Document:

exv10w3

Exhibit 10.3

AMENDED AND RESTATED CHANGE OF CONTROL AGREEMENT

     This Amended and Restated Change of Control Agreement (the “Agreement”) is made and entered
into as of July 30, 2009, by and between Aradigm Corporation (the “Company”), and Jeffery Grimes
(the “Executive”).

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

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

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

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

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

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

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

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The term Change of Control shall not include a sale of assets, merger or other transaction
effected exclusively for the purpose of changing the domicile of the Company, or any transaction
which does not constitute a “change in control event” as defined in Treasury Regulation Section
1.409A-3(i)(5)(i).

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

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

          (a) a material reduction in the Executive’s duties, title, reporting relationships, or
responsibilities relative to the Executive’s duties, title, reporting
relationships, or responsibilities in effect immediately prior to the effective date of the
Change of Control; provided, however, that a change in the Executive’s title or reporting
relationships shall not in and of themselves (or collectively) constitute a Constructive
Termination; provided further, that this determination will include an analysis of whether the
Executive maintains at least the same level, scope and type of duties, title, reporting
relationships, and responsibilities with respect to the management, strategy, operations and
business of the combined entity resulting from such Change of Control, taking the Company, any
successor, and their respective parent corporations, subsidiaries and other affiliates, together as
a whole;

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

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

          (d) a material breach by the Company of any material obligations under this Agreement, or a
failure of any successor to the Company to assume or continue this Agreement.

     1.4 “Covered Termination” shall mean either that an Executive’s employment (a) is terminated
without Cause, or (b) terminates as a result of a Constructive Termination, in each

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case, resulting in a “separation from service” with the Company within the meaning of
Treasury Regulation Section 1.409A-1(h) (without regard to any permissible alternative definition
of “termination of employment” thereunder).

2. Change of Control Severance Benefits.

     2.1 Severance Benefits. If within eighteen (18) months after the effective date of a Change
of Control, the Executive: (a) has a Covered Termination; and (b) provides the Company with a
signed general release of all claims in a form acceptable to the Company (the “Release”) and
allows the Release to become effective within sixty (60) days following the date of the Covered
Termination (the “Release Deadline”), then the Executive shall be eligible for the following
severance benefits:

          (a) Severance Payment. The Executive shall receive a single lump sum payment equal to 12
months of the base salary he received as of the date of the Change of Control, or the date of the
Covered Termination (whichever is greater). This Severance Payment shall be subject to required
deductions and tax withholdings and shall be paid within ten (10) business days of the effective
date of the Release.

          (b) Bonus Payment. The Executive shall receive a single lump sum payment equal to the
following sum: The Executive’s target bonus for the year in which the Covered Termination occurs
multiplied by the average annual percentage achievement of corporate goals over each fiscal year
for the three complete fiscal years preceding the date of the Covered Termination. This Bonus
Payment shall be subject to required deductions and tax withholdings and shall be paid within ten
(10) business days of the effective date of the Release.

          (c) Health Insurance Payments. If, following the date of a Covered Termination, the
Executive timely elects continued group health insurance coverage under the federal COBRA law or
similar state laws, if applicable, the Company will pay the Executive’s COBRA premium costs to
continue such coverage at the level in effect as of the date of the Covered Termination for a
period of 12 months after the date of the Covered Termination (the “Termination Date”) or until the
Executive becomes eligible for group health insurance coverage through a new employer (whichever
comes first). The Executive must promptly notify the Company in writing if the Executive becomes
eligible for group health insurance coverage through a new employer during the Severance Period.

          (d) Career Transition Assistance (Outplacement Services). The Company will reimburse the
Executive up to $10,000 for expenses actually incurred by the Executive within six (6) months of
the date of his Covered Termination for reasonable and customary outplacement services for career
transition assistance expenses. Such payments shall qualify for the exemption provided by Treasury
Regulation Sections 1.409A-1(b)(9)(v)(A) and (C).

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

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     2.2 Ineligibility for Severance Benefits. The Executive will not be eligible for
any benefits under this Agreement if the Company (or its successor) terminates the Executive’s
employment for Cause or if the Executive resigns for any reason other than a Constructive
Termination. Further, the Executive will not be eligible for severance benefits under this
Agreement in the event that the Executive’s employment ends for any reason more than eighteen (18)
months after the effective date of a Change of Control, although the Executive may in such instance
be eligible for benefits under a separate Company severance plan, including, without limitation,
the Aradigm Corporation Executive Officer Severance Benefit Plan. If the Release does not become
effective by the Release Deadline, Executive will not have any rights to any benefits under this
Agreement.

     2.3 Other Severance Benefits. Nothing in this Agreement shall affect the right of the
Executive to receive any severance benefits pursuant to any other Company severance plan including,
without limitation, the Aradigm Corporation Executive Officer Severance Benefit Plan; provided,
however, that if the Executive actually receives benefits under this Agreement, he shall not be
entitled to receive any other severance benefits of any kind (except for the accelerated vesting
set forth in Section 2.1(e) above) pursuant to any other severance benefit plan of the Company
(including, without limitation, the Aradigm Corporation Executive Officer Severance Benefit Plan).
The Executive acknowledges and agrees that any prior agreement between the Executive and the
Company providing for or relating to severance benefits in connection with a Change of Control (as
defined herein or therein), except for those contained in the Executive’s stock option agreements
with the Company, are hereby expressly superseded and replaced in their entirety by this Agreement
and shall have no further force or effect

     2.4 Deferred Compensation.

          (a) All payments provided under this Agreement are intended to constitute separate payments
for purposes of Treasury Regulation Section 1.409A-2(b)(2).

          (b) If Executive is a “specified employee” of the Company or any affiliate thereof (or any
successor entity thereto) within the meaning of Section 409A(a)(2)(B)(i) of the Internal Revenue
Code of 1986, as amended (the “Code”) on the date of a Covered Termination, then, except with
respect to amounts which may be paid sooner pursuant to an “involuntary separation from service” as
permitted by Treasury Regulation Section 1.409A-1(b)(9)(iii), any cash severance payments pursuant
to Sections 2.1(a) and 2.1(b) (the “Severance Payments”) shall be delayed until the earlier of:
(i) the date that is six (6) months after the date of the Covered Termination, or (ii) the date of
the Executive’s death (such date, the “Delayed Payment Date”), and the Company (or the successor
entity thereto, as applicable) shall pay to the Executive a lump sum amount equal to the sum of the
Severance Payments that otherwise would have been paid to the Executive on or before the Delayed
Payment Date, without any adjustment on account of such delay. Except to the extent that payments
may be delayed until the Delayed Payment Date, the Company will pay the Executive the Severance
Payments within eighty (80) days following the date of the Covered Termination, provided that the
Company shall have no obligation to pay any Severance Payments prior to the date the Release
becomes effective by its terms.

          (c) Provided that no Covered Termination following a Change of Control has occurred on or
prior to December 31, 2009, the following sentence shall apply: notwithstanding

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anything in Section 2.4 to the contrary, payments shall be delayed pursuant to Section
2.4(b) only to the extent such payments constitute deferred compensation under Code Section 409A
and such delay is necessary to prevent any adverse tax consequences under Code Section 409A.

     (d) Any amounts paid pursuant to Section 2.1(c) are not intended to be delayed pursuant to
Section 409A(a)(2)(B)(i) of the Code and are intended to be paid pursuant to the exception provided
by Treasury Regulation Section 1.409A-l(b)(9)(v)(B). Amounts paid pursuant to Section 2.1(d) are
intended to qualify for the exception provided under Treasury Regulation Sections
1.409A-l(b)(9)(v)(A) and (C).

3. Parachute Payments.

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

     3.2 Determination of Excise Tax Liability. The Company shall attempt to cause its accountants
to make all of the determinations required to be made under Section 3.1, or, in the event the
Company’s accountants will not perform such service, the Company may select another professional
services firm to perform the calculations. The Company shall request that the accountants or firm
provide detailed supporting calculations both to the Company and the Executive prior to the Change
in Control if administratively feasible or subsequent to the Change in Control if events occur that
result in parachute payments to the Executive at that time. For purposes of making the
calculations required by Section 3.1, the accountants or firm may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable, good faith determinations
concerning the application of the Code. The Company and the Executive shall furnish to the
accountants or firm such information and documents as the accountants or firm may reasonably
request in order to make a determination under this Section 3.1. The Company shall bear all
costs the accountants or firm may reasonably incur in connection with any calculations contemplated
by Section 3.1. Any such determination by the Company’s accountants or other firm shall be
binding upon the Company and the Executive, and the Company shall have no liability to the
Executive for the determinations of its accountants or other firm.

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4. General Provisions.

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

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

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

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

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

	 	 	 
	To the Company:

	 	To the Executive:
	Aradigm Corporation

	 	Jeffery Grimes
	3929 Point Eden Way

	 	c/o Aradigm Corporation
	Hayward, CA 94545

	 	3929 Point Eden Way
	 

	 	Hayward, CA 94545

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

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

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     4.8 Amendment and Restatement of Prior Agreement. This agreement replaces any prior
agreement between the Company and Executive with respect to the subject matter hereof, and any
prior agreement is terminated and of no further force or effect.

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

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

			
	 	 	 
	Aradigm Corporation
	 	Executive

	 	 	 

	 	 	 	 	 	 	 
	By:

	 	/s/ Nancy E. Pecota
	 	Signature:
	 	/s/ D. Jeffery Grimes
	 

	 	 
	 	 	 	 
	Name:

	 	Nancy E. Pecota
	 	Print Name:
	 	D. Jeffery Grimes
	Title:

	 	Chief Financial Officer	 	 	 	 

Signature Page to Amended and Restated Change of Control Agreement

(Jeffery Grimes)exv10w4

Exhibit 10.4

SECURITY AGREEMENT

          THIS SECURITY AGREEMENT, dated as of July 30, 2009 (this “Agreement”), is entered into
by and among ARADIGM CORPORATION, a California corporation (“Debtor”), IGOR GONDA, an
individual (“Gonda”), JEFFERY GRIMES, an individual (“Grimes”), and NANCY PECOTA,
an individual (“Pecota” and, together with each of Gonda and Grimes, each a “Secured
Party” and, collectively, the “Secured Parties”).

          WHEREAS, Gonda currently serves as an executive officer of Debtor and may in the future
become entitled to certain severance-related benefits pursuant to the terms and conditions of (i)
that certain Amended and Restated Change of Control Agreement, dated as of July 30, 2009, between
Debtor and Gonda (as the same may be modified, amended or supplemented from time to time the
“Gonda Change of Control Agreement”) and (ii) the Aradigm Corporation Executive Officer
Severance Benefit Plan maintained by Debtor (as such plan may be modified, amended or supplemented
from time to time, the “Executive Officer Severance Benefit Plan”);

          WHEREAS, Grimes currently serves as an executive officer of Debtor and may in the future
become entitled to certain severance-related benefits pursuant to the terms and conditions of (i)
that certain Amended and Restated Change of Control Agreement, dated as of July 30, 2009, between
Debtor and Grimes (as the same may be modified, amended or supplemented from time to time, the
“Grimes Change of Control Agreement”) and (ii) the Executive Officer Severance Benefit
Plan;

          WHEREAS, Pecota serves as an executive officer of Debtor and may in the future become
entitled to certain severance-related benefits pursuant to the terms and conditions of (i) that
certain Amended and Restated Change of Control Agreement, dated as of July 30, 2009, between
Debtor and Pecota (as the same may be modified, amended or supplemented from time to time, the
“Pecota Change of Control Agreement”) and (ii) the Executive Officer Severance Benefit
Plan; and

          WHEREAS, in consideration of the continued employment of each of Gonda, Grimes and Pecota and
to align further their respective interests with those of the stockholders of Debtor, Debtor
desires to grant a continuing security interest in and to the Collateral (defined below) in order
to secure the prompt and complete payment, observance and performance of Debtor’s obligations to
make severance-related payments pursuant to the terms and conditions of the Gonda Change of Control
Agreement, the Grimes Change of Control Agreement, the Pecota Change of Control Agreement and the
Executive Officer Severance Benefit Plan.

          NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:

          SECTION 1 Definitions; Interpretation.

          (a) As used in this Agreement, the following terms shall have the following meanings:

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          “Affected Secured Party” means (i) with respect to the occurrence of an Event of
Default of the type specified in Section 7(a) hereof, Gonda, (ii) with respect to the
occurrence of an Event of Default of the type specified in Section 7(b) hereof, Grimes and
(iii) with respect to the occurrence of an Event of Default of the type specified in Section
7(c) hereof, Pecota.

          “Code” means the Internal Revenue Code of 1986, as
amended.

          “Collateral” has the meaning set forth in
Section 2 hereof.

          “Controlled Foreign Corporation” means a “controlled foreign corporation” as defined
in the Internal Revenue Code of 1986.

          “Documents” means this Agreement, the Gonda Change of Control Agreement, the Grimes
Change of Control Agreement, the Pecota Change of Control Agreement and the Executive Officer
Severance Benefit Plan.

          “Event of Default” has the meaning set forth in Section 7 hereof, and shall
include each Gonda Event of Default, each Grimes Event of Default and each Pecota Event of
Default.

          “Executive Officer Severance Benefit Plan” has the meaning ascribed to such term in
the Recitals to this Agreement.

          “Future Lender” means any lender or other Person who provides financing to Debtor on
a secured basis from and after the date hereof.

          “Gonda Change of Control Agreement” has the meaning ascribed to such term in the
Recitals to this Agreement.

          “Gonda Event of Default ” has the meaning ascribed to such term in Section 7(a)
hereof.

          “Gonda Secured Obligations” means, collectively, (i) the obligation of Debtor to make
severance-related payments to Gonda, whether absolute or contingent, due or to become due, now
existing or hereafter arising, under the Gonda Change of Control Agreement in accordance with the
terms and provisions thereof and (ii) the obligation of Debtor to make severance-related payments
to Gonda, whether absolute or contingent, due or to become due, now existing or hereafter arising,
under the Executive Officer Severance Benefit Plan in accordance with the terms and provisions
thereof; provided, however, to the extent that any severance payment (or portion
thereof) payable to Gonda pursuant to the Gonda Change of Control Agreement or the Executive
Officer Severance Benefit Plan is not exempt from Section 409A of the Code, such severance payment
(or portion thereof) shall not constitute a Gonda Secured Obligation hereunder.

          “Grimes Change of Control Agreement” has the meaning ascribed to such term in the
Recitals to this Agreement.

          “Grimes Event of Default ” has the meaning ascribed to such term in Section 7(b)
hereof.

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          “Grimes Secured Obligations” means, collectively, (i) the obligation of Debtor to
make severance-related payments to Grimes, whether absolute or contingent, due or to become due,
now existing or hereafter arising, under the Grimes Change of Control Agreement in accordance with
the terms and provisions thereof and (ii) the obligation of Debtor to make severance-related
payments to Grimes, whether absolute or contingent, due or to become due, now existing or
hereafter arising, under the Executive Officer Severance Benefit Plan in accordance with the terms
and provisions thereof; provided, however, to the extent that any severance
payment (or portion thereof) payable to Grimes pursuant to the Grimes Change of Control Agreement
or the Executive Officer Severance Benefit Plan is not exempt from Section 409A of the Code, such
severance payment (or portion thereof) shall not constitute a Grimes Secured Obligation hereunder.

          “Incurred Costs” has the meaning specified in Section 8(b) hereof.

          “Lien” means any mortgage, deed of trust, pledge, security interest, assignment,
deposit arrangement, charge or encumbrance, lien, or other type of preferential arrangement.

          “Pecota Change of Control Agreement” has the meaning ascribed to such term in the
Recitals to this Agreement.

          “Pecota Event of Default ” has the meaning ascribed to such term in Section 7(c)
hereof.

          “Pecota Secured Obligations” means, collectively, (i) the obligation of Debtor to make
severance-related payments to Pecota, whether absolute or contingent, due or to become due, now
existing or hereafter arising, under the Pecota Change of Control Agreement in accordance with the
terms and provisions thereof and (ii) the obligation of Debtor to make severance-related payments
to Pecota, whether absolute or contingent, due or to become due, now existing or hereafter arising,
under the Executive Officer Severance Benefit Plan in accordance with the terms and provisions
thereof; provided, however, to the extent that any severance payment (or portion
thereof) payable to Pecota pursuant to the Pecota Change of Control Agreement or the Executive
Officer Severance Benefit Plan is not exempt from Section 409A of the Code, such severance payment
(or portion thereof) shall not constitute a Pecota Secured Obligation hereunder.

          “Person” means an individual, corporation, partnership, joint venture, trust,
unincorporated organization, governmental agency or authority, or any other entity of whatever
nature.

          “Pro Rata Share” means, with respect to any Affected Secured Party at any time, the
quotient (expressed as a percentage) obtained by dividing (i) the aggregate amount of all Secured
Obligations owed to such Affected Secured Party at such time by (ii) the aggregate amount of all
Secured Obligations owed to all Affected Secured Parties at such time.

          “Releasing Secured Party” has the meaning specified in Section 18
hereof.

          “Secured Obligations” means, collectively, the Gonda Secured Obligations, the Grimes
Secured Obligations and the Pecota Secured Obligations.

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          “UCC” means the Uniform Commercial Code as the same may, from time to time, be in
effect in the State of California.

          (b) Where applicable and except as otherwise defined herein, terms used in this Agreement
shall have the meanings assigned to them in the UCC.

          (c) In this Agreement, (i) the meaning of defined terms shall be equally applicable to both the
singular and plural forms of the terms defined; and (ii) the captions and headings are for
convenience of reference only and shall not affect the construction of this Agreement.

          SECTION 2 Security Interest. As security for the payment and performance of the
Secured Obligations, Debtor hereby grants to each Secured Party a security interest in all of
Debtor’s right, title and interest in, to and under all of its personal property, wherever located
and whether now existing or owned or hereafter acquired or arising, including all accounts,
chattel paper, commercial tort claims, deposit accounts, documents, equipment (including all
fixtures), general intangibles, instruments, inventory, investment property, letter-of-credit
rights, other goods, money and all products, proceeds and supporting obligations of any and all of
the foregoing (collectively, the “Collateral”). This Agreement shall create a continuing
security interest in the Collateral which shall remain in effect until terminated in accordance
with Section 18 hereof. Anything herein to the contrary notwithstanding, in no event shall
the Collateral include, and Debtor shall not be deemed to have granted a security interest in, any
of Debtor’s right, title or interest in any of the outstanding voting capital stock or other
ownership interests of a Controlled Foreign Corporation (as defined below) in excess of 65% of the
voting power of all classes of capital stock or other ownership interests of such Controlled
Foreign Corporation entitled to vote.

          SECTION 3 Financing Statements and other Action. Debtor hereby authorizes each Secured
Party to file at any time and from time to time any financing statements describing the Collateral,
and Debtor shall execute and deliver to each Secured Party, and Debtor hereby authorizes each
Secured Party to file (with or without Debtor’s signature), at any time and from time to time, all
amendments to financing statements, assignments, continuation financing statements, termination
statements, account control agreements, and other documents and instruments, in form reasonably
satisfactory to such Secured Party, as such Secured Party may reasonably request, to perfect and
continue perfected, maintain the priority of or provide notice of the security interest of such
Secured Party in the Collateral and to accomplish the purposes of this Agreement. Without limiting
the generality of the foregoing, Debtor ratifies and authorizes the filing by each Secured Party of
any financing statements filed prior to the date hereof.

          SECTION 4 Representations and Warranties. Debtor represents and warrants to each
Secured Party that:

          (a) Debtor is duly organized, validly existing and in good standing under the law of the
jurisdiction of its organization and has all requisite power and authority to execute, deliver and
perform its obligations under this Agreement.

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          (b) The execution, delivery and performance by Debtor of this Agreement have been duly
authorized by all necessary action of Debtor, and this Agreement constitutes the legal, valid and
binding obligation of Debtor, enforceable against Debtor in accordance with its terms, except as
enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization,
moratorium or similar law relating to or affecting creditors’ rights generally.

          (c) No authorization, consent, approval, license, exemption of, or filing or registration
with, any governmental authority or agency, or approval or consent of any other Person, is required
for the due execution, delivery or performance by Debtor of this Agreement, except for any filings
necessary to perfect any Liens on any Collateral.

          (d) Debtor’s chief executive office and principal place of business (as of the date of this
Agreement) is located at the address set forth in Schedule 1; Debtor’s jurisdiction of
organization and organizational identification number are set forth in Schedule 1; Debtor’s
exact legal name is as set forth in the first paragraph of this Agreement; and all other locations
where Debtor conducts business or Collateral is kept (as of the date of this Agreement) are set
forth in Schedule 1.

          (e) Debtor has rights in or the power to transfer the Collateral and Debtor is the sole and
complete owner of the Collateral.

          SECTION 5 Covenants. So long as any of the Secured Obligations remain unsatisfied,
Debtor agrees that:

          (a) Debtor shall appear in and defend any action, suit or proceeding which may affect to a
material extent any applicable Secured Party’s right or interest in, the Collateral.

          (b) Debtor shall give prompt written notice to each Secured Party (and in any event not later
than 30 days following any change described below in this subsection) of: (i) any change in the
location of Debtor’s chief executive office or principal place of business; (ii) any change in the
locations set forth in Schedule 1; (iii) any change in its name; (iv) any changes in its
identity or structure in any manner which might make any financing statement filed hereunder
incorrect or misleading; (v) any change in its registration as an organization (or any new such
registration); or (vi) any change in its jurisdiction of organization.

          (c) Debtor shall pay and discharge all taxes, fees, assessments and
governmental charges or levies imposed upon it with respect to the Collateral prior to the date on
which penalties attach thereto, except to the extent such taxes, fees, assessments or governmental
charges or levies are being contested in good faith by appropriate proceedings.

          SECTION 6 Rights of Secured Party; Authorization; Appointment. Each Secured Party
shall have the right to, in the name of Debtor, or in the name of such Secured Party or otherwise,
upon notice to but without the requirement of assent by Debtor, and Debtor hereby constitutes and
appoints such Secured Party (and any of such Secured Party’s agents designated by such Secured
Party) as Debtor’s true and lawful attorney-in-fact, with full power and authority to sign and file
any of the financing statements and other documents and instruments which must be executed or filed
to perfect or continue perfected, maintain the

5

 

priority of or provide notice of such Secured Party’s security interest in the Collateral, execute
any and all such other documents and instruments, and do any and all acts and things for and on
behalf of Debtor, which such Secured Party may deem reasonably necessary or advisable to maintain,
protect, realize upon and preserve the Collateral and such Secured Party’s security interest
therein and to accomplish the purposes of this Agreement. The foregoing power of attorney is
coupled with an interest and irrevocable so long as the Secured Obligations have not been paid and
performed in full. Debtor hereby ratifies, to the extent permitted by law, all that any Secured
Party shall lawfully and in good faith do or cause to be done by virtue of and in compliance with
this Section 6.

          SECTION 7 Events of Default. Any of the following events which shall occur
and be continuing shall constitute an “Event of Default”:

          (a) Debtor shall fail to satisfy any of the Gonda Secured Obligations and such failure shall
continue uncured for 30 days after the date on which such Gonda Secured Obligation is to be paid or
performed by Debtor (a “Gonda Event of Default”); or

          (b) Debtor shall fail to satisfy any of the Grimes Secured Obligations and such failure shall
continue uncured for 30 days after the date on which such Grimes Secured Obligation is to be paid
or performed by Debtor (a “Grimes Event of Default”); or

          (c) Debtor shall fail to satisfy any of the Pecota Secured Obligations and such failure shall
continue uncured for 30 days after the date on which such Pecota Secured Obligation is to be paid
or performed by Debtor (a “P Event of Default”).

          SECTION 8 Remedies.

          (a) Upon the occurrence and during the continuance of one or more Events of Default, each
Affected Secured Party shall have, in addition to all other rights and remedies granted to it in
this Agreement or any other Document, all rights and remedies of a secured party under the UCC and
other applicable laws.

          (b) The cash proceeds actually received by any Affected Secured Party from the sale or other
disposition or collection of Collateral undertaken as a result of the occurrence of an Event of
Default, the application of which is not otherwise provided for herein, shall be applied (i)
first, to the payment of the reasonable costs and expenses of such Affected Secured Party
incurred in connection with such sale or other disposition or collection of Collateral
(“Incurred Costs”) and (ii) second, to the payment of the Secured Obligations then
owing to such Affected Secured Party; provided that where such cash proceeds are received
by an Affected Secured Party during the existence of more than one Event of Default, such proceeds
shall be distributed among each Affected Secured Party then extant for application (y)
first, to the Incurred Costs of such Affected Secured Parties in accordance with their
respective Pro Rata Shares and (z) second, to the payment of the Secured Obligations then
owing to such Affected Secured Parties in accordance with their respective Pro Rata Shares. Any
surplus of such proceeds which exists after the payment and performance in full of the Incurred
Costs and Secured Obligations owing to such Affected Secured Party or Affected Secured Parties, as
the case may be, shall be promptly paid over to Debtor or otherwise disposed of in accordance with

6

 

the UCC or other applicable law. Without affecting the generality of the foregoing, Debtor shall
remain liable to any applicable Affected Secured Party for any deficiency which exists after any
such sale or other disposition or collection of Collateral.

          SECTION 9 Subordination. Each Secured Party hereby agrees that the Lien and security
interest in favor of such Secured Party created hereby shall be subject, subordinate and junior in
all respects and at all times to any Liens and security interests granted by Debtor after the date
hereof in favor of any Future Lender, regardless of the time or order of attachment or perfection
of any such Liens and security interests, the time or order of the filing of financing statements
by any such Future Lender in connection therewith or any other circumstances whatsoever. Each
Secured Party further covenants and agrees that it will promptly execute and deliver to or for the
benefit of Debtor or any such Future Lender any subordination agreements or other agreements,
documents or instruments reasonably requested by Debtor or such Future Lender for the purpose of
effecting the subordination of the Lien and security interest of the Secured Parties granted by
Debtor hereunder.

          SECTION 10 Relationship Among Secured Parties.

          (a) The provisions of this Section 10 are solely for the benefit of the Secured
Parties, and Debtor shall have no rights as a third party beneficiary with respect to any of the
provisions contained in this Section 10.

          (b) Notwithstanding any provision to the contrary contained elsewhere in this Agreement, no
Secured Party shall have any duties or responsibilities, except those expressly set forth herein,
nor shall any Secured Party have or be deemed to have any fiduciary relationship with any other
Secured Party. Except as expressly otherwise provided in this Agreement, each Secured Party shall
have and may use its sole discretion with respect to exercising or refraining from exercising any
discretionary rights or taking or refraining from taking any actions which such Secured Party is
expressly entitled to take or assert under this Agreement.

          (c) Gonda shall promptly notify the other Secured Parties of the occurrence of a Gonda Event
of Default, Grimes shall promptly notify the other Secured Parties of the occurrence of a Grimes
Event of Default and Pecota shall promptly notify the other Secured Parties of the occurrence of a
Pecota Event of Default.

          (d) Each of the Secured Parties covenants and agrees that during the existence of an Event of
Default, (i) any Affected Secured Party may, upon 5 days prior notice delivered each other Secured
Party, proceed to exercise remedies in accordance with Section 8 hereof without the consent
of any other Secured Party, subject to the Collateral proceeds sharing provisions set forth in
Section 8(b) hereof, and (ii) no such other Secured Party not then constituting an Affected
Secured Party shall take any action to hinder or delay such Affected Secured Party in connection
with the exercise by such Affected Secured Party of remedies as contemplated in the foregoing
clause (i).

          (e) Subject to Section 18 hereof, no Secured Party (whether or not any such Secured
Party then constitutes an Affected Secured Party) shall agree to release any Collateral except with
the prior written consent of the other Secured Parties.

7

 

          (f) Each Secured Party acknowledges that the other Secured Parties have not made any
representation or warranty to it, and that no act by any Secured Party hereinafter taken,
including any review of the affairs of Debtor, shall be deemed to constitute any representation or
warranty by such Secured Party to any other Secured Party. Each Secured Party also represents that
it will, independently and without reliance upon the other Secured Parties and based on such
documents and information as it shall deem appropriate at the time, continue to make its own
decisions in taking or not taking action under this Agreement and the other Documents, and to make
such investigations as it deems necessary to inform itself as to the business, prospects,
operations, property, financial and other condition and creditworthiness of Debtor.

          SECTION 11 Notices. All notices or other communications hereunder shall be in writing
(including by facsimile transmission or by email) and mailed (by certified or registered mail),
sent or delivered to the respective parties hereto at or to their respective addresses, facsimile
numbers or email addresses set forth below their names on the signature pages hereof, or at or to
such other address, facsimile number or email address as shall be designated by any party in a
written notice to the other parties hereto. All such notices and communications shall be effective
(i) if delivered by hand, sent by certified or registered mail or sent by an overnight courier
service, when received; and (ii) if sent by facsimile transmission or electronic mail, when sent.

          SECTION 12 No Waiver; Cumulative Remedies. No failure on the part of any Secured
Party to exercise, and no delay in exercising, any right, remedy, power or privilege hereunder
shall operate as a waiver thereof with respect to such Secured Party, nor shall any single or
partial exercise of any such right, remedy, power or privilege by such Secured Party preclude any
other or further exercise thereof or the exercise of any other right, remedy, power or privilege
by such Secured Party. The rights and remedies under this Agreement are cumulative and not
exclusive of any rights, remedies, powers and privileges that may otherwise be available to any
Secured Party.

          SECTION 13 Binding Effect. This Agreement shall be binding upon, inure to the benefit
of and be enforceable by Debtor, each Secured Party and their respective successors and assigns.

          SECTION 14 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the law of the State of California, except as required by mandatory provisions of
law and to the extent the validity or perfection of the security interests hereunder, or the
remedies hereunder, in respect of any Collateral are governed by the law of a jurisdiction other
than California.

          SECTION 15 Entire Agreement; Amendment. This Agreement, together with the Documents,
contains the entire agreement of the parties with respect to the subject matter hereof and shall
not be amended nor shall any waiver of any term or provision hereof be granted, except by the
written agreement of Debtor and each Secured Party whose interests are affected by any such
amendment or waiver, as applicable; provided, however, that a Secured Party may
terminate the Lien and security interest created hereunder in favor of such Secured Party pursuant
to Section 18(c) hereof.

8

 

          SECTION 16 Severability. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under all applicable laws and regulations.
If, however, any provision of this Agreement shall be prohibited by or invalid under any such law
or regulation in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to
conform to the minimum requirements of such law or regulation, or, if for any reason it is not
deemed so modified, it shall be ineffective and invalid only to the extent of such prohibition or
invalidity without affecting the remaining provisions of this Agreement, or the validity or
effectiveness of such provision in any other jurisdiction.

          SECTION 17 Counterparts. This Agreement may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute but one and the same
agreement.

          SECTION 18 Termination. A Secured Party shall no longer be a party to this Agreement
and the Lien and security interest created under this Agreement in favor of such Secured Party
shall terminate (and such Secured Party (a “Releasing Secured Party”) shall promptly
execute and deliver to Debtor such documents and instruments reasonably requested by Debtor as
shall be necessary to evidence the termination of such Lien and security interest) upon the earlier
of: (a) the payment and performance in full of all Secured Obligations owing to such Secured Party,
(b) all Secured Obligations owing to such Releasing Secured Party having ceased to exist pursuant
to the terms of the Documents to which such Releasing Secured Party is a party and (c) such
Releasing Secured Party’s delivery of written notice to Debtor that such Releasing Secured Party
desires to terminate the Lien and security interest created hereunder in favor of such Releasing
Secured Party; provided, however, that, in the case of clauses (a), (b) or (c)
above, the Lien and security interest created hereunder in favor of any other Secured Party shall
not be affected by any termination of the Lien and security interest in favor of such Releasing
Secured Party.

[Remainder of page intentionally left blank]

9

 

     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, as of the date first
above written.

	 	 	 	 	 	 	 
	 	 	DEBTOR:	 	 
	 
	 	 	 	 	 	 
	 	 	ARADIGM CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:
	 	/s/ Virgil Thompson
 

Virgil Thompson
	 	 
	 

	 	Title:
	 	Chairman	 	 
	 
	 	 	 	 	 	 
	 	 	Aradigm Corporation	 	 
	 	 	3929 Point Eden Way	 	 
	 	 	Hayward, CA 94545	 	 
	 

	 	Attn:
	 	General Counsel	 	 
	 

	 	Fax:
	 	(510) 265-5035	 	 
	 

	 	email:
	 	grimesj@aradigm.com	 	 

Signature Page 1 to Security Agreement

 

 

	 	 	 	 	 	 	 
	 	 	GONDA:	 	 
	 
	 	 	 	 	 	 
	 	 	IGOR GONDA	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:
	 	/s/ Igor Gonda
 

Igor Gonda
	 	 
	 

	 	Title:
	 	CEO & President	 	 
	 
	 	 	 	 	 	 
	 	 	Igor Gonda	 	 
	 	 	c/o Aradigm Corporation	 	 
	 	 	3929 Point Eden Way	 	 
	 	 	Hayward, CA 94545	 	 
	 

	 	Tel:
	 	(510) 265-8835	 	 
	 

	 	Fax:
	 	(510) 265-4035	 	 
	 

	 	Email:
	 	gondai@aradigm.com	 	 

Signature Page 2 to Security Agreement

 

 

	 	 	 	 	 	 	 
	 	 	GRIMES:	 	 
	 
	 	 	 	 	 	 
	 	 	JEFFERY GRIMES	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ D. Jeffery Grimes
 

	 	 
	 

	 	Name:
	 	Jeffery Grimes	 	 
	 

	 	Title:
	 	VP, Legal Affairs, General Counsel & Secretary	 	 
	 
	 	 	 	 	 	 
	 	 	Jeffrey Grimes	 	 
	 	 	c/o Aradigm Corporation	 	 
	 	 	3929 Point Eden Way	 	 
	 	 	Hayward, CA 94545	 	 
	 

	 	Tel:
	 	(510) 265-8835	 	 
	 

	 	Fax:
	 	(510) 265-5035	 	 
	 

	 	Email:
	 	grimesj@aradigm.com	 	 

Signature Page 3 to Security Agreement

 

 

	 	 	 	 	 	 	 
	 	 	PECOTA:	 	 
	 
	 	 	 	 	 	 
	 	 	NANCY PECOTA	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:
	 	/s/ Nancy E. Pecota
 

Nancy E. Pecota
	 	 
	 

	 	Title:
	 	Chief Financial Officer	 	 
	 
	 	 	 	 	 	 
	 	 	Nancy Pecota	 	 
	 	 	c/o Aradigm Corporation	 	 
	 	 	3929 Point Eden Way	 	 
	 	 	Hayward, CA 94545	 	 
	 

	 	Tel:
	 	(510) 265-8835	 	 
	 

	 	Fax:
	 	(510) 265-5077	 	 
	 

	 	Email:
	 	pecotan@aradigm.com	 	 

Signature Page 4 to Security Agreement

 

 

SCHEDULE 1

to the Security Agreement

	1.	 	Jurisdiction of Organization and Organizational Identification Number
	 
	 	 	Jurisdiction of Organization:         California
	 
	 	 	Organizational Identification No: C1517229
	 
	2.	 	Chief Executive Office and Principal Place of Business
	 
		 	3929 Point Eden Way 
Hayward,
CA 94545
	 
	3.	 	Other locations where Debtor conducts business or Collateral is kept
	 
	 	 	[                    ]

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