the existence of such
delay, specifying the details thereof, (b) Lung Rx shall describe its plan to overcome such delay
and the anticipated duration of such delay, and (c) upon the cessation of such delay, Lung Rx shall
notify Aradigm in writing of such cessation and shall state the actual duration of such delay.

     6.4 Royalties. Subject to Section 6.5 below and the other terms and conditions of this
Agreement, in consideration for the grant of the licenses to the Aradigm Technology under Section
2.1, Lung Rx shall pay to Aradigm following First Commercial Sale of a Product in any country of
the Territory royalties on Net Sales of all Products in the Territory by Lung Rx, its Affiliates
and their respective licensees, with the royalty rate determined by the amount of aggregate Net
Sales of Products during the applicable calendar year according to the following schedule:

          (a) 10% of the first [*] million of Net Sales of Products occurring in the calendar year;

          (b) [*] of that portion of total annual Net Sales of Products in excess of [*] million and up
to and including [*] million;

          (c) [*] of that portion of total annual Net Sales of Products in excess of [*] million and up
to and including [*] million;

          (d) [*] of that portion of total annual Net Sales of Products in excess of [*] million and up
to and including [*] million; and

          (e) [*] of that portion of total annual Net Sales of Products in excess of [*] million.

Notwithstanding the foregoing, the royalty rates set forth in subsections (a)-(e) above shall be
reduced by fifty percent (50%) with respect to Net Sales of Products accrued prior to the first
regulatory approval of an AERx pulmonary drug delivery system device (other than the Product). In
such event, however, the effective royalty rate due to Aradigm shall not be reduced to below [*]
percent ([*]%) of Net Sales.

     Upon the expiration of the last-to-expire Valid Claim on a country-by-country basis (“Patent
Expiration”), the royalty rates set forth in subsections (a) — (e) above shall be reduced by fifty
percent (50%) with respect to Net Sales of Products. Additionally, upon Patent Expiration and the
approval of a generic version of the Product in each country, at the discretion of Lung Rx, the
Agreement may be terminated as to such country in accordance with section 11.1 below and the
royalty rates set forth in subsections (a) – (e) above shall be reduced to 0%. In the alternative,
upon Patent Expiration and the approval of a generic version of the Product in each country, Lung
Rx may elect not to terminate the Agreement as to such country in which case 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.

21

 

royalty rates set forth in subsections (a) — (e) above shall be reduced by fifty percent (50%)
with respect to Net Sales of Products.

     6.5 Royalty Reduction.

          (a) If (i) it is necessary for Lung Rx, its Affiliate, or one of their sublicensees to obtain
a royalty-bearing license from a Third Party because the Development, manufacture or
Commercialization of the Product infringes a Patent or other intellectual property of such Third
Party in a particular country and (ii) despite Commercially Reasonable Efforts of Lung Rx it is not
possible to practice the Aradigm Technology licensed to Lung Rx hereunder in a commercially
reasonable manner without infringing such Third Party Patent or other intellectual property, then
Lung Rx shall be entitled to a credit, against the royalty payments due to Aradigm upon sales of
the Product in the applicable country, equal to [*] percent ([*]%) of the royalties actually paid
to such Third Party by Lung Rx, its Affiliate, or one of their sublicensees based upon the sales of
the Product in such country; provided that such credit shall in no event cause the effective
royalty rate due to Aradigm to be reduced to below [*] percent ([*]%) of Net Sales, except in the
case of Patent Expiration in which event the effective royalty rate due to Aradigm shall not be
reduced to below [*] percent ([*]%), or in the case of a Patent Expiration and the approval of a
generic version of the product in which event the effective royalty rate due to Aradigm shall be
reduced to [*] percent ([*]%).

          (b) If Aradigm obtains a royalty-bearing license from a Third Party because the Development,
manufacture or Commercialization of the Product infringes a Patent or other intellectual property
of such Third Party in a particular country, and (i) despite Commercially Reasonable Efforts of
Aradigm it is not possible to practice the Aradigm Technology licensed to Lung Rx hereunder in a
commercially reasonable manner without infringing such Third Party Patent or other intellectual
property, and (ii) Lung Rx is required to pay a royalty to such Third Party, then upon the
occurrence of such events, Lung Rx shall be entitled to a credit, against the royalty payments due
to Aradigm upon sales of the Product in the applicable country, equal to [*] percent ([*]%) of the
royalties actually paid to such Third Party by Lung Rx, its Affiliate, or one of their sublicensees
based upon the sales of the Product in such country; provided that such credit shall in no event
cause the effective royalty rate due to Aradigm to be reduced to below [*] percent ([*]%) of Net
Sales, except in the case of Patent Expiration in which event the effective royalty rate due to
Aradigm shall not be reduced to below [*] percent ([*]%), or in the case of a Patent Expiration and
the approval of a generic version of the product in which event the effective royalty rate due to
Aradigm shall be reduced to [*] percent ([*]%).

          (c) If Lung Rx, its Affiliate, or one of their sublicensees adds to the Product a component or
feature, and Lung Rx, its Affiliate, or one of their sublicensees must pay royalties for Third
Party patent rights covering such component or feature, such royalties shall not be offset against
royalties owed to Aradigm, unless, at the time added, it is not possible to make the Product
approvable or commercially viable without the component or feature. As to any license that Lung Rx
may believe is desirable to enter into with respect to a Product, other than those for which
royalties may be offset in accordance with this Section 6.5, if Lung Rx requests, the Parties will
discuss such license and the possibility of Aradigm sharing some part of the costs of such license.
In no event, however, shall royalty payments due to Aradigm be reduced 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.

22

 

accordance with this Section 6.5 for any royalties paid by Lung Rx for the Licensed Molecule or its
formulations.

     6.6 Accrual of Royalties. No royalties shall be payable on a Product distributed to Third
Parties solely as a sample for testing or evaluation purposes. No multiple royalty shall be
payable on the sale of any one Product. No multiple royalty shall be payable on a Product
because the manufacture, use or sale of such Product is covered by more than one Patent or is
subject to both Know-How and a Valid Claim.

     6.7 Compulsory Licenses. Should a compulsory license be granted to a Third Party under the
applicable laws of any country in the Territory under the Aradigm Technology, the Parties will
consult and cooperate to position Lung Rx, its Affiliates or its sublicensees to competitively
market such Product in such country.

     6.8 Commercial Hardship. If in any country Lung Rx can demonstrate that for any reason
beyond its, its Affiliates’ or its sublicensees’ control the royalty payable hereunder by Lung Rx
causes or may cause Lung Rx, its Affiliate or its sublicensee a significant reduction in its or
their sales of Product in that country, or otherwise causes or may cause hardship in the
promotion or sale of Product in a country, the Parties will consult and cooperate to position
Lung Rx, its Affiliates or its sublicensees to competitively market such Product in such country.

ARTICLE 7

Payments; Records; Audits

     7.1 Payment; Reports. Royalty obligations under Section 6.4 shall accrue upon the First
Commercial Sale of a Product by Lung Rx, its Affiliates and their sublicensees for the Term of this
Agreement. Royalties shall be calculated and reported and paid on a calendar quarter basis for all
royalties accruing in each calendar quarter, although they may be made in whole or in part in
advance of such due date in Lung Rx’s discretion. All royalty payments by Lung Rx to Aradigm under
this Agreement shall be paid within forty-five (45) days after the end of each calendar quarter.
Each payment shall be accompanied by a report of Net Sales of Products by Lung Rx, its Affiliates
and their respective sublicensees, each in reasonably sufficient detail to permit confirmation of
the accuracy of the payment made, including, on a regional basis, including the U.S. separately,
the number of Products sold, the gross sales and Net Sales of such Products, the royalties payable,
the withholding taxes, if any, required by law to be deducted in respect of such sales, the method
used to calculate the royalties, and the exchange rates used, if any.

     7.2 Exchange Rate; Manner and Place of Payment. All payments under this Agreement shall be
made in U.S. dollars. Conversion of payments to U.S. dollars from a currency in a country from
which royalties are payable shall be at an exchange rate equal to the rates of exchange for the
country’s currency as published by The Wall Street Journal. All payments owed under this Agreement
shall be made by wire transfer in immediately available

[ * ] = 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.

23

 

funds to a bank and account designated in writing by Aradigm, unless otherwise agreed in writing by
Aradigm.

     7.3 Tax Withholding. Lung Rx will be responsible for and pay any and all taxes levied on
account of any payments made by it under this Agreement (other than taxes based on Aradigm’s
income) without deduction from any payment due to Aradigm hereunder, except for any required
withholding or comparable taxes.

     7.4 Records; Audits. During the Term and for a period of three (3) years thereafter, Lung Rx
shall keep, and shall cause its Affiliates and their respective licensees to keep, complete and
accurate records pertaining to the sale or other disposition of Products, in sufficient detail to
permit Aradigm to confirm the accuracy of all payments due hereunder. Aradigm, at its own expense,
shall have the right once each calendar year to cause an independent, certified public accountant
of a nationally recognized firm reasonably acceptable to Lung Rx to audit such records as are
reasonably necessary to confirm such Net Sales, royalties and other payments for any year ending
not more than twenty-four months prior to the date of such request. Such audits may be exercised
during normal business hours upon reasonable prior written notice to Lung Rx, and subject to an
appropriate confidentiality agreement. The accountant shall disclose to Aradigm only whether the
records are correct or not and the specific details concerning any discrepancies. No other
information shall be shared. Prompt adjustments shall be made by the Parties to reflect the
results of such audit. Aradigm shall bear the full cost of such audit unless such audit discloses
an underpayment by Lung Rx of more than [*] percent ([*]%) of the amount of royalties or other
payments due under this Agreement for the period audited, in which case Lung Rx shall pay the
reasonable and direct cost of such audit.

     7.5 Late Payments. In the event that any payment due under this Agreement is not made when
due, the payment shall accrue interest from the date due at the rate of [*] percent ([*]%) per
month; provided, however, that in no event shall such rate exceed the maximum legal annual interest
rate. The payment of such interest shall not limit Aradigm from exercising any other rights it may
have as a consequence of the lateness of any payment.

ARTICLE 8

Intellectual Property

     8.1 Filing Prosecution and Maintenance of Patents. Aradigm at its sole expense shall be
responsible for prosecuting and maintaining the Aradigm Patents in the Territory, and Lung Rx
shall be responsible at its sole expense for prosecuting and maintaining the Lung Rx Patents in
the Territory.

     8.2 Ownership of New Intellectual Property.

          (a) Title to all New Intellectual Property that relates to the core intellectual property,
know-how and proprietary technology in the field of prostacyclin drugs (“Prostacyclin Field”) owned
by Lung Rx, whether patentable or unpatentable, made directly or indirectly by

[ * ] = 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.

24

 

either Party as a result of the collaboration under this Agreement or further collaboration between
the Parties on the subject matter of this Agreement, shall be owned solely and exclusively by Lung
Rx.

     (b) Title to all New Intellectual Property that relates to the core intellectual property,
know how, and proprietary technology in the field of pulmonary delivery technologies (“Pulmonary
Delivery Field”) owned by Aradigm, whether patentable or unpatentable, made directly or indirectly
by either Party as a result of the collaboration under this Agreement or further collaboration
between the Parties on the subject matter of this Agreement, shall be owned solely and exclusively
by Aradigm.

     (c) Title to all New Intellectual Property shall be held by the Party(ies) employing the
respective author(s) and/or inventor(s) or to which said author(s) and/or inventor(s) has/have an
obligation to assign the subject intellectual property in accordance with U.S. copyright, patent
and any other laws addressing intellectual property. Any such New Intellectual Property, to the
extent owned by Aradigm, shall be licensed exclusively to Lung Rx within the Prostacyclin Field,
and to the extent owned by Lung Rx, shall be licensed exclusively to Aradigm within the Pulmonary
Delivery Field, in both cases any such license shall be royalty free and shall subsist for so long
as any such right subsists.

     (d) Each Party agrees (i) to disclose promptly to the other any and all Patent applications
prepared or filed by that Party which applications are directed to either of the stated core
technologies and are made directly or indirectly as a result of the collaboration under this
Agreement or further collaboration between the Parties on the subject matter of this Agreement,
and (ii) promptly upon request by the other Party to execute assignments of intellectual property
rights in accordance with this Section.

  8.3 Filing, Prosecution and Maintenance of New Intellectual Property.

     8.3.1 Each Party shall, using Commercially Reasonable Efforts, control the preparation,
filing, prosecution, grant and maintenance of Patent rights regarding its New Intellectual
Property in the Territory and shall select all patent counsel or other professionals to advise,
represent or act for it in all matters relating to the prosecution and maintenance of such Patent
rights regarding its New Intellectual Property in the Territory.

     8.3.2 In the event that a Party elects not to file a Patent application or decides to
abandon any pending application or granted Patent under its New Intellectual Property in any
country of the Territory, it shall provide adequate advance notice to the other Party and give
the other Party the opportunity to file or maintain such application or Patent at its own
expense.

  8.4 Cooperation.

     (a) Each Party shall make available to the other Party or its authorized attorneys, agents,
consultants or representatives, if available, such information necessary or appropriate to enable
the appropriate Party (at the appropriate Party’s cost and expense) to prepare, file, prosecute
and maintain Patent applications and resulting Patents with respect to its

[ * ] = 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.

25

 

New Intellectual Property as set forth in Section 8.2 above, for a period of time reasonably
sufficient for such Party to obtain the assistance it needs from such personnel. Where
appropriate, each Party shall sign or cause to have signed all documents relating to said Patent
applications or Patents at no charge to the other.

          (b) The Parties’ patent counsel shall provide comments to the Parties in sufficient time for
the Parties to reflect such comments in any response. Any comments made by a Party shall be made
in good faith and shall be directed to maximizing the claims covered by such Patents. If a Party
agrees with the comments of the other Party’s patent counsel, it shall reflect such comments in
its response. If a Party disagrees with such comments, it shall provide a detailed explanation
of its position and, in the event the Parties do not thereafter arrive at a consensus on how to
proceed with respect to the comments, either Party may then submit such dispute (a “Patent
Comment Dispute”) for resolution by an intellectual property lawyer (the “Neutral Lawyer”) with
at least ten years of experience and a background in biotechnology or pharmaceutical patent
matters. The Neutral Lawyer shall be selected by mutual agreement of the Parties; provided,
however, that if the Parties cannot agree on a Neutral Lawyer within five days of a Party’s
request for a Neutral Lawyer under this provision, the Neutral Lawyer shall be selected by the
American Arbitration Association in Washington, D.C. Each Party shall submit its position as to
the Patent Comment Dispute to the Neutral Lawyer, who shall resolve the dispute by agreeing to
one of the submitted positions of the Parties without any changes to such position. The Parties
agree that the position agreed to by the Neutral Lawyer shall be reflected in the action or
response being prepared and that the costs of the Neutral Lawyer shall be paid by the Party whose
position is not agreed to by the Neutral Lawyer. The decision of the Neutral Lawyer shall be
final and binding on the Parties. The Parties shall cooperate in all respects to resolve any
Patent Comment Dispute in sufficient time to avoid any loss of rights, including jointly
instructing the Neutral Lawyer to make a decision in sufficient time to avoid any loss of rights.

     8.5 Infringement by Third Parties.

          (a) Notice. If either Party becomes aware that a Third Party is infringing any rights in the
Aradigm Technology or the Lung Rx Technology, such Party shall give written notice to the other
Party describing in detail the nature of such infringement.

          (b) Right to Bring Suit. Lung Rx, in the case of intellectual property owned by Lung Rx and
Aradigm, in the case of intellectual property owned by Aradigm (the “Enforcing Party”), shall have
the sole right to enforce such intellectual property rights against infringers at their own
expense. In the case of New Intellectual Property, both Parties shall have the right to enforce
such intellectual property rights and to obtain the joinder of the non-enforcing Party, where
required by law, at the expense of the Enforcing Party.

          (c) Cooperation; Settlement. The Party controlling the action may not settle the action or
otherwise consent to an adverse judgment in such action that diminishes the rights or interests of
the non-controlling Party without first consulting the non-controlling Party and considering any
objections thereto raised by the non-controlling Party. Aradigm and Lung Rx

[ * ] = 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.

26

 

shall provide all reasonable assistance to the other Party in any action to enforce such
intellectual property rights.

          (d) Recoveries. Except as otherwise agreed to by the Parties in writing as part of a
cost-sharing arrangement, all in kind settlements or monies recovered upon the final judgment or
settlement of any such suit shall be shared, after reimbursement of the costs of participating in
such action, by Aradigm and Lung Rx pro rata according to the respective percentages of
costs borne by each Party in such action pursuant to this Section 8.5.

     8.6 Infringement of Third Party Rights. In the event that a Third Party files an action
against a Party, its Affiliates, distributors or sublicensees alleging that such Party’s or its
Affiliates’, distributors’ or sublicensees’ activities under this Agreement infringe such Third
Party’s patent or other intellectual property rights, such Party shall give written notice to the
other Party, and the Parties will consult and cooperate on the best course of action. If the
alleged infringing process, method or composition is claimed under the Aradigm Technology and the
Lung Rx Technology, in the Territory, the Parties shall consult and cooperate to decide which Party
shall control the defense of such suit. If the alleged infringing process, method or composition
is claimed under the Lung Rx Technology, in the Territory, Lung Rx shall have the right to control
the defense of such suit. If the alleged infringing process, method or composition is claimed
under the Aradigm Technology, in the Territory, Aradigm shall have the right to control the defense
of such suit. Each Party shall pay its own expenses, have the right to be represented by advisory
counsel of its own selection, and shall cooperate fully in the defense of such suit and furnish to
the other all evidence and assistance in its control. If one Party does not elect within thirty
(30) days after such notice to control the defense of a suit, the other may undertake such control
at its own expense, and the non-controlling Party shall then have the right to be represented by
advisory counsel of its own selection, at its own expense, and shall cooperate fully in the defense
of such suit and furnish to the controlling Party all evidence and assistance in its control. The
Party controlling the suit may not settle the suit or otherwise consent to an adverse judgment in
such suit that diminishes the rights or interests of the non-controlling Party without the express
written consent of the non-controlling Party. Any judgments, settlements or damages payable with
respect to legal proceedings covered by this Section 8.6 shall be paid by the Party which controls
the litigation, subject to the other Party’s indemnification obligations in accordance with Article
12 below, if any.

     8.7 Product Trademark; License to Aradigm Trademark.

     (a) The Product, Product packaging, promotional materials, package inserts, and labeling shall
bear a trademark chosen and owned by Lung Rx. The Product, Product packaging, promotional
materials, package inserts, and labeling shall also bear the Aradigm®, Aradigm LogoTM, AERx®, AERx
Essence®, and/or AERx Strip® trademarks (collectively, the “Licensed Marks”). The Product, Product
packaging, promotional materials, package inserts, and labeling shall also bear an acknowledgment
line that specifies, in part, that the Licensed Marks are registered trademarks of Aradigm and
lists the key Aradigm Patents.

     (b) Subject to and conditioned upon Lung Rx’s full compliance with this Agreement, Aradigm
grants to Lung Rx, and Lung Rx accepts, during the term of this Agreement a limited,

[ * ] = 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.

27

 

non-exclusive,
royalty-free, revocable license to use the Licensed Marks in the Territory in connection with the
Commercialization, use, import, sale and distribution of Products in the Field. No other right,
title or license to the Licensed Marks is granted hereunder.

ARTICLE
9

Representations and Warranties

     9.1 Mutual Representations, Warranties and Covenants.

          (a) Each Party represents and warrants to the other that, as of the Effective Date: (a) it is
duly organized and validly existing under the laws of its jurisdiction of incorporation or
formation, and has full corporate power and authority to enter into this Agreement and to carry out
the provisions hereof; (b) it is duly authorized to execute and deliver this Agreement and to
perform its obligations hereunder, and the person executing this Agreement on its behalf has been
duly authorized to do so by all requisite corporate action; (c) this Agreement is legally binding
upon it, enforceable in accordance with its terms, and does not conflict with any agreement,
instrument or understanding, oral or written, to which it is a Party or by which it may be bound,
nor violate any material law or regulation of any court, governmental body or administrative or
other agency having jurisdiction over it; (d) to the best of its knowledge, there are no Third
Party intellectual property rights which could prevent it from performing all of its obligations
hereunder.

          (b) Each Party represents and warrants that it will use its best efforts to obtain and
maintain in full force and effect all necessary licenses, permits and other authorizations required
by law to carry out its duties and obligations under this Agreement. Each Party shall cooperate
with the other to provide such letters, documentation and other Information on a timely basis as
the other Party may reasonably require to fulfill its reporting and other obligations to applicable
Regulatory Authorities. Except for such amounts as are expressly required to be paid by a Party to
the other under this Agreement, each Party shall be solely responsible for any costs incurred by it
to comply with its legal obligations. Each Party shall conduct its activities hereunder in an
ethical and professional manner.

          (c) Each Party hereby covenants that each of its employees and other entities performing any
work under this Agreement shall have entered into a written invention assignment agreement
requiring that each such person or entity assign to such Party all right, title and interest in and
to any Information conceived of and/or reduced to practice by such person or entity and its
employees, consultants or agents in connection with any such activities.

          (d) Each Party shall cooperate with the other and provide such assistance and resources as the
other Party may reasonably request in connection with performance of the obligations under this
Agreement.

     9.2 Aradigm Representations and Warranties. Aradigm represents and warrants to Lung Rx that,
as of the Effective Date: (a) Aradigm Controls the Aradigm Technology in 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.

28

 

Territory with the
full right and authority to grant the rights and licenses granted to Lung Rx under this Agreement;
(b) Aradigm has not granted any right or license under the Aradigm Technology that is in conflict
with the rights and licenses granted to Lung Rx under this Agreement; (c) to the best of Aradigm’s
knowledge, there is no basis upon which the use of the Aradigm Technology in accordance with this
Agreement would infringe upon any Third Party’s know-how, patent or other intellectual property
rights or constitute misuse of confidential information by Lung Rx; (d) to the best of Aradigm’s
knowledge, no claim, whether or not embodied in an action past or present, of any infringement, of
any conflict with, or of any violation of any patent, trade secret or other intellectual property
right or similar right of any Third Party has been made or is pending, and Aradigm has no knowledge
of any potential claim with respect to the Aradigm Technology; (e) a complete list of (i) all
Patents as of the Effective Date and (ii) all Patents owned by Third Parties and validly and
exclusively licensed to Aradigm, with the unrestricted right to exclusively sublicense to Lung Rx,
is provided in Exhibit B attached to this Agreement; (f) to the best of Aradigm’s
knowledge, no Patent and/or other intellectual property rights Controlled by a Third Party are
required to be in-licensed by Aradigm because the Development, manufacture or Commercialization of
the Product infringes such Third Party Patent or other intellectual property rights in the
Territory, (g) other than as contained in Exhibit B, Aradigm has not prior to the Effective
Date applied for Patents involving the Licensed Molecule or other prostacyclin drugs; and (h)
Aradigm has made or will make available to Lung Rx all material technical Information in its
possession or control that is reasonably necessary to Develop, manufacture and Commercialize
Products in accordance with this Agreement.

     9.3 Lung Rx Representations and Warranties. Lung Rx represents and warrants to Aradigm that,
as of the Effective Date: (a) Lung Rx Controls the Lung Rx Technology in the Territory with the
full right and authority to grant the rights and licenses granted to Aradigm under this Agreement;
(b) Lung Rx has not granted any right or license under the Lung Rx Technology that is in conflict
with the rights and licenses granted to Aradigm under this Agreement; (c) to the best of Lung Rx’s
knowledge, there is no basis upon which the use of the Licensed Molecule in accordance with this
Agreement would infringe upon any Third Party’s know-how, patent or other intellectual property
rights or constitute misuse of confidential information by Aradigm; (d) to the best of Lung Rx’s
knowledge, no claim, whether or not embodied in an action past or present, of any infringement, of
any conflict with, or of any violation of any patent, trade secret or other intellectual property
right or similar right of any Third Party has been made or is pending, and Lung Rx has no knowledge
of any potential claim with respect to the Lung Rx Technology; (e) to the best of Lung Rx’s
knowledge, no Patent and/or other intellectual property rights Controlled by a Third Party are
required to be in-licensed by Lung Rx because the Development, manufacture or Commercialization of
the Product infringes such Third Party Patent or other intellectual property rights in the
Territory; (f) Lung Rx has not prior to the Effective Date applied for Patents involving Aradigm
Technology; and (g) Lung Rx has made or will make available to Aradigm all material technical
Information in its possession or control that is reasonably necessary to Develop, manufacture and
Commercialize Products in accordance with this Agreement.

     9.4 Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN SECTIONS 9.1 THROUGH 9.3, THE TECHNOLOGY AND
INTELLECTUAL PROPERTY RIGHTS

[ * ] = 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.

29

 

PROVIDED BY EACH PARTY UNDER THIS AGREEMENT ARE PROVIDED “AS IS”, AND
EACH PARTY MAKES NO, AND EXPRESSLY DISCLAIMS ANY AND ALL, WARRANTIES OF ANY KIND, EXPRESS OR
IMPLIED, INCLUDING THE WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES, OR ARISING FROM A COURSE OF
DEALING, USAGE OR TRADE PRACTICES.

ARTICLE 10

Confidentiality

     10.1 Confidential Information. Except to the extent expressly authorized by this Agreement or
otherwise agreed in writing by the Parties, each Party agrees that, during the Term and for seven
(7) years thereafter, such Party shall keep confidential and shall not publish or otherwise
disclose and shall not use for any purpose other than as expressly provided for in this Agreement
any Information furnished to it by the other Party pursuant to this Agreement (the “Confidential
Information” of the disclosing Party). Each Party may use the Confidential Information of the
other Party only to the extent required to accomplish the purposes of this Agreement. Each Party
will use at least the same standard of care (but in any case not less than reasonable care) as it
uses to protect proprietary or confidential information of its own to ensure that its employees,
agents, consultants and other representatives do not disclose or make any unauthorized use of the
Confidential Information of the other Party. Each Party will promptly notify the other Party upon
discovery of any unauthorized use or disclosure of the Confidential Information of the other Party.

     10.2 Exceptions. The obligations of the receiving Party under this Article 10 with respect to
specific Confidential Information of the other Party shall not apply to any specific Information
that the receiving Party can demonstrate by competent evidence: (a) is, at the time of disclosure
by the disclosing Party to the receiving Party, or thereafter becomes, through no act or failure to
act on the part of the receiving Party, generally known or available; (b) is known by the receiving
Party at the time of receiving such Information, as evidenced by its records; (c) is, after the
time of disclosure by the disclosing Party to the receiving Party, furnished to the receiving Party
by a Third Party, as a matter of right and without restriction on disclosure; or (d) is
independently discovered or developed by the receiving Party without access to or the use of any
Confidential Information of the disclosing Party.

     10.3 Authorized Disclosure. Notwithstanding the other provisions of this Article 10, a Party
may disclose Confidential Information of the other Party to the extent such disclosure is
reasonably necessary in the following instances, but solely for the limited purpose of such
necessity:

             (a) on a need-to-know basis and in connection with a Party’s performance or its obligations
and/or exercise of its rights under this Agreement, to its Affiliates, licensees, employees,
consultants, or agents provided that such individuals or entities are bound by

[ * ] = 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.

30

 

confidentiality and
non-use obligations at least equivalent in scope to those set forth in this Article 10;

          (b) as expressly permitted by this Agreement;

          (c) to comply with applicable laws, court orders, or governmental regulations, including
NASDAQ, and SEC disclosure requirements;

          (d) to the extent that such disclosure is required by a court order, or in order to comply
with applicable laws or regulations, but provided that such Party required to make the disclosure
will, except where impracticable, shall give reasonable advance notice to the other Party of such
required disclosure and use efforts to secure, or to assist the other Party in securing, a
protective order relating to, or confidential treatment of, such information; and

          (e) general information of a non-material nature regarding the general status of the
Development Plan.

     10.4 Terms of Agreement. The terms of this Agreement shall be deemed to be the Confidential
Information of each Party; provided, however, that each Party may disclose the terms of this
Agreement in confidence to its investors, directors and professional advisors, and to its
prospective investors, acquirers and merger partners and their respective professional advisors.
The Parties will consult with each other reasonably on the provisions of this Agreement to be
reasonably redacted in any filings made by either Party with the Securities and Exchange Commission
or as otherwise required by law.

     10.5 Publicity. Any news release or other public announcement relating to this Agreement or
to the performance hereunder, shall first be reviewed in good faith and approved by both Parties,
such approval not to be unreasonably withheld or delayed; provided, however, that any disclosure
which is required by law as advised by the disclosing Party’s counsel may be made without the prior
consent of the other Party, although the other Party shall be given prompt notice of any such
legally required disclosure and to the extent practicable shall provide the other Party with an
opportunity to comment on the proposed disclosure. In addition, either Party shall be free to
disclose, without the other Party’s prior written consent, the existence of this Agreement, the
identity of the other Party, and the terms of this Agreement, in each case to the extent such
information has already been publicly disclosed in accordance herewith.

     10.6 Publication. From time to time it may be to the mutual interest of the Parties to
publish articles relating to data generated or analyzed as a part of this Agreement. Neither Party
shall submit for written or oral publication or presentation any manuscript, abstract, writing,
printed material or the like which includes data or any other information generated and provided
solely by the other Party without first obtaining the prior written consent of the other Party,
which consent shall not be unreasonably withheld or delayed, provided however, that valid
commercial reasons may exist for withholding such consent. Nothing contained herein shall be
construed as precluding either Party from making, in its discretion, any disclosures of information
of any type which relate to the safety, efficacy, toxicology, or pharmacokinetic

[ * ] = 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.

31

 

characteristics of
the Products to the extent that either Party may be required by law to make disclosures of such
information.

ARTICLE 11

Term and Termination

     11.1 Term. The term of this Agreement (the “Term”) shall commence on the Effective Date and,
unless earlier terminated in accordance with the terms of this Article 11 or extended by mutual
agreement of the Parties, will expire, on a country-by-country basis upon the approval of a generic
Product and Patent Expiration in such country.

     11.2 Termination for Breach. Each Party shall have the right to terminate this Agreement upon
forty-five (45) days’ prior written notice to the other Party if such other Party materially
breaches any provision or obligation of this Agreement and the breaching Party has not cured such
breach within the forty-five (45) days following detailed written notice describing the breach.

     11.3 Termination by Lung Rx.

          (a) Lung Rx shall have the right to terminate this Agreement by written notice to Aradigm in
the event that the POC Study is not Successful in the sole reasonable opinion of Lung Rx.

          (b) Lung Rx shall have the right to terminate this Agreement at any time following
consultation with the PSC, upon thirty (30) days’ prior written notice to Aradigm solely for
technical, toxicology, safety, bioavailability, efficacy, regulatory, or market-related issues
(including competition, patient-related issues, prohibitive Development costs, emergence of new
technologies, impediments caused by formulation, material sourcing, manufacturing, or other
technical issues related to Product, etc.) that, in Lung Rx’s sole, reasonable and good faith
opinion, renders further Development and Commercialization of the Product unjustified.

          (c) Lung Rx shall have the right to terminate this Agreement upon written notice to Aradigm if
the Parties learn that a Third Party has rights to Patents or other intellectual property that
would prevent Development and/or Commercialization of such Product and negotiations to obtain a
necessary license from such Third Party are unsuccessful.

     11.4 Effect of Termination; Surviving Obligations.

          (a) In the event of an expiration or termination of this Agreement for any reason, then:

               (i) Each Party shall promptly return to the other Party all relevant Information, records and
materials in its possession or control containing or comprising the other Party’s Confidential
Information and to which the Party does not retain rights hereunder;

[ * ] = 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.

32

 

provided however, that each
Party may retain one copy of each document of the other Party’s Confidential Information to enable
such Party to determine its surviving obligations of confidentiality and non-use with respect to
the other Party’s Confidential Information.

               (ii) Subject to Section 11.4(c), all rights and licenses granted by each Party to the other
shall terminate and revert.

               (iii) Following a six-month sell-off period if Product was being marketed at the time of
expiration or termination of this Agreement, (A) Lung Rx and its Affiliates shall discontinue
making any representation regarding their status as licensees of Aradigm or a distributor of the
Product, and shall cause any sublicensees to do the same, and (B) Lung Rx and its Affiliates shall
cease conducting any activities with respect to the marketing, promotion, sale or distribution of
the Product, and shall cause any sublicensees to do the same.

          (b) In the event of any termination of this Agreement (but not its expiration) other than
termination by Lung Rx pursuant to Section 11.2 for Aradigm’s uncured material breach or pursuant
to Section 11.3(a) in the event that the POC Study is not Successful, the following shall also
apply (i.e., in addition to the provisions of Section 11.4(d)):

               (i) As soon as reasonably practicable, Lung Rx shall ship to a location designated by Aradigm
all of the AERx technology-related manufacturing equipment, portable infrastructure, and materials
(except the Licensed Molecule) in Lung Rx’s possession or on order as of the effective date of
termination or expiration of this Agreement. All costs associated with such shipment or the
preparation of such shipment shall be borne solely by Lung Rx.

               (ii) Lung Rx shall immediately assign and transfer to Aradigm the entire Regulatory Dossier,
except for those documents relating solely to Lung Rx Technology.

               (iii) Each Party shall promptly execute any and all other instruments, forms of assignment or
other documents and take such further actions as the other Party may reasonably request in order to
give effect to or evidence the assignments and grants made to a Party in accordance with this
Agreement.

          (c) In the event of a termination of this Agreement by Lung Rx pursuant to Section 11.2 for
Aradigm’s uncured material breach, then:

               (i) all licenses granted to Lung Rx with respect to the Product set forth in Section 2.1 shall
remain in full force and effect;

               (ii) all licenses granted to Aradigm pursuant to Section 2.2 shall terminate, and all of
Aradigm’s Development obligations under this Agreement (including any outstanding obligations with
respect to the POC Study) shall cease;

               (iii) Lung Rx’s obligations under Article 6 “Fees and Payments” shall survive so long as
Aradigm has fully transferred the Aradigm Technology to Lung Rx in accordance with section 5.2(a)
above, or the full and complete approval of the manufacturing

[ * ] = 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.

33

 

plant and full and complete
validation of the manufacturing process has occurred in accordance with section 5.1(b)(i) and (ii)
above;

               (iv) the PSC shall be abolished, and Lung Rx shall have the right to make any decisions that,
absent termination of this Agreement, would have been the right and responsibility of the PSC; and

               (v) in addition to the provisions set forth in Section 11.4(d), the following provisions shall
also survive: Articles 7 and 8, and Sections 4.3(b) and (c), 4.7, 4.8, 4.9 and 4.13.

          (d) Expiration or termination of this Agreement shall not relieve the Parties of any
obligation accruing prior to such expiration or termination, including any payments owed by Lung Rx
pursuant to Article 6 or Section 4.6, nor preclude either Party from pursuing all rights and
remedies it may have hereunder or at law or in equity with respect to any breach of this Agreement,
nor prejudice either Party’s right to obtain performance of any obligation. Except as set forth
below or elsewhere in this Agreement, the obligations and rights of the Parties under the following
provisions shall survive expiration or termination of this Agreement: Articles 1, 9, 10, 12, 13
and 14, and Sections 7.4, 8.2, 8.3, 8.4, 8.5, 11.4(a), 11.5 and 11.6.

     11.5 Damages; Relief. Termination of this Agreement shall not preclude either Party from
claiming any other damages, compensation or relief that it may be entitled to upon such
termination.

     11.6 Rights in Bankruptcy.

          (a) In the event of the institution by or against either Party of insolvency, receivership,
bankruptcy proceedings, or any other proceedings for the settlement of a Party’s debts which are
not dismissed within sixty (60) days, or upon a Party’s making an assignment for the benefit of
creditors, or upon a Party’s dissolution or ceasing to do business, the other Party may terminate
this Agreement upon written notice in its sole discretion.

          (b) All rights and licenses granted under or pursuant to this Agreement by each Party (the
“Licensor”) are, and will otherwise be deemed to be, for purposes of Section 365(n) of the U.S.
Bankruptcy Code, licenses of right to “intellectual property” as defined under Section 101 of the
U.S. Bankruptcy Code. The Parties agree that the other Party (the “Licensee”), as licensee of such
rights under this Agreement, will retain and may fully exercise all of its rights and elections
under the U.S. Bankruptcy Code; provided however, nothing herein shall be deemed to constitute a
present exercise of such rights and elections. In the event of the commencement of a bankruptcy
proceeding by or against the Licensor under the U.S. Bankruptcy Code, the Licensee will be entitled
to a complete duplicate of (or complete access to, as appropriate) any such intellectual property
and all embodiments of such intellectual property, and same, if not already in its possession, will
be promptly delivered to it (i) upon any such commencement of a bankruptcy proceeding upon its
written request therefor, unless the
Licensor elects to continue to perform all of its obligations under this Agreement, or (ii) if not
delivered under (i) above, following the rejection of this Agreement by or on behalf of the
Licensor upon written request therefor by the Licensee.

[ * ] = 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.

34

 

ARTICLE 12

Indemnification

     12.1 Indemnification by Aradigm. Subject to Lung Rx’s timely notice obligation in Section
12.3, Aradigm hereby agrees to indemnify, defend and hold Lung Rx and its Affiliates and their
respective directors, officers, employees and agents (each, a “Lung Rx Indemnitee”) harmless from
and against any and all claims, suits, actions, demands, liabilities, expenses and/or loss,
including reasonable legal expense and attorneys’ fees and amounts paid in settlement of any action
(collectively, “Losses”), to which any Lung Rx Indemnitee may become subject as a result of any
claim, demand, action or other proceeding by any Third Party to the extent based on or resulting
from (a) the practice by Lung Rx of any license granted by Aradigm under this Agreement, (b) the
negligence or willful misconduct of Aradigm, its Affiliates, or their respective directors,
officers, employees, or agents in the performance of Aradigm’s obligations under this Agreement,
including product liability claims relating to an item or technology manufactured or supplied by or
on behalf of Aradigm; and (c) the breach by Aradigm of any warranty, representation, covenant or
agreement made by Aradigm in this Agreement; except, in each case, to the extent such Losses result
from the negligence or willful misconduct of any Lung Rx Indemnitee or the breach by Lung Rx of any
warranty, representation, covenant or agreement made by Lung Rx in this Agreement.

     12.2 Indemnification by Lung Rx. Subject to Aradigm’s timely notice obligation in Section
12.3, Lung Rx hereby agrees to indemnify, defend and hold Aradigm and its Affiliates and their
respective directors, officers, employees and agents (each, an “Aradigm Indemnitee”) harmless from
and against any and all Losses to which any Aradigm Indemnitee may become subject as a result of
any claim, demand, action or other proceeding by any Third Party to the extent based on or
resulting from: (a) the practice by Aradigm of any license granted by Lung Rx under this
Agreement, (b) the negligence or willful misconduct of Lung Rx, its Affiliates, or their respective
directors, officers, employees, or agents in the performance of Lung Rx’s obligations under this
Agreement, including product liability claims relating to an item or technology manufactured or
supplied by or on behalf of Lung Rx; (c) the Development, manufacture, use, handling, storage, sale
or other disposition of any Product by Lung Rx, its Affiliates, or sublicensees, or by any of their
respective suppliers or distributors, or (d) the breach by Lung Rx of any warranty, representation,
covenant or agreement made by Lung Rx in this Agreement; except, in each case, to the extent such
Losses result from the negligence or willful misconduct of any Aradigm Indemnitee or the breach by
Aradigm of any warranty, representation, covenant or agreement made by Aradigm in this Agreement.

     12.3 Control of Defense. Any entity entitled to indemnification under this Article 12 shall
(i) give written notice to the indemnifying Party of any Losses that may be subject to
indemnification, promptly after learning of such Losses, and (ii) cooperate fully with the
indemnifying Party in connection with the investigation and defense of such claim or lawsuit, and
the indemnifying Party shall assume the defense of such Losses with counsel reasonably satisfactory
to the indemnified Party. If such defense is assumed by the indemnifying Party with

[ * ] = 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.

35

 

counsel so
selected, the indemnifying Party will not be subject to any liability for any settlement of such
Losses made by the indemnified Party without its consent (but such consent will not be unreasonably
withheld or delayed), and will not be obligated to pay the fees and expenses of any separate
counsel retained by the indemnified Party with respect to such Losses.

     12.4 Insurance. Lung Rx, at its own expense, shall maintain product liability insurance in an
amount of not less than [*] per occurrence and [*] in the aggregate during the Term of the
Agreement and shall name Aradigm as an additional insured with respect to such insurance or self
insure for the same or higher coverage limits. Lung Rx shall provide a certificate of insurance
evidencing such coverage to Aradigm upon request.

ARTICLE 13

Dispute Resolution

     13.1 Disputes. The Parties recognize that issues or disputes as to certain matters may arise
from time-to-time during the Term relating to or under this Agreement. It is the objective of the
Parties to seek to resolve any issues or disputes arising under this Agreement in good faith in an
expedient manner and, if at all possible, without resort to litigation, and to that end the Parties
agree to abide by the following procedures set forth in this Article 13 to resolve any such issues
or disputes arising under or relating to this Agreement, including any Party’s rights or
obligations or performance under this Agreement (each, a “Dispute”). The Parties initially shall
attempt to settle any such Dispute through good faith negotiations in the spirit of mutual
cooperation between business executives with authority to resolve the Dispute. Notwithstanding
anything to the contrary set forth herein, any issue or dispute falling within the PSC’s authority
will be handled in accordance with Section 3.4, not this Article 13.

     13.2 Escalation. Prior to taking action as provided in Section 13.3 or 13.4 below, and at the
request of any Party if there is a Dispute, the Parties shall first submit such Dispute to the
Parties’ respective Senior Executives for good faith discussion and attempted resolution. The
Senior Executives to whom any Dispute is submitted shall attempt to resolve the dispute through
good faith negotiations over a reasonable period, not to exceed forty-five (45) days, unless the
Senior Executives mutually agree in writing to extend such period of negotiation. Such forty-five
(45) day period shall be deemed to commence on the date the dispute was submitted by a Party to the
Senior Executives. The Senior Executives shall, if mutually agreed by the Senior Executives,
submit the dispute to voluntary mediation at such place and following such procedures as the
Parties shall reasonably agree. All negotiations and discussions pursuant to this Section 13.2
shall be confidential, and the Parties agree that all information concerning or disclosed as part
of such negotiations and discussions are and such shall be treated as compromise and settlement
negotiations for purposes of applicable rules of evidence.

     13.3 Arbitration. Any Dispute that is not resolved by the Parties by negotiation and/or
mediation pursuant to Sections 13.1 and/or 13.2 above shall, upon the submission of a written
request of either Party to the other Party within forty-five (45) days of initiating such
negotiations or mediation, be submitted for non-binding arbitration before a three-person panel

[ * ] = 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.

36

 

of arbitrators (the “Panel”), conducted in accordance with the rules of arbitration of the American
Arbitration Association for commercial disputes (the “Rules”), except to the extent that such Rules
are inconsistent with this Agreement. Each Party shall select one independent, neutral arbitrator
with experience and expertise in pharmaceutical licensing and in the particular area involved in
the Dispute (a “Party Arbitrator”), and shall notify the other Party of its selection of such Party
Arbitrator within twenty (20) days after receipt by one Party of the other Party’s written request
for binding arbitration. The two (2) Party Arbitrators shall then mutually select a third
arbitrator (a “Neutral Arbitrator”) in accordance with the Rules. The Panel shall resolve the
Dispute in accordance with this Agreement and the substantive rules of law (but not the rules of
procedure or conflicts of laws) that would be applied by a federal court sitting in New York. The
final decision of the Panel shall be appealable. The arbitration shall take place in New York, New
York and shall be conducted in the English language. The Parties agree that they shall share
equally the cost of the arbitration filing and hearing fees, and the cost of the arbitrators that
constitute the Panel. Each Party shall bear its own attorneys’ and expert fees and all associated
costs and expenses. Notwithstanding the foregoing, the arbitrators may in their discretion award
to the prevailing Party reimbursement of its reasonable attorneys’ fees, expert witness fees and
out-of-pocket costs incurred in connection with such proceeding, in addition to any other relief
such Party may be awarded.

     13.4 Court Actions. Notwithstanding the foregoing provisions of this Article 13, to the full
extent allowed by law, either Party may bring an action in any court of competent jurisdiction for
injunctive relief (or any other provisional remedy) to protect the Parties’ rights or enforce the
Parties’ obligations under this Agreement pending final resolution of any claims related thereto in
an arbitration proceeding as provided above. In addition, either Party may bring an action in any
court of competent jurisdiction to resolve disputes pertaining to the validity, construction,
scope, enforceability, infringement or other violations of patents or other proprietary or
intellectual property rights. The Parties shall use Commercially Reasonable Efforts to conduct all
dispute resolution procedures under this Agreement as expeditiously, efficiently and
cost-effectively as possible.

ARTICLE 14

General Provisions

     14.1 Governing Law. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York, excluding its conflicts of laws principles. No
lawsuit pertaining to any matter arising under or growing out of this Agreement shall be instituted
in any jurisdiction other than in the courts located in the State of New York, and the Parties
consent to exclusive jurisdiction before the federal or state courts of the State of New York.

     14.2 Entire Agreement; Modification. This Agreement is both a final expression of the
Parties’ agreement and a complete and exclusive statement with respect to all of its terms. This
Agreement supersedes all prior and contemporaneous agreements and communications, whether oral,
written or otherwise, concerning any and all matters contained herein. No rights or

[ * ] = 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.

37

 

licenses with
respect to any intellectual property of either Party are granted or deemed granted hereunder or in
connection herewith, other than those rights expressly granted in this Agreement. This Agreement
may only be modified or supplemented in a writing expressly stated for such purpose and signed by
the Parties to this Agreement.

     14.3 Relationship Between the Parties. The Parties’ relationship, as established by this
Agreement, is solely that of independent contractors. This Agreement does not create any
partnership, joint venture or similar business relationship between the Parties. Neither Party is
a legal representative or agent of the other Party, and neither Party can assume or create any
obligation, representation, warranty or guarantee, express or implied, on behalf of the other Party
for any purpose whatsoever.

     14.4 Performance by Affiliates, Sublicensees and Subcontractors. The Parties recognize that
each may perform some or all of its obligations or exercise some or all of its rights under this
Agreement (to the extent expressly permitted hereby) through one or more Affiliates, subcontractors
or sublicensees; provided, however, that each Party shall remain responsible and be guarantor of
the performance by its Affiliates, subcontractors and sublicensees and shall cause its Affiliates,
subcontractors and sublicensees to comply with the provisions of this Agreement in connection with
such performance. In particular, if any Affiliate, subcontractor or sublicensee of a Party
participates in research, Development or Commercialization activities under this Agreement or with
respect to Products, the restrictions of this Agreement which apply to the activities of such Party
with respect to Products shall apply equally to the activities of such Affiliate, subcontractor or
sublicensee.

     14.5 Non-Waiver. The failure of a Party to insist upon strict performance of any provision of
this Agreement or to exercise any right arising out of this Agreement shall neither impair that
provision or right nor constitute a waiver of that provision or right, in whole or in part, in that
instance or in any other instance. Any waiver by a Party of a particular provision or right shall
be in writing, shall be as to a particular matter and, if applicable, for a particular period of
time and shall be signed by such Party.

     14.6 Assignment. Except as expressly provided hereunder, neither this Agreement nor any
rights or obligations hereunder may be assigned or otherwise transferred by either Party without
the prior written consent of the other Party (which consent shall not be unreasonably withheld or
delayed); provided, however, that either Party may assign this Agreement and its rights and
obligations hereunder without the other Party’s consent:

          (a) to its successor in interest in connection with the transfer or sale of all or
substantially all of the business of such Party, whether by acquisition, merger, sale of stock,
sale of assets or other similar transaction; or

          (b) to an Affiliate, provided that the assigning Party shall remain liable and responsible to
the non-assigning Party hereto for the performance and observance of all such duties and
obligations by such Affiliate.

[ * ] = 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.

38

 

The rights and obligations of the Parties under this Agreement shall be binding upon and inure to
the benefit of the successors and permitted assigns of the Parties. Any assignment not in
accordance with this Agreement shall be void. In the event of a transaction in which this
Agreement is actually assigned or is assumed by the acquiring party by operation of law (e.g., in
the context of a reverse triangular merger), intellectual property rights of the acquiring party to
such transaction (if other than one of the Parties to this Agreement) shall not be included in the
technology licensed to the other Party (i.e., the Party that is not participating in such
transaction) under this Agreement.

     14.7 No Third Party Beneficiaries. This Agreement is neither expressly nor impliedly made for
the benefit of any Party other than those executing it.

     14.8 Severability. If, for any reason, any part of this Agreement is adjudicated invalid,
unenforceable or illegal by a court of competent jurisdiction, such adjudication shall not affect
or impair, in whole or in part, the validity, enforceability or legality of any remaining portions
of this Agreement. All remaining portions shall remain in full force and effect as if the original
Agreement had been executed without the invalidated, unenforceable or illegal part. The Parties
shall make a good faith effort to replace any invalid or unenforceable provision with a valid and
enforceable one such that the objectives contemplated by the Parties when entering this Agreement
may be realized

     14.9 Notices. Any notice, consent or report required or permitted to be given under this
Agreement shall be in writing, shall specifically refer to this Agreement and shall be delivered
either in person or by overnight courier or facsimile confirmed thereafter by any of the foregoing,
to the Party to be notified at its address(es) given below, or at any address such Party has
previously designated by prior written notice to the other. Notice shall be deemed sufficiently
given for all purposes upon the earliest of: (a) the date of actual receipt or (b) if delivered by
overnight courier, the next business day the overnight courier regularly makes deliveries.

     If to Lung Rx, notices must be addressed to:

Lung Rx, Inc.

1110 Spring Street

Silver Spring, Maryland 20910

Attention: [*]

Facsimile: [*]

With a copy to:

Lung Rx, Inc.

1735 Connecticut Avenue, N.W.

Washington, D.C. 20009

Attention: [*]

Fax Number: [*]

[ * ] = 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.

39

 

     If to Aradigm, notices must be addressed to:

Aradigm Corporation

3929 Point Eden Way

Hayward, California 94545

Attention: Igor Gonda, Ph.D

Facsimile: [*]

With a copy to:

Attention: [*]

Facsimile: [*]

     14.10 Force Majeure. Except for the obligation to make payment when due, each Party shall be
excused from liability for the failure or delay in performance of any obligation under this
Agreement by reason of any event beyond such Party’s reasonable control including but not limited
to Acts of God, fire, flood, explosion, earthquake, or other natural forces, war, civil unrest,
accident, destruction or other casualty, any lack or failure of transportation facilities, any lack
or failure of supply of raw materials, any strike or labor disturbance, or any other event similar
to those enumerated above. Such excuse from liability shall be effective only to the extent and
duration of the event(s) causing the failure or delay in performance and provided that the Party
has not caused such event(s) to occur. Notice of a Party’s failure or delay in performance due to
force majeure must be given to the other Party within ten (10) days after its occurrence. All
delivery dates under this Agreement that have been affected by force majeure shall be tolled for
the duration of such force majeure. In no event shall any Party be required to prevent or settle
any labor disturbance or dispute. Notwithstanding the foregoing, should the event(s) of force
majeure suffered by a Party extend beyond a 30-day period, the other Party may then terminate this
Agreement in its sole discretion by written notice to the non-performing Party, with the
consequences of such termination as set forth in Section 11.4.

     14.11 Limitation of Liability. NEITHER PARTY SHALL BE ENTITLED TO RECOVER FROM THE OTHER
PARTY ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION WITH THIS AGREEMENT
OR ANY LICENSE GRANTED HEREUNDER; PROVIDED, HOWEVER, THAT THIS SECTION 14.11 SHALL NOT BE CONSTRUED
TO LIMIT EITHER PARTY’S INDEMNIFICATION OBLIGATIONS UNDER ARTICLE 12.

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

     14.13 Interpretation.

          (a) Captions and Headings. The captions and headings preceding the text of the articles,
sections, subsections and paragraphs hereof are inserted solely for convenience and ease of
reference only and shall not constitute any part of this Agreement, or have any effect on its
interpretation or construction.

[ * ] = 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.

40

 

          (b) Singular and Plural. All references in this Agreement to the singular shall include the
plural where applicable, and all references to gender shall include both genders and the neuter.

          (c) Articles, Sections & Subsections. Unless otherwise specified, references in this
Agreement to any article shall include all sections, subsections, and paragraphs in such article;
references in this Agreement to any section shall include all subsections and paragraphs in such
sections; and references in this Agreement to any subsection shall include all paragraphs in such
subsection.

          (d) Days. All references to days in this Agreement shall mean calendar days, unless otherwise
specified.

          (e) Ambiguities. Ambiguities and uncertainties in this Agreement, if any, shall not be
interpreted against either Party, irrespective of which Party may be deemed to have caused the
ambiguity or uncertainty to exist.

          (f) English Language. This Agreement has been prepared in the English language and the
English language shall control its interpretation. In addition, all notices required or permitted
to be given hereunder, and all written, electronic, oral or other communications between the
Parties regarding this Agreement shall be in the English language.

          (g) Exemplary Term. The term “including” shall be deemed to mean “including without
limitation”, and the matters referenced directly after the term “including” shall be deemed to be
examples only and not to limit the subject matter coming before the term.

     14.14 Counterparts. This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original document, and all of which, together with this writing, shall be deemed
one instrument.

[Remainder of this page intentionally left blank.]

     [ * ] = 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.

41

 

     In Witness Whereof, the Parties hereto have duly executed and entered into this
License, Development, and Commercialization Agreement as of the Effective Date.

	 	 	 	 	 	 	 
	Aradigm Corporation	 	Lung Rx, Inc. 
	 
	 	 	 	 	 	 
	By:

	 	/s/ Igor Gonda
	 	By:
	 	/s/ [*]
	 

	 	 
	 	 	 	 
	Name:

	 	Igor Gonda
	 	Name:
	 	[*]
	 

	 	 
	 	 	 	 
	Title:

	 	President and Chief Executive Officer
	 	Title:
	 	[*]
	 

	 	 
	 	 	 	 

[ * ] = 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.

42

 

Exhibit A

Aradigm FTE Calculation Methodology

[*]

[ * ] = 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.

43

 

Exhibit B

Certain Aradigm Patents

[*]

[ * ] = 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.

44

 

Exhibit C

Licensed Molecule

[ * ] = 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.

45

 

Exhibit D

In vivo and In vitro Bridging POC Study and Success Criteria for AERx EssenceÒ
technology with Treprostinil

[*]

[ * ] = 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.

46

 

Exhibit E

Initial Development Plan

[*]

[ * ] = 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.

47exv10w5

 

Exhibit 10.5

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

COLLABORATION AGREEMENT

     This Collaboration Agreement (the “Agreement”) is entered into and made effective as
of August 31, 2007 (the “Effective Date”) by and between Aradigm Corporation, a California
corporation having its principal place of business at 3929 Point Eden Way, Hayward, CA 94545
(“Aradigm”), and CyDex, Inc., a Delaware corporation having its principal place of
business at 10513 W. 84th Terrace, Lenexa, KS 66214 (“CyDex”). Aradigm and CyDex are sometimes
referred to herein individually as a “Party” and collectively as the “Parties.”

Recitals

     Whereas, Aradigm possesses proprietary rights related to the pulmonary delivery
technology known as AERx® technology, as well as expertise and know-how relating to the
use and manufacture of such technology; and

     Whereas, CyDex possesses proprietary rights related to certain solubilization and
formulation enabling technology known as Captisol, as well as expertise and know-how relating to
the use of and manufacture with such technology; and

     Whereas, CyDex and Aradigm desire to collaborate on the development and
commercialization of certain pharmaceutical preparations for pulmonary delivery and to share in the
revenue from sales, and from licensing of such pharmaceutical preparations to a third party for
further development and commercialization.

     Now, Therefore, the Parties agree as follows:

1. Definitions

     The following terms shall have the following meanings as used in this Agreement:

     1.1 “AERx Technology” means the AERx® Pulmonary Drug Delivery System for pulmonary delivery of
therapeutic compounds.

     1.2 “Affiliate” means, with respect to a particular Party, a person, corporation, partnership,
or other entity that controls, is controlled by or is under common control with such Party. For
the purposes of the definition in this Section 1.2, the word “control” (including, with correlative
meaning, the terms “controlled by” or “under the common control with”) means the actual power,
either directly or indirectly through one or more intermediaries, to direct the management and
policies of such entity, whether by the ownership of at least fifty percent (50%) of the voting
stock of such entity, or by contract or otherwise.

     1.3 “Allocation Ratio” means the ratio at which Aradigm and CyDex will share Research Costs,
Partnering Costs, and Licensing Revenue (all as defined below), together with

 

 

patent-related costs to the extent applicable pursuant to Section 8.3(c), which ratio is
agreed to be as set forth in Section 1.3 on the attached Schedule of commercial terms.

     1.4 “Aqueous Formulation” means a formulation containing Compounds in a vehicle consisting of
[*]. For clarity, “Aqueous Formulations” do not include [*].

     1.5 “Aradigm Core IP” means any and all inventions, developments, results, know-how and other
Information (including physical, chemical or biological materials), and all Patents relating
thereto, made, conceived or reduced to practice by a Party, both Parties jointly, or the Third
Party Partner in the performance of the Research Program (as defined below) that represent
improvements or modifications to the Aradigm Technology (as defined below) existing as of the
Effective Date.

     1.6 “Aradigm Generic Third Party Agreement” means an agreement between Aradigm and a Third
Party that relates to a particular Collaboration Product and to other products as well.

     1.7 “Aradigm Information” means all raw data produced solely by Aradigm in the course of
performing its obligations under the Research Program.

     1.8 “Aradigm Specific Third Party Agreement” means an agreement between Aradigm and a Third
Party that relates solely to a particular Collaboration Product.

     1.9 “Aradigm Technology” means all Information and Patents under Aradigm Control (as defined
below) as of the Effective Date or during the Term that relate directly to or claim a Collaboration
Product, or the manufacture or use of a Collaboration Product, including AERx Technology, but
excluding Program IP.

     1.10 “Collaboration” means all activities performed by or on behalf of Aradigm or CyDex or the
Third Party Partner in the course of performing the activities described in, or fulfilling of their
obligations pursuant to, this Agreement or the Partnering Agreement.

     1.11 “Collaboration Product” means a pharmaceutical preparation, excluding agents whose
principle therapeutic effect is to control blood glucose levels in humans, delivered via a
portable, hand held device, comprising one or more compounds selected by the JSC (or otherwise
described in the then-current Research Plan) that has been formulated for use in AERx Technology
using, or otherwise incorporates, Formulation Technology.

     1.12 “Compound” means a compound that has been selected by the JSC (or is otherwise described
in the then-current Research Plan) as a potential active ingredient in a Collaboration Product.
Compounds are expected to include, without limitation, inhalation corticosteroids, beta adrenergic
agonists, and cholinergic antagonists.

     1.13 “Confidential Information” has the meaning assigned to it in Section 9.1.

     1.14 “Control” means, with respect to an item of Information or an intellectual property
right, that a Party owns or has a license to such item or right and has the ability to

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

2

 

disclose and
grant a license or sublicense as provided for in this Agreement under such item or right without
violating the terms of any agreement or other arrangement with any Third Party.

     1.15 “CyDex Core IP” means any and all inventions, developments, results, know-how and other
information (including physical, chemical or biological materials), and all Patents relating
thereto, made, conceived or reduced to practice by a Party, both Parties jointly, or the Third
Party Partner in the performance of the Research Program (as defined below) that represent
improvements or modifications to CyDex Technology (as defined below) existing as of the Effective
Date.

     1.16 “CyDex Generic Third Party Agreement” means an agreement between CyDex and a Third Party
that relates to a particular Collaboration Product and to other products as well.

     1.17 “CyDex Information” means all raw data produced solely by CyDex in the course of
performing its obligations under the Research Program.

     1.18 “CyDex Specific Third Party Agreement” means an agreement between CyDex and a Third Party
that relates solely to a particular Collaboration Product.

     1.19 “CyDex Technology” means all Information and Patents under CyDex Control as of the
Effective Date or during the Term that relate directly to or claim the Collaboration Product, or
the manufacture or use of the Collaboration Product, including Formulation Technology, but
excluding Program IP.

     1.20 “Diligent Efforts” means the carrying out of obligations or tasks in a sustained manner
consistent with the efforts a Party devotes to a research project for a pharmaceutical product or
products of similar market potential, profit potential or strategic value resulting from its own
research efforts, based on conditions then prevailing. Diligent Efforts requires that the Party:
(a) promptly assign responsibility for such obligations to specific employee(s) who are held
accountable for progress and monitor such progress on an on-going basis, (b) set and consistently
seek to achieve specific and meaningful objectives for carrying out such obligations, and (c)
consistently make and implement decisions and allocate resources designed to advance progress with
respect to such objectives.

     1.21 “Directly Competitive Product” means a pharmaceutical preparation that is not a
Collaboration Product but comprises as an active ingredient (a) the same Compound as a
Collaboration Product (in the case of a Collaboration Product that contains a single Compound); or
(b) one or more of the same Compounds as in a Collaboration Product (in the case of a Collaboration
Product that contains multiple Compounds).

     1.22 “Field” means pulmonary delivery via a portable, hand held device of pharmaceutical
agents, other than agents whose principle therapeutic effect is to control blood
glucose levels in humans, using [*] delivery of liquid formulations containing Formulation
Technology whereby [*] delivery here means pulmonary delivery of the medication in which a dose is
administered in [*].

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

3

 

     1.23 “Formulation Technology” means CyDex’s solubilization and stabilization technology,
including its Captisol® (sulfobutylether-7-beta-cyclodextrin) technology.

     1.24 “Information” means information, results and data of any type whatsoever, in any tangible
or intangible form whatsoever, including without limitation, databases, inventions, practices,
methods, techniques, specifications, formulations, formulae, knowledge, know-how, skill,
experience, test data including pharmacological, biological, chemical, biochemical, toxicological
and clinical test data, analytical and quality control data, stability data, studies and
procedures, and patent and other legal information or descriptions.

     1.25 “JSC,” or “Joint Steering Committee,” has the meaning set forth in Section 2.1.

     1.26 “Liaison Party” means the Party identified by the JSC for partnering purposes as provided
for in Article 4.

     1.27 “Licensing Revenues” means any and all forms of consideration that either Party receives
from a Third Party Partner in connection with a Partnering Agreement, which may include upfront
license fees, annual license or maintenance payments, milestone payments, royalties, imputed income
on interest-free loans received from such Third Party and other similar payments. Subject to the
provisions of Section 4.3(b) Licensing Revenues do not include payments made by any third party
licensee to either Party for manufacture and supply agreements for Aradigm Technology and/or Cydex
Technology, licenses for the right to manufacture Aradigm Technology or CyDex Technology or costs
associated with the transfer of manufacturing technology.

     1.28 “Partnering Agreement” means an executed and in-force written agreement between, on the
one hand, one or both of the Parties, and, on the other hand, a Third Party, wherein such Third
Party obtains a license granting a Third Party the right to develop and/or commercialize a
Collaboration Product for its own account or in collaboration with one or both of the Parties.

     1.29 “Partnering Costs” means the out-of-pocket legal and consultant fees and travel costs
incurred by the Parties in connection with identifying and negotiating with potential Third Party
Partners and preparing, negotiating, and executing a Partnering Agreement for a Collaboration
Product.

     1.30 “Patent” means (a) unexpired letters patent (including inventor’s certificates) which
have not been held invalid or unenforceable by a court of competent jurisdiction from which no
appeal can be taken or has been taken within the required time period, including without limitation
any substitution, extension, registration, confirmation, reissue, re-
examination, renewal or any like filing thereof and (b) pending applications for letters
patent,
including without limitation any continuation, division or continuation-in-part thereof and
any provisional applications.

     1.31 “Program IP” means any and all inventions, developments, results, know-how and other
Information (including physical, chemical or biological materials), and all intellectual

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

4

 

property
relating thereto, that is (a) made, conceived or reduced to practice by employee(s) or agent(s) of
one or both Parties in the performance of the Research Program and that is (b) neither (i) Aradigm
Core IP nor (ii) CyDex Core IP.

     1.32 “Program Patents” has the meaning set forth in Section 8.3(c).

     1.33 “Research Budget” has the meaning set forth in Section 3.2.

     1.34 “Research Costs” means the unreimbursed expenses incurred by a Party or for its account
in connection with the Research Program that are specified in the Research Plan and Research
Budget. Notwithstanding the foregoing, Research Costs shall exclude any overhead expenses of a
Party, except to the extent such overhead expenses are included in the FTE rate set forth in
Section 3.2(a).

     1.35 “Research Plan” has the meaning set forth in Section 3.2.

     1.36 “Research Program” has the meaning set forth in Section 2.1.

     1.37 “Term” has the meaning assigned to it in Section 10.1.

     1.38 “Territory” means the world.

     1.39 “Third Party Partner” means a Third Party that has entered into a Partnering Agreement.

     1.40 “Third Party” means any entity other than (i) Aradigm, (ii) CyDex or (iii) an Affiliate
of either of them.

2. Management of the Collaboration

     2.1 Overall Management Structure. The overall management of the Collaboration shall be vested
in a Joint Steering Committee (the “JSC”), with responsibility, as further discussed in
Section 2.2, for establishing the strategic direction of the Collaboration and for managing and
directing the overall research program to be jointly established by the Parties (the “Research
Program”) and the Parties’ efforts to commercialize and to out-license the technology developed
thereunder. The JSC may further establish one or more subcommittees as it deems appropriate and
delegate one or more of its responsibilities to such subcommittee, provided that the subcommittee’s
actions will be subject to review and approval by the JSC.

     2.2 Joint Steering Committee.

          (a) Membership. The JSC shall be composed of two (2) representatives from each Party.
Promptly following the Effective Date, the Parties shall appoint their initial representatives to
the JSC. Each Party may replace its JSC representatives at any time upon written notice to the
other Party. Each Party will designate one of its representatives as a co- chairperson of the JSC.
The co-chairpersons shall be responsible for scheduling meetings,

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

5

 

preparing and circulating an
agenda in advance of each meeting, and preparing and issuing minutes of each meeting within thirty
(30) days thereafter.

          (b) Responsibilities. During the term of this Agreement, the JSC shall meet a minimum of four
(4) times per year at a location mutually agreeable to the Parties or by telephonic or other
electronic means. The JSC will make its decisions by unanimous vote, with each Party’s
representatives collectively having one vote. The JSC shall determine the overall strategy for the
Collaboration, including the Research Program. Without limiting the generality of the foregoing,
the JSC shall be responsible for (i) selecting the Collaboration Products, (ii) creating the
Research Plan and Research Budget for each Collaboration Product, (iii) evaluating the Parties’
performance under the Research Plan, and (iv) upon completion of a Research Program for a
Collaboration Product, making a recommendation to the senior management of each Party regarding the
potential for further development and commercialization of such Collaboration Product.

     2.3 Obligations of Parties. Aradigm and CyDex shall provide the JSC and all subcommittees
thereof that are formed, and their authorized representatives, with reasonable access during
regular business hours to all records, documents, and Information relating to the Research Program
that any such committee may reasonably require in order to perform its obligations hereunder,
provided that if such records, documents or Information are under a bona fide obligation of
confidentiality to a Third Party, then Aradigm or CyDex, as the case may be, may withhold access
thereto to the extent necessary to satisfy such obligation.

     2.4 Collaboration Guidelines.

          (a) General. In all matters related to the Collaboration, the Parties shall be guided by
standards of reasonableness in economic terms and fairness to each of the Parties, striving to
balance the legitimate interests and concerns of the Parties, to further the Research Program, and
to realize the economic potential of the Collaboration Products.

          (b) Independence. Subject to the terms of this Agreement, the activities and resources of
each Party shall be managed by such Party, acting independently and in its individual capacity.
The relationship between Aradigm and CyDex is that of independent contractors and neither Party
shall have the power to bind or obligate the other Party in any manner, other than as is expressly
set forth in this Agreement.

3. Research Program

     3.1 Scope. The goal of the Research Program will be to identify and select, via the JSC,
potential Collaboration Products that are of interest to the Parties and to obtain in vitro
proof-of-concept data regarding such Collaboration Products. It is anticipated that the
Collaboration Products will either comprise two or more off-patent compounds. Notwithstanding
the foregoing, the JSC may agree, on a case-by-case basis, to include Collaboration Products that
do not fall within these categories. The JSC shall determine from time to time whether clinical
testing of Collaboration Products will be conducted under this Agreement; provided, however, such
clinical testing shall not be conducted unless and until the

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

6

 

Parties have amended this Agreement to
provide for the terms and conditions relating to such clinical testing.

     3.2 Selection of Compounds; Research Plan.

          (a) The work performed by the Parties under the Research Program with respect to a particular
Collaboration Product will be governed by a written research plan (each, a “Research Plan”). Each
Research Plan shall specifically identify the Collaboration Product (and the relevant Compounds) to
which it pertains and shall include a budget (each, a “Research Budget”) describing each Party’s
funding obligations with respect to the work specified in the Research Plan. Such funding
obligations may consist of cash payments or in-kind contributions of materials, equipment, or
labor, and the Research Budget shall indicate the dollar value associated with any in-kind
contributions. For the purpose of establishing a Research Budget, the dollar value of any in-kind
contribution of labor by the employees of a Party shall be calculated on an average fully burdened
FTE basis that includes estimated overheads using a rate of $[*]/hour per FTE. The JSC will review
such reimbursement rate on an annual basis and, if necessary, may elect to change such
reimbursement rate to reflect changes in costs. Each Research Plan shall allocate between the
Parties responsibility for each of the Research Program activities described therein in a manner
consistent with this Agreement. In each Research Plan, it is anticipated that Aradigm shall be
primarily responsible for the supply of the AERx Technology, optimizing the formulation for use in
the AERx Technology, including adjusting the [*] parameters, in vitro and in vivo preclinical
studies, and that CyDex shall be primarily responsible for developing the formulations and
analytical methods, and for supplying Captisol or other substituted cyclodextrins, for the bulk
formulations.

          (b) A specimen Research Plan (and Research Budget) covering expected in vitro activities for
the initial Collaboration Product is attached to this Agreement and incorporated by this reference
and is intended to be used by the JSC in developing specific Research Plans (and Research Budgets).
The JSC shall be responsible for drafting additional Research Plans for additional Collaboration
Products, as required. During the Research Term, the JSC shall review each then-existing Research
Plan at least semiannually and may generate and approve revised versions of each Research Plan
(including revisions to the list of Collaboration Products, as required) that are consistent with
the terms of this Agreement and the goals of the Research Program. Once approved by the JSC, such
revised Research Plan shall replace the prior Research Plan. Significant changes in the scope or
direction of the work and, any increase or decrease in either Party’s funding requirements in
excess of fifteen percent (15%), or any changes to the funding requirements that would cause the
allocation of budgeted Research Costs to deviate from the Allocation Ratio must be approved in
writing by a member of the senior management of each Party. In the absence of approval of a
Research Plan by the JSC or the senior management of each Party (as the case may be), the most
recently approved Research Plan shall remain in effect.

          (c) The Parties acknowledge that such Research Plan and Research Budget allocate the budgeted
Research Costs between the Parties in accordance with the Allocation Ratio. For the avoidance of
doubt, it is the intent of the Parties (a) to ensure that additional or revised Research Plans
and/or Research Budgets also allocate the budgeted Research Costs

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

7

 

between the Parties in accordance
with the Allocation Ratio and (b) to make adjustments over time as may be necessary and appropriate
to align actual Research Costs with budgeted Research Costs in accordance with the Allocation
Ratio. To the extent that the JSC decides that it is not possible or in the best interests of the
Collaboration Product to allocate budgeted Research Costs between the Parties according to the
Allocation Ratio, then the Party contributing less than its portion under the Allocation Ratio will
make cash payments on a quarterly basis to the party contributing more than its portion under the
Allocation Ration to bring the sum contribution of resources plus cash in line with the Allocation
Ratio.

     3.3 Research Term. The Research Term shall commence on the Effective Date and shall continue
for a period of two (2) years unless both parties agree in writing to extend the Research Term.
Each Party’s obligations under the Research Plan and each Party’s research funding commitments set
forth in Section 3.8 shall remain in force during the Research Term and shall terminate at the end
of the Research Term.

     3.4 Conduct of Research Program. The Parties shall use Diligent Efforts to conduct their
respective tasks assigned pursuant to the Research Plan and to attempt to achieve the objectives of
the Research Program efficiently and expeditiously. Each Party shall conduct its portion of the
Research Program in good scientific manner, and in compliance in all material respects with the
requirements of applicable laws, rules and regulations and all applicable good laboratory
practices.

     3.5 Reports to JSC. At each meeting of the JSC during the Research Term and the six-month
period following the end of the Research Term, each Party shall submit to the JSC a written
progress report summarizing the work performed under the Research Plan since the last meeting.

     3.6 Use of Subcontractors. Either Party may subcontract portions of the activities allocated
to it under the Research Plan to any of its Affiliates, or to a Third Party, provided that such
Third Party is approved by the JSC prior to commencing any work. Notwithstanding the foregoing,
the JSC may expressly waive this requirement with respect to the subcontracting of certain Research
Program activities that the Parties mutually agree should be within the sole discretion of a Party.

     3.7 Records. Each Party shall maintain complete and accurate records of all work conducted
under the Research Program and all results, data and developments made pursuant to its efforts
under the Research Program. Such records shall be complete and accurate and shall fully and
properly reflect all work done and results achieved in the performance of the Research Program in
sufficient detail and in good scientific manner appropriate for patent and regulatory purposes.
Each Party shall have the right to review and copy such records of the other Party at reasonable
times to the extent necessary for such Party to conduct its obligations under the Agreement.

     3.8 Research Costs. Each Party shall bear all costs and expenses incurred by such Party in
the course of performing Research Program activities. For clarity, Partnering Costs, even if
incurred during the Research Term, will be shared in accordance with Section 4.3.

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

8

 

     3.9 Materials Transfer. In order to facilitate the Research Program, either Party may provide
to the other Party, at no charge, certain biological materials, chemical compounds, devices,
equipment, or other research materials owned or controlled by the supplying Party (collectively,
the “Materials”) for use by the other Party in furtherance of the Research Program. Each Party
shall use the other Party’s Materials solely for the purposes of performing under the Research
Program and in compliance with all applicable legal requirements. Neither Party shall use the
other Party’s Materials for any other purposes. Neither Party shall sell, transfer, disclose or
otherwise provide access to the other Party’s Materials, without the prior express written consent
of the other Party. However, each Party may allow access, on a need-to-know basis, to the other
Party’s Materials to such first Party’s employees and agents for purposes of performance of the
Research Program in accordance with the Research Plan, provided that such employees and agents are
made aware of the restrictions on the use of such Materials that are set forth in this Agreement.
Upon expiration or early termination of the Research Term, each Party will return any remaining
quantities of the other Party’s Materials to such other Party, or otherwise dispose of such
Materials as directed by such other Party. Each Party acknowledges and agrees that the Materials
of the other Party may have biological and/or chemical properties that are unpredictable and
unknown as the time of transfer, that they are to be used with caution and prudence, and that they
are not to be used for testing in or treatment of humans. Except as expressly set forth herein,
THE MATERIALS ARE PROVIDED “AS IS” AND WITHOUT ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR ANY
PARTICULAR PURPOSE OR EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT ANY WARRANTY THAT THE USE OF
THE MATERIALS WILL NOT INFRINGE OR VIOLATE ANY PATENT OR OTHER PROPRIETARY RIGHTS OF ANY THIRD
PARTY.

4. Partnering

     4.1 General. The Parties shall cooperate, via the JSC, to identify potential Third Party
Partners for further development and commercialization of Collaboration Products in the Field in
the Territory.

     4.2 Partnering Agreement. The Liaison Party shall have direct responsibility for identifying
and negotiating with potential Third Party Partners for development and commercialization of
Collaboration Products in the Field in the Territory. The Liaison Party shall keep the other Party
informed regarding such negotiations and shall provide the other Party with an opportunity to
comment thereon. The ultimate form of the Partnering Agreement shall be presented to both Parties
for review and approval. It is anticipated that, under the Partnering Agreement, (a) each Party
will grant the relevant Third Party Partner an exclusive license to research, develop, use,
register, make, have made, sell, have sold, and distribute Collaboration Products in the Field in
the Territory; (b) CyDex would be responsible for manufacturing (or having manufactured)
Formulation Technology and (c) Aradigm would be responsible for
manufacturing (or having manufactured) AERx Strips® dosage packets and AERX
Essence® devices.

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

9

 

     4.3 Sharing of Licensing Revenue.

          (a) Except as provided in Section 4.3(b), the Parties will share all Licensing Revenues
realized and Partnering Costs incurred in respect to the Collaboration Product in accordance with
Allocation Ratio.

          (b) Any payments or other compensation provided by a Third Party Partner to either Aradigm or
CyDex in consideration for such Party undertaking contract services relating to the development,
manufacture, or commercialization of a Collaboration Product (whether or not made pursuant to a
Partnering Agreement) shall not be considered Licensing Revenues hereunder, provided that the other
Party is given the opportunity to review the financial and non-financial terms under which such
services will be provided and (ii) such compensation does not exceed the normal rates charged by
the contracting Party in other, unrelated arms-length transactions.

     4.4 Reporting and Reconciliation. Within fifteen (15) days after the end of each calendar
quarter during negotiation of, or following the execution of, a Partnering Agreement, each Party
shall provide a written report to the JSC (with a copy to the other Party) specifying and
documenting, both in reasonable detail, the Licensing Revenues it received, and Partnering Costs
that it incurred, during such quarter with respect to such Partnering Agreement. Within thirty
(30) days after the end of each such calendar quarter, the JSC shall provide each Party with an
accounting in reasonable detail of the Parties’ Partnering Costs and Licensing Revenues for such
quarter, and the JSC shall promptly direct by written notice the remittance between the Parties of
a payment that will result in the sharing of Licensing Revenues and Partnering Costs as set forth
in Section 4.3. All payments required by this Section 4.4 shall be made within thirty (30) days
after receipt of a written notice. Each Party shall keep detailed records of the Partnering Costs
it incurs, and all Licensing Revenues it receives, including all supporting documentation for such
costs and revenues. Each Party shall keep such records for at least three (3) years after the date
that such expense was incurred or revenue received. Either Party may audit, in accordance with the
procedures set forth in Section 7.4, such records for the sole purpose of verifying the accuracy of
the other Party’s reports pursuant to this Section 4.4.

5. Development and Commercialization

     5.1 In General. Subject to Section 5.2 and subject to Section 10.3 (as appropriate), all
development of Collaboration Products beyond the activities that are part of the Research Program
and all commercialization of Collaboration Products shall be governed by a separate development and
commercialization agreement between the Parties, which will be negotiated in good faith by the
Parties at a mutually agreeable time and shall include commercially reasonable terms.

     5.2 Partnering Agreement. To the extent that a Partnering Agreement covers a Collaboration
Product, the development and commercialization of such Collaboration Product in the Field in the
Territory shall be governed by the terms and conditions of such Partnering Agreement.

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

10

 

6. Licenses and Related Rights

     6.1 License to CyDex. Subject to the terms of this Agreement, Aradigm hereby grants to CyDex
a worldwide, co-exclusive (with Aradigm) license during the Term, without the right to grant
sublicenses (except to Third Party subcontractors approved by the JSC), under the Aradigm
Technology, to use, make, have made and import Collaboration Products in the Field solely for the
purpose of performing CyDex’s responsibilities under the Research Plan.

     6.2 License to Aradigm. Subject to the terms of this Agreement, CyDex hereby grants to
Aradigm a worldwide, co-exclusive (with CyDex) license during the Term, without the right to grant
sublicenses (except to Third Party subcontractors approved by the JSC), under the CyDex Technology,
to use, make, have made and import Collaboration Products in the Field solely for the purpose of
performing Aradigm’s responsibilities under the Research Plan.

     6.3 Negative Covenants.

          (a) CyDex hereby covenants that it will not practice any Aradigm Technology, or use, make,
have made, import, sell, have sold, and offer for sale Collaboration Product in the Field, or
license a Third Party to do any of the foregoing, in each case for a purpose other than that
expressly permitted in Section 6.1.

          (b) Aradigm hereby covenants that it will not practice any CyDex Technology, or use, make,
have made, import, sell, have sold, and offer for sale Collaboration Product in the Field, or
license a Third Party to do any of the foregoing, in each case for a purpose other than that
expressly permitted in Section 6.2.

     6.4 Exclusivity. During the Term, each Party agrees not to pursue outside the Collaboration
the development or commercialization of a Collaboration Product in any field, or the development or
commercialization of any Directly Competitive Product for use in the Field, either itself or with
or through an Affiliate or a Third Party. By way of illustration and example only, for purposes of
clarity, a product that is a solution for nebulization using currently or potentially available
commercial nebulization devices would not constitute a Directly Competitive Product as long as the
nebulizer used is not a hand-held device.

     6.5 Third Party License Obligations. Subject to the terms of the Partnering Agreement, the
JSC shall be responsible for evaluating whether, when, and how to enter into licensing agreements
with Third Parties. To the extent that any license fee, royalty or other payment obligation
accrues under any license agreement between Aradigm or CyDex and a Third Party that is needed for
the manufacture, use, sale or importation of a Collaboration
Product, responsibility for such payments shall be shared by the Parties in accordance with
the Allocation Ratio and shall be shared with the Third Party Partner to the extent permitted by
the Partnering Agreement. In the event that the JSC elects not to enter into a license and such
decision results in an enforcement action being brought against one or both of the Parties, any
costs and liabilities that arise shall be shared by the Parties in accordance with the Allocation
Ratio, unless otherwise agreed in writing between the Parties.

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

11

 

     6.6 Sharing of Data.

          (a) During the Term, both Parties shall have the right to access all CyDex Information and
Aradigm Information as it is generated.

          (b) Notwithstanding Section 6.5(a), if CyDex terminates this Agreement pursuant to Section
10.2(a), Aradigm shall cease to have any obligation to provide CyDex with access to any Aradigm
Information with respect to the Collaboration Product, and Aradigm shall have the right to
continued access to CyDex Information for the Collaboration Product for the sole purpose of
determining whether it wishes to exercise the option set forth in Section 10.3 with respect to such
Product and whether it can identify a Third Party partner interested in licensing from Aradigm or
collaborating with Aradigm with respect to such Product..

          (c) Notwithstanding Section 6.5(a), if Aradigm terminates this Agreement pursuant to Section
10.2(a), CyDex shall cease to have any obligation to provide Aradigm with access to any CyDex
Information with respect to the Collaboration Product, and CyDex shall have the right to continued
access to Aradigm Information for the Collaboration Product for the sole purpose of determining
whether it wishes to exercise the option set forth in Section 10.4 with respect to such Product and
whether it can identify a Third Party partner interested in licensing from Aradigm or collaborating
with Aradigm with respect to such Product.

7. Payments; Records

     7.1 Payment Method. All payments due under this Agreement to a Party shall be made by bank
wire transfer in immediately available funds to an account designated by such Party. All payments
hereunder shall be made in U.S. dollars.

     7.2 Taxes. Each Party shall pay any and all taxes levied on account of all payments it
receives under this Agreement. If laws or regulations require that taxes be withheld, the
remitting Party will (a) deduct those taxes from the remittable payment, (b) pay the taxes to the
proper taxing authority, and (c) send evidence of the obligation together with proof of tax payment
to receiving Party within thirty (30) days following that tax payment.

     7.3 Foreign Exchange. Conversion of sales recorded in local currencies to U.S. dollars will
be performed in a manner consistent with the terms of the Partnering Agreement, or if not specified
therein, with the Liaison Party’s normal practices used to prepare its audited financial statements
for internal and external reporting purposes, which use a widely accepted source of published
exchange rates.

     7.4 Records; Inspection. Both Parties shall keep complete, true and accurate books of
accounts and records for the purpose of determining the payments to be made under this Agreement.
Such books and records shall be kept for at least three (3) years following the end of the calendar
quarter to which they pertain. Such records will be open for inspection during such three (3) year
period by independent accountants, solely for the purpose of verifying payment statements
hereunder. Such inspections shall be made no more than once each calendar year, at reasonable time
and on reasonable notice. If any errors in favor of the inspected Party are

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

12

 

discovered in the
course of such inspection, then within thirty (30) days of its receipt of the inspection report,
such inspected Party will pay the inspecting Party those amounts (plus interest) that the
inspecting Party would have received in the absence of such errors. Inspections conducted under
this Section 7.4 shall be at the expense of the inspecting Party, unless a variation or error in
favor of the inspected Party exceeding [*] percent ([*]%) of the amount stated for any period
covered by the inspection is established in the course of such inspection, whereupon all costs
relating to the inspection for such period will be paid promptly by the inspected Party.

8. Intellectual Property

     8.1 Ownership.

          (a) Inventorship of all Aradigm Core IP, CyDex Core IP, and Program IP will be determined
under the patent laws of the United States. Intellectual property conceived before the Effective
Date and after the Term, as evidenced by written records, will be the sole property of the
applicable Party.

          (b) Aradigm shall own the entire right, title and interest in and to any and all Aradigm Core
IP. CyDex hereby transfers and assigns to Aradigm any and all right, title and interest to all
Aradigm Core IP. At the request of Aradigm, CyDex shall execute all documents necessary or
desirable to effectuate or record such assignment.

          (c) CyDex shall own the entire right, title and interest in and to any and all CyDex Core IP.
Aradigm hereby transfers and assigns to CyDex any and all right, title and interest to all CyDex
Core IP. At the request of CyDex, Aradigm shall execute all documents necessary or desirable to
effectuate or record such assignment.

          (d) Each Party shall own an undivided one-half interest in and to any and all Program IP.
Each Party hereby transfers and assigns to the other Party sufficient rights in the Program IP to
the extent necessary to implement such ownership rights. At the request of a Party, the other
Party shall execute all documents necessary or desirable to effectuate or record such assignment.
Aradigm and CyDex as joint owners shall each have the right to exploit and to grant licenses under
Program IP (without an accounting or obligation to, or consent required from, the other Party),
unless otherwise specified in this Agreement; provided, however, during the Term and for a period
of eighteen (18) months after the expiration of the Term, except as contemplated in Sections 4
(Partnering) and 6.5 (Third Party License Obligations), Program IP may only be licensed to Third
Parties with the mutual consent of both Aradigm and CyDex.

     8.2 Disclosure. Each Party shall submit a written report to the JSC within sixty (60) days of
the end of each quarter describing any Aradigm Core IP, CyDex Core IP, or Program IP arising during
the prior quarter in the course of the Program that it believes may be patentable.

     8.3 Patent Prosecution and Maintenance.

          (a) Aradigm Core IP. Aradigm shall have the sole right and responsibility for preparing,
filing, prosecuting and maintaining patent rights relating to Aradigm Core IP.

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

13

 

          (b) CyDex Core IP. CyDex shall have the sole right and responsibility for preparing, filing,
prosecuting and maintaining patent rights relating to CyDex Core IP.

          (c) Program IP. CyDex shall have the first right, but not the obligation, to prepare, file,
prosecute, and maintain Patents covering Program IP (“Program Patents”). If CyDex elects not to
file, prosecute, maintain or extend any Program Patent, CyDex shall notify Aradigm in writing no
later than sixty (60) days prior to any required action relating to the preparation, filing,
prosecution, maintenance of such Program Patent. In such event, Aradigm may elect, with written
notification to CyDex, that Aradigm will take over the preparation, filing, prosecution, and
maintenance of such Program Patent. The filing Party shall control the preparation, filing,
prosecution, maintenance and issuance, including any interference proceeding or post grant or post
issuance proceeding, including any opposition, reexamination or reissue or extension, of any
Program Patent. The non-filing Party shall, at the reasonable request of the filing Party,
cooperate in such preparation, filing, prosecution, maintenance, and issuance. The filing Party
shall (a) keep the non-filing Party promptly informed as to the filing, prosecution, maintenance
and extension of any Program Patent, such that the non-filing Party has reasonable time to review
and comment upon any documents intended for submission to any patent office with respect thereto;
(b) furnish to the non-filing party copies of documents relevant to any such filing, prosecution,
maintenance and extension; and (c) incorporate all reasonable comments of the non-filing party on
documents filed with any patent office with respect to a Program Patent. All costs incurred after
the Effective Date in relation to the filing, prosecution, or maintenance of Program Patents shall
be shared by the Parties in accordance with the Allocation Ratio; provided, however, that the
non-filing Party may opt-out of such cost-sharing with respect to a particular Program Patent by
notifying the filing Party of such intention and assigning its entire right, title, and interest in
such Program Patent to the filing Party.

     8.4 Enforcement of Patent Rights.

          (a) If a Third Party is apparently infringing a Program Patent or a Patent within the Aradigm
Technology or the CyDex Technology, the Party first obtaining knowledge of such infringement shall
immediately provide the other Party notice of such infringement and the related facts in reasonable
detail.

          (b) Aradigm shall have the exclusive right with respect to enforcing any Patent within the
Aradigm Technology, and with respect to settling any action brought relating to such infringement,
Aradigm may grant a license to such Patent in conjunction with such
settlement, subject to the licenses granted to CyDex hereunder. All costs, liabilities and
proceeds (each, if any) associated with such enforcement shall be borne or realized by Aradigm.

          (c) CyDex shall have the exclusive right with respect to enforcing any Patent within the CyDex
Technology, and with respect to settling any action brought relating to such infringement, CyDex
may grant a license to such Patent in conjunction with such settlement, subject to the licenses
granted to Aradigm hereunder. All costs, liabilities and proceeds (each, if any) associated with
such enforcement shall be borne or realized by CyDex.

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

14

 

          (d) The JSC shall determine how to best control the enforcement of a Program Patent against an
alleged infringer. If, with the approval of the JSC, either Party brings any action or proceeding
to enforce a Program Patent, the other Party agrees to be joined as a Party plaintiff and to give
the first Party reasonable assistance and authority to control, file and prosecute the suit as
necessary. All costs, liabilities and proceeds (each, if any) associated with such action or
proceeding shall be shared by the Parties in accordance with the Allocation Ratio. No settlement
or consent judgment or other voluntary final disposition of such action or proceeding may be
entered into without the joint written consent of Aradigm and CyDex.

          (e) For clarity, the Parties agree that the rights of each Party, as set forth above, to
assert claims of infringement with respect to Patents in the Aradigm Technology or CyDex
Technology, and/or with respect to the Program Patents, may be superseded by the terms of a
Partnering Agreement.

     8.5 Defense of Third Party Claims.

          (a) If a Third Party asserts that a patent or other right owned by it is infringed by the
manufacture, research, development, import, use, sale or offer for sale of any Collaboration
Product, the Party first obtaining knowledge of such a claim shall immediately provide the other
Party with notice of such claim and the related facts in reasonable detail. The JSC shall
determine how to best control the defense of any such claim. All costs, liabilities and proceeds
(each, if any) associated with the defense of a given claim with respect to a Collaboration Product
shall be shared by the Parties in accordance with the Allocation Ratio, provided that neither Party
shall enter into a settlement agreement with such Third Party without the written consent of the
other Party, which shall not be unreasonably withheld.

          (b) For clarity, the Parties agree that the rights of each Party to defend claims of
infringement under this Agreement and the sharing of costs associated therewith may be made
subordinate to the terms of a subsequent Partnering Agreement.

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

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9. Confidentiality

     9.1 Nondisclosure of Confidential Information. All Information disclosed by one Party to the
other Party pursuant to this Agreement shall be “Confidential Information,” provided that it is
marked or otherwise identified as “confidential” or “proprietary.” The Parties agree that during
the Term, and for a period of [*] ([*]) years thereafter, a Party receiving Confidential
Information of the other Party will (i) maintain in
confidence such Confidential Information to the same extent such Party maintains its own
proprietary industrial information of similar kind and value (but at a minimum each Party shall use
commercially reasonable efforts), (ii) not disclose such Confidential Information to any Third
Party without prior written consent of the other Party, except for disclosures made in confidence
to any Third Party pursuant to arrangements approved by the JSC or permitted by this Agreement, and
(iii) not use such Confidential Information for any purpose except those permitted by this
Agreement.

     9.2 Exceptions. The obligations in Section 9.1 shall not apply with respect to any portion of
the Confidential Information that the receiving Party can show by competent written proof:

          (a) Is publicly disclosed by the disclosing Party, either before or after it is disclosed to
the receiving Party hereunder; or

          (b) Was known to the receiving Party, without obligation to keep it confidential, prior to
disclosure by the disclosing Party; or

          (c) Is subsequently disclosed to the receiving Party by a Third Party lawfully in possession
thereof and without obligation to keep it confidential; or

          (d) Has been published by a Third Party; or

          (e) Has been independently developed by the receiving Party without the aid, application or
use of Confidential Information.

     9.3 Authorized Disclosure. A Party may disclose the Confidential Information belonging to the
other Party to the extent such disclosure is reasonably necessary in the following instances:

          (a) Filing or prosecuting Patents relating to Program IP or Aradigm Core IP;

          (b) Regulatory filings for Collaboration Products;

          (c) Prosecuting or defending litigation relating to this Agreement or a Collaboration Product;

          (d) Complying with applicable governmental regulations; and

          (e) Disclosure, in connection with the performance of this Agreement, to Affiliates,
sublicensees, research collaborators, employees, consultants, or agents, each of whom

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

16

 

prior to
disclosure must be bound by similar obligations of confidentiality and non-use at least equivalent
in scope to those set forth in this Article 9.

     The Parties acknowledge that the terms of this Agreement shall be treated as Confidential
Information of both Parties. Such terms may be disclosed by a Party to investment bankers,
investors, and potential investors. In addition, a copy of this Agreement may be filed by either
Party with the Securities and Exchange Commission if such filing is required by law or
regulation. In connection with any such filing, such Party shall endeavor to obtain confidential
treatment of economic and trade secret information.

     In any event, the Parties agree to take all reasonable action to avoid disclosure of
Confidential Information except as permitted hereunder.

     9.4 Publicity. Any publication, news release or other public announcement relating to this
Agreement or to the performance hereunder, shall first be reviewed and approved by both Parties;
provided, however, that any disclosure which is required by law as advised by the disclosing
Party’s counsel may be made without the prior consent of the other Party, although the other Party
shall be given prompt notice of any such legally required disclosure and to the extent practicable
shall provide the other Party an opportunity to comment on the proposed disclosure.
Notwithstanding the foregoing, each Party consents to references to it in reports or documents or
other disclosures sent to stockholders or filed with or submitted to any governmental authority or
stock exchange.

     9.5 Publications. Neither Party shall publish or present the results of studies carried out
under this Agreement without the opportunity for prior review by the other Party. Subject to
Section 9.3, each Party agrees to provide the other Party the opportunity to review any proposed
abstracts, manuscripts or presentations (including verbal presentations) which relate to the
Collaboration Product at least thirty (30) days prior to its intended submission for publication
and agrees, upon request, not to submit any such abstract or manuscript for publication until the
other Party is given a reasonable period of time to secure patent protection for any material in
such publication which it believes to be patentable. Both Parties understand that a reasonable
commercial strategy may require delay of publication of information or filing of patent
applications. The Parties agree to review and consider delay of publication and filing of patent
applications under certain circumstances. The JSC will review such requests and recommend
subsequent action. Neither Party shall have the right to publish or present Confidential
Information of the other Party. Nothing contained in this Section 9.5 shall prohibit the inclusion
of information necessary for a patent application, except for Confidential Information of the
nonfiling Party, provided the nonfiling Party is given a reasonable opportunity to review the
information to be included prior to submission of such patent application. Any disputes between
the Parties regarding delaying a publication or presentation to permit the filing of a patent
application shall be referred to the JSC.

10. Term and Termination

     10.1 Term. Unless earlier terminated in accordance with Section 10.2 or 10.5, the term during
which this Agreement is in effect (the “Term”) shall commence on the Effective

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

17

 

Date and shall
expire at any time after the second anniversary of the Effective Date that there are (i) no
Collaboration Products for which either Party has outstanding obligations under a Research Plan;
(ii) no Collaboration Products for which the Parties are endeavoring to enter into a Partnering
Agreement; and (iii) no Partnering Agreements under which either Party or the Third Party Partner
has any outstanding obligations.

     10.2 Voluntary Termination.

          (a) Prior to the expiration of the Term, either Party may terminate this Agreement in its
discretion, with respect to one or more Collaboration Products, upon sixty (60) days’ prior written
notice to the other Party.

          (b) If CyDex terminates this Agreement pursuant to Section 10.2(a), then (i) Aradigm shall
have the right to exercise the options set forth in Section 10.3; (ii) CyDex shall not perform any
work on, collaborate with a Third Party with respect to, or grant any licenses or other rights to a
Third Party with respect to, the applicable Collaboration Product(s) in the Field; and (iii) the
following additional provisions of this Agreement shall survive such termination (in addition to
those set forth in Section 10.5): Section 10.3 and this Section 10.2(b).

          (c) If Aradigm terminates this Agreement pursuant to Section 10.2(a), then (i) CyDex shall
have the right to exercise the option set forth in Section 10.3; (ii) Aradigm shall not perform any
work on, collaborate with a Third Party with respect to, or grant any licenses or other rights to a
Third Party with respect to, the applicable Collaboration Product(s) in the Field; and (iii) the
following provisions of this Agreement shall survive such termination (in addition to those set
forth in Section 10.5): Section 10.3 and this Section 10.2(c).

          (d) In addition to the foregoing, either Party may terminate this Agreement with respect to
any particular Collaboration Product or with respect to all Collaboration Products at any time
during the Research Term upon written notice to the other Party. The date that a written
termination notice is delivered to the non-terminating Party shall be referred to as the
“Collaboration Product Termination Date.” The term “Terminated Collaboration Product” shall mean
the same combination of drugs that would otherwise have been referred to as the Collaboration
Product if no termination had occurred. If a Party elects to exercise its right to terminate this
Agreement under this Section 10.2(d) then the other Party shall deliver to the terminating Party
within 30 days after receipt of such written notice a [*]. Within fifteen (15) days after receipt
of such accounting the terminating Party shall pay to the non-terminating Party a termination fee
equal to [*]. Notwithstanding any other provisions of this Agreement, and in consideration of the
payment of the termination fee, upon the exercise of the right of a Party to terminate this
Agreement with respect to a Collaboration Product under this Section 10.2(d), the non-terminating
Party shall not be entitled to utilize any of the terminating Party’s Technology to further develop
the affected Collaboration Product. If CyDex is the terminating Party, then CyDex shall be
prohibited from further developing, manufacturing or distributing the affected
Terminated Collaboration Product for use with a hand-held inhalation device for [*]. If
Aradigm is the terminating Party, then Aradigm shall be prohibited from further developing,
manufacturing or distributing the affected Terminated Collaboration Product using Aqueous
Formulations for [*] ([*]) years from the Collaboration Product Termination Date.

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

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     10.3 Option.

          (a) The terminating Party hereby grants the other Party the exclusive option to acquire (i) an
assignment of all its Information solely and exclusively pertaining to a Collaboration Product that
is the subject of a termination pursuant to Section 10.2, (ii) an assignment of all its Specific
Third Party Agreements for such Collaboration Product, (iii) a right, under all its Generic Third
Party Agreements for such Collaboration Product, to receive products or services related to such
Collaboration Product, and (iv) an exclusive, worldwide, royalty bearing (in accordance with
Section 10.3(e) below), irrevocable license (with the right to grant further sublicenses), under
its Technology, to develop, make, have made, use, sell and offer for sale such Collaboration
Product in the Field. Such option shall be exercisable solely as provided in this Section 10.3.

          (b) In anticipation of the potential exercise of such option, the terminating Party shall
maintain and preserve all its Technology, Generic Third Party Agreements, and Specific Third Party
Agreements, in each case to the extent that they would reasonably be expected to be the subject of
such option.

          (c) The other Party may exercise such option by written notification to the terminating Party
at any time during the period commencing on the date of termination pursuant to Section 10.2(a) and
ending ninety (90) days thereafter. During this ninety (90) day option period, the other Party may
use the terminating Party Information pertaining to the applicable Collaboration Product to
evaluate whether it wishes to exercise such option and may disclose such Information to a Third
Party in confidence for such Third Party to evaluate whether it wishes to collaborate, or enter
into a license agreement, with respect to the applicable Collaboration Product.

          (d) At any time during the option period, either Party may request that the other Party
provide it with a listing of all pertinent Information, Generic Third Party Agreements, Specific
Third Party Agreements, and Technology, to the extent not previously reported in performance of the
Research Program, that would be assigned, licensed or otherwise conveyed if a Party were to elect
to exercise its option.

          (e) The other Party may choose to exercise its option by giving written notice to the
terminating Party. Upon receipt of such notice, the terminating Party shall (i) be deemed to have
granted to the other Party the assignments, rights and licenses set forth in Section 10.3(a), (ii)
negotiate in good faith a supply agreement under which the terminating Party will supply any
components of its Technology necessary for manufacture of the applicable Collaboration Product; and
(iii) be obligated to promptly take all steps (1) necessary to record or otherwise effectuate such
assignments, rights and licenses and (2) to provide the other Party with access to any other
documents required to develop and commercialize the Collaboration Product
independent of the terminating Party, and the other Party shall be obligated to commence and
continue paying the royalty as set forth in Section 10.3(e) on the attached Schedule of commercial
terms.

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

19

 

     10.4 Termination for Material Breach.

          (a) If either Party is in material breach of this Agreement (including without limitation any
material breach of a representation or warranty made in this Agreement), then the other Party may
deliver notice of such breach to the breaching Party. In such notice, the non-breaching Party
shall identify the actions or conduct that such Party would consider to be an acceptable cure of
such breach. The allegedly breaching Party shall have thirty (30) days to either cure such breach
or, if cure cannot be reasonably effected within such thirty (30) day period, to deliver to the
other Party a plan for curing such breach which is reasonably sufficient to effect a cure. Such a
plan shall set forth a program for achieving cure as rapidly as practicable. Following delivery of
such plan, the breaching Party shall use Diligent Efforts to carry out the plan and cure the
breach.

          (b) If the Party receiving notice of breach fails to cure such breach within the thirty (30)
day period, or the Party providing the notice reasonably determines that the proposed corrective
plan or the actions being taken to carry it out is not commercially practicable, the Party
originally delivering the notice may terminate this Agreement upon thirty (30) days advance written
notice.

          (c) In the event of termination of this Agreement by Aradigm pursuant to this Section 10.4:
(i) all licenses granted by Aradigm to CyDex will automatically terminate and revert to Aradigm;
(ii) Aradigm shall have the option set forth in Section 10.3 with respect to the Collaboration
Product and may exercise such option at one-half of the cost set forth in Section 10.3; and (iii)
the following additional provisions of this Agreement shall survive (in addition to those set forth
in Section 10.6): Section 10.3 and this Section 10.4(c).

          (d) In the event of termination of this Agreement by CyDex pursuant to this Section 10.4:
(i) all licenses granted by CyDex will automatically terminate and revert to CyDex; (ii) CyDex
shall have the option set forth in Section 10.3 with respect to all Collaboration Products and may
exercise such option at one-half of the cost set forth in Section 10.3; and (iii) the following
provisions of this Agreement shall survive (in addition to those set forth in Section 10.6):
Section 10.3 and this Section 10.4(d).

     10.5 Effect of Termination. In any event, termination of this Agreement shall not relieve the
Parties of any liability which accrued hereunder prior to the effective date of such termination
nor preclude either Party from pursuing all rights and remedies it may have hereunder or at law or
in equity with respect to any breach of this Agreement nor prejudice either Party’s right to obtain
performance of any obligation. The following provisions of this Agreement shall survive any
termination or expiration: Sections 7.4 (Records and Inspections), 8.1 (Ownership of intellectual
property), 8.2 (Disclosure of intellectual property) (solely to the extent necessary to complete
disclosure of Program IP, Aradigm Core IP, or CyDex Core IP arising during the Research Program),
8.3 (Patent Prosecution and Maintenance), and 10.5
(Effect of Termination), and Articles 9 (Confidentiality), 12 (Indemnification, Limitation of
Liability, and Insurance), 13 (Dispute Resolution), and 14 (Miscellaneous).

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

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11. Representations and Covenants

     11.1 Mutual Authority. Aradigm and CyDex each represents and warrants to the other that (i)
it has full power and authority to enter into this Agreement and to carry out the provisions
hereof; (ii) this Agreement is a legal and valid obligation binding upon it and enforceable in
accordance with its terms; and (iii) its execution, delivery and performance of this Agreement will
not conflict in any material fashion with the terms of any other agreement, instrument, or
understanding, oral or written, to which it is or becomes a Party or by which it is or becomes
bound.

     11.2 DISCLAIMER. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY
MAKES ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

12. Indemnification; Limitation of Liability; Insurance

     12.1 Indemnification

          (a) Subject to Section 12.1(b), each Party hereby agrees to defend and hold harmless the other
Party and its directors, officers, agents and employees (the “Indemnitees”) from and against any
and all damages, liabilities, expenses and/or loss, including reasonable legal expenses and
reasonable attorneys’ fees (“Losses”) resulting from suits, claims, proceedings or causes of action
brought by a Third Party against such Indemnitee based on: (i) breach by the indemnifying Party of
this Agreement (including without limitation breach of a representation or warranty herein); and/or
(ii) the gross negligence or willful misconduct of the indemnifying Party or any of its directors,
officers, agents and employees in the performance of such Party’s obligations or exercise of such
Party’s rights under this Agreement; except to the extent such Losses result from (1) breach of
this Agreement by the non-indemnifying Party; and/or (2) the negligence or willful misconduct of an
Indemnitee.

          (b) In the event that an Indemnitee is seeking indemnification under Section 12.1(a), it shall
inform the indemnifying Party of a claim as soon as reasonably practicable after it receives notice
of the claim, shall permit the indemnifying Party to assume direction and control of the defense of
the claim (including the right to settle the claim, subject to the remainder of this section), and
shall cooperate as requested by the indemnifying Party (at the expense of the indemnifying Party)
in the defense of the claim. The indemnified Party may, at its option and expense, be represented
by counsel of its choice in any action or proceeding with respect to a claim. The indemnifying
Party shall not be liable for any litigation costs or expenses incurred by the indemnified Party
without the indemnifying Party’s written consent, such consent not to be unreasonably withheld.
The indemnifying Party shall not settle any claim if such settlement (i) does not fully and
unconditionally release the indemnified Party from all
liability relating thereto or (ii) adversely impacts the rights granted to the indemnified
Party under this Agreement, unless the indemnified Party otherwise agrees in writing.

     12.2 Limitation of Liability. EXCEPT FOR A BREACH OF SECTION 6.3 OR 9.1 OR AS SPECIFICALLY
PROVIDED IN SECTION 12.1, IN NO EVENT SHALL EITHER

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

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PARTY, ITS DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS OR AFFILIATES BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, SPECIAL, EXEMPLARY
OR CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT LIMITATION LOST PROFITS, WHETHER BASED UPON A CLAIM OR
ACTION OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER TORT, OR OTHERWISE, ARISING OUT
OF THIS AGREEMENT.

     12.3 Insurance. Each Party, at its own expense, shall maintain product liability insurance
(or self-insure) in an amount consistent with industry standards during the term of the Agreement.
Each Party shall provide a certificate of insurance (or evidence of self-insurance) evidencing such
coverage to the other Party upon request.

13. Dispute Resolution.

     13.1 Disputes. The Parties recognize that disputes as to certain matters may from time to
time arise during the term of this Agreement which relate to either Party’s rights and/or
obligations hereunder. It is the objective of the Parties to establish procedures to facilitate
the resolution of disputes arising under this Agreement in an expedient manner by mutual
cooperation and without resort to litigation. To accomplish this objective, the Parties agree to
follow the procedures set forth in this Article 13 if and when a dispute arises under this
Agreement. The JSC shall serve as the initial forum for resolving all such disputes. If the JSC
is unable to resolve any dispute within thirty (30) days, any Party may, by written notice to the
other, have such dispute referred to Chief Executive Officers, or other designated senior officers,
of the Parties (or the most senior member of the Party’s management, if such Party does not then
have a Chief Executive Officer) for attempted resolution by good faith negotiations within thirty
(30) days after such notice is received. In the event the Chief Executive Officers are not able to
resolve such dispute within such thirty (30) day period, either Party may then invoke the
provisions of Section 13.2.

     13.2 Arbitration. Any dispute that is not resolved by the Parties by negotiation pursuant to
Section 13.1 above shall, upon the submission of a written request of either Party to the other
Party, be resolved exclusively by binding arbitration before a three-person panel of arbitrators
(the “Panel”), conducted in accordance with the rules of arbitration of the American Arbitration
Association for commercial disputes (the “Rules”), except to the extent that such Rules are
inconsistent with this Agreement. Each Party shall select one independent, neutral arbitrator (a
“Party Arbitrator”), and shall notify the other Party of its selection of such Party Arbitrator
within twenty (20) days after receipt by one Party of the other Party’s written request for binding
arbitration. The two (2) Party Arbitrators shall then mutually select a third arbitrator (a
“Neutral Arbitrator”) in accordance with the Rules. The Panel shall resolve the dispute in
accordance with this Agreement and the substantive rules of law (but not the rules of procedure or
conflicts of laws) that would be applied by a federal court sitting in California. The final
decision of the Panel shall be the sole and exclusive remedy of the Parties, shall be final
and shall be fully and irrevocably accepted by the Parties. The prevailing Party may enforce such
decision against the other Party in any court having jurisdiction. The arbitration shall take
place in California, and shall be conducted in the English language. The Parties agree that they
shall share equally the cost of the arbitration filing and hearing fees, and the cost of the
arbitrators that

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

22

 

constitute the Panel. Each Party shall bear its own attorneys’ and expert fees
and all associated costs and expenses.

     13.3 Court Actions. Notwithstanding the above, to the full extent allowed by law, either
Party may bring an action in any court of competent jurisdiction for injunctive relief (or any
other provisional remedy) to protect the Parties’ rights or enforce the Parties’ obligations under
this Agreement pending final resolution of any claims related thereto in an arbitration proceeding
as provided above. In addition, either Party may bring an action in any court of competent
jurisdiction to resolve disputes pertaining to the validity, construction, scope, enforceability,
infringement or other violations of patents or other proprietary or intellectual property rights.
The Parties shall use their reasonable efforts to conduct all dispute resolution procedures under
this Agreement as expeditiously, efficiently and cost-effectively as possible.

     13.4 Governing Law. Resolution of all disputes arising out of or related to this Agreement or
the performance, enforcement, breach or termination of this Agreement and any remedies relating
thereto, shall be governed by and construed under the substantive laws of the State of California,
without regard to conflicts of law rules that would provide for application of the law of a
jurisdiction outside California.

14. Miscellaneous

     14.1 Entire Agreement; Amendment. This Agreement sets forth the complete, final and exclusive
agreement and all the covenants, promises, agreements, warranties, representations, conditions and
understandings between the Parties hereto and supersedes and terminates all prior agreements and
understandings between the Parties. There are no covenants, promises, agreements, warranties,
representations, conditions or understandings, either oral or written, between the Parties other
than as are set forth herein and therein. No subsequent alteration, amendment, change or addition
to this Agreement shall be binding upon the Parties unless reduced to writing and signed by an
authorized officer of each Party.

     14.2 Force Majeure. Both Parties shall be excused from the performance of their obligations
under this Agreement to the extent that such performance is prevented by force majeure and the
nonperforming Party promptly provides notice of the prevention to the other Party. Such excuse
shall be continued so long as the condition constituting force majeure continues and the
nonperforming Party takes reasonable efforts to remove the condition. For purposes of this
Agreement, force majeure shall include conditions beyond the control of the Parties, including
without limitation, an act of God, voluntary or involuntary compliance with any regulation, law or
order of any government, war, civil commotion, labor strike or lock-out, epidemic, failure or
default of public utilities or common carriers, destruction of production facilities or materials
by fire, earthquake, storm or like
catastrophe; provided, however, the payment of invoices due and owing hereunder shall not be
delayed by the payer because of a force majeure affecting the payer.

     14.3 Notices. Any notice required or permitted to be given under this Agreement shall be in
writing, shall specifically refer to this Agreement and shall be deemed to have been sufficiently
given for all purposes if mailed by first class certified or registered mail, postage

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

23

 

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

	 	 	 	 	 
	 

	 	For Aradigm:
	 	Aradigm Corporation
	 

	 	 	 	3929 Point Eden Way
	 

	 	 	 	Hayward, CA 94545
	 

	 	 	 	Fax: 510 265 5035
	 

	 	 	 	Attention: General Counsel
	 
	 	 	 	 
	 

	 	For CyDex:
	 	CyDex, Inc.
	 

	 	 	 	10513 West 84th Terrace
	 

	 	 	 	Lenexa, Kansas 66214
	 

	 	 	 	Fax: 913-685-8856
	 

	 	 	 	Attention: Chief Executive Officer

     14.4 United States Dollars. References in this Agreement to “Dollars” or “$” shall mean the
legal tender of the United States of America.

     14.5 No Strict Construction. This Agreement has been prepared jointly and shall not be
strictly construed against either Party.

     14.6 Assignment. Neither Party may assign or transfer this Agreement or any rights or
obligations hereunder without the prior written consent of the other, which consent may be withheld
in the consenting Party’s discretion; provided, however, that a Party may make such an assignment
without the other Party’s consent to an Affiliate or to a successor to substantially all of the
business of such Party, whether in a merger, sale of stock, sale of assets or other transaction.
Any assignment or attempted assignment by either Party in violation of the terms of this Section
14.6 shall be null and void and of no legal effect. As a condition to any permitted assignment,
the assignor must guarantee the performance of any assignee to the terms and obligations of this
Agreement.

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

     14.8 Severability. If any one or more of the provisions of this Agreement is held to be
invalid or unenforceable by any court of competent jurisdiction from which no appeal can be or is
taken, the provision shall be considered severed from this Agreement and shall not serve to
invalidate any remaining provisions hereof. The Parties shall
make a good faith effort to replace any invalid or unenforceable provision with a valid and
enforceable one such that the objectives contemplated by the Parties when entering this Agreement
may be realized.

     14.9 Headings. The headings for each article and section in this Agreement have been inserted
for convenience of reference only and are not intended to limit or expand on the meaning of the
language contained in the particular article or section.

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

24

 

     14.10 No Waiver. Any delay in enforcing a Party’s rights under this Agreement or any waiver
as to a particular default or other matter shall not constitute a waiver of such Party’s rights to
the future enforcement of its rights under this Agreement, excepting only as to an express written
and signed waiver as to a particular matter for a particular period of time.

     14.11 Counterparts. This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and the same
instrument.

     In Witness Whereof, the Parties have executed this Collaboration Agreement in
duplicate originals by their proper officers as of the Effective Date.

	 	 	 
	CyDex, Inc.

	 	Aradigm Corporation
	 
	By: /s/ John M. Sibert

	 	By: /s/ Igor Gonda
	 
	 	 

	Name: John M. Sibert

	 	Name: Igor Gonda
	Title: Chairman and Chief Executive Officer

	 	Title: President and Chief
Executive Officer

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

25

 

SCHEDULE

OF

COMMERCIAL TERMS

     Section 1.3 “Allocation Ratio” means the ratio at which Aradigm and CyDex will share Research
Costs, Partnering Costs, and Licensing Revenue, which ratio is agreed to be Sixty Percent (60%) to
Aradigm and Forty Percent (40%) to CyDex.

     Section 10.3(e) The other Party may choose to exercise its option by giving written notice to
the terminating Party. Upon receipt of such notice, the terminating Party shall (i) be deemed to
have granted to the other Party the assignments, rights and licenses set forth in Section 10.3(a),
(ii) negotiate in good faith a supply agreement under which the terminating Party will supply any
components of its Technology necessary for manufacture of the applicable Collaboration Product; and
(iii) be obligated to promptly take all steps (1) necessary to record or otherwise effectuate such
assignments, rights and licenses and (2) to provide the other Party with access to any other
documents required to develop and commercialize the Collaboration Product independent of the
terminating Party, and the other Party shall be obligated to commence and continue paying a royalty
of [*] percent [*] (%) on net sales of the applicable Collaboration Product, up to a maximum
cumulative amount equal to [*] times ([*]X) the terminating Party’s documented Research Costs.

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

26

 

SPECIMEN

RESEARCH PLAN AND RESEARCH BUDGET

[*]1

 

			
	1	 	Four pages redacted.

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

27

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