Document:

exv10w29

 

Exhibit 10.29

Certain confidential
information 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.

RESTRUCTURING AGREEMENT

dated as of

September 28, 2004

among

ARADIGM CORPORATION

NOVO NORDISK A/S

and

NOVO NORDISK DELIVERY TECHNOLOGIES,
INC.

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
					Page
					

	
     ARTICLE 1
    
	
    DEFINITIONS
    
	
    
     SECTION 1.01.
    

    	 	
     Definitions	 	 	1	 
	
    
     SECTION 1.02.
    

    	 	
     Other Definitional And
    Interpretative Provisions	 	 	5	 
	
    
     SECTION 1.03.
    

    	 	
     Knowledge Of
    Aradigm	 	 	6	 
	 
	
     ARTICLE 2
    
	
    PRE-CLOSING ACTIVITIES: CLOSING; THE TRANSACTIONS;
    
	
    POST-CLOSING ACTIVITIES
    
	
    
     SECTION 2.01.
    

    	 	
     Pre-closing
    Activities	 	 	6	 
	
    
     SECTION 2.02.
    

    	 	
     Closing	 	 	6	 
	
    
     SECTION 2.03.
    

    	 	
     Effect of
    Closing	 	 	6	 
	
    
     SECTION 2.04.
    

    	 	
     Post-closing
    Activities	 	 	6	 
	 
	
     ARTICLE 3
    
	
    REPRESENTATIONS AND WARRANTIES OF ARADIGM
    
	
    
     SECTION 3.01.
    

    	 	
     Corporate Existence and
    Power	 	 	7	 
	
    
     SECTION 3.02.
    

    	 	
     Corporate
    Authorization	 	 	7	 
	
    
     SECTION 3.03.
    

    	 	
     Governmental
    Authorization	 	 	7	 
	
    
     SECTION 3.04.
    

    	 	
     Noncontravention	 	 	7	 
	
    
     SECTION 3.05.
    

    	 	
     Required and Other
    Consents	 	 	7	 
	
    
     SECTION 3.06.
    

    	 	
     Absence of Certain
    Changes	 	 	8	 
	
    
     SECTION 3.07.
    

    	 	
     No Undisclosed Material
    Liabilities	 	 	8	 
	
    
     SECTION 3.08.
    

    	 	
     Material
    Contracts	 	 	8	 
	
    
     SECTION 3.09.
    

    	 	
     Litigation	 	 	9	 
	
    
     SECTION 3.10.
    

    	 	
     Compliance with Laws and
    Court Orders	 	 	9	 
	
    
     SECTION 3.11.
    

    	 	
     Properties	 	 	9	 
	
    
     SECTION 3.12.
    

    	 	
     Title to the Transferred
    Assets	 	 	10	 
	
    
     SECTION 3.13.
    

    	 	
     Intellectual
    Property	 	 	10	 
	
    
     SECTION 3.14.
    

    	 	
     Insurance
    Coverage	 	 	11	 
	
    
     SECTION 3.15.
    

    	 	
     Licenses and
    Permits	 	 	11	 
	
    
     SECTION 3.16.
    

    	 	
     Inventories and
    Supplies	 	 	12	 
	
    
     SECTION 3.17.
    

    	 	
     Documents	 	 	12	 
	
    
     SECTION 3.18.
    

    	 	
     Finders’
    Fees	 	 	12	 
	
    
     SECTION 3.19.
    

    	 	
     Employees	 	 	12	 
	
    
     SECTION 3.20.
    

    	 	
     Environmental
    Compliance	 	 	12	 
	
    
     SECTION 3.21.
    

    	 	
     Representations	 	 	13	 
	
    
     SECTION 3.22.
    

    	 	
     Compliance With Existing
    Agreements	 	 	13	 

 

	 	 	 	 	 	 	 
					Page
					

	 
	
     ARTICLE 4
    
	
    REPRESENTATIONS AND WARRANTIES OF NOVO NORDISK
    
	
    
     SECTION 4.01.
    

    	 	
     Corporate Existence and
    Power	 	 	13	 
	
    
     SECTION 4.02.
    

    	 	
     Corporate
    Authorization	 	 	13	 
	
    
     SECTION 4.03.
    

    	 	
     Governmental
    Authorization	 	 	13	 
	
    
     SECTION 4.04.
    

    	 	
     Noncontravention	 	 	13	 
	
    
     SECTION 4.05.
    

    	 	
     Litigation	 	 	14	 
	
    
     SECTION 4.06.
    

    	 	
     Finders’
    Fees	 	 	14	 
	
    
     SECTION 4.07.
    

    	 	
     Information	 	 	14	 
	
    
     SECTION 4.08
    

    	 	
     Compliance with Existing
    Agreements	 	 	14	 
	 
	
     ARTICLE 5
    
	
    COVENANTS OF ARADIGM
    
	
    
     SECTION 5.01.
    

    	 	
     Conduct of the
    Development Program	 	 	14	 
	
    
     SECTION 5.02.
    

    	 	
     Access to
    Information	 	 	14	 
	
    
     SECTION 5.03.
    

    	 	
     Notices of Certain
    Events	 	 	15	 
	
    
     SECTION 5.04.
    

    	 	
     Shareholder
    Votes	 	 	15	 
	 
	
     ARTICLE 6
    
	
    COVENANTS OF NOVO NORDISK
    
	
    
     SECTION 6.01.
    

    	 	
     Access	 	 	15	 
	
    
     SECTION 6.02.
    

    	 	
     Information	 	 	16	 
	 
	
     ARTICLE 7
    
	
    COVENANTS OF THE PARTIES
    
	
    
     SECTION 7.01.
    

    	 	
     Best Efforts; Further
    Assurances	 	 	16	 
	
    
     SECTION 7.02.
    

    	 	
     Certain
    Filings	 	 	16	 
	
    
     SECTION 7.03.
    

    	 	
     Public
    Announcements	 	 	16	 
	
    
     SECTION 7.04.
    

    	 	
     Confidentiality	 	 	16	 
	
    
     SECTION 7.05.
    

    	 	
     Warn Act	 	 	17	 
	
    
     SECTION 7.06.
    

    	 	
     Nonsolicitation	 	 	17	 
	
    
     SECTION 7.07.
    

    	 	
     Compliance with Existing
    Agreements	 	 	17	 
	 
	
     ARTICLE 8
    
	
    EMPLOYEE BENEFITS
    
	
    
     SECTION 8.01.
    

    	 	
     Employment
    Offers	 	 	18	 
	
    
     SECTION 8.02.
    

    	 	
     Employee Benefits
    Definitions	 	 	18	 
	
    
     SECTION 8.03.
    

    	 	
     Employee Benefits
    Representations	 	 	18	 
	
    
     SECTION 8.04.
    

    	 	
     Employee Benefits
    Covenants	 	 	19	 
	
    
     SECTION 8.05.
    

    	 	
     No Third Party
    Beneficiaries	 	 	20	 
	 
	
     ARTICLE 9
    
	
    CONDITIONS TO CLOSING
    
	
    
     SECTION 9.01.
    

    	 	
     Conditions to Obligations
    of the Parties	 	 	20	 
	
    
     SECTION 9.02.
    

    	 	
     Conditions to Obligations
    of Novo Nordisk and Novo Nordisk Delivery Technologies,
    Inc. 	 	 	20	 
	
    
     SECTION 9.03.
    

    	 	
     Conditions to Obligation
    of Aradigm	 	 	21	 

 

	 	 	 	 	 	 	 
					Page
					

	 
	
     ARTICLE 10
    
	
    SURVIVAL; INDEMNIFICATION
    
	
    
     SECTION 10.01.
    

    	 	
     Survival	 	 	22	 
	
    
     SECTION 10.02.
    

    	 	
     Indemnification	 	 	22	 
	
    
     SECTION 10.03.
    

    	 	
     Procedures	 	 	22	 
	 
	
     ARTICLE 11
    
	
    TERMINATION
    
	
    
     SECTION 11.01.
    

    	 	
     Grounds for
    Termination	 	 	23	 
	
    
     SECTION 11.02.
    

    	 	
     Effect of
    Termination	 	 	23	 
	 
	
     ARTICLE 12
    
	
    MISCELLANEOUS
    
	
    
     SECTION 12.01.
    

    	 	
     Notices	 	 	23	 
	
    
     SECTION 12.02.
    

    	 	
     Amendments and
    Waivers	 	 	24	 
	
    
     SECTION 12.03.
    

    	 	
     Expenses	 	 	24	 
	
    
     SECTION 12.04.
    

    	 	
     Successors and
    Assigns	 	 	24	 
	
    
     SECTION 12.05.
    

    	 	
     Governing
    Law	 	 	24	 
	
    
     SECTION 12.06.
    

    	 	
     Jurisdiction	 	 	24	 
	
    
     SECTION 12.07.
    

    	 	
     Waiver of Jury
    Trial	 	 	25	 
	
    
     SECTION 12.08.
    

    	 	
     Counterparts; Third Party
    Beneficiaries; Effectiveness	 	 	25	 
	
    
     SECTION 12.09.
    

    	 	
     Entire
    Agreement	 	 	25	 
	
    
     SECTION 12.10.
    

    	 	
     Bulk Sales
    Laws	 	 	25	 
	
    
     SECTION 12.11.
    

    	 	
     Severability	 	 	25	 
	
    
     SECTION 12.12.
    

    	 	
     Specific
    Performance	 	 	25	 
	
    
     Exhibit A
    

    	 	
     Amended
    and Restated License Agreement
    	 	 	A-1	 
	
    
     Exhibit B
    

    	 	
     Asset
    Purchase Agreement
    	 	 	B-1	 
	
    
     Exhibit C
    

    	 	
     Sublease
    Agreement
    	 	 	C-1	 
	
    
     Exhibit D
    

    	 	
     Contract
    Manufacturing Agreement
    	 	 	D-1	 
	
    
     Exhibit E
    

    	 	
     Quality
    Agreement
    	 	 	E-1	 
	
    
     Exhibit F
    

    	 	
     Amended
    and Restated Stock Purchase Agreement
    	 	 	F-1	 
	
    
     Exhibit G
    

    	 	
     Transition
    Services Agreement
    	 	 	G-1	 
	
    
     Exhibit H
    

    	 	
     Assignment
    Agreements
    	 	 	H-1	 
	
    
     Appendix A
    

    	 	
     Press
    Release
    	 	 	 	 
	
    
     Appendix B
    

    	 	
     Form
    of Cooley Godward Opinion
    	 	 	 	 

 

RESTRUCTURING AGREEMENT

     
AGREEMENT dated as of September 28, 2004 by
and among Aradigm Corporation, a corporation duly organized and
existing under the law of the State of California
(“Aradigm”), Novo Nordisk A/S, a company duly
organized and existing under the law of Denmark (“Novo
Nordisk”) and Novo Nordisk Delivery Technologies, Inc.,
a corporation duly organized and existing under the law of the
State of Delaware (“Novo Nordisk Delivery Technologies,
Inc.”). Capitalized terms used herein and not otherwise
defined shall have the respective meanings assigned to them in
Article 1.

WITNESSETH:

     
WHEREAS, Aradigm and Novo Nordisk desire to
restructure their existing arrangements regarding, among other
things, the development and commercialization of the Development
Program (as such term is defined in the Amended and Restated
License Agreement) as set forth in this Agreement; and

     
WHEREAS, it is intended that the foregoing shall
be effected on the terms and subject to the applicable
conditions contained herein and in the other Transaction
Agreements.

     
NOW, THEREFORE, in consideration of the premises
set forth above and for other good and valuable consideration,
receipt of which is hereby acknowledged, the parties hereto
agree as follows:

ARTICLE 1

DEFINITIONS

     
SECTION 1.01.     Definitions.
(a) The following terms, as used herein, shall have the
following meanings:

     
“Affiliate”
shall mean, with respect to any
Person, any other Person directly or indirectly controlling,
controlled by or under common control with such other Person.
For the purposes hereof “control” shall mean
the power to direct or cause the direction of the management and
the policies of any Person, whether through the ownership of a
majority of the outstanding voting securities of such Person, by
contract or otherwise.

     
“Amended and Restated License
Agreement” shall mean the Amended
and Restated License Agreement, to be entered into as of the
Closing, by and between Aradigm and Novo Nordisk, in the form
attached hereto as Exhibit A.

     
“Amended and Restated Stock Purchase
Agreement” shall mean the Amended
and Restated Stock Purchase Agreement, to be entered into as of
the Closing, by and between Aradigm, Novo Nordisk and Novo
Nordisk Pharmaceuticals, Inc., in the form attached hereto as
Exhibit F.

     
“Aradigm Balance Sheet”
shall mean the unaudited balance sheet
of Aradigm as of June 30, 2004.

     
“Aradigm Balance Sheet Date”
shall mean June 30, 2004.

     
“Aradigm Employee Stock Purchase
Plan” shall mean the employee
stock purchase plan of Aradigm as in effect immediately prior to
the date hereof.

     
“Aradigm Intellectual Property
Rights” shall mean the Aradigm
Patent Rights, the Aradigm Selected Pulmonary Delivery Patent
Rights and the Aradigm Know-How, as each is defined in the
Amended and Restated License Agreement.

     
“Aradigm Material Adverse Effect”
shall mean (i) an effect on the
condition (financial or otherwise), business, assets, results of
operations or prospects of Aradigm, which impairs, or is
reasonably likely to impair, the ability of Aradigm to perform
in any material respect any of its obligations under the
Transaction Agreements or (ii) a material adverse effect on
the business opportunity represented by the Development Program.

1

 

     
“Asset Purchase Agreement”
shall mean the Asset Purchase
Agreement, to be entered into as of the Closing, by and between
Aradigm and Novo Nordisk Delivery Technologies, Inc., in the
form attached hereto as Exhibit B.

     
“Assignment Agreements”
shall mean the Assignment Agreements,
to be entered into as of the Closing, by and among Aradigm, Novo
Nordisk Delivery Technologies, Inc. and the other parties
thereto, in the forms attached hereto as Exhibit H.

     
“Authorization”
shall mean any waiver, amendment,
consent, approval, license, franchise, permit (including
construction permits), certificate, exemption, variance or
authorization of, expiration or termination of any waiting
period requirement (including pursuant to the HSR Act) or other
action by, or notice, filing, registration, qualification,
declaration or designation with, any Person (including any
Governmental Authority).

     
“Business Day”
shall mean a day, other than Saturday,
Sunday or other day on which commercial banks in New York, New
York or Copenhagen, Denmark are authorized or required by law to
close.

     
“CERCLA”
shall mean the Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
as amended, and any rules or regulations promulgated thereunder.

     
“Competition Law”
shall mean the European Commission
Merger Regulation, Sherman Act, the Clayton Act, the HSR Act,
the Federal Trade Commission Act and all other Laws that are
designed or intended to prohibit, restrict or regulate
(a) mergers, acquisitions or other business combinations or
(b) actions having the purpose or effect of monopolization
or restraint of trade or lessening of competition.

     
“Contract Manufacturing Agreement”
shall mean the Contract Manufacturing
Agreement, to be entered into as of Closing, by and between
Aradigm, Novo Nordisk and Novo Nordisk Delivery Technologies,
Inc., in the form attached hereto as Exhibit D.

     
“Co-Existence Agreement”
shall mean the Co-Existence Agreement
dated as of June 23, 2003 by and between Aradigm and Novo
Nordisk.

     
“Development and License Agreement”
shall mean the Development and License
Agreement dated as of June 2, 1998, as amended, by and
between Aradigm and Novo Nordisk.

     
“Development Program”
shall have the meaning set forth in
the Amended and Restated License Agreement.

     
“Development Program Employee”
shall mean any employee of Aradigm
listed on Schedule 1 to the Letter Agreement.

     
“Employee Transition Plan”
shall have the meaning set forth in
the Letter Agreement.

     
“Environmental Laws”
shall mean any federal, state, local
or foreign law (including common law), treaty, judicial
decision, regulation, rule, judgment, order, decree, injunction,
permit or governmental restriction or any agreement with any
Governmental Authority or other third party, whether now or
hereafter in effect, relating to the environment, human health
and safety or to pollutants, contaminants, wastes or chemicals
or any toxic, radioactive, ignitable, corrosive, reactive or
otherwise hazardous substances, wastes or materials.

     
“Environmental Liabilities”
shall mean any and all liabilities
arising in connection with or in any way relating to Aradigm (or
any predecessor of Aradigm or any prior owner of all or part of
its business and assets), any property now or previously owned,
leased or operated by Aradigm, the Development Program (as
currently or previously conducted), the Transferred Assets or
any activities or operations occurring or conducted at the Real
Property (including offsite disposal), whether accrued,
contingent, absolute, determined, determinable or otherwise,
which (i) arise under or relate to any Environmental Law
and (ii) relate to actions occurring or conditions existing
on or prior to the Closing Date (including any matter disclosed
or required to be disclosed in Schedule 3.20).

2

 

     
“Environmental Permits”
shall mean all permits, licenses,
franchises, certificates, approvals and other similar
authorizations of governmental authorities relating to or
required by Environmental Laws and affecting, or relating in any
way to, the Development Program, the Real Property and the
Transferred Assets.

     
“Estimated Purchase Price”
shall mean the sum of the book values
of the equipment set forth in Part I of Annex 1 to
Exhibit A to the Asset Purchase Agreement as reflected on
the accounting books and records of Aradigm in accordance with
GAAP as of the date hereof that would be included in the
Purchased Assets if the Closing were to occur on the date hereof.

     
“Excluded Assets”
shall have the meaning set forth in
the Asset Purchase Agreement.

     
“Excluded Liabilities”
shall have the meaning set forth in
the Asset Purchase Agreement.

     
“GAAP”
shall mean generally accepted
accounting principles in the United States.

     
“Governmental Authority”
shall mean any supranational,
national, state, municipal or local government, political
subdivision or other governmental department, court, commission,
board, bureau, agency, instrumentality, or other authority
thereof, or any quasi-governmental or private body exercising
any regulatory, taxing, importing or other governmental or
quasi-governmental authority, whether domestic or foreign, or
any official of any of the foregoing.

     
“Hazardous Substances”
shall mean any pollutant, contaminant,
waste or chemical or any toxic, radioactive, ignitable
corrosive, reactive or otherwise hazardous substance, waste or
material or any substance, waste or material having any
constituent elements displaying any of the foregoing
characteristics including petroleum, its derivatives,
by-products and other hydrocarbons, and any substance, waste or
material regulated under any Environmental Law.

     
“HSR Act”
shall mean the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.

     
“Intellectual Property Rights”
shall mean (i) national and
multinational statutory invention registrations, patents and
patent applications (including all reissues, divisions,
continuations, continuations-in-part, extensions and
reexaminations thereof) registered or applied for in the United
States and/or all other nations throughout the world, all
improvements to the inventions disclosed in each such
registration, patent or patent application, (ii) copyrights
(whether or not registered) and registrations and applications
for registration thereof in the United States and/or all other
nations throughout the world, including all derivative works,
moral rights, renewals, extensions, reversions or restorations
associated with such copyrights, now or hereafter provided by
law, regardless of the medium of fixation or means of
expression, and (iii) trade secrets and know-how (including
manufacturing and production processes, firmware, data and
techniques and research and development information).

     
“Joint Steering Committee”
shall have the meaning set forth in
the Development and License Agreement.

     
“Judgment”
shall mean any judicial decision,
judgment, writ, order, injunction, stipulation, award or decree
of any court, judge, justice or magistrate, including any
bankruptcy court or judge or the arbitrator in any binding
arbitration, and any order of or by any Governmental Authority.

     
“Law”
shall mean any foreign or domestic
law, statute, code, ordinance, rule, regulation, treaty,
Judgment or principles of common law or equity (including
negligence and strict liability) enacted, entered, promulgated
or applied by a Governmental Authority.

     
“Letter Agreement”
shall mean the letter agreement
entered into as of the date hereof by and among Aradigm, Novo
Nordisk and Novo Nordisk Delivery Technologies, Inc.

     
“Lien”
shall mean, with respect to any
property or asset, any mortgage, lien, pledge, charge, security
interest, encumbrance or other adverse claim of any kind in
respect of such property or asset. For the purposes of this
Agreement and the other Transaction Agreements, a Person shall
be deemed to own subject to a Lien any property or asset which
it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or
other title retention agreement relating to such property or
asset.

3

 

     
“Manufacturing and Supply Agreement”
shall mean the Manufacturing and
Supply Agreement dated as of October 22, 2001 by and
between Aradigm and Novo Nordisk.

     
“1933 Act”
shall mean the Securities Act of 1933,
as amended, and the rules and regulations promulgated thereunder.

     
“1934 Act”
shall mean the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated
thereunder.

     
“Patent Cooperation Agreement”
shall mean the Patent Cooperation
Agreement dated as of October 22, 2001 by and between
Aradigm and Novo Nordisk.

     
“Person”
shall mean an individual, corporation,
partnership, limited liability company, association, trust or
other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.

     
“Purchased Assets”
shall have the meaning set forth in
the Asset Purchase Agreement.

     
“Purchase Price”
shall have the meaning set forth in
the Asset Purchase Agreement.

     
“Quality Agreement”
shall mean the Quality Agreement, to
be entered into as of the Closing, by and between Aradigm and
Novo Nordisk Delivery Technologies, Inc., in the form attached
hereto as Exhibit E.

     
“Required Shareholder Approvals”
shall mean the approval of the
Transactions (i) in accordance with the law of the State of
California and the certificate of incorporation, bylaws and
certificate of designation of Aradigm by (A) the common
shareholders and the preferred shareholders of Aradigm, voting
together as a class and (B) the preferred shareholders of
Aradigm, voting separately as a class and (ii) by a
majority of the votes cast by proxy or in person by the common
shareholders and the preferred shareholders of Aradigm, voting
together as a class, at the special shareholders’ meeting
of Aradigm at which the vote described in (i)(A) above will be
held, without counting votes cast by Novo Nordisk
Pharmaceuticals, Inc. and Novo Nordisk.

     
“Signing Date”
shall mean the day and year first
above written.

     
“Stock Purchase Agreement”
shall mean the Stock Purchase
Agreement dated as of October 22, 2001 by and between Novo
Nordisk Pharmaceuticals, Inc. and Aradigm.

     
“Sublease Agreement”
shall mean the Sublease Agreement, to
be entered into as of the Closing, by and among Aradigm and Novo
Nordisk Delivery Technologies, Inc., in the form attached hereto
as Exhibit C.

     
“Transactions”
shall mean the transactions
contemplated by the Transaction Agreements.

     
“Transaction Agreements”
shall mean the Amended and Restated
License Agreement, the Asset Purchase Agreement, the Sublease
Agreement, the Contract Manufacturing Agreement, the Quality
Agreement, the Amended and Restated Stock Purchase Agreement,
the Letter Agreement, the Transition Services Agreement and the
Assignment Agreements.

     
“Transferred Assets”
shall mean the Purchased Assets, but
excluding the Excluded Assets.

     
“Transition Services Agreement”
shall mean the Transition Services
Agreement, to be entered into as of the Closing, by and between
Aradigm and Novo Nordisk Delivery Technologies, Inc., in the
form attached hereto as Exhibit G.

4

 

     
(b) Each of the following terms is defined
in the Section set forth opposite such term:

	 	 	 	 	 
	Term		Section
	
		

	
    
    Approved Leave of Absence
    

    	 	 	8.01	 
	
    
    Aradigm
    

    	 	 	Recitals	 
	
    
    Aradigm Proxy Statement
    

    	 	 	5.04	 
	
    
    Building 1 Landlord
    

    	 	 	9.02	(h)
	
    
    Building 1 Lease
    

    	 	 	9.02	(h)
	
    
    Closing
    

    	 	 	2.02	 
	
    
    Closing Date
    

    	 	 	2.02	 
	
    
    Code
    

    	 	 	8.02	 
	
    
    Confidential Information
    

    	 	 	7.04	 
	
    
    Damages
    

    	 	 	10.02	 
	
    
    Development Program Employee Plans
    

    	 	 	8.03	 
	
    
    ERISA
    

    	 	 	8.02	 
	
    
    ERISA Affiliate
    

    	 	 	8.02	 
	
    
    Indemnified Party
    

    	 	 	10.03	 
	
    
    Indemnifying Party
    

    	 	 	10.03	 
	
    
    Multiemployer Plan
    

    	 	 	8.03	 
	
    
    Novo Nordisk
    

    	 	 	Recitals	 
	
    
    Novo Nordisk Delivery Technologies,
    Inc. 

    	 	 	Recitals	 
	
    
    Other Consents
    

    	 	 	3.05	 
	
    
    Permits
    

    	 	 	3.15	 
	
    
    Permitted Liens
    

    	 	 	3.11	 
	
    
    Real Property
    

    	 	 	3.11	 
	
    
    Representatives
    

    	 	 	7.04	 
	
    
    Required Consents
    

    	 	 	3.05	 
	
    
    Transferred Development Program Employees
    

    	 	 	8.01	 
	
    
    WARN Act
    

    	 	 	7.05	 
	
    
    Warranty Breach
    

    	 	 	10.02	 

     
SECTION 1.02.     Other
Definitional And Interpretative Provisions. The words
“hereof”, “herein” and “hereunder”
and words of like import used in this Agreement shall refer to
this Agreement as a whole and not to any particular provision of
this Agreement. The captions herein are included for convenience
of reference only and shall be ignored in the construction or
interpretation hereof. References to Appendices, Articles,
Sections, Exhibits and Schedules are to Appendices, Articles,
Sections, Exhibits and Schedules of this Agreement unless
otherwise specified. All Exhibits and Schedules annexed hereto
or referred to herein are hereby incorporated in and made a part
of this Agreement as if set forth in full herein. Any
capitalized terms used in any Exhibit or Schedule but not
otherwise defined therein, shall have the meaning as defined in
this Agreement. Any singular term in this Agreement shall be
deemed to include the plural, and any plural term the singular.
Whenever the words “include”, “includes” or
“including” are used in this Agreement, they shall be
deemed to be followed by the words “without
limitation”, whether or not they are in fact followed by
those words or words of like import. “Writing”,
“written” and comparable terms refer to printing,
typing and other means of reproducing words (including
electronic media) in a visible form. References to any agreement
or contract are to that agreement or contract as amended,
modified or supplemented from time to time in accordance with
the terms hereof and thereof. References to any Person include
the successors and permitted assigns of that Person. References
from or through any date mean, unless otherwise specified, from
and including or through and including, respectively.

5

 

     
SECTION 1.03.     Knowledge
Of Aradigm. References in this Agreement or in any of the
other Transaction Agreements to the “knowledge” or
“best knowledge” or any similar expression of Aradigm
shall be the actual knowledge, after due and diligent inquiry,
of the individuals listed on Schedule 1.03.

ARTICLE 2

PRE-CLOSING ACTIVITIES: CLOSING; THE TRANSACTIONS;

POST-CLOSING ACTIVITIES

     
SECTION 2.01.     Pre-closing
Activities.

     
(a) Aradigm, Novo Nordisk and Novo Nordisk
Delivery Technologies, Inc. agree that, prior to the Closing
Date, they will discuss, in good faith, and subject to
applicable Competition Laws, the transfer of applicable know-how
and the provision of other assistance by Aradigm to Novo Nordisk
and its Affiliates for the conduct of the Development Program.

     
(b) Part I of Annex 1 to
Exhibit A to the Asset Purchase Agreement contains the list
of equipment, the location thereof, the book value thereof as
reflected on the accounting books and records of Aradigm in
accordance with GAAP as of the date hereof that would be
included in the Purchased Assets if the Closing were to occur on
the date hereof, and the Estimated Purchase Price. The Parties
agree to update such list periodically (but not less than
monthly) during the period from the date hereof until Closing to
reflect (i) the addition of equipment purchased by Aradigm
for use in the Development Program with the prior written
approval of Novo Nordisk, (ii) downward adjustments that
may be required under GAAP, including normal depreciation and
amortization, to correctly state the book value of such
equipment on the accounting books and records of Aradigm as of
the date that is three (3) Business Days prior to the
Closing Date and (iii) changes otherwise agreed by the
Parties. The final version of Annex 1 to Exhibit A to the
Asset Purchase Agreement shall be completed by the Parties no
later than three (3) Business Days prior to the Closing
Date, and shall be used to determine the Purchase Price.

     
(c) Aradigm shall provide notice to Novo
Nordisk Delivery Technologies, Inc. no later than two
(2) Business Days prior to the Closing Date regarding the
account with a U.S. bank to which Novo Nordisk Delivery
Technologies, Inc. shall deliver the Purchase Price on the
Closing Date.

     
SECTION 2.02.     Closing.
(a) The closing (the “Closing”) of the
Transactions shall take place at the offices of Aradigm, as soon
as possible, but in no event later than five (5) Business
Days, following the satisfaction or waiver (and notice thereof
to the parties) of the conditions precedent set forth in
Article 9 below (other than conditions that by their nature
are to be satisfied at the Closing and will in fact be satisfied
at the Closing), or such other date as the parties shall agree.
At the Closing, the transactions described in
Section 2.02(b) below shall be deemed to occur
simultaneously. The date on which the Closing occurs is referred
to as the “Closing Date”.

     
(b) At the Closing, the parties shall
execute all of the Transaction Agreements to which such entities
are parties that were not previously executed and, to the extent
contemplated therein, consummate the Transactions.

     
SECTION 2.03.     Effect
of closing. Effective as of the Closing Date, the
Manufacturing and Supply Agreement and the Patent Cooperation
Agreement shall terminate and be of no further force and effect.

     
SECTION 2.04.     Post-closing
Activities.

     
(a) After the Closing, Aradigm agrees that
it will cooperate with and allow Novo Nordisk Delivery
Technologies, Inc. reasonable access to any of its personnel who
have knowledge of the Development Program such that Novo Nordisk
Delivery Technologies, Inc. may, to its reasonable satisfaction,
become informed as to the operation, transition and
specifications of the Development Program and the Purchased
Assets.

     
(b) At any time after the Closing, each
Party may (upon reasonable prior written notice to the other
Party) request the ability to copy and/or certify documents that
are in the possession of the other Party and that, in the case
of a request by Novo Nordisk or Novo Nordisk Delivery
Technologies, Inc., relate to the

6

 

Development Program and other AERx development
activities, and in the case of a request by Aradigm, relate to
its prior conduct of the Development Program or other AERx
development activities. Upon receipt of any such notice, the
Party possessing such documents shall, subject to applicable
Competition Laws and/or confidentiality obligations to third
parties, provide the requesting Party with reasonable access to
such documents, and the Party making such request shall bear all
costs of such copying and/or certification.

     
(c) Novo Nordisk Delivery Technologies, Inc.
agrees to reimburse Aradigm for fifty percent (50%) of the
replacement cost to Aradigm of purchasing the equipment listed
on Schedule 2.04(c).

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF ARADIGM

     
Aradigm represents and warrants to Novo Nordisk
and Novo Nordisk Delivery Technologies, Inc. as of the date
hereof and as of the Closing Date that:

     
SECTION 3.01.     Corporate
Existence and Power. Aradigm is a corporation duly
incorporated, validly existing and in good standing under the
laws of the State of California and has all corporate powers and
all governmental licenses, authorizations, permits, consents and
approvals required to carry on its business as now conducted.
Aradigm has heretofore delivered to Novo Nordisk true and
complete copies of the certificate of incorporation and bylaws
of Aradigm as currently in effect.

     
SECTION 3.02.     Corporate
Authorization. The execution, delivery and performance by
Aradigm of the Transaction Agreements and the consummation of
the Transactions are within Aradigm’s corporate powers and,
except for the Required Shareholder Approvals, have been duly
authorized by all necessary corporate action on the part of
Aradigm. This Agreement constitutes, and when executed each
other Transaction Agreement will constitute, a valid and binding
agreement of Aradigm enforceable against Aradigm in accordance
with its terms, except as the same may be limited by applicable
bankruptcy, insolvency, moratorium or similar laws of general
application relating to or affecting creditors’ rights or
by general principles of equity.

     
SECTION 3.03.     Governmental
Authorization. The execution, delivery and performance by
Aradigm of the Transaction Agreements and the consummation of
the Transactions require no action by or in respect of, or
filing with, any Governmental Authority other than
(i) compliance with any applicable requirements of any
Competition Law; (ii) compliance with applicable
requirements of Environmental Laws; and (iii) compliance
with any applicable requirements of the 1933 Act, the
1934 Act and any other applicable securities laws, whether
U.S., state or foreign.

     
SECTION 3.04.     Noncontravention.
The execution, delivery and performance by Aradigm of the
Transaction Agreements and the consummation of the Transactions
do not and will not (i) violate the certificate of
incorporation, bylaws or certificate of designation of Aradigm,
(ii) assuming compliance with the matters referred to in
Section 3.03, violate any applicable Law,
(iii) assuming the obtaining of all Required Consents (as
defined below) and Other Consents (as defined below), constitute
a default under or give rise to any right of termination,
cancellation or acceleration of any right or obligation, or to a
loss of any benefit relating to the Development Program to which
Aradigm is entitled under any provision of any agreement or
other instrument binding upon Aradigm or by which any of the
Transferred Assets is or may be bound or (iv) result in the
creation or imposition of any Lien on the Real Property or any
Transferred Asset, other than Permitted Liens (as defined below).

     
SECTION 3.05.     Required
and Other Consents. (a) Schedule 3.05(a) sets
forth each agreement, contract or other instrument binding upon
Aradigm or any Permit (as defined below) (including any
Environmental Permit) requiring a consent or other action by any
Person as a result of the execution, delivery and performance by
Aradigm of the Transaction Agreements, except such consents or
actions as would not, individually or in the aggregate, have an
Aradigm Material Adverse Effect if not received or taken by the
Closing Date (the “Required Consents”).

7

 

     
(b) Schedule 3.05(b) sets forth each
other consent or action by any Person (the “Other
Consents”) under such agreements, contracts or other
instruments or such Permits that is necessary with respect to
the execution, delivery and performance by Aradigm of the
Transaction Agreements.

     
SECTION 3.06.     Absence
of Certain Changes. Since the Aradigm Balance Sheet Date,
the Development Program has been conducted in the ordinary
course consistent with past practices and there has not been:

		
	 	     
    (a) any event, occurrence, development or
    state of circumstances or facts which, individually or in the
    aggregate, has had or is reasonably likely to have an Aradigm
    Material Adverse Effect;
    
	 
	 	     
    (b) any incurrence, assumption or guarantee
    by Aradigm of any indebtedness for borrowed money with respect
    to the Development Program;
    
	 
	 	     
    (c) any creation or other incurrence of any
    Lien on the Real Property or any Transferred Asset other than in
    the ordinary course of business consistent with past practices;
    
	 
	 	     
    (d) any damage, destruction or other
    casualty loss (whether or not covered by insurance) affecting
    the Development Program, the Real Property or any Transferred
    Asset which, individually or in the aggregate, has had or is
    reasonably likely to have an Aradigm Material Adverse Effect;
    
	 
	 	     
    (e) any transaction or commitment made, or
    any contract or agreement entered into, by Aradigm relating to
    the Development Program, the Real Property or any Transferred
    Asset (including the acquisition or disposition of any assets)
    or any relinquishment by Aradigm of any contract or other right,
    in either case, material to the Development Program, other than
    (i) transactions and commitments in the ordinary course of
    business consistent with past practices and (ii) the
    Transactions;
    
	 
	 	     
    (f) any change in any method of accounting
    or accounting practice by Aradigm with respect to the
    Development Program except for any such change after the date
    hereof required by reason of a concurrent change in GAAP;
    
	 
	 	     
    (g) any (i) employment, deferred
    compensation, severance, retirement or other similar agreement
    entered into with any Development Program Employee (or any
    amendment to any such existing agreement), (ii) grant of
    any severance or termination pay to any Development Program
    Employee or (iii) change in compensation or other benefits
    payable to any Development Program Employee pursuant to any
    severance or retirement plans or policies thereof;
    
	 
	 	     
    (h) any labor dispute, other than routine
    individual grievances, or any activity or proceeding by a labor
    union or representative thereof to organize any Development
    Program Employees, which Development Program Employees were not
    subject to a collective bargaining agreement at the Aradigm
    Balance Sheet Date, or any lockouts, strikes, slowdowns, work
    stoppages or threats thereof by or with respect to Development
    Program Employees; or
    
	 
	 	     
    (i) any capital expenditure, or commitment
    for a capital expenditure, for additions or improvements to the
    Real Property or any of the Transferred Assets, that has not
    been in accordance with planned capital spending for the
    Development Program or otherwise approved in writing by Novo
    Nordisk.
    

     
SECTION 3.07.     No
Undisclosed Material Liabilities. There are no liabilities
of Aradigm of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, other than:

		
	 	     
    (a) liabilities provided for in the Aradigm
    Balance Sheet or disclosed in the notes thereto;
    
	 
	 	     
    (b) liabilities incurred in the ordinary
    course of business since the Aradigm Balance Sheet Date; and
    
	 
	 	     
    (c) other undisclosed liabilities which,
    individually or in the aggregate, are not material.
    

     
SECTION 3.08.     Material
Contracts. (a) Except for the Transaction Agreements,
the Development and License Agreement, the Patent Cooperation
Agreement, the Stock Purchase Agreement, the Manufacturing

8

 

and Supply Agreement and the Co-Existence
Agreement, and the Contracts disclosed in Schedule 3.08,
with respect to the Development Program, Aradigm is not a party
to or bound by:

		
	 	     
    (i) any lease (whether of real or personal
    property);
    
	 
	 	     
    (ii) any agreement for the sale or purchase
    of materials, supplies, goods, services, equipment or other
    assets providing for either (A) annual payments by Aradigm
    of $10,000 or more or (B) aggregate payments by Aradigm of
    $50,000 or more;
    
	 
	 	     
    (iii) any partnership, joint venture or
    other similar agreement or arrangement;
    
	 
	 	     
    (iv) any agreement relating to the
    acquisition or disposition of any business (whether by merger,
    sale of stock, sale of assets or otherwise);
    
	 
	 	     
    (v) any agreement relating to indebtedness
    for borrowed money or the deferred purchase price of property
    (in either case, whether incurred, assumed, guaranteed or
    secured by any asset);
    
	 
	 	     
    (vi) any option, license, franchise or
    similar agreement;
    
	 
	 	     
    (vii) any agency, dealer, sales
    representative, marketing or other similar agreement;
    
	 
	 	     
    (viii) any agreement that limits the freedom
    of Aradigm to compete in any line of business, with any Person
    or in any area within the Field (as defined in the Development
    and License Agreement) or to own, operate, sell, transfer,
    pledge or otherwise dispose of or encumber any Transferred Asset
    or which would so limit the freedom of Novo Nordisk Delivery
    Technologies, Inc. after the Closing Date;
    
	 
	 	     
    (ix) any agreement with or for the benefit
    of any Affiliate of Aradigm; or
    
	 
	 	     
    (x) any other agreement, commitment,
    arrangement or plan not made in the ordinary course of business
    that is material to the Development Program.
    

     
(b) Each Contract disclosed in any Schedule
or required to be disclosed pursuant to this Section is a valid
and binding agreement of Aradigm and is in full force and
effect, and neither Aradigm nor, to the knowledge of Aradigm,
any other party thereto is in default or breach in any material
respect under the terms of any such Contract, and, to the
knowledge of Aradigm, no event or circumstance has occurred
that, with notice or lapse of time or both, would constitute any
event of default thereunder. True and complete copies of each
such Contract that is listed in Part II of Annex 1 to
Exhibit A to the Asset Purchase Agreement have been
delivered to Novo Nordisk.

     
SECTION 3.09.     Litigation.
There is no action, suit, investigation or proceeding pending
against Aradigm, the Development Program, the Real Property or
any Transferred Asset before any court or arbitrator or before
or by any Governmental Authority or, to the knowledge of
Aradigm, any basis therefor or threat thereof, which,
individually or in the aggregate, could reasonably be expected
to have an Aradigm Material Adverse Effect or which in any
manner challenges or seeks to prevent, enjoin, alter or
materially delay the Transactions.

     
SECTION 3.10.     Compliance
with Laws and Court Orders. Aradigm is not in violation of,
has not since June 2, 1998 violated, and to the knowledge
of Aradigm is not under investigation with respect to and has
not been threatened to be charged with or given notice of any
violation of, any Law or Authorization applicable to the Real
Property, the Transferred Assets or the conduct of the
Development Program.

     
SECTION 3.11.     Properties.
(a) Schedule 3.11(a) correctly describes all leasehold
interests in real property to be subleased pursuant to the
Sublease Agreement to Novo Nordisk Delivery Technologies, Inc.
and assigned to Novo Nordisk Delivery Technologies, Inc.
pursuant to the Assignment Agreements (collectively, the
“Real Property”), which Aradigm leases, any
title insurance policies and surveys with respect thereto in the
possession of Aradigm, and any Liens thereon, specifying the
name of the lessor, the lease term and basic annual rent.

     
(b) Schedule 3.11(b) correctly
describes all personal property included in the Transferred
Assets, including machinery, equipment (including computer
hardware, computer software and other computer parts

9

 

and accessories), furniture, spare and
replacement parts, and other tangible property, which Aradigm
owns, leases or subleases, and any Liens thereon, specifying in
the case of leases or subleases, the name of the lessor or
sublessor, the lease term and basic annual rent.

     
(c) Aradigm has good and marketable,
indefeasible, fee simple title to, or, in the case of the Real
Property or leased personal property, has valid leasehold
interests in, the Transferred Assets and the Real Property. No
Real Property or Transferred Asset is subject to any Lien,
except:

		
	 	     
    (i) Liens disclosed on the Aradigm Balance
    Sheet;
    
	 
	 	     
    (ii) Liens for taxes not yet due or being
    contested in good faith (and for which adequate accruals or
    reserves have been established on the Aradigm Balance
    Sheet); or
    
	 
	 	     
    (iii) Liens which do not materially detract
    from the value of such Transferred Asset, or do not materially
    interfere with any present or intended use of such Transferred
    Asset or the Real Property
    (clauses (i) - (iii) of this
    Section 3.11(c) are, collectively, the “Permitted
    Liens”).
    

     
(d) There are no developments affecting the
Real Property or any of the Transferred Assets pending or, to
the knowledge of Aradigm threatened, which might materially
detract from the value or materially interfere with any present
or intended use by Novo Nordisk Delivery Technologies, Inc. of
such Real Property or Transferred Assets.

     
(e) All leases of Real Property or personal
property are in good standing and are valid, binding and
enforceable in accordance with their respective terms and there
does not exist under any such lease any default or any event
which with notice or lapse of time or both would constitute a
default.

     
(f) To the knowledge of Aradigm, the plants,
buildings and structures included in the Real Property and the
Transferred Assets currently have access to (1) public
roads or valid easements over private streets or private
property for such ingress to and egress from all such plants,
buildings and structures and (2) water supply, storm and
sanitary sewer facilities, telephone, gas and electrical
connections, fire protection, drainage and other public
utilities, in each case as is necessary for the conduct of the
Development Program as it has heretofore been conducted and as
planned to be conducted by Novo Nordisk Delivery Technologies,
Inc. None of the structures on the Real Property encroaches upon
real property of another Person, and no structure of any other
Person substantially encroaches upon any Real Property.

     
(g) To the knowledge of Aradigm, the Real
Property, and its continued use, occupancy and operation as
currently used, occupied and operated, does not constitute a
nonconforming use under any applicable building, zoning,
subdivision and other land use and similar laws, regulations and
ordinances.

     
SECTION 3.12.     Title
to the Transferred Assets. Upon consummation of the
Transactions, Novo Nordisk Delivery Technologies, Inc. will have
acquired good and marketable title in and to, or a valid
leasehold interest in, each of the Transferred Assets, free and
clear of all Liens, except for Permitted Liens.

     
SECTION 3.13.     Intellectual
Property. (a) Schedule 3.13(a)(i) contains a true
and complete list of the patents and patent rights included
within the Aradigm Patent Rights. Schedule 3.13(a)(ii)
contains a true and complete list of all agreements (whether
written or otherwise, including license agreements, research
agreements, development agreements, distribution agreements,
settlement agreements, consent to use agreements and covenants
not to sue) to which Aradigm or any of its Affiliates is a party
or otherwise bound, granting or restricting any right to use,
exploit or practice any Aradigm Intellectual Property Rights in
connection with the Development Program as currently conducted.

     
(b) To the knowledge of Aradigm, the Aradigm
Intellectual Property Rights constitute all the Intellectual
Property Rights necessary for the Development Program as
currently conducted (other than Intellectual Property Rights of
Novo Nordisk). Except as set forth in the Development and
License Agreement and the Patent Cooperation Agreement, Aradigm
knows of no restrictions on the disclosure, use, license,
sublicense or transfer of the Aradigm Intellectual Property
Rights as contemplated by the Amended and Restated License
Agreement. The consummation of the Transactions will not alter,
impair or extinguish

10

 

any Aradigm Intellectual Property Rights, except
with respect to those Intellectual Property Rights licensed or
sublicensed to Aradigm pursuant to agreements or contracts
listed on Schedule 3.05(b).

     
(c) To the knowledge of Aradigm, neither
Aradigm nor any of its Affiliates has infringed, misappropriated
or otherwise violated any Intellectual Property Right of any
third party. There is no claim, action, suit, investigation or
proceeding pending against, or, to the knowledge of Aradigm,
threatened against or affecting, the Development Program or any
of the Transferred Assets (1) based upon, or challenging or
seeking to deny or restrict, the rights of Aradigm in any of the
Aradigm Intellectual Property Rights, (2) alleging that the
use of the Aradigm Intellectual Property Rights or any services
provided, processes used or products manufactured, used,
imported or sold with respect to the Development Program
conflict with, misappropriate, infringe or otherwise violate any
Intellectual Property Right of any third party or
(3) alleging that Aradigm or any Affiliate of Aradigm
infringed, misappropriated or otherwise violated any
Intellectual Property Right of any third party. Neither Aradigm
nor any of its Affiliates has received from any third party a
written offer: (a) in which such third party states that a
license may be necessary to avoid infringement of such third
party’s patents or (b) for which Aradigm sought advice
from an independent outside patent counsel with respect to the
question of infringement.

     
(d) None of the Aradigm Intellectual
Property Rights that is material to the operation of the
Development Program has been adjudged invalid or unenforceable
in whole or part, and, to the knowledge of Aradigm, all patents
that are part of such Aradigm Intellectual Property Rights are
valid and enforceable.

     
(e) Aradigm holds all right, title and
interest in and to all Aradigm Intellectual Property Rights,
free and clear of any Lien. In each case where a patent or
patent application or copyright registration or copyright
application included in the Aradigm Intellectual Property Rights
is held by assignment, the assignment has been duly recorded
with the Governmental Authority from which the patent or
registration issued or before which the application or
application for registration is pending.

     
(f) To the knowledge of Aradigm, no Person
has infringed, misappropriated or otherwise violated any Aradigm
Intellectual Property Right. Aradigm has taken reasonable steps
in accordance with normal industry practice to maintain the
confidentiality of all confidential Intellectual Property
Rights. None of the Intellectual Property Rights that are
material to the Development Program and the value of which to
the Development Program is contingent upon maintaining the
confidentiality thereof, has been disclosed other than to
employees, representatives and agents of Aradigm and its
licensees, all of whom are bound by written confidentiality
agreements substantially in the form previously disclosed to
Novo Nordisk.

     
(g) None of the patents and patent
applications included in the Aradigm Intellectual Property
Rights that are material to the Development Program has been the
subject of an interference, protest, public use proceeding or
third party re-examination request.

     
SECTION 3.14.     Insurance
Coverage. Aradigm has furnished to Novo Nordisk Delivery
Technologies, Inc. a list of all insurance policies and fidelity
bonds relating to the Transferred Assets, the business and
operations of the Development Program and its officers and
employees. There is no claim by Aradigm pending under any of
such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds
or in respect of which such underwriters have reserved their
rights. All premiums payable under all such policies and bonds
have been timely paid, Aradigm has otherwise complied fully with
the terms and conditions of all such policies and bonds and such
policies and bonds are in full force and effect. Aradigm does
not know of any threatened termination of coverage under any of
such policies or bonds. After the Closing Aradigm shall continue
to have coverage under such policies and bonds with respect to
events occurring prior to the Closing.

     
SECTION 3.15.     Licenses
and Permits. Schedule 3.15 correctly describes each
license (other than those listed on Schedule 3.13(a)),
franchise, permit, certificate, approval or other similar
authorization affecting, or relating in any way to, the
Development Program (the “Permits”) together
with the name of the Governmental Authority issuing such Permit.
Except as set forth on Schedule 3.15, (i) the Permits
are valid and in full force and effect, (ii) Aradigm is not
in default, and no condition exists that with notice or lapse of
time or both would constitute a default, under the Permits and
(iii) none of the Permits will, assuming the

11

 

related Required Consents and Other Consents have
been obtained prior to the Closing Date, be terminated or
impaired or become terminable, in whole or in part, as a result
of the Transactions. Upon consummation of the Transactions, Novo
Nordisk Delivery Technologies, Inc. will, assuming the related
Required Consents and Other Consents have been obtained prior to
the Closing Date, have all of the right, title and interest in
all the Permits listed in subsection c of Part II of
Annex A 1 to Exhibit A to the Asset Purchase
Agreement.

     
SECTION 3.16.     Inventories
and Supplies. Since the Aradigm Balance Sheet Date, the
inventories and supplies related to the Development Program have
been maintained in the ordinary course of business.

     
SECTION 3.17.     Documents.
None of the documents or information delivered to the
shareholders of Aradigm in connection with the Transactions,
including the Aradigm Proxy Statement (as defined below) (except
for any information contained therein that is provided in
writing by Novo Nordisk specifically for such purpose), contains
or will contain, as applicable, any untrue statement of a
material fact or omits to state a material fact necessary in
order to make the statements contained therein not misleading.

     
SECTION 3.18.     Finders’
Fees. There is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act
on behalf of Aradigm who might be entitled to any fee or
commission from Novo Nordisk or any of its Affiliates in
connection with the Transactions.

     
SECTION 3.19.     Employees.
Schedule 1 to the Letter Agreement sets forth a true and
complete list of (i) the names, titles, annual salaries and
other compensation of all Development Program Employees to be
offered employment by Novo Nordisk Delivery Technologies, Inc.
and (ii) the wage rates for non-salaried Development
Program Employees to be offered employment by Novo Nordisk
Delivery Technologies, Inc. (by classification). Other than as
separately communicated in writing to Novo Nordisk, none of such
Development Program Employees has indicated to Aradigm that he
intends to resign or retire as a result of the Transactions or
otherwise within one year after the Closing Date.

     
SECTION 3.20.     Environmental
Compliance. (a)

		
	 	     
    (i) in connection with or relating to the
    Development Program, the Real Property or the Transferred
    Assets, no notice, notification, demand, request for
    information, citation, summons or order has been received, no
    complaint has been filed, no penalty has been assessed and no
    investigation, action, claim, suit, proceeding or review is
    pending or, to the knowledge of Aradigm, threatened by any
    Governmental Authority or other Person with respect to any
    matters relating to or arising out of any Environmental Law;
    
	 
	 	     
    (ii) there are no liabilities arising in
    connection with or in any way relating to the Transferred Assets
    or the Development Program of any kind whatsoever, whether
    accrued, contingent, absolute, determined, determinable or
    otherwise, arising under or relating to any Environmental Law,
    and, to the knowledge of Aradigm, there are no facts, events,
    conditions, situations or set of circumstances which could
    reasonably be expected to result in or be the basis for any such
    liability;
    
	 
	 	     
    (iii) to the knowledge of Aradigm, none of
    the Real Property or property now or previously owned, leased or
    operated by Aradigm or any property to which Hazardous
    Substances located on or resulting from the use of any
    Transferred Asset have been transported or any property to which
    Aradigm has, directly or indirectly, transported or arranged for
    the transportation of any Hazardous Substances is listed or, to
    the knowledge of Aradigm, proposed for listing on the National
    Priorities List promulgated pursuant to CERCLA, on CERCLIS (as
    defined in CERCLA) or on any similar federal, state, local or
    foreign list of sites requiring investigation or
    cleanup; and
    
	 
	 	     
    (iv) Aradigm is in compliance with all
    Environmental Laws and has been and is in compliance with all
    Environmental Permits; such Environmental Permits are valid and
    in full force and effect and assuming the related Required
    Consents and Other Consents have been obtained prior to the
    Closing Date, are transferable and will not be terminated or
    impaired or become terminable as a result of the Transactions.
    

     
(b) There has been no environmental
investigation, study, audit, test, review or other analysis
conducted which Aradigm has in its possession in relation to any
Transferred Asset or Real Property which has not been

12

 

delivered to Novo Nordisk at least 10 Business
Days prior to the date hereof; provided that, as to any
such investigation, study, audit, test, review or other analysis
of which Aradigm has knowledge, Aradigm shall use its best
efforts to obtain and provide to Novo Nordisk such
investigation, study, audit, test, review or other analysis.

     
(c) None of the Transferred Assets is
located in New Jersey or Connecticut.

     
(d) For purposes of this Section 3.20,
the term “Aradigm” shall include any entity which is,
in whole or in part, a predecessor of Aradigm.

     
SECTION 3.21.     Representations.
The representations and warranties of Aradigm contained in this
Agreement, disregarding all qualifications and exceptions
contained therein relating to materiality or Aradigm Material
Adverse Effect, are true and correct with only such exceptions
as would not in the aggregate be reasonably likely to have an
Aradigm Material Adverse Effect.

     
SECTION 3.22.     Compliance
With Existing Agreements. Aradigm is in compliance in all
material respects with the terms and conditions of the
Development and License Agreement (other than as such terms and
conditions have been modified by the Joint Steering Committee),
the Patent Cooperation Agreement, the Stock Purchase Agreement,
the Manufacturing and Supply Agreement and the Co-Existence
Agreement.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF NOVO NORDISK

     
Novo Nordisk and Novo Nordisk Delivery
Technologies, Inc. jointly and severally represent and warrant
to Aradigm as of the date hereof and as of the Closing Date that:

     
SECTION 4.01.     Corporate
Existence and Power. Each of Novo Nordisk and Novo Nordisk
Delivery Technologies, Inc. is a corporation duly incorporated,
validly existing and, in the case of Novo Nordisk Delivery
Technologies, Inc., in good standing under the Laws of the State
of Delaware, and each of Novo Nordisk and Novo Nordisk Delivery
Technologies, Inc. has all corporate powers and all material
governmental licenses, authorizations, permits, consents and
approvals required to carry on its business as now conducted.

     
SECTION 4.02.     Corporate
Authorization. The execution, delivery and performance by
each of Novo Nordisk and Novo Nordisk Delivery Technologies,
Inc. of the Transaction Agreements to which it is a party and
the consummation of the Transactions to which it is a party are
within the corporate powers of each of Novo Nordisk and Novo
Nordisk Delivery Technologies, Inc. and have been duly
authorized by all necessary corporate action on the part of each
of Novo Nordisk and Novo Nordisk Delivery Technologies, Inc.
This Agreement constitutes, and when executed each other
Transaction Agreement to which it is a party will constitute, a
valid and binding agreement of each of Novo Nordisk and Novo
Nordisk Delivery Technologies, Inc. enforceable against each of
Novo Nordisk and Novo Nordisk Delivery Technologies, Inc. in
accordance with its terms, except as the same may be limited by
applicable bankruptcy, insolvency, moratorium or similar laws of
general application relating to or affecting creditors’
rights or by general principles of equity.

     
SECTION 4.03.     Governmental
Authorization. The execution, delivery and performance by
each of Novo Nordisk and Novo Nordisk Delivery Technologies,
Inc. of the Transaction Agreements to which it is a party and
the consummation of the Transactions to which it is a party
require no material action by or in respect of, or material
filing with, any Governmental Authority other than (i) in
compliance with any Competition Law and (ii) in compliance
with any applicable requirements of the 1933 Act, the
1934 Act and any other applicable securities laws, whether
federal, state or foreign.

     
SECTION 4.04.     Noncontravention.
The execution, delivery and performance by each of Novo Nordisk
and Novo Nordisk Delivery Technologies, Inc. of the Transaction
Agreements to which it is a party and the consummation of the
Transactions to which it is a party do not and will not
(i) violate the charter or bylaws of either of Novo Nordisk
and Novo Nordisk Delivery Technologies, Inc. or
(ii) assuming compliance with the matters referred to in
Section 4.03, violate any applicable material Law.

13

 

     
SECTION 4.05.     Litigation.
There is no action, suit, investigation or proceeding pending
against, or to the knowledge of Novo Nordisk, threatened against
or affecting, Novo Nordisk or Novo Nordisk Delivery
Technologies, Inc. before any court or arbitrator or before or
by any Governmental Authority which in any manner challenges or
seeks to prevent, enjoin, alter or materially delay the
Transactions.

     
SECTION 4.06.     Finders’
Fees. There is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act
on behalf of Novo Nordisk or Novo Nordisk Delivery Technologies,
Inc. who might be entitled to any fee or commission from Aradigm
or any of its Affiliates upon consummation of the Transactions.

     
SECTION 4.07.     Information.
None of the information provided in writing by Novo Nordisk to
Aradigm to be included in the Aradigm Proxy Statement contains
or will contain, as applicable, any untrue statement of a
material fact, or omits to state a material fact necessary to
make such information misleading.

     
SECTION 4.08.     Compliance
with Existing Agreements. Each of Novo Nordisk and its
Affiliates is in compliance in all material respects with the
terms and conditions of the Development and License Agreement
(other than as such terms and conditions have been modified by
the Joint Steering Committee), the Patent Cooperation Agreement,
the Stock Purchase Agreement, the Manufacturing and Supply
Agreement and the Co-Existence Agreement.

ARTICLE 5

COVENANTS OF ARADIGM

     
Aradigm agrees that:

     
SECTION 5.01.     Conduct
of the Development Program. From the date hereof until the
Closing Date, Aradigm shall conduct the Development Program in
accordance with the Development and License Agreement in the
ordinary course consistent with past practices and shall use its
best efforts to preserve intact the business organizations and
relationships with third parties relevant to the Development
Program and to keep available the services of the Development
Program Employees. Without limiting the generality of the
foregoing, from the date hereof until the Closing Date, Aradigm
will not:

		
	 	     
    (a) with respect to the Development Program
    acquire a material amount of assets from, or enter into any
    license agreement with, any other Person;
    
	 
	 	     
    (b) sell, lease, license or otherwise
    dispose of any Transferred Assets except (i) pursuant to
    existing contracts or commitments and (ii) in the ordinary
    course consistent with past practices;
    
	 
	 	     
    (c) agree or commit to do any of the
    foregoing; or
    
	 
	 	     
    (d) (i) take or agree or commit to take
    any action that would make any representation or warranty of
    Aradigm hereunder inaccurate in any respect at, or as of any
    time prior to, the Closing Date or (ii) knowingly omit or
    agree or commit to omit to take any action reasonably necessary
    to prevent any such representation or warranty from being
    inaccurate in any respect at any such time.
    

     
SECTION 5.02.     Access
to Information. (a) From the date hereof until the
Closing Date, Aradigm will (i) give Novo Nordisk, its
counsel, financial advisors, auditors and other authorized
representatives full access to the offices, properties, books
and records of Aradigm relating to the Development Program,
(ii) furnish to Novo Nordisk, its counsel, financial
advisors, auditors and other authorized representatives such
financial and operating data and other information relating to
the Development Program as such Persons may reasonably request
and (iii) instruct the employees and counsel of Aradigm to
cooperate with Novo Nordisk in its investigation of the
Development Program; provided that, any such access by
Novo Nordisk, its counsel, financial advisors, auditors and
other authorized representatives shall not unreasonably
interfere with the conduct of Aradigm’s business (other
than the Development Program). Novo Nordisk will hold, and will
use best efforts to cause its officers, directors, employees,
auditors, counsel, consultants, financial advisors and agents to
hold, in confidence, unless compelled to disclose by judicial or
administrative process or by other requirements of Law, all
confidential documents and information concerning Aradigm and
the Development

14

 

Program provided to it pursuant to this
Section 5.02. No investigation by Novo Nordisk or other
information received by Novo Nordisk shall operate as a waiver
or otherwise affect any representation, warranty or agreement
given or made by Aradigm hereunder.

     
(b) On and after the Closing Date, Aradigm
will afford promptly to Novo Nordisk and its agents reasonable
access to its books of account, financial and other records,
information, employees and auditors to the extent necessary or
useful for Novo Nordisk in connection with any audit,
investigation, dispute or litigation or any other reasonable
business purpose relating to the Development Program;
provided that, any such access by Novo Nordisk shall not
unreasonably interfere with the conduct of the business of
Aradigm.

     
SECTION 5.03.     Notices
of Certain Events. Aradigm shall promptly notify Novo
Nordisk of:

		
	 	     
    (a) any notice or other communication from
    any Person alleging that the consent of such Person is or may be
    required in connection with the Transactions;
    
	 
	 	     
    (b) any notice or other communication from
    any Governmental Authority in connection with the Transactions;
    
	 
	 	     
    (c) any actions, suits, claims,
    investigations or proceedings commenced or, to its knowledge,
    threatened against, relating to or involving or otherwise
    affecting Aradigm, the Development Program, the Real Property or
    the Transferred Assets that, if pending on the date of this
    Agreement, would have been required to have been disclosed
    pursuant to Section 3.09 or that relate to the consummation
    of the Transactions; and
    
	 
	 	     
    (d) the damage or destruction by fire or
    other casualty of any Real Property or Transferred Asset or part
    thereof or in the event that any Real Property or Transferred
    Asset or part thereof becomes the subject of any proceeding or,
    to the knowledge of Aradigm, threatened proceeding for the
    taking thereof or any part thereof or of any right relating
    thereto by condemnation, eminent domain or other similar
    governmental action.
    

     
SECTION 5.04.     Shareholder
Votes. Aradigm shall cause the required meetings of its
common and preferred shareholders to be duly called and held as
soon as reasonably practicable for the purpose of approving the
Transactions. The board of directors of Aradigm shall, subject
to their fiduciary duties under applicable Law as advised by
counsel, recommend adoption of the Transactions by
Aradigm’s common and preferred shareholders, voting
together as a class, and by Aradigm’s preferred
shareholders, voting separately as a class. In connection with
such meeting (i) Aradigm will promptly prepare and file
with the SEC, will use its best efforts to have cleared by the
SEC and will thereafter mail to its common and preferred
shareholders as promptly as practicable a proxy statement and
all other proxy materials for such meeting (the “Aradigm
Proxy Statement”) as may be required by applicable law;
(ii) Aradigm will use its best efforts to obtain the
Required Shareholder Approvals; and (iii) Aradigm will
otherwise comply with all legal requirements applicable to such
meetings. Aradigm will provide Novo Nordisk with ten
(10) Business Days to review and comment on the information
regarding the Transactions, Novo Nordisk and Novo Nordisk
Delivery Technologies, Inc. contained in the Aradigm Proxy
Statement prior to any filing thereof with the SEC and prior to
the date on which such materials are first published, sent or
given to Aradigm’s common and preferred shareholders and
shall use its reasonable efforts to reflect any such comments in
the Aradigm Proxy Statement.

ARTICLE 6

COVENANTS OF NOVO NORDISK

     
Each of Novo Nordisk and Novo Nordisk Delivery
Technologies, Inc. jointly and severally agrees that:

     
SECTION 6.01.     Access.
On and after the Closing Date, each of Novo Nordisk and Novo
Nordisk Delivery Technologies Inc. will afford promptly to
Aradigm and its agents reasonable access to its properties,
books, records, employees and auditors to the extent relating to
or involved in the Development Program and necessary to permit
Aradigm to determine any matter relating to its rights and
obligations hereunder or to any

15

 

period ending on or before the Closing Date;
provided that, any such access by Aradigm shall not
unreasonably interfere with the conduct of the business of Novo
Nordisk and Novo Nordisk Delivery Technologies, Inc. during the
period of such access. Aradigm will hold, and will use its best
efforts to cause its officers, directors, employees,
accountants, counsel, consultants, advisors and agents to hold,
in confidence, unless compelled to disclose by judicial or
administrative process or by other requirements of Law, all
confidential documents and information concerning Novo Nordisk,
Novo Nordisk Delivery Technologies, Inc. and the Development
Program provided to it pursuant to this Section 6.01. No
investigation by Aradigm or other information received by
Aradigm shall operate as a waiver or otherwise affect any
representation, warranty or agreement given or made by Novo
Nordisk or Novo Nordisk Delivery Technologies, Inc. hereunder.

     
SECTION 6.02.     Information.
Each of Novo Nordisk and Novo Nordisk Delivery Technologies,
Inc. shall provide promptly all information reasonably requested
by Aradigm for inclusion in, or for use in preparing, the
Aradigm Proxy Statement.

ARTICLE 7

COVENANTS OF THE PARTIES

     
The parties agree that:

     
SECTION 7.01.     Best
Efforts; Further Assurances. Subject to the terms and
conditions of this Agreement, each of the parties hereto will
use their respective best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary
or desirable under applicable Laws to consummate the
Transactions as soon as practicable. Each of the parties hereto
agrees to execute and deliver such other documents,
certificates, agreements and other writings and to take such
other actions as may be necessary or desirable in order to
consummate or implement expeditiously the Transactions,
including without limitation to vest in Novo Nordisk Delivery
Technologies, Inc. good and marketable title or valid leasehold
interests in the Transferred Assets. Each of the parties hereto
agrees to cooperate with the other parties hereto to identify
any documentation meeting the criteria set forth in
subsection (e) of Part II of Annex 1 to
Exhibit A to the Asset Purchase Agreement, such that such
documentation forms part of the Transferred Assets.

     
SECTION 7.02.     Certain
Filings. The parties hereto shall cooperate with one another
(i) in determining whether any action by or in respect of,
or filing with, any Governmental Authority is required, or any
Authorizations are required to be obtained from parties to any
material contracts, in connection with the consummation of the
Transactions and (ii) in taking such actions or making any
such filings, furnishing information required in connection
therewith and seeking timely to obtain any such Authorizations.

     
SECTION 7.03.     Public
Announcements. The parties hereto agree to consult with each
other before issuing any press release or making any public
statement with respect to the Transaction Agreements or the
Transactions and, except for any press releases and public
statements the making of which may be required by applicable Law
or any listing agreement with any national securities exchange,
will not issue any such press release or make any such public
statement prior to such consultation; provided that, the
parties hereto agree that the press release set forth on
Appendix A shall be released on the date hereof and that
Aradigm shall furnish such press release to the United States
Securities and Exchange Commission on Form 8-K.

     
SECTION 7.04.     Confidentiality.

     
(a) Each party agrees that it shall use, and
that it shall cause any Person to whom Confidential Information
is disclosed pursuant to clause (i) below to use, the
Confidential Information only in connection with the Transaction
Agreements and not for any other purpose.

     
(b) Each party further acknowledges and
agrees that it shall not disclose any Confidential Information
to any Person, except that Confidential Information may be
disclosed:

		
	 	     
    (i) to such party’s Representatives in
    the normal course of the performance of their duties or to any
    financial institution providing credit to such party,
    

16

 

		
	 	     
    (ii) to the extent required by applicable
    Law (including complying with any oral or written questions,
    interrogatories, requests for information or documents,
    subpoena, civil investigative demand or similar process to which
    a party is subject; provided that, such party shall give
    the other parties prompt notice of such request(s), to the
    extent practicable, so that such other parties may seek an
    appropriate protective order or similar relief (and the party
    shall cooperate with such efforts by such other parties, and
    shall in any event make only the minimum disclosure required by
    such Law)),
    
	 
	 	     
    (iii) to the extent disclosure thereof is or
    will be made to the shareholders of Aradigm in the Aradigm Proxy
    Statement,
    
	 
	 	     
    (iv) to any Governmental Authority in order
    to obtain from such Governmental Authority any authorization
    required or contemplated by this Agreement or any of the other
    Transaction Agreements as long as such Governmental Authority is
    advised of the confidential nature of such information, or
    
	 
	 	     
    (v) as mutually agreed between the parties.
    

     
(c) Nothing contained herein shall prevent
the use (subject, to the extent possible, to a protective order)
of Confidential Information in connection with the assertion or
defense of any claim by or against any party.

     
(d) For purposes of this Section 7.04,
“Confidential Information” means any
information concerning this Agreement or the parties’
respective rights and obligations hereunder; provided
that, the term “Confidential Information” does not
include information that (i) is or becomes generally
available to the public other than as a result of a disclosure
by a party or its partners, directors, officers, employees,
agents, counsel, investment advisers or representatives (all
such persons being collectively referred to as
“Representatives”) in violation of this
Agreement or any of the Transaction Agreements, (ii) is or
was available to such party on a non-confidential basis (as
demonstrated by the written records of such party) prior to its
disclosure to such party by the other party or (iii) was or
becomes available to such party on a non-confidential basis from
a source other than the other party, which source is or was (at
the time of receipt of the relevant information) not, to the
best of such party’s knowledge, bound by a confidentiality
agreement with (or other confidentiality obligation to) the
other party or another Person.

     
SECTION 7.05.     Warn
Act. The parties agree to cooperate in good faith to
determine whether any notification may be required under the
Worker Adjustment and Retraining Notification Act (the
“WARN Act”) and/or the Law of the State of
California as a result of the Transactions. Novo Nordisk will be
responsible for providing any notification that may be required
under the WARN Act with respect to any Development Program
Employees. Aradigm will be responsible for providing any
notification that may be required under the WARN Act with
respect to any employees of Aradigm who are not Development
Program Employees.

     
SECTION 7.06.     Nonsolicitation.
Except as provided in the Letter Agreement, Aradigm, Novo
Nordisk, and Novo Nordisk Delivery Technologies, Inc. each agree
that for a period of three (3) full years after the Signing
Date, neither it nor any of its respective Affiliates shall
solicit, directly or indirectly, for employment, in the case of
Aradigm, any Development Program Employee that is hired by Novo
Nordisk Delivery Technologies, Inc. in accordance with this
Agreement, and, in the case of Novo Nordisk and Novo Nordisk
Delivery Technologies, Inc., any other employee of Aradigm;
provided that, nothing in this Section 7.06 shall
prohibit any Party from carrying out general solicitation of
employment in any newspaper, magazine, trade publication,
electronic medium or other media. The Parties acknowledge that
irreparable harm would result from any breach of this
Section 7.06 and that there would be no adequate remedy at
law or in damages to compensate for any such breach. The Parties
agree that each Party shall be entitled to injunctive relief
requiring specific performance of this Section 7.06 by the
other Party or any of its Affiliates.

     
SECTION 7.07.     Compliance
with Existing Agreements. Novo Nordisk and its Affiliates
and Aradigm shall each comply in all material respects with the
terms and conditions of the Development and License Agreement,
the Patent Cooperation Agreement, the Stock Purchase Agreement,
the Manufacturing and Supply Agreement and the Co-Existence
Agreement.

17

 

ARTICLE 8

EMPLOYEE BENEFITS

     
SECTION 8.01.     Employment
Offers.

     
(a) Novo Nordisk Delivery Technologies, Inc.
will make offers of employment to all active Development Program
Employees with employment to commence with Novo Nordisk Delivery
Technologies, Inc. as of the Closing Date. Development Program
Employees who accept Novo Nordisk Delivery Technologies,
Inc.’s offer of employment and report to work as of the
Closing Date shall be “Transferred Development Program
Employees.”

     
(b) For purposes of this Agreement, any
Development Program Employee who is not actively at work on the
Closing Date due to a short-term absence for vacation, holiday,
illness or injury of shorter duration than would satisfy the
eligibility requirements to receive benefits under
Aradigm’s disability plans, jury duty or bereavement leave,
shall be deemed to be actively employed on the Closing Date.
With respect to any Development Program Employee who is on an
Approved Leave of Absence as of the Closing Date, Novo Nordisk
Delivery Technologies, Inc. shall make an offer of employment to
such Development Program Employee effective as of the date on
which such Development Program Employee presents himself or
herself to Novo Nordisk Delivery Technologies, Inc. for active
employment following the Closing Date and within sixteen
(16) weeks (or such longer time period as is required under
the applicable Laws of the State of California) from the Closing
Date to the same extent, if any, as Aradigm would be required to
reemploy such Development Program Employee in accordance within
applicable law. Employees on “Approved Leave of
Absence” means Development Program Employees absent
from work on the Closing Date and unable to perform their
regular job duties under approved plans or policies of the
employer or in accordance with the Family Medical Leave Act or
similar state statutes or regulations or military leave under
the Uniformed Services Employment and Reemployment Rights Act.

     
(c) For the avoidance of doubt, Aradigm will
retain any and all liabilities and obligations in respect of
(i) Transferred Development Program Employees relating to
employee benefits, compensation or otherwise, existing, accrued
or resulting from actions or omissions on or prior to the
Closing Date and (ii) the Development Program Employee
Plans (as defined below), regardless of when the claim arises.

     
(d) Novo Nordisk Delivery Technologies, Inc.
or one of its Affiliates will recognize all service of the
Transferred Development Program Employees with Aradigm or any of
its Affiliates for purposes of eligibility to participate,
vesting, severance and vacation accrual in those employee
benefit plans in which the Transferred Development Program
Employees are enrolled by Novo Nordisk Delivery Technologies,
Inc. or one of its Affiliates immediately after the Closing.

     
SECTION 8.02.     Employee
Benefits Definitions. The following terms, as used herein,
have the following meanings:

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

     
“ERISA”
shall mean the Employee Retirement
Income Security Act of 1974, as amended.

     
“ERISA Affiliate”
of any entity shall mean any other
entity which, together with such entity, would be treated as a
single employer under Section 414 of the Internal Revenue
Code of 1986, as amended.

     
SECTION 8.03.     Employee
Benefits Representations. Aradigm hereby represents and
warrants to Novo Nordisk and Novo Nordisk Delivery Technologies,
Inc. that:

		
	 	     
    (a) Schedule 8.03(a) contains a correct
    and complete list identifying each “employee benefit
    plan,” as defined in Section 3(3) of ERISA, each
    employment, severance or similar contract, plan, arrangement or
    policy and each other plan or arrangement providing for
    compensation, bonuses, profit-sharing, stock option or other
    stock-related rights or other forms of incentive or deferred
    compensation, vacation benefits, insurance (including any
    self-insured arrangements), health or medical benefits, employee
    assistance program, disability or sick leave benefits,
    workers’ compensation, supplemental unemployment benefits,
    severance benefits and post-employment or retirement benefits
    (including compensation,
    

18

 

		
	 	
    pension, health, medical or life insurance
    benefits) which is maintained, administered or contributed to by
    Aradigm or any of its Affiliates and covers any Development
    Program Employee or any former employee of the Development
    Program. Copies of such plans (and, if applicable, related trust
    or funding agreements or insurance policies) and all amendments
    thereto and written interpretations thereof have been furnished
    or made available electronically to Novo Nordisk Delivery
    Technologies, Inc. together with the most recent annual report
    (Form 5500 including, if applicable, Schedule B thereto)
    and tax return (Form 990) prepared in connection with any such
    plan or trust. Such plans are referred to collectively herein as
    the “Development Program Employee Plans.”
    Aradigm has provided Novo Nordisk Delivery Technologies,
    Inc. with, or has caused to be provided to Novo Nordisk Delivery
    Technologies, Inc., complete actuarial data (including age,
    salary, service and related data) as of the most recent
    practicable date for Aradigm employees currently expected to be
    offered positions as Development Program Employees.
    
	 
	 	     
    (b) None of Aradigm, any of its ERISA
    Affiliates or any predecessor thereof sponsors, maintains or
    contributes to, or has in the past sponsored, maintained or
    contributed to, any Employee Plan subject to Title IV of
    ERISA.
    
	 
	 	     
    (c) None of Aradigm, any ERISA Affiliate of
    Aradigm or any predecessor thereof contributes to, or has in the
    past contributed to, any multiemployer plan, as defined in
    Section 3(37) of ERISA (a “Multiemployer
    Plan”).
    
	 
	 	     
    (d) Each Development Program Employee Plan
    that is intended to be qualified under Section 40 1(a) of
    the Code has received a favorable determination letter, or has
    pending or has time remaining in which to file, an application
    for such determination or opinion letter from the Internal
    Revenue Service, and Aradigm is not aware of any reason why any
    such determination or opinion letter should be revoked or not be
    reissued. Aradigm has made available to Novo Nordisk Delivery
    Technologies, Inc. copies of the most recent Internal Revenue
    Service determination or opinion letter with respect to each
    such Development Program Employee Plan. Each Development Program
    Employee Plan has been maintained in material compliance with
    its terms and with the requirements prescribed by any and all
    statutes, orders, rules and regulations, including ERISA and the
    Code, which are applicable to such Development Program Employee
    Plan. No material events have occurred with respect to any
    Development Program Employee Plan that could result in payment
    or assessment by or against the Development Program, Novo
    Nordisk Delivery Technologies, Inc. or any of its Affiliates of
    any material excise taxes under Sections 4972, 4975, 4976,
    4977, 4979, 4980B, 4980D, 4980E or 5000 of the Code.
    
	 
	 	     
    (e) There is no current or projected
    liability in respect of post-employment or post-retirement
    health or medical or life insurance benefits for any Development
    Program Employees or any retired or former employees of the
    Development Program, except as required to avoid excise tax
    under Section 4980B of the Code.
    
	 
	 	     
    (f) There is no contract, plan or
    arrangement covering any employee or former employee of the
    Development Program that, individually or collectively, could
    give rise to the payment of any amount that would not be
    deductible pursuant to the terms of Sections 280G or 162(m)
    of the Code. No Development Program Employee will become
    entitled to any bonus, retirement, severance, job security or
    similar benefit, or the enhancement of any such benefit, as a
    result of the transactions contemplated hereby.
    
	 
	 	     
    (g) There is no action, suit, investigation,
    audit or proceeding pending against or involving or, to the
    knowledge of Aradigm, threatened against or involving, any
    Development Program Employee Plan before any Governmental
    Authority.
    

     
SECTION 8.04.     Employee
Benefits Covenants. From the date hereof until the Closing
Date:

		
	 	     
    (a) Except as permitted under the retention
    program separately communicated by Aradigm to Novo Nordisk and
    Novo Nordisk Delivery Technologies, Inc., Aradigm shall not
    (i) issue, deliver or sell to the Development Program
    Employees, or authorize the issuance, delivery or sale to the
    Development Program Employees of, any shares of its capital
    stock of any class or any securities convertible into or
    

19

 

		
	 	
    exercisable for, or any rights, warrants or
    options to acquire, any such capital stock or any such
    convertible securities, other than the issuance of any shares of
    Aradigm common stock (A) upon the exercise of
    Aradigm’s stock options that are outstanding on the date of
    this Agreement in accordance with the present terms of those
    options or (B) pursuant to the Aradigm Employee Stock Purchase
    Plan, as the same exists on the date of this Agreement; or
    (ii) amend any term of any outstanding security of Aradigm
    held by any Development Program Employees, unless such amendment
    applies to all similar securities of Aradigm that are
    outstanding.
    
	 
	 	     
    (b) Except as permitted under the retention
    program separately communicated by Aradigm to Novo Nordisk and
    Novo Nordisk Delivery Technologies, Inc. or in the ordinary
    course of business (consistent with past practice), Aradigm
    shall not (i) increase the amount of compensation of any
    Development Program Employee or, except as required by an
    existing agreement disclosed to Novo Nordisk or as required by
    Law, make any increase in any employee benefits, (ii) grant
    any severance or termination pay to any Development Program
    Employee, (iii) enter into or amend any employment,
    severance or change of control contract or arrangement with any
    Development Program Employee, (iv) adopt any additional
    employee benefit plan, (v) amend in any material respect
    any Development Program Employee Plan, or (vi) terminate
    any related group of Development Program Employees (in one
    (1) or a series of related terminations).
    

     
SECTION 8.05.     No
Third Party Beneficiaries. No provision of this Agreement
shall create any third party beneficiary or other rights in any
employee or former employee (including any beneficiary or
dependent thereof) of Aradigm or of any of its subsidiaries in
respect of continued employment (or resumed employment) with
either Novo Nordisk Delivery Technologies, Inc. or any of its
Affiliates, and no provision of this Agreement shall create any
such rights in any such persons in respect of any benefits that
may be provided, directly or indirectly, under any Development
Program Employee Plan or any plan or arrangement which may be
established by Novo Nordisk Delivery Technologies, Inc. or any
of its Affiliates. No provision of this Agreement shall
constitute a limitation on the rights of Novo Nordisk Delivery
Technologies, Inc. or any of its Affiliates after the Closing
Date to amend, modify or terminate any of its plans or
arrangements or to terminate any of its employees.

ARTICLE 9

CONDITIONS TO CLOSING

     
SECTION 9.01.     Conditions
to Obligations of the Parties. The obligations of the
parties hereto to consummate the Closing are subject to the
satisfaction of the following conditions:

		
	 	     
    (a) No provision of any applicable Law and
    no Judgment shall prohibit the consummation of the Closing.
    
	 
	 	     
    (b) All actions by or in respect of or
    filings with any Governmental Authority required to permit the
    consummation of the Closing shall have been taken, made or
    obtained.
    
	 
	 	     
    (c) The waiting period (and any extension
    thereof) applicable to the Transactions under the HSR Act shall
    have been terminated or shall have expired.
    

     
SECTION 9.02.     Conditions
to Obligations of Novo Nordisk and Novo Nordisk Delivery
Technologies, Inc. The obligation of each of Novo Nordisk
and Novo Nordisk Delivery Technologies, Inc. to consummate the
Closing is subject to the satisfaction of the following further
conditions:

		
	 	     
    (a) (i) Aradigm shall have performed in
    all material respects all of its obligations hereunder required
    to be performed by it on or prior to the Closing Date,
    (ii) the representations and warranties of Aradigm
    contained in this Agreement and the other Transaction Agreements
    and in any certificate or other writing delivered by Aradigm
    pursuant hereto (disregarding all qualifications and exceptions
    contained therein relating to materiality or Aradigm Material
    Adverse Effect or any similar standard or qualification) shall
    be true at and as of the Closing Date as if made at and as of
    such time, with only such exceptions (I) as have not had
    and would not reasonably be expected to have, individually or in
    the
    

20

 

		
	 	
    aggregate, an Aradigm Material Adverse Effect or
    (II) that result solely from the announcement of the
    Transactions or actions taken by the Parties in accordance with
    the terms of this Agreement and (iii) Novo Nordisk shall
    have received a certificate signed by the President or the Chief
    Financial Officer of Aradigm to the foregoing effect.
    
	 
	 	     
    (b) There shall not be threatened,
    instituted or pending any action or proceeding by any Person
    before any Governmental Authority, seeking to restrain, prohibit
    or otherwise interfere with the ownership, leasing or operation
    or to require divestiture or other disposition by Novo Nordisk
    or any of its Affiliates of all or any material portion of the
    Transferred Assets or all or any material portion of the
    business or assets of the operations in the United States of
    Novo Nordisk and its Affiliates, collectively.
    
	 
	 	     
    (c) Novo Nordisk shall have received an
    opinion of Cooley Godward LLP, counsel to Aradigm, dated the
    Closing Date to the effect set forth in Appendix B hereto.
    
	 
	 	     
    (d) Aradigm shall have executed and
    delivered the Transaction Agreements to which it is a party, and
    all deeds, bills of sale, endorsements, consents, assignments
    and other documentation to be provided at Closing pursuant to
    such Transaction Agreements and/or reasonably necessary to vest
    in Novo Nordisk Delivery Technologies, Inc. all right, title and
    interest in, to and under the Purchased Assets.
    
	 
	 	     
    (e) Aradigm shall have received all Required
    Consents and all consents, authorizations or approvals from the
    Governmental Authorities referred to in Section 3.03 or
    3.20, in each case in form and substance reasonably satisfactory
    to Novo Nordisk, and no such consent, authorization or approval
    shall have been revoked.
    
	 
	 	     
    (f) Aradigm shall have obtained, and shall
    have provided Novo Nordisk reasonably satisfactory evidence of,
    the Required Shareholder Approvals.
    
	 
	 	     
    (g) The Employee Transition Plan shall have
    been implemented.
    
	 
	 	     
    (h) Aradigm shall have entered into an
    agreement with the landlord (“Building 1
    Landlord”) under the Lease Agreement dated
    January 28, 1998 between Britannia Point Eden, LLC and
    Aradigm regarding the Building 1 Premises (as defined in
    the Sublease Agreement) (as amended, the
    “Building 1 Lease”) in a form reasonably
    acceptable to Novo Nordisk, in which agreement Aradigm and
    Building 1 Landlord (i) agree to terminate any first
    refusal right with respect to the Additional Option Space (as
    defined in the Building 1 Lease) granted to Aradigm under
    the Building 1 Lease or, alternatively, (ii) agree to
    subordinate any such first refusal right with respect to the
    Additional Option Space to the first refusal right granted to
    the tenant under the Lease dated January 28, 1998 between
    Hayward Point Eden I Limited Partnership and Aradigm
    regarding premises located in Building G of the Britannia
    Point Eden Business Park in Hayward, Alameda County, California.
    
	 
	 	     
    (i) Novo Nordisk shall have received all
    documents it may reasonably request relating to the existence of
    Aradigm and the authority of Aradigm for the Transaction
    Agreements to which it is a party, all in form and substance
    reasonably satisfactory to Novo Nordisk.
    

     
SECTION
9.03.     Conditions to Obligation
of Aradigm. The obligation of Aradigm to consummate the
Closing is subject to the satisfaction of the following further
conditions:

		
	 	     
    (a) Each of Novo Nordisk and Novo Nordisk
    Delivery Technologies, Inc. shall have performed in all material
    respects all of its obligations hereunder required to be
    performed by it at or prior to the Closing Date, (1) the
    representations and warranties of Novo Nordisk contained in this
    Agreement and in any certificate or other writing delivered by
    Novo Nordisk pursuant hereto shall be true in all material
    respects at and as of the Closing Date, as if made at and as of
    such date and (2) Aradigm shall have received a certificate
    signed by an officer of Novo Nordisk to the foregoing effect.
    
	 
	 	     
    (b) Aradigm shall have received an opinion
    of the General Counsel of Novo Nordisk or Davis Polk &
    Wardwell, counsel to Novo Nordisk, dated the Closing Date
    substantially to the effect specified in Sections 4.01,
    4.02, 4.03 and 4.04. In rendering such opinion, such counsel may
    rely upon certificates of public officers, as to matters
    governed by the laws of jurisdictions other than Denmark, the
    State of
    

21

 

		
	 	
    California, the State of New York or the federal
    laws of the United States of America, upon opinions of counsel
    reasonably satisfactory to Aradigm, and, as to matters of fact,
    upon certificates of officers of Novo Nordisk, copies of which
    opinions and certificates shall be contemporaneously delivered
    to Aradigm.
    
	 
	 	     
    (c) Each of Novo Nordisk and Novo Nordisk
    Delivery Technologies, Inc. shall have executed and delivered
    the Transaction Agreements to which it is a party, and all bills
    of sale, assignments and other documentation to be provided at
    Closing pursuant to such Transaction Agreements.
    
	 
	 	     
    (d) Novo Nordisk Delivery Technologies, Inc.
    shall have paid to Aradigm the Purchase Price.
    
	 
	 	     
    (e) Each of Novo Nordisk and Novo Nordisk
    Delivery Technologies, Inc. shall have received all consents,
    authorizations or approvals from Governmental Authorities
    referred to in Section 4.03, in each case in form and
    substance reasonably satisfactory to Aradigm, and no such
    consent, authorization or approval shall have been revoked.
    
	 
	 	     
    (f) Aradigm shall have received all
    documents it may reasonably request relating to the existence of
    Novo Nordisk and Novo Nordisk Delivery Technologies Inc. and the
    authority of each of Novo Nordisk and Novo Nordisk Delivery
    Technologies Inc. for the Transaction Agreements to which it is
    a party, all in form and substance reasonably satisfactory to
    Aradigm.
    

ARTICLE 10

SURVIVAL; INDEMNIFICATION

     
SECTION
10.01.     Survival. The
representations and warranties of the parties hereto contained
in this Agreement or in any certificate or other writing
delivered pursuant hereto or in connection herewith shall
survive the Closing until the third anniversary of the Closing
Date; provided that, the representations and warranties
in Sections 3.01, 3.02, 3.03, 3.04 and 3.20 and
Article 8 shall survive indefinitely or until the latest
date permitted by law. The covenants and agreements of the
parties hereto contained in this Agreement or in any certificate
or other writing delivered pursuant hereto or in connection
herewith shall survive the Closing indefinitely or for the
shorter period explicitly specified therein. Notwithstanding the
preceding sentence, any breach of a covenant, agreement,
representation or warranty in respect of which indemnity may be
sought under this Agreement shall survive the time at which it
would otherwise terminate pursuant to the preceding sentence, if
written notice of the inaccuracy thereof giving rise to such
right of indemnity shall have been given in accordance with
Section 10.03 to the party against whom such indemnity may
be sought prior to such time.

     
SECTION
10.02.     Indemnification.
(a) Effective at and after the Closing, Aradigm hereby
indemnifies Novo Nordisk and its Affiliates against and agrees
to hold each of them harmless from any and all damage, loss,
liability and expense (including reasonable expenses of
investigation and reasonable attorneys’ fees and expenses
in connection with any action, suit or proceeding whether
involving a third-party claim or a claim solely between the
parties hereto and any incidental, indirect or consequential
damages, losses, liabilities or expenses)
(“Damages”) incurred or suffered by Novo
Nordisk or any of its Affiliates arising out of:

		
	 	     
    (i) any misrepresentation or breach of
    warranty (each such misrepresentation and breach of warranty a
    “Warranty Breach”) or breach of covenant or
    agreement made or to be performed by Aradigm pursuant to this
    Agreement; or
    
	 
	 	     
    (ii) any Excluded Liability.
    

     
(b) Effective at and after the Closing, Novo
Nordisk hereby indemnifies Aradigm and its Affiliates against
and agrees to hold each of them harmless from any and all
Damages incurred or suffered by Aradigm or any of its Affiliates
arising out of any Warranty Breach or breach of covenant or
agreement made or to be performed by Novo Nordisk or Novo
Nordisk Delivery Technologies, Inc. pursuant to this Agreement.

     
SECTION
10.03.     Procedures. The party
seeking indemnification under Section 10.02 (the
“Indemnified Party”) agrees to give prompt
notice to the party against whom indemnity is sought (the
“Indemnifying Party”) of the assertion of any
claim, or the commencement of any suit, action or proceeding in
respect of which indemnity may be sought under
Section 10.02, which notice shall include a brief
description of the

22

 

specific facts relating to such claim, suit,
action or proceeding. The Indemnifying Party may at the request
of the Indemnified Party participate in and control the defense
of any such claim, suit, action or proceeding at its own
expense. The Indemnifying Party shall not be liable under
Section 10.02 for any settlement effected without its
consent of any claim, litigation or proceeding in respect of
which indemnity may be sought hereunder.

ARTICLE 11

TERMINATION

     
Section 11.01.     Grounds
for Termination. This Agreement may be terminated at any
time prior to the Closing:

		
	 	     
    (a) by mutual written agreement of the
    parties;
    
	 
	 	     
    (b) by any of the parties if the Closing
    shall not have been consummated on or before January 31,
    2005; or
    
	 
	 	     
    (c) by any of the parties if there shall be
    any Law that makes consummation of the Transactions illegal or
    otherwise prohibited or if consummation of the Transactions
    would violate any nonappealable final order, decree or judgment
    of any Governmental Authority having competent jurisdiction.
    

     
The party desiring to terminate this Agreement
pursuant to clauses 11.01(b) and 11.01(c) shall give
written notice of such termination to the other parties.

     
SECTION 11.02.     Effect
of Termination.

     
(a) If this Agreement is terminated as
permitted by Section 11.01, such termination shall be
without liability of any party (or any stockholder or
shareholder (as applicable), director, officer, employee, agent,
consultant or representative of such party) to the other parties
to this Agreement; provided that, if such termination shall
result from the (i) willful failure of any party to fulfill
a condition to the performance of the obligations of any other
party, (ii) failure to perform a covenant of this Agreement
or (iii) breach by any party of any representation or
warranty or agreement contained herein, such party shall be
fully liable for any and all Damages incurred or suffered by the
other parties as a result of such failure or breach. The
provisions of Sections 5.02(b), 7.04, 11.02, 12.02, 12.03,
12.05 and 12.06 shall survive any termination hereof pursuant to
Section 11.01.

     
(b) For the avoidance of doubt, if this
Agreement is terminated as permitted by Section 11.01, the
Development and License Agreement, the Patent Cooperation
Agreement, the Manufacturing and Supply Agreement and the Stock
Purchase Agreement shall continue in full force and legal effect.

ARTICLE 12

MISCELLANEOUS

     
SECTION
12.01.     Notices. Any notices,
requests and other communications to any party hereunder shall
be in writing (including facsimile transmission) and shall be
given,

     
if to Aradigm, to:

		
	 	
    Aradigm Corporation
    
	 	
    3929 Point Eden Way
    
	 	
    Hayward, California 94545
    
	 	
    Attention: Chief Financial Officer
    
	 	
    Telephone: +1 510-265-9000
    
	 	
    Telefax: +1 510-265-0277
    

23

 

     
with a copy to:

		
	 	
    Cooley Godward LLP
    
	 	
    3175 Hanover Street
    
	 	
    Palo Alto, California 94304-1130
    
	 	
    Attention: James C. Kitch
    
	 	
    Telephone: +1 650-843-5027
    
	 	
    Telefax: +1 650-849-7400
    

     
if to Novo Nordisk or Novo Nordisk Delivery
Technologies, Inc., to:

		
	 	
    Novo Nordisk A/ S
    
	 	
    Novo Alle
    
	 	
    DK-2880 Bagsvaerd
    
	 	
    Denmark
    
	 	
    Attention: General Counsel
    
	 	
    Telephone: +45 44 44 88 88
    
	 	
    Telefax: +45 44 42 18 30
    

     
and

		
	 	
    Attention: Vice President, Business Development
    
	 	
    Telephone: +45 44 42 39 00
    
	 	
    Telefax: +45 44 42 16 98
    

or to such other addresses and telecopier numbers
as may from time to time be notified by any party to the other
parties hereunder. All such notices, requests and other
communications shall be deemed to have been delivered within
seven (7) Business Days after dispatch and notice sent by
telex or telefax shall be deemed to have been delivered within
twenty-four (24) hours after dispatch. Notice of change of
address shall be effective upon receipt.

     
SECTION
12.02.     Amendments and
Waivers. (a) Any provision of this Agreement may be
amended or waived if, but only if, such amendment or waiver is
in writing and is signed, in the case of an amendment, by each
party to this Agreement, or in the case of a waiver, by the
party against whom the waiver is to be effective.

     
(b) No failure or delay by any party in
exercising any right, power or privilege hereunder shall operate
as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive
of any rights or remedies provided by Law.

     
SECTION
12.03.     Expenses. Except as
otherwise provided herein, all costs and expenses incurred in
connection with the Transaction Agreements shall be paid by the
party incurring such cost or expense.

     
SECTION
12.04.     Successors and
Assigns. The provisions of this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that, no
party may assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement without the consent
of each other party hereto; except that Novo Nordisk Delivery
Technologies, Inc. may transfer or assign, in whole or from time
to time in part, to one or more of its Affiliates, the right to
purchase or lease all or a portion of the Transferred Assets and
the Real Property, but no such transfer or assignment will
relieve Novo Nordisk Delivery Technologies, Inc. of its
obligations hereunder.

     
SECTION
12.05.     Governing Law. This
Agreement shall be governed by and construed in accordance with
the law of the State of New York.

     
SECTION
12.06.     Jurisdiction. The
parties agree that any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of
or in connection with this Agreement shall be brought in the
United States District Court for the Southern District of New
York or any New York State court sitting in New York City, so
long as one of such courts shall have subject matter
jurisdiction over such suit, action or

24

 

proceeding, and that any cause of action arising
out of this Agreement shall be deemed to have arisen from a
transaction of business in the State of New York, and each of
the parties hereby irrevocably consents to the jurisdiction of
such courts (and of the appropriate appellate courts therefrom)
in any such suit, action or proceeding and irrevocably waives,
to the fullest extent permitted by law, any objection that it
may now or hereafter have to the laying of the venue of any such
suit, action or proceeding brought in any such court or that any
such suit, action or proceeding brought in any such suit, action
or proceeding brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or
proceeding may be served on any party anywhere in the world,
whether within or without the jurisdiction of any such court.
Without limiting the foregoing, each party agrees that service
of process on such party as provided in Section 12.01 shall
be deemed effective service of process.

     
SECTION
12.07.     Waiver of Jury Trial.
EACH OF THE PARTIES HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATED TO THIS AGREEMENT.

     
SECTION
12.08.     Counterparts; Third Party
Beneficiaries; Effectiveness. This Agreement may be signed
in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and
hereto were upon the same instrument. This Agreement shall
become effective when each party hereto shall have received a
counterpart hereof signed by all of the other parties hereto.
Until and unless each party has received a counterpart hereof
signed by the other party hereto, this Agreement shall have no
effect and no party shall have any right or obligation hereunder
(whether by virtue of any other oral or written agreement or
other communication). No provision of this Agreement is intended
to confer any rights, benefits, remedies, obligations or
liabilities hereunder upon any Person other than the parties
hereto and their respective successors and assigns.

     
SECTION
12.09.     Entire Agreement.
This Agreement, the other Transaction Agreements, the
Co-Existence Agreement and, until the Closing, if any, the
Development and License Agreement, the Patent Cooperation
Agreement, the Manufacturing and Supply Agreement and the Stock
Purchase Agreement, constitute the entire agreement between the
parties hereto with respect to the subject matter of this
Agreement and supersede all prior agreements and understandings,
both oral and written, between the parties with respect to the
subject matter.

     
SECTION
12.10.     Bulk Sales Laws. Novo
Nordisk and Aradigm each hereby waive compliance by Aradigm with
the provisions of the “bulk sales,” “bulk
transfer” or similar laws of any state. Aradigm agrees to
indemnify and hold Novo Nordisk harmless against any and all
claims, losses, damages, liabilities, costs and expenses
incurred by Novo Nordisk or any of its Affiliates as a result of
any failure to comply with any such “bulk sales,”
“bulk transfer” or similar laws.

     
SECTION
12.11.     Severability. If any
term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction or other authority to
be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall
remain in full force and effect and shall in no way be affected,
impaired or invalidated so long as the economic or legal
substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party. Upon
such a determination, the parties shall negotiate in good faith
to modify this Agreement so as to effect the original intent of
the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby be consummated
as originally contemplated to the fullest extent possible.

     
SECTION 12.12.     Specific
Performance. The parties hereto agree that irreparable
damage would occur if any provision of this Agreement were not
performed in accordance with the terms hereof and that the
parties shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement or to enforce specifically
the performance of the terms and provisions hereof in United
States District Court for the Southern District of New York or
any New York State court sitting in New York City, in addition
to any other remedy to which they are entitled at law or in
equity; provided that, the last two (2) sentences of
Section 7.06 shall apply to specific performance of the
terms of Section 7.06.

[SIGNATURE PAGE FOLLOWS]

25

 

     
IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be duly executed by their respective
authorized officers as of the day and year first above written.

		
	 	
    ARADIGM CORPORATION
    

			
	 	By: 	
    /s/ RICHARD P. THOMPSON
    

		
	 	
    

	 	
    Name: Richard P. Thompson
    
	 	
    Title:  Chairman
    
	 
	 	
    NOVO NORDISK MS
    

			
	 	By: 	
    /s/ PER VALSTORP
    

		
	 	
    

	 	
    Name: 
	 	
    Title:  Senior Vice President, Product
    Supply
    
	 
	 	
    NOVO NORDISK DELIVERY TECHNOLOGIES, INC.
    

			
	 	By: 	
    /s/ PER VALSTORP
    

		
	 	
    

	 	
    Name: 
	 	
    Title:  Chief Executive Officer
    

26

 

EXHIBIT A

[AMENDED AND RESTATED LICENSE
AGREEMENT]

A-1

 

Certain confidential
information 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.

AMENDED AND RESTATED

LICENSE AGREEMENT

dated as of

                    ,
2004

between

ARADIGM CORPORATION

and

NOVO NORDISK A/S

 

A-2

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
					Page
					

	
     ARTICLE 1
    
	
    DEFINITIONS
    
	
    
     SECTION 1.01.
    

    	 	
     Definitions	 	 	A-6	 
	
    
     SECTION 1.02.
    

    	 	
     Other Defined
    Terms	 	 	A-11	 
	
    
     SECTION 1.03.
    

    	 	
     Other Definitional and
    Interpretative Provisions	 	 	A-11	 
	 
	
     ARTICLE 2
    
	
    RIGHTS AND OBLIGATIONS OF THE PARTIES
    
	
    
     SECTION 2.01.
    

    	 	
     Development
    Program	 	 	A-11	 
	
    
     SECTION 2.02.
    

    	 	
     Review
    Committee	 	 	A-12	 
	
    
     SECTION 2.03.
    

    	 	
     Obligations Of The
    Parties In Respect Of The Review Committee	 	 	A-12	 
	
    
     SECTION 2.04.
    

    	 	
     Responsibilities Of The
    Review Committee	 	 	A-13	 
	
    
     SECTION 2.05.
    

    	 	
     Diligent
    Efforts	 	 	A-13	 
	
    
     SECTION 2.06.
    

    	 	
     Use
    Restrictions	 	 	A-13	 
	
    
     SECTION 2.07.
    

    	 	
     Alternative
    Technology	 	 	A-13	 
	
    
     SECTION 2.08.
    

    	 	
     Noncompetition	 	 	A-15	 
	
    
     SECTION 2.09.
    

    	 	
     Product
    Liability	 	 	A-15	 
	 
	
     ARTICLE 3
    
	
    GRANT OF LICENSE
    
	
    
     SECTION 3.01.
    

    	 	
     License	 	 	A-16	 
	
    
     SECTION 3.02.
    

    	 	
     Additional License Under
    Aradigm Selected Pulmonary Delivery Patent Rights	 	 	A-16	 
	
    
     SECTION 3.03.
    

    	 	
     Sublicense	 	 	A-16	 
	
    
     SECTION 3.04.
    

    	 	
     Additional
    Licenses	 	 	A-16	 
	
    
     SECTION 3.05.
    

    	 	
     Publicly Available
    Information	 	 	A-17	 
	 
	
     ARTICLE 4
    
	
    SUPPLY
    
	
    
     SECTION 4.01.
    

    	 	
     Novo Nordisk Supply
    Obligations	 	 	A-17	 
	 
	
     ARTICLE 5
    
	
    ROYALTY PAYMENTS
    
	
    
     SECTION 5.01.
    

    	 	
     Royalty
    Payments	 	 	A-17	 
	
    
     SECTION 5.02.
    

    	 	
     Royalty Payments
    Schedule	 	 	A-18	 
	
    
     SECTION 5.03.
    

    	 	
     Additional Royalty
    Provisions	 	 	A-18	 
	
    
     SECTION 5.04.
    

    	 	
     Record
    Keeping	 	 	A-19	 
	
    
     SECTION 5.05.
    

    	 	
     Audit Right	 	 	A-19	 
	
    
     SECTION 5.06.
    

    	 	
     Withholding
    Taxes	 	 	A-19	 
	
    
     SECTION 5.07.
    

    	 	
     Currency	 	 	A-19	 

A-3

 

	 	 	 	 	 	 	 
					Page
					

	 
	
    ARTICLE 6
    
	
    INTELLECTUAL PROPERTY
    
	
    
    SECTION 6.01.
    

    	 	
    Aradigm Intellectual
    Property Rights	 	 	A-20	 
	
    
    SECTION 6.02.
    

    	 	
    Novo Nordisk Intellectual
    Property Rights	 	 	A-20	 
	
    
    SECTION 6.03.
    

    	 	
    Notice by
    Aradigm	 	 	A-21	 
	
    
    SECTION 6.04.
    

    	 	
    Notice by Novo
    Nordisk	 	 	A-21	 
	
    
    SECTION 6.05.
    

    	 	
    Pursuit of
    Patents	 	 	A-22	 
	
    
    SECTION 6.06.
    

    	 	
    License Option In Lieu Of
    Ownership	 	 	A-23	 
	 
	
    ARTICLE 7
    
	
    PATENT COOPERATION
    
	
    
    SECTION 7.01.
    

    	 	
    Enforcement of Patent
    Rights	 	 	A-23	 
	
    
    SECTION 7.02.
    

    	 	
    Initiation of Action
    Relating to Patents	 	 	A-23	 
	
    
    SECTION 7.03.
    

    	 	
    Interferences	 	 	A-26	 
	
    
    SECTION 7.04.
    

    	 	
    Defense and Settlement of
    Third Party Patent Claims	 	 	A-26	 
	 
	
    ARTICLE 8
    
	
    SECRECY
    
	
    
    SECTION 8.01.
    

    	 	
    Confidentiality	 	 	A-27	 
	
    
    SECTION 8.02.
    

    	 	
    Publication
    Planning	 	 	A-27	 
	
    
    SECTION 8.03.
    

    	 	
    Term Of Confidentiality
    Provisions	 	 	A-28	 
	 
	
    ARTICLE 9
    
	
    NOTICE
    
	
    
    SECTION 9.01.
    

    	 	
    Notice	 	 	A-28	 
	
    
    SECTION 9.02.
    

    	 	
    Deemed Receipt of
    Notice	 	 	A-28	 
	 
	
    ARTICLE 10
    
	
    TERM AND TERMINATION
    
	
    
    SECTION 10.01.
    

    	 	
    Term	 	 	A-29	 
	
    
    SECTION 10.02.
    

    	 	
    Termination by Novo
    Nordisk	 	 	A-29	 
	
    
    SECTION 10.03.
    

    	 	
    Termination by
    Aradigm	 	 	A-29	 
	
    
    SECTION 10.04.
    

    	 	
    Termination By Either
    Party	 	 	A-29	 
	
    
    SECTION 10.05.
    

    	 	
    Rights And Obligations of
    The Parties After Termination	 	 	A-29	 
	
    
    SECTION 10.06.
    

    	 	
    Additional Effects of
    Termination or Expiration	 	 	A-33	 
	 
	
    ARTICLE 11
    
	
    DISPUTE RESOLUTION AND GOVERNING LAW
    
	
    
    SECTION 11.01.
    

    	 	
    Dispute
    Resolution	 	 	A-33	 
	
    
    SECTION 11.02.
    

    	 	
    Governing
    Law	 	 	A-34	 

A-4

 

	 	 	 	 	 	 	 
					Page
					

	 
	
     ARTICLE 12
    
	
    MISCELLANEOUS
    
	
    
     SECTION 12.01.
    

    	 	
     Bankruptcy Code
    Considerations	 	 	A-34	 
	
    
     SECTION 12.02.
    

    	 	
     Binding
    Agreement	 	 	A-35	 
	
    
     SECTION 12.03.
    

    	 	
     Severability	 	 	A-35	 
	
    
     SECTION 12.04.
    

    	 	
     Amendments and
    Waivers	 	 	A-35	 
	
    
     SECTION 12.05.
    

    	 	
     Expenses	 	 	A-35	 
	
    
     SECTION 12.06.
    

    	 	
     Successors and
    Assigns	 	 	A-35	 
	
    
     SECTION 12.07.
    

    	 	
     Counterparts; Third Party
    Beneficiaries	 	 	A-35	 
	
    
     SECTION 12.08.
    

    	 	
     Entire
    Agreement	 	 	A-37	 
	
    Appendix A Aradigm Selected Pulmonary
    Delivery Patent Rights
    	 	 	 	 

A-5

 

AMENDED AND RESTATED LICENSE
AGREEMENT

     
This AMENDED AND RESTATED LICENSE AGREEMENT (the
“Agreement”) is entered into as
of                     ,
2004 by and between Aradigm Corporation, a corporation duly
organized and existing under the laws of the State of California
(“Aradigm”) and Novo Nordisk A/S, a company
duly organized and existing under the laws of Denmark
(“Novo Nordisk”).

     
WHEREAS, Novo Nordisk and Aradigm entered into a
Development and License Agreement dated as of June 2, 1998,
as amended by Amendment No. 1 thereto dated as of
October 22, 2001 (the “Development and License
Agreement”) to develop a system for pulmonary delivery
of insulin (and potentially other compounds) and under which
Aradigm granted to Novo Nordisk an exclusive, world-wide license
under certain patent rights and “know-how,” to use,
market, distribute, sell and sublicense products resulting from
such development program in the Field (as defined herein and
therein);

     
WHEREAS, Aradigm, Novo Nordisk and Novo Nordisk
Delivery Technologies, Inc., a corporation duly organized and
existing under the laws of the State of Delaware (“Novo
Nordisk Delivery Technologies, Inc.”) are parties to a
Restructuring Agreement dated as of September 28, 2004 (the
“Restructuring Agreement”) pursuant to which
they have agreed to restructure their existing arrangements
regarding the development, production and commercialization of
the Development Program (as defined herein) and to certain other
matters as set forth therein; and

     
WHEREAS, the amendment and restatement of the
Development and License Agreement is a precondition to
performance on the part of Aradigm, Novo Nordisk and Novo
Nordisk Delivery Technologies, Inc. of their respective
obligations under the Restructuring Agreement.

     
NOW, THEREFORE, in consideration of the premises
set forth above and for other good and valuable consideration,
receipt of which is hereby acknowledged, the Parties hereto
agree as follows:

ARTICLE 1

DEFINITIONS

     
SECTION 1.01.     Definitions.

     
The following terms, as used herein, shall have
the following meanings:

     
“Affiliates”
shall have the meaning set forth in
the Restructuring Agreement.

     
“Alternative Technology”
shall mean any pulmonary drug delivery
technology that may be covered by the Aradigm Selected Pulmonary
Delivery Patent Rights, but that (a) does not use any
Aradigm Know-How and (b) is not claimed by any Aradigm
Patent Rights.

     
“Alternative Technology Effective
Date” means the date that is the
earlier of (a) three (3) years after the delivery
(without subsequent withdrawal) as permitted under
Section 2.07(c)) by Novo Nordisk to Aradigm of an
Alternative Technology Notice for a product using a specific
insulin or insulin analog class described in such Alternative
Technology Notice and (b) the granting of Regulatory
Approval for such product.

     
“Alternative Technology Notice”
means written notice provided by Novo
Nordisk to Aradigm pursuant to Section 2.07(c) stating that
Novo Nordisk intends to commence commercialization of a product
using an Alternative Technology to deliver insulin and insulin
analogs.

     
“Aradigm Background IPR”
shall mean any and all knowledge,
information, expertise, results, improvements or inventions
(whether patentable or not), and all related intellectual
property rights, Made Jointly by the Parties or individually by
one (1) of the Parties as a part of the Development Program
under the Development and License Agreement prior to the
Effective Date and which relate to the Packaged Product (except
as specified with respect to the Program Compounds, formulations
thereof or the interactions between materials and such
formulations) and the Device. The Aradigm Background IPR shall
be included within the Aradigm Patent Rights or Aradigm
Know-How, as applicable.

A-6

 

     
“Aradigm Know-How”
shall mean all knowledge, information
and expertise made or developed by Aradigm prior to the
Effective Date related to the development and production of the
Device, the Packaged Product and the Program Compounds
(introduced into the Development Program prior to the Effective
Date), whether or not covered by Aradigm Patent Rights or any
other industrial or intellectual property right of Aradigm,
including but not limited to clinical data, technical data,
experimental results, specifications, techniques, methods,
processes and written materials.

     
“Aradigm New IPR”
shall mean any and all knowledge,
information, expertise, results, improvements or inventions,
whether patentable or not, and all related intellectual property
rights, that are made or developed after the Effective Date and
prior to the termination of this Agreement, and that:
(a) are Made Jointly by Novo Nordisk and Aradigm or by
Aradigm alone and that relate solely to any Device (including
without limitation the manufacturing thereof) and/or Packaged
Product (including without limitation the manufacturing thereof,
except as specified with respect to the Program Compounds,
formulations thereof or the interactions between materials and
such formulations); or (b) are made or developed by Aradigm
alone and that relate solely to any method of treatment within
the Field (including without limitation medical data, algorithms
for dosing, models for predicting dosing and/or optimizing
treatment, clinical data and patient data).

     
“Aradigm Patent Rights”
shall mean any and all of
Aradigm’s patents and patent applications possessed by
Aradigm prior to the Effective Date (other than the Aradigm
Selected Pulmonary Delivery Patent Rights) related to the
Device, the Packaged Product and the Program Compounds
introduced into the Development Program prior to the Effective
Date, including (a) the patents and patent applications
listed on Schedule 3.13(a)(i) to the Restructuring
Agreement, (b) patents and patent applications relating to
the development, production and use of the Device, the Packaged
Product, and the Program Compounds introduced into the
Development Program prior to the Effective Date, and
(c) all continuations, continuations-in-part, divisionals
or re-issues of such patents and patent applications and any
patents issuing thereon or extensions thereof or any foreign
counterparts thereof. Extensions of patents shall include:
(i) extensions under the U.S. Patent Term Restoration
Act, (ii) extensions of patents under the Japanese Patent
Law, (iii) Supplementary Protection Certificates for
members of the European Patent Convention and other countries in
the European Economic Area and (iv) similar extensions
under any applicable law in the Territory.

     
“Aradigm Selected Pulmonary Delivery
Patent Rights” shall mean the
patent claims listed in Appendix A and Obvious Variants
thereof.

     
“Baselines”
shall mean the forecast amounts of Net
Sales of the Insulin Compound Packaged Products and the Device
separately communicated to Aradigm prior to the date hereof and
“Baseline” shall mean the forecast amount for
any particular calendar year following First Marketing of the
Insulin Compound Packaged Products and the Device by any member
of the Novo Nordisk Affiliate Group or any permitted
sublicensees thereof.

     
“Broad Regulatory Approval”
shall mean, with respect to Packaged
Products and the Device, Regulatory Approval authorizing
marketing thereof for the treatment of patients with diabetes
mellitus (type 1 and type 2).

     
“Business Day”
shall mean a day, other than Saturday,
Sunday or other day on which commercial banks in New York, New
York are authorized or required by law to close.

     
“Co-Existence Agreement”
shall have the meaning set forth in
the Restructuring Agreement.

     
“Development Program”
shall mean the development of the
Packaged Product and the Device, including the pre-clinical and
clinical development programs required for registration and
approval of the Packaged Product and the Device in the Territory
conducted by the Parties under the Development and License
Agreement prior to the Effective Date, and as thereafter
conducted by Novo Nordisk in accordance with this Agreement.

A-7

 

     
“Device”
shall mean: (a) any pulmonary
delivery device that (i) has been developed in the course
of the Development Program prior to the Effective Date, and
(ii) is based on the device technology described by the
Aradigm Patent Rights or utilizing Aradigm Know-How; and
(b) any improved or later generation version thereof, in
each case, together with any accessories, used to administer any
Program Compound contained in a disposable unit dose package,
developed in the course of the Development Program after the
Effective Date.

     
“Diligent Efforts”
shall mean, with respect to efforts of
any Party hereto, no less than the efforts that such Party
applies to: (a) development, manufacture or
commercialization of its own compounds or products with similar
regulatory requirements and market potential; and
(b) prosecution, maintenance and/or defense of intellectual
property rights of similar importance.

     
“Effective Date”
shall mean the date hereof.

     
“Field”
shall mean pulmonary administration of
insulin, insulin analogs and any other compounds whose principal
therapeutic effect is to control blood glucose levels in humans,
including but not limited to glucagon-like peptide
(“GLP”), GLP-1 and analogs of GLP.

     
“First Marketed Product and Device”
shall be deemed to mean the first of
any of the following products for which First Marketing by any
member of the Novo Nordisk Affiliate Group or any permitted
sublicensees thereof shall have occurred: (1) the Insulin
Compound Packaged Product and the Device, (2) any Packaged
Product (relating to Program Compounds other than the Insulin
Compound) and the Device and (3) any products using an
Alternative Technology to deliver a specific insulin or insulin
analog class (in such case, only to the extent that royalties
are payable under Section 2.07(e)(i)).

     
“First Marketing”
shall mean the making available for
sale of the applicable product in commercial quantities for the
first time in any country in the Territory.

     
“First Marketing Commencement Date”
shall mean the date on which the
applicable First Marketing shall have commenced.

     
[****]

     
“Insulin Compound”
shall mean recombinant human insulin.

     
“Insulin Compound Packaged Product”
shall mean the disposable unit dose
packages developed in the course of the Development Program
containing Insulin Compound, packaged for use with the Device
for pulmonary delivery of such Insulin Compound.

     
“Joint Marketing Partners”
shall mean any co-marketers,
co-promoters and/or rental sales forces.

     
“Later Marketed Product and Device”
shall be deemed to mean any and all of
the following products for which First Marketing by any member
of the Novo Nordisk Affiliate Group or any permitted
sublicensees thereof shall have occurred following First
Marketing of the First Marketed Product and Device: (1) the
Insulin Compound Packaged Product and the Device, (2) any
Packaged Product (relating to Program Compounds other than the
Insulin Compound) and the Device or (3) any products using
an Alternative Technology to deliver a specific insulin or
insulin analog class (in such case, only to the extent that
royalties are payable under Section 2.07(e)(i)).

     
“Know-How”
shall mean the Aradigm Know-How and
Novo Nordisk Know-How, collectively.

     
“Made Jointly”
shall mean “made jointly”
as such term is interpreted under applicable
U.S. patent law.

     
“Net Sales”
shall mean the invoiced gross revenue
from sales of the applicable product, when invoiced to any third
party in an arm’s length transaction less: (a) Trade,
cash and/or quantity discounts or rebates, if any;
(b) Credits or allowances given for rejection or return of
such products previously sold as well as the cost of replacement
products, including shipping and other incidental charges
related thereto; (c) Any tax or governmental charge other
than income tax levied on the sale thereof or customs duties
associated therewith;

**** Certain confidential
information 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.

A-8

 

and (d) Freight, insurance and other similar
expenses billed separately to the customer. Upon a request by
Aradigm or Novo Nordisk, as the case may be, supported by
suitable documentation reflecting actual operating experience,
the Parties will agree on a fixed percentage of Net Sales of the
applicable product to represent item (d).

     
“Novo Nordisk Affiliate Group”
shall mean Novo Nordisk and its
Affiliates, collectively.

     
“Novo Nordisk Background IPR”
shall mean any and all knowledge,
information, expertise, results, improvements or inventions
(whether patentable or not), and all related intellectual
property rights, Made Jointly by the Parties or individually by
one (1) of the Parties as a part of the Development Program
under the Development and License Agreement prior to the
Effective Date and which relate to any Program Compound,
formulations thereof or the interactions between materials and
such formulations, but excluding aspects of the formulation
relating to the aerosolization of the Program Compounds. The
Novo Nordisk Background IPR shall be included within the Novo
Nordisk Patent Rights or Novo Nordisk Know-How, as applicable.

     
“Novo Nordisk Know-How”
shall mean all knowledge, information
and expertise made or developed by Novo Nordisk prior to the
Effective Date related to the Insulin Compound or that Novo
Nordisk otherwise has contributed (or will contribute) to the
Development Program, whether or not covered by Novo Nordisk
Patent Rights or any other industrial or intellectual property
right of Novo Nordisk, including but not limited to technical
data, experimental results, specifications, techniques, methods,
processes and written materials.

     
“Novo Nordisk New IPR”
shall mean (a) any and all
knowledge, information, expertise, results, improvements or
inventions, whether patentable or not, and all related
intellectual property rights, made or developed by Novo Nordisk
alone as a part of the Development Program after the Effective
Date and prior to the termination of this Agreement that relate
solely to any Device (including without limitation the
manufacturing thereof) and/or Packaged Product (including
without limitation the manufacturing thereof); (b) any and
all knowledge, information, expertise, results, improvements or
inventions, whether patentable or not, and all related
intellectual property rights, Made Jointly by Novo Nordisk and
Aradigm or by Novo Nordisk alone as a part of the Development
Program after the Effective Date and prior to the termination of
this Agreement and which relate solely to any method of
treatment within the Field (including without limitation medical
data, algorithms for dosing, models for predicting dosing and/or
optimizing treatment, clinical data and patient data); and
(c) any and all results, improvements or inventions,
whether patentable or not, and all related intellectual property
rights, Made Jointly by Novo Nordisk and Aradigm, by Aradigm
alone or by Novo Nordisk alone as a part of the Development
Program after the Effective Date and prior to the termination of
this Agreement and which relate to any Program Compound,
formulations thereof or the interactions between materials and
such formulations.

     
“Novo Nordisk Patent Rights”
shall mean any and all of Novo
Nordisk’s patents and patent applications possessed by Novo
Nordisk prior to the Effective Date related to any Program
Compound, including (a) patents and patent applications
relating to the production, development and use of any Program
Compound and (b) all continuations, continuations-in-part,
divisionals or re-issues of such patents and patent applications
and any patents issuing thereon or extensions thereof or any
foreign counterparts thereof. Extensions of patents shall
include: (i) extensions under the U.S. Patent Term
Restoration Act, (ii) extensions under the Japanese Patent
Law, (iii) Supplementary Protection Certificates for
members of the European Patent Convention and other countries in
the European Economic Area and (iv) similar extensions
under any applicable law in the Territory.

     
“Obvious Variant”
shall mean any patent claim for which
the United States Patent and Trade Office could properly issue a
double patenting rejection in respect of the specific claims of
the patents listed in Appendix A if the claim in question
were presented by itself in a new patent application owned by
Aradigm. For non-U.S. patent and non-U.S. patent
applications, a claim that is an Obvious Variant of one
(1) or more claims listed in Appendix A is any claim
that, if it were presented in a new U.S. patent application
owned by Aradigm, could properly be the subject of a double
patenting rejection by the United States Patent and Trade
Office. For the avoidance of doubt, Obvious Variants of the
claims listed in Appendix A shall be included in the
license granted under Section 3.02.

A-9

 

     
“Packaged Product”
shall mean any disposable unit dose
package developed in the course of the Development Program
containing the Insulin Compound or other Program Compounds,
packaged for use with the Device for pulmonary delivery of such
Insulin Compound or other Program Compounds.

     
“Parties”
shall mean the parties hereto and
“Party” shall mean any one of the parties
hereto.

     
“Patent Rights”
shall mean the Aradigm Patent Rights,
patent rights under the Aradigm New IPR, Aradigm Selected
Pulmonary Patent Rights, Novo Nordisk Patent Rights and patent
rights under the Novo Nordisk New IPR, collectively.

     
“Person”
shall mean an individual, corporation,
partnership, limited liability company, association, trust or
other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.

     
“Program Compounds”
shall mean the Insulin Compound and
any other insulin compounds, insulin analog compounds and
non-insulin compounds included in the Development Program by
Novo Nordisk in its sole discretion.

     
“Regulatory Approval”
shall mean the granting of a
commercial marketing authorization for (a) a Packaged
Product for delivery of a Program Compound using the Device,
(b) the Device or (c) any product based on any
Alternative Technology, as the case may be.

     
“Regulatory Submission”
shall mean the filing of an
application for a commercial marketing authorization for
(a) a Packaged Product for delivery of a Program Compound
using the Device, (b) the Device or (c) any product
based on any Alternative Technology, as the case may be.

     
“Stage 1 Commercialization
Period” shall mean the period
commencing on the applicable First Marketing Commencement Date
and ending on the third anniversary thereof.

     
“Stage 2 Commercialization
Period” shall mean the period
commencing on the expiration of the applicable Stage 1
Commercialization Period and ending on the first anniversary
thereof.

     
“Stage 3 Commercialization
Period” shall mean the period
commencing on the expiration of the applicable Stage 2
Commercialization Period and ending on the termination of this
Agreement; provided that, in the event of a termination
by Novo Nordisk pursuant to either or both of Section 10.02
and Section 10.04, the Stage 3 Commercialization
Period shall end on the later of (A) the date that is ten
(10) years from the First Marketing of any Packaged Product
and the Device, or another pulmonary product, as the case may
be, and (B) the expiration date of the last patent required
to cover the Packaged Product and the Device, or another
pulmonary product, as the case may be, and the development,
manufacturing, use, marketing, distribution, sale, offer for
sale, importation and/or exportation thereof in and from the
Territory.

     
“Status Report”
shall mean the status report on the
Development Program to be provided by Novo Nordisk to Aradigm at
meetings of the Review Committee as contemplated by
Section 2.04(f) in a form consistent with Novo
Nordisk’s practice.

     
“Territory”
shall include any and all countries of
the world.

     
“Transaction Agreements”
shall have the meaning set forth in
the Restructuring Agreement.

A-10

 

     
SECTION 1.02.     Other
Defined Terms. Each of the following terms is defined in the
Section set forth opposite such term:

	 	 	 
	Term		Section
	
		

	
    
    Agreement
    

    	 	
    Recitals
    
	
    
    Aradigm
    

    	 	
    Recitals
    
	
    
    Bankruptcy Code
    

    	 	
    12.01(a)
    
	
    
    Confidential Information
    

    	 	
    8.01(d)
    
	
    
    Development and License Agreement
    

    	 	
    Recitals
    
	
    
    Directly Infringing Product
    

    	 	
    7.02(c)
    
	
    
    Field Claim
    

    	 	
    7.02(b)
    
	
    
    Field Infringement
    

    	 	
    7.04(a)
    
	
    
    Independent Auditor
    

    	 	
    5.05(a)
    
	
    
    Non-Insulin Compound
    

    	 	
    2.07(b)
    
	
    
    Novo Nordisk
    

    	 	
    Recitals
    
	
    
    Novo Nordisk Delivery Technologies,
    Inc. 

    	 	
    Recitals
    
	
    
    Representatives
    

    	 	
    8.01(d)
    
	
    
    Restructuring Agreement
    

    	 	
    Recitals
    
	
    
    Review Committee
    

    	 	
    2.02
    
	
    
    Royalty Paying Party
    

    	 	
    5.02
    
	
    
    Royalty Receiving Party
    

    	 	
    5.02
    
	
    
    substantially the same as
    

    	 	
    7.02(c)
    

     
SECTION 1.03.     Other
Definitional and Interpretative Provisions. Unless specified
otherwise, in this Agreement the obligations of any Party
consisting of more than one person are joint and several. The
words “hereof”, “herein” and
“hereunder” and words of like import used in this
Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement. The captions herein
are included for convenience of reference only and shall be
ignored in the construction or interpretation hereof. References
to Articles, Sections, Exhibits and Schedules are to Appendices,
Articles, Sections, Exhibits and Schedules of this Agreement
unless otherwise specified. All Appendices, Exhibits and
Schedules annexed hereto or referred to herein are hereby
incorporated in and made a part of this Agreement as if set
forth in full herein. Any capitalized terms used in any Exhibit
or Schedule but not otherwise defined therein, shall have the
meaning as defined in this Agreement. Any singular term in this
Agreement shall be deemed to include the plural, and any plural
term the singular. Whenever the words “include”,
“includes” or “including” are used in this
Agreement, they shall be deemed to be followed by the words
“without limitation”, whether or not they are in fact
followed by those words or words of like import.
“Writing”, “written” and comparable terms
refer to printing, typing and other means of reproducing words
(including electronic media) in a visible form. References to
any agreement or contract are to that agreement or contract as
amended, modified or supplemented from time to time in
accordance with the terms hereof and thereof. References to any
Person include the successors and permitted assigns of that
Person. References from or through any date mean, unless
otherwise specified, from and including or through and
including, respectively.

ARTICLE 2

RIGHTS AND OBLIGATIONS OF THE PARTIES

     
SECTION 2.01.     Development
Program. Novo Nordisk shall conduct the Development Program
in its sole discretion and at its own expense.

A-11

 

     
SECTION 2.02.     Review
Committee. The Parties shall establish a Review Committee
(“Review Committee”) within thirty
(30) calendar days of the Effective Date. The first meeting
of such Review Committee shall be held no later than
April 1, 2005. The Review Committee shall

		
	 	     
    (a) consist of up to three
    (3) representatives of each Party, as notified by such
    Party to the other Party from time to time in writing. Other
    non-voting representatives of a Party may attend each meeting
    upon the approval of the Review Committee;
    
	 
	 	     
    (b) be chaired by a representative of Novo
    Nordisk from the Effective Date until December 31, 2005;
    provided that, after such date a representative from
    Aradigm will chair the Review Committee from January 1,
    2006 until December 31, 2006, and thereafter the Parties
    will alternate chairing the Review Committee on a calendar year
    basis;
    
	 
	 	     
    (c) meet periodically (at least once every
    six (6) months). Meetings shall be convened by the
    chairperson with at least thirty (30) calendar days prior
    written notice and such notice shall include an agenda. Either
    Party may request the chairperson to call a meeting, but in no
    event shall any Party request the chairperson to call more than
    four (4) meetings per calendar year; and
    
	 
	 	     
    (d) have minutes drafted of each meeting by
    the chairperson and signed by one representative of each Party.
    

     
SECTION 2.03.     Obligations
Of The Parties In Respect Of The Review Committee.
(a) The Parties agree that during the meetings of the
Review Committee at which the semi-annual technology review
required under Section 2.04 shall take place, they shall
disclose and provide reasonable details relating to:
(i) intellectual property rights and/or know-how with
potential application in the Field in general and in later
generation Packaged Products and Devices in particular; and
(ii) plans, programs, results and ongoing developments that
could lead to or result in Aradigm New IPR or Novo Nordisk New
IPR, as applicable, including Aradigm New IPR and Novo Nordisk
New IPR relating to later generation Packaged Products and
Devices. For the avoidance of doubt, the obligation of Novo
Nordisk to disclose and provide reasonable details under this
Section 2.03 shall extend only to plans, programs, results
and ongoing developments within the Development Program.

     
(b) After Aradigm discloses and provides
reasonable details relating to its intellectual property rights
with potential application in the Field in accordance with
Section 2.03(a), the Parties shall discuss and determine in
good faith whether or not such intellectual property rights
constitute Aradigm New IPR, Novo Nordisk New IPR or neither. In
the event such determination requires further research and/or
development to evaluate the utility of such intellectual
property rights within the Development Program, the Parties
shall agree in writing to the scope and design of such research
and/or development activities pursuant to consulting
arrangements as contemplated by Section 2.04(c) below. The
Parties shall discuss in good faith and agree whether or not any
knowledge, information, expertise, results, improvements or
inventions, whether patentable or not, and all related
intellectual property rights, made or developed by Aradigm
solely, Novo Nordisk solely, or Aradigm and Novo Nordisk jointly
arising out of any such further research and/or development
following disclosure of such Aradigm intellectual property
rights constitute Aradigm New IPR, Novo Nordisk New IPR or
neither. In the event the Parties determine that the Aradigm
intellectual property rights have applications outside the
Development Program or have applications both inside and outside
the Development Program, upon written request by Novo Nordisk to
Aradigm, Aradigm shall in good faith consider granting, but
shall have no obligation to grant, a license under such
intellectual property rights to Novo Nordisk for applications
outside of the Development Program on terms to be agreed in
writing between the Parties.

     
(c) Novo Nordisk shall provide Aradigm with
a copy of a presentation relating to any Status Report to be
delivered at a Review Committee meeting at least ten
(10) days prior to such Review Committee meeting.

A-12

 

     
SECTION 2.04.     Responsibilities
Of The Review Committee. The Review Committee shall be
responsible for the following matters:

		
	 	     
    (a) ensuring optimal cooperation between the
    Parties;
    
	 
	 	     
    (b) conducting semi-annual technology
    reviews within the field of pulmonary administration of drugs;
    
	 
	 	     
    (c) identifying and recommending, subject to
    the Parties’ agreement, consulting and other assignments to
    be performed by Aradigm under the Development Program or as
    contemplated by Section 2.03(b) at Novo Nordisk’s
    expense;
    
	 
	 	     
    (d) reviewing the status, process and
    strategy for prosecution and maintenance of patents in
    accordance with Article 6 and addressing any issues or
    developments arising therefrom;
    
	 
	 	     
    (e) overseeing ongoing implementation of the
    technology transfer process contemplated in the Restructuring
    Agreement;
    
	 
	 	     
    (f) reviewing any Status Report on the
    Development Program presented by Novo Nordisk; and
    
	 
	 	     
    (g) discussing any other matters as mutually
    agreed between the Parties.
    

     
SECTION 2.05.     Diligent
Efforts. Novo Nordisk agrees that it will use its Diligent
Efforts to develop and commercialize the Insulin Compound
Packaged Product and the Device, including without limitation
the following:

		
	 	     
    (a) Novo Nordisk must use Diligent Efforts
    to clinically develop and register the Insulin Compound Packaged
    Product and the Device until it has obtained Broad Regulatory
    Approval of such Insulin Compound Packaged Product and the
    Device in the United States and the European Union;
    
	 
	 	     
    (b) Novo Nordisk must fund the Development
    Program for the Insulin Compound Packaged Product and the Device
    with [****] until a Regulatory Submission for Broad Regulatory
    Approval of such Insulin Compound Packaged Product and the
    Device has been made in the United States and the European Union;
    
	 
	 	     
    (c) until receipt of Broad Regulatory
    Approval by Novo Nordisk in the United States and the European
    Union, Novo Nordisk must expend [****] and
    
	 
	 	     
    (d) within the three-year period following
    Novo Nordisk’s receipt of Broad Regulatory Approval in the
    United States in respect of the Insulin Compound Packaged
    Product and the Device, a member of the Novo Nordisk Affiliate
    Group or any permitted sublicensees thereof must accomplish
    First Marketing of the Insulin Compound Packaged Product and the
    Device in the United States.
    

For purposes of this Section 2.05, any
reference to amounts in U.S. dollars to be funded or expended by
Novo Nordisk shall be calculated on a pro rata basis for any
calendar year in which this Agreement is not in full force and
effect for the entire calendar year based on the actual number
of days elapsed prior to the end of such calendar year.

     
SECTION 2.06.     Use
Restrictions. Aradigm shall use Insulin Compounds supplied
by Novo Nordisk, the Novo Nordisk Know-How and the know-how
included within Novo Nordisk New IPR only as provided for in
this Agreement. Novo Nordisk shall use the Aradigm Know-How and
know-how included within Aradigm New IPR only as provided for in
this Agreement.

     
SECTION 2.07.     Alternative
Technology. (a) Subject to the terms of this Agreement,
Novo Nordisk shall have the right to develop and commercialize
products based on Alternative Technology for pulmonary delivery
of insulin, insulin analogs, and non-insulin compounds within
the Field.

**** Certain confidential
information 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.

A-13

 

     
(b) In the event that Novo Nordisk commences
clinical trials in humans for any product based on any
Alternative Technology to deliver a non-insulin compound (a
“Non-Insulin Compound”), such Non Insulin
Compound will then be excluded from the Field, and Aradigm shall
have the right to research, develop and/or commercialize
(directly or through licensees) products based on Aradigm Patent
Rights, Aradigm Selected Pulmonary Delivery Patent Rights,
Aradigm New IPR and/or Aradigm Know-How to deliver such
Non-Insulin Compound or any compound that is in the same
chemical class as such Non-Insulin Compound; provided
that, Aradigm shall not be entitled to any license,
including any implied license, under any patent rights or
know-how of Novo Nordisk covering such Non-Insulin Compound.
Novo Nordisk shall notify Aradigm in writing prior to the first
dosing of the first patient in the first such clinical trial, if
any.

     
(c) Aradigm hereby acknowledges that:
(i) subject to the terms of this Agreement, Novo Nordisk
may be simultaneously conducting research and development alone
or in collaboration with third parties on products using an
Alternative Technology to deliver insulin and insulin analogs;
and (ii) Novo Nordisk may supply insulin and insulin
analogs to third parties free of charge for use in such third
parties’ clinical studies using such third parties’
pulmonary delivery technology in exchange for rights in such
technology in the Field; provided that, notwithstanding
the foregoing, in the event that Novo Nordisk is conducting
research on and developing any products using any Alternative
Technology to deliver a specific insulin or insulin analog
class, Novo Nordisk shall provide an Alternative Technology
Notice to Aradigm of its intention to commence commercialization
of such product at least three (3) years prior to First
Marketing of such product; provided further that, Novo
Nordisk shall not deliver any Alternative Technology Notice
within twelve (12) months of the Effective Date. The
Alternative Technology Notice may be withdrawn by Novo Nordisk,
without penalty, for a specific insulin or insulin analog class
at any time during the twelve (12) months following
delivery of the Alternative Technology Notice.

     
(d) From receipt of the Alternative
Technology Notice until, if applicable, such notice is withdrawn
as permitted under Section 2.07(c), the licenses described
in Section 3.01 and Section 3.02 shall become
non-exclusive to the extent necessary to permit Aradigm to
discuss the product opportunity with potential marketing
partners, prepare for potential development activities, and/or
engage in exploratory trials, for the delivery of the specific
insulin or insulin analog class that is the subject of such
Alternative Technology Notice. In the event that Novo Nordisk
has not withdrawn such Alternative Technology Notice within
twelve (12) months as permitted under Section 2.07(c),
the licenses described in Section 3.01 and
Section 3.02 shall become non-exclusive, and the license
described in Section 3.04(b) shall include the Field, to
the extent necessary to enable Aradigm, alone or in
collaboration with one (1) marketing partner, to develop
and, from and after the Alternative Technology Effective Date,
to commercialize devices and/or dose packages for the delivery
of the specific insulin or insulin analog class that is the
subject of such Alternative Technology Notice. Thereafter, for
each Alternative Technology Notice delivered by Novo Nordisk,
Aradigm may engage one (1) additional marketing partner in
accordance with the procedures, for the purposes, on the
timetables and subject to the limitations, set forth in this
Section 2.07. Notwithstanding anything else contained
herein, if Novo Nordisk withdraws the Alternative Technology
Notice for a specific insulin or insulin analog class at any
time during the twelve (12) months following delivery of
the Alternative Technology Notice, then the licenses granted
under Section 3.01 and Section 3.02 shall become
exclusive again with respect to the specific insulin or insulin
analog class that is the subject of such withdrawn Alternative
Technology Notice.

     
(e) No later than two (2) years after
receipt of the Alternative Technology Notice, without subsequent
withdrawal by Novo Nordisk, Aradigm may elect, by notifying Novo
Nordisk in writing, to market, either alone or in collaboration
with one (1) marketing partner, an insulin or insulin
analog class that it would have the right to commercialize from
and after the Alternative Technology Effective Date.

		
	 	     
    (i) In the event that Aradigm delivers
    written notice to Novo Nordisk that Aradigm will not market or
    fails to deliver any notice regarding its intent to market,
    either alone or in collaboration with one (1) marketing
    partner, an insulin or insulin analog class that it would have
    the right to commercialize from and after the Alternative
    Technology Effective Date, notwithstanding Section 2.07(d),
    then the license granted to Novo Nordisk pursuant to
    Section 3.01 and Section 3.02 shall remain exclusive
    with respect thereto, and: (A) until the sixth (6th)
    anniversary of the earlier of (I) First Marketing of a
    Packaged Product and the Device and (II) First Marketing of
    any product based on an Alternative
    

A-14

 

		
	 	
    Technology that has been described in the
    applicable Alternative Technology Notice, Aradigm shall be
    entitled to a royalty (in accordance with Section 5.01) on
    the Net Sales by any member of the Novo Nordisk Affiliate Group,
    or any permitted sublicensees thereof, of the product described
    in the applicable Alternative Technology Notice (whether or not
    such product is covered by any Aradigm Selected Pulmonary
    Delivery Patent Rights); and (B) following the sixth (6th)
    anniversary of the earlier of (I) and (II) above,
    Aradigm shall be entitled to a royalty (in accordance with
    Section 5.01) on the Net Sales by any member of the Novo
    Nordisk Affiliate Group, or any permitted sublicensees thereof,
    of (1) any Packaged Product and the Device and (2) any
    product based on an Alternative Technology that has been
    described in the applicable Alternative Technology Notice to the
    extent that, and for so long as, such product is covered by any
    of the Aradigm Selected Pulmonary Delivery Patent Rights.
    
	 
	 	     
    (ii) In the event that Aradigm delivers
    written notice to Novo Nordisk that Aradigm will market, either
    alone or in collaboration with one (1) marketing partner,
    any insulin or insulin analog class similar to the insulin or
    insulin analog class specified in the applicable Alternative
    Technology Notice, then Aradigm shall be entitled to a royalty
    only on Net Sales of any Packaged Product and the Device in
    accordance with Section 5.01 and shall not be entitled to a
    royalty on any product based on an Alternative Technology that
    has been described in such Alternative Technology Notice.
    

     
(f) To the extent that Novo Nordisk obtains
Regulatory Approval of any product using any Alternative
Technology prior to the expiration of three (3) years
following delivery of an Alternative Technology Notice for such
product to Aradigm pursuant to Section 2.07(c), Aradigm and
Novo Nordisk agree to negotiate in good faith regarding the
potential for Novo Nordisk to commence First Marketing of such
product using any Alternative Technology prior to the expiration
of such three (3) year period; provided that,
nothing in this Section 2.07(f) shall serve to limit in any
way Aradigm’s rights or obligations hereunder or to provide
Novo Nordisk with a right to commence First Marketing of any
product using any Alternative Technology until the expiration of
three (3) years following delivery of the Alternative
Technology Notice for such product to Aradigm pursuant to
Section 2.07(c).

     
SECTION 2.08.     Noncompetition.
For so long as the license granted to Novo Nordisk under
Section 3.01 is exclusive in the Field, except for
activities and agreements otherwise expressly permitted under
this Agreement, Aradigm shall be prohibited from entering into
any agreement with any third party with respect to any
activities within the Field, and shall not conduct any work
program in the Field with Insulin Compound or any other Program
Compound provided by any third party supplier without the prior
written consent of Novo Nordisk.

     
SECTION 2.09.     Product
Liability. Subject to the terms of this Section 2.09,
product liabilities that are incurred prior to the first
Regulatory Submission will be allocated between the Parties
based on the fault or relative fault of the Parties. If
negligence or fault cannot be so determined or allocated, then
such liability shall be borne 80% by Novo Nordisk and 20% by
Aradigm. Until the first Regulatory Submission, Aradigm shall be
responsible for product liability to the extent such liability
is attributable to: (a) any failure by Aradigm prior to the
Effective Date to manufacture the Packaged Product and/or the
Device in accordance with applicable standards and practices;
(b) defects or flaws in design that are caused by Aradigm
until the subsystem of the Packaged Product and/or Device as to
which any such defect or flaw in design relates shall have been
validated and verified by Novo Nordisk; or (c) Aradigm’s
negligence. Following the first Regulatory Submission, Novo
Nordisk shall assume responsibility for all product liability
arising out of the conduct of the Development Program and the
practice by any member of the Novo Nordisk Affiliate Group of
the licenses granted to Novo Nordisk in this Agreement and
Aradigm shall have no responsibility for any product liability
arising out of the practice by any agent or permitted
sublicensees of any member of the Novo Nordisk Affiliate Group
of the licenses granted to Novo Nordisk in this Agreement.

A-15

 

ARTICLE 3

GRANT OF LICENSE

     
SECTION
3.01.     License. Subject to
the terms of this Agreement, Aradigm hereby grants Novo Nordisk
a world-wide, exclusive, royalty-bearing license under the
Aradigm Patent Rights (including applicable Aradigm Background
IPR), Aradigm Selected Pulmonary Delivery Patent Rights, Aradigm
New IPR and Aradigm Know-How (including applicable Aradigm
Background IPR) to (a) develop, manufacture, use, market,
distribute, sell, offer for sale, have made, import and/or
export any Packaged Product and the Device in and from the
Territory for use within the Field, with the right to sublicense
its customers and Joint Marketing Partners pursuant to
Section 3.03, and (b) otherwise exercise and perform
its rights and obligations under this Agreement.

     
SECTION
3.02.     Additional License Under
Aradigm Selected Pulmonary Delivery Patent Rights.
(a) Subject to the terms of this Agreement, Aradigm
hereby grants Novo Nordisk a world-wide, exclusive,
royalty-bearing license, under the Aradigm Selected Pulmonary
Delivery Patent Rights to develop, manufacture, use, market,
distribute, sell, offer for sale, have made, import and/or
export products described in an Alternative Technology Notice
that are covered by the Aradigm Selected Pulmonary Delivery
Patent Rights in and from the Territory for use within the
Field, with the right to sublicense its customers and Joint
Marketing Partners pursuant to Section 3.03.

     
(b) For purposes of this Section 3.02,
the patent claims listed in Appendix A, including
“Obvious Variants” of those claims as defined herein,
are the only claims that Novo Nordisk will be licensing under
this section and this license will not imply a license to any
other patent claim held by Aradigm either issued, pending or in
a future patent yet to be filed, unless such patent claim is an
Obvious Variant of the patents listed in Appendix A. Novo
Nordisk expressly disclaims any right to license the Aradigm
Patent Rights, including patents (other than patents also listed
in Appendix A and Obvious Variants thereof) listed in
Schedule 3.13(a)(i) of the Restructuring Agreement by
reason of the license granted under Section 3.02. Novo
Nordisk acknowledges that some of the non-licensed patent claims
contained in the Aradigm Patent Rights, including the patents
(other than patents also listed in Appendix A and Obvious
Variants thereof) listed in Schedule 3.13(a)(i) of the
Restructuring Agreement may be required to gain freedom to
operate but that nevertheless there is no implied license
thereunder granted to Novo Nordisk.

     
SECTION 3.03.     Sublicense.
Subject to the terms of this Agreement, Aradigm hereby
grants Novo Nordisk the right to sublicense its customers and
Joint Marketing Partners, under Novo Nordisk’s licenses
under the Aradigm Patent Rights (including applicable Aradigm
Background IPR), Aradigm Selected Pulmonary Delivery Patent
Rights, Aradigm New IPR and Aradigm Know-How (including
applicable Aradigm Background IPR) in this Agreement (as
applicable) to: (a) use any Packaged Product and the Device
and (b) market, distribute, sell, offer to sell, import
and/or export any Packaged Product and the Device, so long as
said items were bought from any member of the Novo Nordisk
Affiliate Group or from a Joint Marketing Partner.

     
SECTION 3.04.     Additional
Licenses. (a) Subject to the terms of this Agreement,
Aradigm shall and hereby does grant Novo Nordisk a perpetual,
world-wide, non-exclusive, royalty-free license under any
Aradigm New IPR Made Jointly by Novo Nordisk and Aradigm to
develop, manufacture, use, market, distribute, sell, offer for
sale, have made, import and/or export any product outside the
Field, with the right to sublicense its customers and Joint
Marketing Partners pursuant to Section 3.03.

     
(b) Subject to the terms of this Agreement,
Novo Nordisk shall and hereby does grant Aradigm a perpetual,
world-wide, non-exclusive, royalty-free license under any Novo
Nordisk New IPR that relate solely to any Device (or
manufacturing thereof) and/or Packaged Product (or manufacturing
thereof, except the Program Compounds, formulations thereof and
the interactions between materials and such formulations) to
develop, manufacture, use, market, distribute, sell, offer for
sale, have made, import and/or export any product outside the
Field, with a right to sublicense. Such right to sublicense
shall be royalty-bearing (such royalty to be determined in
accordance with the provisions set forth in
Section 5.03(a)) to the extent that (i) Aradigm

A-16

 

receives from the sublicensee thereof a royalty
or other compensation and (ii) without such sublicense, the
applicable product would otherwise infringe the patents included
within Novo Nordisk New IPR.

     
(c) Subject to the terms of this Agreement,
Novo Nordisk shall and hereby does grant Aradigm a perpetual,
world-wide, non-exclusive, royalty-free license under any Novo
Nordisk New IPR Made Jointly by Novo Nordisk and Aradigm
relating solely to any method of treatment to develop,
manufacture, use, market, distribute, sell, offer for sale, have
made, import and/or export any product outside the Field.

     
(d) Aradigm hereby agrees not to object to
or disagree with the use by Novo Nordisk of the AERIX trademark
pursuant to the terms of the Co-Existence Agreement.

     
SECTION 3.05.     Publicly
Available Information. For the avoidance of doubt, nothing
contained in this Agreement shall preclude any member of the
Novo Nordisk Affiliate Group from using any publicly-available
knowledge, information and expertise related to or disclosed in
the Patent Rights or that is otherwise publicly-available.

ARTICLE 4

SUPPLY

     
SECTION 4.01.     Novo
Nordisk Supply Obligations. Novo Nordisk agrees that it will
use its reasonable efforts to obtain consent from third party
suppliers to permit Aradigm to purchase inventory at a cost no
greater to Aradigm than the cost to Novo Nordisk so long as
(i) the inventory is identical to inventory purchased by
Novo Nordisk for exclusive use in the Development Program and
(ii) the delivery of such inventory is consistent in all
respects with the delivery of inventory ordered by Novo Nordisk.
Notwithstanding the foregoing, Novo Nordisk shall not be
responsible for ordering, invoicing, logistical support or
warehousing of the inventory purchased by Aradigm in accordance
with this Section 4.01 and Aradigm shall be responsible for
any and all actions relating to such ordering, invoicing,
logistical support and warehousing.

ARTICLE 5

ROYALTY PAYMENTS

     
SECTION 5.01.     Royalty
Payments. (a) In consideration of the license and
marketing rights granted by Aradigm in accordance with
Section 3.01 and Section 3.02, Novo Nordisk shall pay
to Aradigm:

		
	 	     
    (i) in the event that the First Marketed
    Product and Device is the Insulin Compound Packaged Product and
    the Device, (A) four and one-quarter percent (4.25%) of Net
    Sales thereof (if any) by any member of the Novo Nordisk
    Affiliate Group or any permitted sublicensees thereof during any
    year during the Stage 1 Commercialization Period up to and
    including the applicable Baseline for such year plus four
    and fifty-five hundredths percent (4.55%) of Net Sales thereof
    (if any) by any member of the Novo Nordisk Affiliate Group or
    any permitted sublicensees thereof in excess of the applicable
    Baseline for such year; (B) five percent (5.00%) of Net Sales
    thereof (if any) by any member of the Novo Nordisk Affiliate
    Group or any permitted sublicensees thereof during the Stage 2
    Commercialization Period up to and including the applicable
    Baseline for such period plus five and three-tenths
    percent (5.30%) of Net Sales thereof (if any) by any member of
    the Novo Nordisk Affiliate Group or any permitted sublicensees
    thereof in excess of the applicable Baseline for such period;
    and (C) six percent (6.00%) of Net Sales thereof (if any)
    by any member of the Novo Nordisk Affiliate Group or any
    permitted sublicensees thereof during any year during the Stage
    3 Commercialization Period up to and including the applicable
    Baseline in such year plus six and three-tenths percent
    (6.30%) of Net Sales thereof (if any) by any member of the Novo
    Nordisk Affiliate Group or any permitted sublicensees thereof in
    excess of the applicable Baseline for such year; or
    
	 
	 	     
    (ii) in the event that the First Marketed
    Product and Device is any Packaged Product (relating to Program
    Compounds other than the Insulin Compound) and the Device or any
    product using an Alternative Technology to deliver a specific
    insulin or insulin analog class (in such case, only to the extent
    

A-17

 

		
	 	
    that royalties are payable under
    Section 2.07(e)(i)), (A) four and four-tenths percent
    (4.40%) of Net Sales thereof (if any) by any member of the Novo
    Nordisk Affiliate Group or any permitted sublicensees thereof
    during the Stage 1 Commercialization Period; (B) five and
    fifteen-hundredths percent (5.15%) of Net Sales thereof (if any)
    by any member of the Novo Nordisk Affiliate Group or any
    permitted sublicensees thereof during the Stage 2
    Commercialization Period; and (C) six and
    fifteen-hundredths percent (6.15%) of Net Sales thereof (if any)
    by any member of the Novo Nordisk Affiliate Group or any
    permitted sublicensees thereof during the Stage 3
    Commercialization Period.
    

     
(b) In consideration of the license and
marketing rights granted by Aradigm in accordance with
Section 3.01 and Section 3.02, Novo Nordisk shall also
pay to Aradigm (i) five and one-quarter percent (5.25%) of
Net Sales of any Later Marketed Product and Device by any member
of the Novo Nordisk Affiliate Group or any permitted
sublicensees thereof during the Stage 1 Commercialization
Period; and (ii) six percent (6.00%) of Net Sales of any
Later Marketed Product and Device by any member of the Novo
Nordisk Affiliate Group or any permitted sublicensees thereof
during the Stage 2 Commercialization Period and the Stage 3
Commercialization Period; provided that: in the event
that such Later Marketed Product and Device is the Insulin
Compound Packaged Product and the Device and that Net Sales
thereof exceed the Baseline in any year during the Stage 2
Commercialization Period and the Stage 3 Commercialization
Period, Novo Nordisk shall pay to Aradigm six percent (6.00%) of
such Net Sales of such Insulin Compound Packaged Product and the
Device up to and including the applicable Baseline in such year
plus six and three-tenths percent (6.30%) of Net Sales
(if any) of such Insulin Compound Packaged Product and the
Device in excess of the applicable Baseline in such year.

     
SECTION 5.02.     Royalty
Payments Schedule. Payments due in accordance with
Section 5.01 and any royalty payments due under Articles 2
and 10 shall be payable within forty-five (45) days after
January 1, April 1, July 1 and October 1 of
each calendar year in which such royalties are due under this
Agreement. The Party with a royalty payment obligation hereunder
shall provide the other Party with a reconciliation report in a
form to be agreed between the Parties showing the calculation of
Net Sales for each calendar year within seventy-five
(75) days after the end of such year. In the event that a
reconciliation report demonstrates that a Party (the
“Royalty Paying Party”) shall have paid an
amount in excess of or less than the royalty payments due under
Section 5.01 or Articles 2 or 10, as the case may be, then
the other Party (the “Royalty Receiving Party”)
shall pay to the Royalty Paying Party such excess amount, or the
Royalty Paying Party shall pay to the Royalty Receiving Party
the difference between the amount otherwise due hereunder and
the amount such Royalty Paying Party shall have paid in
accordance with the first sentence of this Section 5.02, as
the case may be.

     
SECTION 5.03.     Additional
Royalty Provisions. (a) Any reference to
“royalty-bearing” or to a “royalty” shall
mean, unless otherwise expressly established in this Agreement,
a royalty or other compensation that will be negotiated in good
faith between the Parties in respect of the applicable patent(s)
included within the licensed intellectual property rights. Each
such royalty will be agreed on a case-by-case basis, taking into
account the non-exclusive or exclusive term, the importance of
the originator’s invention and the strength and commercial
importance of the applicable intellectual property rights
(including the effect of any trade secret status of any Aradigm
Know-How or Novo Nordisk Know-How, as the case may be).
Additionally, the payment schedules, audit and other provisions
of this Article 5 shall apply to the extent practicable,
unless otherwise agreed by the Parties in writing.

     
(b) For the avoidance of doubt, in no event
shall either Aradigm pay a royalty to Novo Nordisk or Novo
Nordisk pay a royalty to Aradigm, respectively, for Novo Nordisk
New IPR or Aradigm New IPR, respectively, if such Novo Nordisk
New IPR or Aradigm New IPR, respectively, is Made Jointly.

     
(c) Following the expiration of the last to
expire of the Aradigm Patents Rights, Aradigm Selected Pulmonary
Delivery Patent Rights, and patents included in the Aradigm New
IPR, if: (i) Novo Nordisk experiences a material reduction
in the gross margins of products bearing royalties under this
Agreement in the United States, any member state of the European
Union and/or Japan as a result of pricing actions by competitors
who, had such patents not expired, would be infringing one
(1) or more of the Aradigm Patents Rights, Aradigm Selected
Pulmonary Delivery Patent Rights or patents included in the
Aradigm New IPR;

A-18

 

and (ii) Novo Nordisk is in compliance with
all of its material obligations under this Agreement at the time
of such material reduction in gross margins, then Novo Nordisk
may request a reduction in the applicable royalty rates
hereunder for the specific geographic area (whether the United
States, any member state of the European Union and/or Japan).
Within sixty (60) days of such request, the Parties will
meet to review Novo Nordisk’s financial and marketing
information pertinent to such request and to negotiate and agree
on a reduction in the royalty rates hereunder that is
proportionate to the reduction in gross margins experienced by
Novo Nordisk or that otherwise fairly reflects the diminished
value of the applicable products to Novo Nordisk.

     
SECTION 5.04.     Record
Keeping. Each Party shall maintain, for a period of three
(3) years following the last day of the year to which such
records and other financial information relate, complete and
correct records of Net Sales and other financial information
that it deems necessary to determine such Net Sales and shall
report such information as it deems relevant along with each
royalty payment made to the other Party in accordance with this
Article 5 .

     
SECTION 5.05.     Audit
Right. (a) Aradigm may, no more than once in respect of
each calendar year, at Aradigm’s expense, appoint an
independent auditor (the “Independent Auditor”)
reasonably acceptable to Novo Nordisk to review the payments
made by Novo Nordisk to Aradigm in accordance with the
provisions set forth in Articles 2, 5 and 10 in such calendar
year. In the event the Independent Auditor determines that
additional amounts are due to Aradigm, Novo Nordisk shall pay
such additional amounts to Aradigm and, to the extent that such
additional amounts represent at least five percent (5.00%) of
the total amounts paid to Aradigm under Section 5.02 in
respect of such calendar year, shall reimburse Aradigm for the
fees and expenses of the Independent Auditor. In the event the
Independent Auditor determines that additional amounts are due
to Aradigm representing less than five percent (5.00%) of the
total amounts paid to Aradigm under Section 5.02 in any
calendar year, then Novo Nordisk shall have no obligation to
reimburse Aradigm for the fees and expenses of the Independent
Auditor.

     
(b) Novo Nordisk may, no more than once in
respect of each calendar year, at Novo Nordisk’s expense,
appoint an Independent Auditor reasonably acceptable to Aradigm
to review the payments made (if any) by Aradigm to Novo Nordisk
in accordance with the provisions set forth in Articles 2,
5 and 10 in such calendar year. In the event the Independent
Auditor determines that additional amounts are due to Novo
Nordisk, Aradigm shall pay such additional amounts to Novo
Nordisk and, to the extent that such additional amounts
represent at least five percent (5.00%) of the total amounts
paid to Novo Nordisk under Section 5.02 in respect of such
calendar year, shall reimburse Novo Nordisk for the fees and
expenses of the Independent Auditor. In the event the
Independent Auditor determines that additional amounts
representing less than five percent ( 5.00%) of the total
amounts paid to Novo Nordisk under Section 5.02 in any
calendar year are due to Novo Nordisk, then Aradigm shall have
no obligation to reimburse Novo Nordisk for the fees and
expenses of the Independent Auditor.

     
SECTION 5.06.     Withholding
Taxes. Under no circumstances shall either Party be required
to pay any amount in excess of or in addition to the payments
agreed under this Agreement. If any payment made by either Party
under this Agreement is subject to withholding tax, such
withholding tax shall be borne by the other Party and shall be
deducted from any such payments made. Each Party shall support
the other Party in its efforts of minimizing any such
withholding taxes and reasonably provide such other Party with
relevant information about documentation needed to reduce the
withholding tax to a legal minimum or to secure applicable
credits in respect thereof.

     
SECTION 5.07.     Currency.
Payments under this Agreement in respect of Net Sales made,
and amounts expended, in currencies other than U.S. dollars
shall be calculated on the average daily exchange rate for the
applicable year-to-date period (i.e., from January 1 of
each year to the last Business Day of the financial quarter in
which such payment is made) for exchanging such currency into
U.S. dollars at the rate for buying U.S. dollars published in
the Wall Street Journal.

A-19

 

ARTICLE 6

INTELLECTUAL PROPERTY

     
SECTION 6.01.     Aradigm
Intellectual Property Rights. (a) Except as provided in
this Article 6, Aradigm shall remain the sole owner of all
Aradigm Background IPR, Aradigm Patent Rights, Aradigm Selected
Pulmonary Delivery Patent Rights, Aradigm Know-How and Aradigm
New IPR and shall use Diligent Efforts to maintain and defend
such Aradigm Background IPR, Aradigm Patent Rights, Aradigm
Selected Pulmonary Delivery Patent Rights, Aradigm Know-How and
Aradigm New IPR.

     
(b) Aradigm shall be responsible for filing,
maintaining and defending any patents filed based on Aradigm
Background IPR and will timely inform Novo Nordisk of its
intentions, activities and filings in this respect. Aradigm will
grant Novo Nordisk a perpetual, world-wide, non-exclusive,
royalty-free license under the Aradigm Background IPR, to
develop, manufacture, use, market, distribute, sell, offer for
sale, have made, import and/or export any product outside the
field of pulmonary delivery, with the right to sublicense.
Should Aradigm decide not to patent an invention included in the
Aradigm Background IPR in any country, or should Aradigm decide
to abandon any such patent or patent application in any country,
then Novo Nordisk shall have the right to do so at its expense.
In such case, Novo Nordisk shall in its sole discretion have the
option of becoming the owner thereof or, in the alternative, an
exclusive licensee thereof pursuant to Section 6.06. If
Novo Nordisk elects to become the owner of any patent or patent
application based on such Aradigm Background IPR, Novo Nordisk
shall grant Aradigm a royalty-free license thereunder to
develop, manufacture, use, market, distribute, sell, offer for
sale, have made, import and/or export any product for the life
of the patent (and such license shall be limited to products
outside the Field for so long as Novo Nordisk’s license
under Section 3.01 remains exclusive as to any Aradigm
Patent Right and, thereafter, outside and inside the Field),
with the right to sublicense.

     
SECTION 6.02.     Novo
Nordisk Intellectual Property Rights. (a) Except as provided
in this Article 6, Novo Nordisk shall remain the sole owner
of all Novo Nordisk Background IPR, Novo Nordisk Patent Rights,
Novo Nordisk Know-How and Novo Nordisk New IPR.

     
(b) Novo Nordisk shall be responsible for
filing, maintaining and defending any patents filed based on
Novo Nordisk Background IPR and will timely inform Aradigm of
its intentions, activities and filings in this respect. Novo
Nordisk will grant Aradigm a perpetual, world-wide,
non-exclusive, royalty-free license under the Novo Nordisk
Background IPR (to the extent such Novo Nordisk Background IPR
relates to the Insulin Compound), to develop, manufacture, use,
market, distribute, sell, offer for sale, have made, import
and/or export any product outside the Field, with the right to
sublicense. Should Novo Nordisk decide not to patent an
invention included in the Novo Nordisk Background IPR in any
country, or should Novo Nordisk decide to abandon any such
patent or patent application in any country, then Aradigm shall
have the right to do so at its expense. In such case, Aradigm
shall in its sole discretion have the option of becoming the
owner thereof or, in the alternative, an exclusive licensee
thereof pursuant to Section 6.06. If Aradigm elects to
become the owner of any patent or patent application based on
such Novo Nordisk Background IPR, Aradigm shall grant Novo
Nordisk a royalty-free license thereunder to develop,
manufacture, use, market, distribute, sell, offer for sale, have
made, import and/or export any product within the Field, with
the right to sublicense.

     
(c) Novo Nordisk shall have the option to take
ownership of [****] (which is
included in Aradigm Background IPR as of the Effective Date) and
any divisionals, reissues or continuations thereof or become an
exclusive licensee thereof pursuant to Section 6.06. In the
event that Novo Nordisk provides Aradigm with written notice
that it wishes to take ownership of such patent applications,
then Aradigm shall take all reasonably requested steps to
consummate such transfer of ownership and Novo Nordisk will
grant Aradigm the license described in Section 6.02(b) to
develop, manufacture, use, market, distribute, sell, offer for
sale, have made, import and/or export any product outside the
Field, with right to sublicense, with respect to [****] and any
divisionals, reissues or continuations thereof.

**** Certain confidential
information 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.

A-20

 

     
SECTION 6.03.     Notice
by Aradigm. (a) During the term of this Agreement,
Aradigm shall provide written notice to Novo Nordisk of any
results, improvements or inventions relevant to the Field prior
to public disclosure of such results, improvements or inventions
in order to enable Novo Nordisk to determine, upon consultation
with Aradigm, the best method of protecting such results,
improvements or inventions.

     
(b) Aradigm shall provide periodically, but
no less than twice per calendar year, to Novo Nordisk a list of
results, improvements or inventions made by Aradigm relevant to
the Field (including without limitation changes to the
manufacturing process).

     
(c) Aradigm shall provide reasonable access
to its employees, contractors and suppliers to enable Novo
Nordisk to perform intellectual property audits once per
calendar year to ensure that adequate protection is sought and
maintained for intellectual property developed by Aradigm within
the Field or relevant to the Field. In the event that Novo
Nordisk determines, as a result of its intellectual property
audit or otherwise, that patent applications should be filed in
any country, Novo Nordisk shall request Aradigm to pursue such
patent applications; provided that, to the extent that
Aradigm reasonably refuses such request, and solely with respect
to any Aradigm New IPR under which Novo Nordisk is licensed
pursuant to Section 3.01, Novo Nordisk shall have the right
to file any such patent applications. In such case, Novo Nordisk
shall in its sole discretion have the option of becoming the
owner thereof or, in the alternative, an exclusive licensee
thereof pursuant to Section 6.06. If Novo Nordisk elects to
become the owner of any patent or patent application based on
such Aradigm Background IPR, Novo Nordisk shall grant Aradigm a
royalty-free license thereunder to develop, manufacture, use,
market, distribute, sell, offer for sale, have made, import
and/or export any product for the life of the patent
(provided that, such license shall be limited to products
outside the Field for so long as Novo Nordisk’s license
under Section 3.01 remains exclusive as to any Aradigm
Patent Right and thereafter, outside and inside the Field), with
the right to sublicense. Aradigm shall use its Diligent Efforts
to cause its employees and contractors to assist in prosecuting
any patent applications requested by Novo Nordisk in accordance
with this Section 6.03(c).

     
(d) Novo Nordisk shall be entitled to bring
or enter any litigation in the defense and enforcement of any
patents filed by Novo Nordisk following Aradigm’s
abandonment of such patent or patent application as contemplated
in Section 6.01(b), Section 6.02(b) or
Section 6.03(c) in respect of the activities of any
infringer thereof in the Field or any patents licensed
exclusively to Novo Nordisk under Section 6.06. Aradigm
agrees to be joined as a party, and Novo Nordisk agrees to pay
Aradigm’s reasonable litigation costs.

     
SECTION 6.04.     Notice
by Novo Nordisk. (a) During the term of this Agreement,
Novo Nordisk shall provide written notice to Aradigm of any
results, improvements or inventions relevant to the Development
Program (other than any results, improvements or inventions
relevant to formulation of compounds or to the interactions
between materials and formulation of compounds) prior to public
disclosure of such results, improvements or inventions to enable
Aradigm to determine, upon consultation with Novo Nordisk, the
best method of protecting the results, improvements or
inventions.

     
(b) Novo Nordisk shall provide periodically,
but no less than twice per calendar year, to Aradigm a list of
results, improvements or inventions made by Novo Nordisk
relevant to the Development Program (other than any results,
improvements or inventions relating to formulation of compounds
or to the interactions between materials and formulation of
compounds).

     
(c) Novo Nordisk shall provide reasonable
access to its employees, contractors and suppliers who are (or
have been within one (1) year of the time at which such
access is requested by Aradigm) working on the Development
Program to enable Aradigm to perform intellectual property
audits once per calendar year to ensure that adequate protection
is sought and maintained for intellectual property developed by
Novo Nordisk relevant to the Development Program (other than any
results, improvements or inventions relating to formulation of
compounds or to the interactions between materials and
formulation of compounds). In the event that Aradigm determines,
as a result of its intellectual property audit or otherwise,
that patent applications should be filed in any country, Aradigm
shall request Novo Nordisk to pursue such patent applications;
provided that, to the extent that Novo Nordisk reasonably
refuses such request, and solely with respect to any Novo
Nordisk New IPR licensed under Section 3.04(b) and (c),
Aradigm shall have the right to file any such patent
applications. In such case, Aradigm shall in its sole discretion
have the option of

A-21

 

becoming the owner thereof or, in the
alternative, an exclusive licensee thereof pursuant to
Section 6.06. If Aradigm elects to become the owner of any
such patent application, Aradigm shall grant Novo Nordisk a
world-wide, non-exclusive, royalty-free license thereunder to
develop, manufacture, use, market, distribute, sell, offer for
sale, have made, import and/or export any product within the
Field, with the right to sublicense. Novo Nordisk shall use its
Diligent Efforts to cause its employees and contractors to
assist in prosecuting any patent applications requested by
Aradigm in accordance with this Section 6.04(c).

     
(d) Aradigm shall be entitled to bring or
enter any litigation in the defense and enforcement of any
patents filed by Aradigm following Novo Nordisk’s
abandonment of such patent or patent application as contemplated
in Section 6.02(b) or Section 6.04(c) in respect of
the activities of any infringer thereof outside the Field or any
patents licensed exclusively to Aradigm under Section 6.06.
Novo Nordisk agrees to be joined as a party, and Aradigm agrees
to pay Novo Nordisk’s reasonable litigation costs.

     
SECTION 6.05.     Pursuit
of Patents. (a) The Parties agree that Aradigm’s
counsel shall continue to file, prosecute and maintain all
Aradigm Background IPR, Aradigm Patent Rights, Aradigm Selected
Pulmonary Delivery Patent Rights and Aradigm New IPR that are in
each case in the Field, [****] and continuation applications
related thereto. Aradigm shall keep Novo Nordisk reasonably
informed of the progress of the applications and shall provide
Novo Nordisk with copies of all substantive communications
between Aradigm and the United States Patent and Trademark
Office (or any other relevant patent authority). Furthermore,
Aradigm shall provide Novo Nordisk with a reasonable opportunity
to comment on proposed strategies and responses relating to such
prosecution in the Field prior to their implementation by
Aradigm’s counsel.

     
(b) Aradigm’s costs for preparing,
filing and prosecuting additional patent applications in respect
of patents included within Aradigm Background IPR pursuant to
Section 6.05(a), and the costs of maintaining any patents
that may issue from such applications, shall be shared equally
(i.e., 50/50) between Novo Nordisk and Aradigm. In the
event that one (1) or more patents that are part of the
Aradigm Background IPR serve as the basis for recovery of
damages or other monetary award pursuant to a suit, action or
proceeding under Section 7.02, then any amounts received by
either Party from such recovery or award shall first be used to
reimburse Aradigm and Novo Nordisk for their respective expenses
related to the suit, action or proceeding, then to reimburse the
Parties for the preparation, prosecution and maintenance costs
of such patents or patent applications (to the extent incurred
pursuant to this Section 6.05(b) and not previously
reimbursed), and after such reimbursement any additional amounts
shall be shared 1:2 by Aradigm and Novo Nordisk respectively.
Further, if Aradigm licenses such patents outside the Field, or
obtains damages or other recovery by enforcing such patents
outside the Field, then, after Aradigm has recovered its duly
documented internal and external costs of enforcing such
patents, 50% of the amount of license fees reasonably allocable
to the licensing of such patents, and 50% of the amount of such
damages or other recovery, shall be paid to Novo Nordisk until
such time as Novo Nordisk has received an amount equal to the
amount of the costs of preparing, filing and maintaining such
patents (and respective applications) that were paid by Novo
Nordisk hereunder, and were not previously otherwise reimbursed.

     
(c) In the event that Novo Nordisk does not
agree that a particular patent application should be prepared,
filed or prosecuted pursuant to Section 6.05(a),
Aradigm’s costs for preparing and prosecuting such
application, and the costs of maintaining any patents that may
issue from such application, shall be the sole responsibility of
Aradigm; and any amounts received by Aradigm resulting from the
granting of licenses and/or recovery of damages or other
monetary awards shall belong to Aradigm. Should Aradigm decide
to abandon any patent application or patent that is filed,
prosecuted or maintained pursuant to this Section 6.05,
Novo Nordisk shall in its sole discretion have the option of
becoming the owner thereof or, in the alternative, an exclusive
licensee thereof pursuant to Section 6.06. If Novo Nordisk
elects to become the owner of any patent or patent application,
Novo Nordisk shall grant Aradigm a royalty-free license
thereunder to develop, manufacture, use, market, distribute,
sell, offer for sale, have made, import and/or export any
product for the life of the patent (provided that, such license
shall be limited to products outside the Field for so long as
Novo

**** Certain confidential
information 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.

A-22

 

Nordisk’s license under Section 3.01
remains exclusive as to any Aradigm Patent Right and thereafter,
outside and inside the Field), with the right to sublicense.

     
SECTION 6.06.     License
Option In Lieu Of Ownership. In each case in which a Party
has the right pursuant to this Article 6 of becoming the
owner of a patent or patent application that the other Party has
refused to file or otherwise decided to abandon, the Party
having such right may elect (in its sole discretion and by
notifying the other Party in writing) to become the exclusive
licensee thereof rather than becoming the owner. If this
election is made, then: (a) the electing Party will
prepare, file, prosecute and/or maintain (as applicable) such
patent application or patent at the electing Party’s
direction and sole expense; (b) the non-electing Party
shall, and hereby does, grant the electing Party a worldwide,
exclusive, royalty-free license under such patent application or
patent, where the scope and duration of such license will be
equivalent to the scope and duration of rights such electing
Party would have had if it became the owner of such patent
application or patent under the applicable section of this
Article 6; and (c) the non-electing Party shall
continue to own such patent application or patent and shall
retain for itself the same rights to the extent it would have
been granted in the form of a non-exclusive license, with a
right to sublicense, had the electing Party become the owner of
such patent or patent application under the applicable section
of this Article 6.

ARTICLE 7

PATENT COOPERATION

     
SECTION 7.01.     Enforcement
of Patent Rights. (a) If Aradigm or Novo Nordisk, as
the case may be, becomes aware of (i) an actual or
potential infringement of any of the Patent Rights by a third
party practicing in the Field or an actual or potential
infringement of Aradigm Patent Rights, Aradigm Selected
Pulmonary Delivery Patent Rights or patent rights under the
Aradigm New IPR by a third party practicing outside the Field,
or (ii) the fact that a third party practicing inside or
outside the Field is challenging the enforceability or validity
of any of the Patent Rights, Aradigm or Novo Nordisk, as the
case may be, shall so notify Novo Nordisk or Aradigm, as the
case may be, in writing within fifteen (15) days. The
notice shall set forth the relevant facts (to the extent known
by the notifying Party) in reasonable detail.

     
(b) If Aradigm or Novo Nordisk, as the case
may be, is served by a third party with legal process initiating
any proceeding alleging (i) non-infringement of any Patent
Rights by such third party practicing in the Field,
(ii) that such third party practicing inside or outside the
Field is challenging the enforceability or validity of any
Patent Rights or (iii) anything that would adversely affect
the other Party’s rights under this Agreement, including
allegations of co-ownership, co-inventorship, or implied or
explicit license, Aradigm or Novo Nordisk, as the case may be,
shall so notify Novo Nordisk or Aradigm, as the case may be, in
writing within five (5) days.

     
SECTION 7.02.     Initiation
of Action Relating to Patents. (a) With respect to
Aradigm Patent Rights, Aradigm Selected Pulmonary Delivery
Patent Rights or Aradigm New IPR that are licensed exclusively
to Novo Nordisk hereunder, except for those which Novo Nordisk
has the option of exclusively licensing under Section 6.06
in lieu of ownership, when action is deemed necessary or
advisable by Novo Nordisk and Aradigm to prevent infringement of
such Aradigm Patent Rights, Aradigm Selected Pulmonary Delivery
Patent Rights or Aradigm New IPR by a third party practicing or
making preparations to practice within the Field, to enforce
such Aradigm Patent Rights, Aradigm Selected Pulmonary Delivery
Patent Rights or Aradigm New IPR against such third party
practicing or making preparations to practice within the Field,
and/or to defend against an action by a third party practicing
or making preparations to practice within the Field challenging
the enforceability or the validity or asserting the
non-infringement of such Aradigm Patent Rights, Aradigm Selected
Pulmonary Delivery Patent Rights or Aradigm New IPR, then Novo
Nordisk shall have the right (but not the obligation) to
initiate any action or conduct any such suit. Aradigm shall have
the right to join, at its own expense, such action and/or suit
and to be represented in such action and/or suit by its own
counsel. Furthermore, if Aradigm is required under applicable
law to join any such suit, action, or proceeding, or if the
failure of Aradigm to be a party to such suit, action, or
proceeding would in the opinion of counsel to Novo Nordisk
result in dismissal thereof, Aradigm shall execute all papers
and perform such other acts as may be reasonably required to
permit the litigation to be conducted, and Novo Nordisk shall
reimburse

A-23

 

Aradigm for its expenses relating to its joining
and participation thereto. If Aradigm is required to be joined
as a party in any such action by a third party practicing within
the Field challenging the enforceability or validity or
asserting the non-infringement of Aradigm Patent Rights, Aradigm
Selected Pulmonary Delivery Patent Rights or Aradigm New IPR,
then upon the request of Novo Nordisk, Aradigm shall waive any
objection to such joinder on the grounds of personal
jurisdiction, venue or forum non conveniens.

     
(b) If either (x) Novo Nordisk and
Aradigm agree in accordance with the provisions set forth in
Section 7.02(a) above that action is necessary, but Novo
Nordisk does not commence such action within
sixty (60) days of such agreement, or (y) in
respect of an Aradigm Patent Right that is not a Field Claim (as
defined below), Aradigm believes that action is necessary as to
such Patent Right, but Novo Nordisk does not agree in the
discussions above that action is necessary, then in either case
Aradigm shall have the right to initiate and conduct, at its
expense, an independent action against the third party infringer
of the Aradigm Patent Rights, Aradigm Selected Pulmonary
Delivery Patent Rights or Aradigm New IPR in the Field. If
Aradigm subsequently ceases to continue (other than by
settlement) an action initiated or conducted under this
Section 7.02(b), or such action is dismissed voluntarily or
involuntarily, then Novo Nordisk shall have the right, but not
the obligation to initiate, continue, and/or conduct, at its
expense and subject to all other applicable provisions of this
Section 7.02, an action as permitted by law against the
third party in respect of its activities in the Field within
sixty (60) days of Aradigm’s ceasing to continue its
action against such third party or of such dismissal. For
purposes of this Section 7.02(b), a “Field
Claim” is a claim in the Aradigm Patent Rights, Aradigm
Selected Pulmonary Delivery Patent Rights or patent rights under
the Aradigm New IPR that expressly and directly is limited to
activities in the Field. For purposes of Section 7.02(a)
and (b), Novo Nordisk shall not disagree, based primarily on any
contractual obligations Novo Nordisk may have to a third party,
with Aradigm’s belief that action is deemed necessary to
prevent infringement of such Patent Rights by a third party
practicing within the Field.

     
(c) If the infringement in the Field
involves sales of a Directly Infringing Product (as defined
below), and Novo Nordisk believes that action is necessary, but
Aradigm does not agree in the discussions above that action is
necessary within sixty (60) days of commencing such
discussions, then Novo Nordisk shall thereafter have the right
to initiate and conduct, at its expense, an action against the
third party based on the Directly Infringing Product, subject to
all other applicable provisions of this Section 7.02. For
purposes of this Section 7.02, a “Directly
Infringing Product” shall mean either (x) a
disposable unit dose package intended and capable for use to
deliver a medicament within the Field in a device that is a copy
of, or substantially the same as, a Device used or tested by
Novo Nordisk in clinical trials under this Agreement, or
(y) a pulmonary delivery device intended for and capable of
using disposable unit dose package that is a copy of, or
substantially the same as, that utilized in a Packaged Product
used or tested by Novo Nordisk in clinical trials under this
Agreement. As used herein and in Section 10.05(b)(ii) and
Section 10.05(c)(i), the term “substantially the
same as” with respect to a device means that the two
devices being compared have the same general principles of
function, such as: (A) active breath control;
(B) delivery of an aerosol of fine particles; and
(C) an aerosol created from a liquid formulation of drug.
As used herein and in Section 10.05(b)(ii) and
Section 10.05(c)(i), the term “substantially the
same as” with respect to a disposable unit dose package
means that the two disposable unit dose packages being compared
have the same general principles of function, such as:
(X) liquid drug formulation; and (Y) an aerosol of
fine particles created through an aerosol nozzle integrated with
a flexible porous membrane.

     
(d) In a suit initiated or conducted by Novo
Nordisk pursuant to Section 7.02(a)-(c), in the initiation,
conduct and settlement of the suit Novo Nordisk shall consider
in good faith the interests of Aradigm, both inside and outside
the Field. Novo Nordisk shall keep Aradigm reasonably informed
of the progress of the suit, action, or proceeding, and shall
provide Aradigm in a manner reasonably designed to preserve
attorney-client privilege with copies of all substantive
communications relating to the suit, action, or proceeding,
subject to confidentiality obligations to third parties. To the
extent that Aradigm believes that a particular strategy for
conduct and/or settlement of the suit proposed by Novo Nordisk
would have a material adverse impact on Aradigm’s
activities outside the Field and/or Aradigm’s interests
outside the Development Program, the Parties agree to meet and
discuss in good faith an alternative strategy to address
Aradigm’s concerns, and Novo Nordisk shall not proceed with
any strategy without Aradigm’s approval, which shall not

A-24

 

be unreasonably withheld or delayed. Aradigm
shall fully cooperate with and supply all assistance reasonably
requested by Novo Nordisk in an action conducted by Novo Nordisk
under Section 7.02(a)-(c) above, and Novo Nordisk
shall reimburse Aradigm for its costs and expenses relating
thereto.

     
(e) In a suit initiated or conducted by
Aradigm pursuant to Section 7.02(b), in the initiation,
conduct and settlement of the suit Aradigm shall consider in
good faith the interests of Novo Nordisk inside the Field.
Aradigm shall keep Novo Nordisk reasonably informed of the
progress of the suit, action, or proceeding, and shall provide
Novo Nordisk in a manner reasonably designed to preserve
attorney-client privilege with copies of all substantive
communications relating to the suit, action, or proceeding,
subject to confidentiality obligations to third parties. To the
extent that Novo Nordisk believes that a particular strategy for
conduct and/or settlement of the suit proposed by Aradigm would
have a material adverse impact on Novo Nordisk’s interests
in the Field, the Parties agree to meet and discuss in good
faith an alternative strategy to address Novo Nordisk’s
concerns, and Aradigm shall not proceed with any strategy
without Novo Nordisk’s approval, which shall not be
unreasonably withheld or delayed. Novo Nordisk shall fully
cooperate with and supply all assistance reasonably requested by
Aradigm in such action.

     
(f) In any suit initiated or conducted by
Novo Nordisk pursuant to Section 7.02(a)-(c), all internal
and external costs and expenses of every kind and character
incurred by Novo Nordisk, including attorney’s fees,
involved in the prosecution of the suit, shall be the
responsibility of Novo Nordisk. In any suit initiated or
conducted by Aradigm pursuant to Section 7.02(b), all
internal and external costs and expenses of every kind and
character incurred by Aradigm, including attorney’s fees,
involved in the prosecution of the suit, shall be the
responsibility of Aradigm.

     
(g) Any damages or other monetary or
non-monetary awards recovered in such a suit initiated or
conducted by Novo Nordisk pursuant to
Section 7.02(a)-(c) shall be allocated to the Parties
in the following manner: First, Novo Nordisk and Aradigm shall
be reimbursed for their respective internal and external
expenses (including reasonable attorneys’ fees and costs)
incurred in the suit (to the extent not previously reimbursed in
accordance with Section 6.05(b)); and, second, the
remaining balance from such recovery shall be shared by Novo
Nordisk and Aradigm according to the following formula:
[2:1] Novo Nordisk:Aradigm. If the recovery is less than
both Parties’ costs, the recovery shall be allocated on a
pro rata basis based on each Party’s internal and external
expenses. The determination of the value of non-monetary
benefits or awards shall be through mutual agreement between the
parties. If an agreement cannot be reached between the Parties,
then the fair value of such non-monetary benefits or awards
shall be established by arbitration conducted as provided for in
Section 10.01.

     
(h) Notwithstanding the above provisions,
with respect to Novo Nordisk Patent Rights and patents included
in the Novo Nordisk New IPR, Novo Nordisk shall bear the sole
responsibility for initiating and conducting any suits to defend
such rights; shall bear all costs of such suits; shall have the
right to settle any such suit without consulting with Aradigm;
and shall retain the full recovery from such suit. Novo Nordisk
will keep Aradigm reasonably informed of the status of any such
threatened, pending, or actual suit or proceeding regarding the
Novo Nordisk Patent Rights involving activity in the Field.

     
(i) Notwithstanding anything else contained
herein, with respect to any practice or activity outside the
Field, Aradigm (or its licensees, as applicable) shall have the
sole right and responsibility for initiating and conducting any
suits to defend or enforce the Aradigm Patent Rights, Aradigm
Selected Pulmonary Delivery Patent Rights and patents included
in the Aradigm New IPR against practice outside the Field and
shall bear all costs of such suits. To the extent that such a
suit or proceeding could have a material impact on Novo
Nordisk’s interests in the Field, Aradigm shall keep Novo
Nordisk reasonably informed of the status of any such suit or
proceeding regarding Aradigm Patent Rights, Aradigm Selected
Pulmonary Delivery rights and patents included in the Aradigm
New IPR outside the Field and shall offer Novo Nordisk an
opportunity to comment on Aradigm’s strategy in conducting,
and/or settling such suit, to the extent not prevented by
confidentiality or other contractual obligations to third
parties. Subject to the preceding provision, Aradigm shall have
the right to settle any such suit without consulting with Novo
Nordisk and shall retain the full recovery from such suit.

A-25

 

     
(j) For any of the disclosure or
notification obligations of the Parties hereunder, it is
understood that all information disclosed under such obligations
is covered by the confidentiality provisions set forth in
Article 8, and further that neither Party shall be
required, by such obligations, to disclose privileged
information (e.g., information protected by work product
and/or attorney client privilege) or information in respect of
which such Party is subject to confidentiality or other
contractual obligations to third parties. However, each Party
agrees to use reasonable efforts to disclose the substance of
any such information in a manner that does not destroy the
privilege, and the Parties shall use good faith efforts to work
together to establish a procedure or relationship that enables
the disclosure of such privileged information without destroying
the privilege.

     
SECTION 7.03.     Interferences.
With respect to Aradigm Patent Rights and Aradigm New IPR that
are licensed to Novo Nordisk under Article 3, in the event
that any of such Aradigm Patent Rights, Aradigm Selected
Pulmonary Delivery Patent Rights or Aradigm New IPR are subject
to an interference action in the United States Patent and
Trademark Office, Aradigm shall provide Novo Nordisk with copies
of all communications relating to the interference action and
shall keep Novo Nordisk reasonably informed of the progress of
the interference action. Furthermore, Aradigm shall not enter
into any settlement agreement or take other dispositive action
in the interference without giving good faith consideration to
Novo Nordisk’s interests and concerns, and if such action
would have a material adverse impact on Novo Nordisk’s
activities in the Field, without obtaining the prior consent of
Novo Nordisk (which consent shall not be unreasonably withheld
or delayed).

     
SECTION 7.04.     Defense
and Settlement of Third Party Patent Claims. (a) If
conduct of the Development Program or the manufacture, use,
marketing, or sale of a Device or Packaged Product results in a
claim, suit, action, or proceeding by a third party against a
Party for patent infringement of such third party’s patent
rights (a “Field Infringement”), the Party
first having notice of such claim of Field Infringement shall
notify the other Party in writing within fifteen (15) days.
The notice shall set forth the facts of the claim (to the extent
known by the Party having notice) in reasonable detail.

     
(b) If during the term of this Agreement, a
third party makes or attempts to enforce a claim, files suit, or
initiates a proceeding or any action that has the potential to
affect enforceability, validity, or exclusivity of any Patent
Rights that would materially affect rights within the Field,
then the Party having notice shall notify the other Party in
writing within fifteen (15) days. If prior to the Effective
Date, a third party made or attempted to enforce a claim, filed
suit, or initiated a proceeding or any action that has the
potential to affect enforceability, validity, or exclusivity of
any Patent Rights that would materially affect rights within the
Field, then the Party having notice shall notify the other Party
in writing within fifteen (15) days of the Effective Date
to the extent that such Party had the obligation under the
Development and License Agreement or the Patent Cooperation
Agreement to notify the other Party. Any notice to be provided
pursuant to this Section 7.04(b) shall set forth the facts
(to the extent known by the Party having notice) in reasonable
detail.

     
(c) Within fifteen (15) days of
notification under Section 7.04(a) or Section 7.04(b),
if applicable and upon agreement of the Parties, a senior
officer of each Party shall meet to discuss in good faith and
agree upon a strategy for responding to such third party suit,
action, or proceeding, which strategy shall accommodate both
Parties’ commercial interests and investment in the
Development Program. To the extent that the Parties cannot agree
to such a strategy for conduct and/or settlement of the
proceeding or suit, then the Party that is the subject of such
proceeding or suit may conduct or settle such suit in its sole
discretion, unless the other Party agrees in writing to assume
the defense of such action and bear the cost of such defense and
settlement or any final judgment at its own expense; provided
that, the Party assuming the defense of such proceeding or
suit shall bear only the excess of the cost of any final
settlement or judgment over the cost to which the Party that is
the subject of the proceeding or suit was to have paid in any
proposed final settlement that such Party had agreed to pay
prior to the assumption of the defense by the other Party.

A-26

 

ARTICLE 8

SECRECY

     
SECTION 8.01.     Confidentiality.
(a) Each Party agrees that it shall use, and that it shall
cause any Person to whom Confidential Information is disclosed
pursuant to clause (b)(i) below to use, the Confidential
Information only in connection with the Transaction Agreements,
and the exercise of its rights hereunder and not for any other
purpose.

     
(b) Each Party further acknowledges and
agrees that it shall not disclose any Confidential Information
to any Person, except that Confidential Information may be
disclosed:

		
	 	     
    (i) to such Party’s Representatives (as
    defined below) in the normal course of the performance of their
    duties or to any financial institution providing credit to such
    Party,
    
	 
	 	     
    (ii) to the extent required by applicable
    law, rule or regulation (including complying with any oral or
    written questions, interrogatories, requests for information or
    documents, subpoena, civil investigative demand or similar
    process to which a Party is subject; provided that, such
    Party shall give the other Party prompt notice of such
    request(s), to the extent practicable, so that such other Party
    may seek an appropriate protective order or similar relief (and
    the Party shall cooperate with such efforts by such other Party,
    and shall in any event make only the minimum disclosure required
    by such law, rule or regulation)),
    
	 
	 	     
    (iii) to any governmental or regulatory
    authority or agency in order to obtain from such authority or
    agency any authorization required or contemplated by this
    Agreement or any of the other Transaction Agreements as long as
    such authority or agency is advised of the confidential nature
    of such information, or
    
	 
	 	     
    (iv) as mutually agreed between the Parties.
    

     
(c) Nothing contained herein shall prevent
the use (subject, to the extent possible, to a protective order)
of Confidential Information in connection with the assertion or
defense of any claim by or against any Party.

     
(d) For purposes of this Section 8.01,
“Confidential Information” means any
information concerning this Agreement or the Parties’
respective rights and obligations hereunder, including trade
secrets, business methods, cost, manufacturing and customer
information and information relating to the Patent Rights and
the Know-How in the possession of or furnished to a Party by the
other Party; provided that, the term “Confidential
Information” does not include information to the extent
that it (i) is or becomes generally available to the public
other than as a result of a disclosure by a Party or its
partners, directors, officers, employees, agents, counsel,
investment advisers or representatives (all such persons being
collectively referred to as “Representatives”)
in violation of this Agreement or any of the Transaction
Agreements, (ii) is or was available to such Party on a
non-confidential basis (as demonstrated by the written records
of such Party) prior to its disclosure to such Party by the
other Party or (iii) was or becomes available to such Party
on a non-confidential basis from a source other than the other
Party, which source is or was (at the time of receipt of the
relevant information) not, to the best of such Party’s
knowledge, bound by a confidentiality agreement with (or other
confidentiality obligation to) the other Party or another Person.

     
SECTION 8.02.     Publication
Planning. Novo Nordisk shall be solely responsible for all
publication planning, it being understood that Novo Nordisk will
endeavor to present to the Review Committee its overall
publication planning strategy relating to the Development
Program in good time prior to implementation and will in such
event in good faith consider any reasonable suggestion made by
Aradigm for amendments to such strategy, it being at all times
understood that Novo Nordisk shall not be entitled to publish or
present any information covered by Section 8.01 without the
prior written consent of Aradigm. For other publications or
public presentations not covered by Novo Nordisk’s
publication planning hereunder, Novo Nordisk shall be solely
responsible for any publication in any technical or scientific
article or other presentation of any of the results of the
Development Program; provided that, Novo Nordisk shall
not publish or publicly present any conclusions regarding the
safety and efficacy of the Device and Packaged Product and/or
pulmonary delivery of drugs without first: (a) providing
Aradigm a draft of such publication or public presentation; and

A-27

 

(b) obtaining the prior written consent of
Aradigm for the release of such publication or public
presentation, such consent not to be unreasonably withheld or
delayed. For purposes of this Section 8.02, Aradigm shall
be deemed to have consented to the release of such draft
publication or public presentation if it shall not have provided
comments to such draft publication or public presentation to
Novo Nordisk in writing within ten (10) days of its receipt
thereof.

     
SECTION 8.03.     Term
Of Confidentiality Provisions. This Article 8 shall
remain in force for ten (10) years from the date of
termination of this Agreement.

ARTICLE 9

NOTICE

     
SECTION 9.01.     Notice.
Any notice to be given under this Agreement shall be sent in
writing in English by registered airmail or telecopied,

		
	 	
    if to Aradigm, to:
    
	 
	 	
    Aradigm Corporation
    
	 	
    3929 Point Eden Way
    
	 	
    Hayward, California 94545
    
	 	
    Attention: Chief Financial Officer
    
	 	
    Telephone: +1 510-265-9000
    
	 	
    Telefax: +1 510-265-0277
    
	 
	 	
    with a copy to:
    
	 
	 	
    Cooley Godward LLP
    
	 	
    Five Palo Alto Square
    
	 	
    3000 El Camino Real
    
	 	
    Palo Alto, California 94306
    
	 	
    Attention: James C. Kitch
    
	 	
    Telephone: +1 650-843-5027
    
	 	
    Telefax: +1 650-849-7400
    
	 
	 	
    if to Novo Nordisk, to:
    
	 
	 	
    Novo Nordisk A/ S
    
	 	
    Novo Alle
    
	 	
    DK-2880 Bagsvaerd
    
	 	
    Denmark
    
	 	
    Attention: General Counsel
    
	 	
    Telephone: +45 44 44 88 88
    
	 	
    Telefax: +45 44 42 18 30
    
	 
	 	
    and
    
	 
	 	
    Attention: Vice President, Business Development
    
	 	
    Telephone: + 45 44 42 39 00
    
	 	
    Telefax: + 45 44 42 16 98
    

or to such other addresses and telecopier numbers
as may from time to time be notified by either Party to the
other hereunder.

     
SECTION 9.02.     Deemed
Receipt of Notice. Any notice sent by registered airmail
shall be deemed to have been delivered within seven
(7) working days after dispatch and any notice sent by
telex or telefax shall be deemed to have been delivered within
twenty-four (24) hours after dispatch. Notice of change of
address shall be effective upon receipt.

A-28

 

ARTICLE 10

TERM AND TERMINATION

     
SECTION 10.01.     Term.
This Agreement shall commence on the Effective Date and shall
continue in full force and legal effect thereafter until
terminated in accordance with this Article 10.

     
SECTION 10.02.     Termination
by Novo Nordisk. (a) Novo Nordisk shall have the right
to terminate this Agreement at its sole discretion upon one
hundred and twenty (120) days’ prior written notice to
Aradigm.

     
(b) Novo Nordisk shall also have the right
to terminate this Agreement upon thirty (30) days’
prior written notice to Aradigm in the event that Aradigm shall
have committed a material breach of this Agreement or any of the
other Transaction Agreements and shall have failed to remedy
such breach within sixty (60) days of written notice of
such breach.

     
SECTION 10.03.     Termination
by Aradigm. (a) Aradigm shall have the right to
terminate this Agreement upon thirty (30) days’ prior
written notice to Novo Nordisk in the event that Novo Nordisk
shall have committed a material breach of this Agreement and
shall have failed to remedy such breach within sixty
(60) days of written notice of such breach; provided
that, notwithstanding the foregoing, Novo Nordisk shall have
one hundred twenty (120) days following written notice by
Aradigm to remedy any breach of the obligations set forth in
Section 2.05(a)-(d).

     
SECTION 10.04.     Termination
By Either Party. Either Party, in addition to any other
remedies available to it in law, may terminate this Agreement
upon written notice to the other Party in the event such other
Party shall

		
	 	     
    (a) become insolvent or bankrupt;
    
	 
	 	     
    (b) make an assignment for the benefit of
    its creditors;
    
	 
	 	     
    (c) appoint a trustee or receiver for itself
    for all or a substantial part of its property, seek
    reorganization, liquidation, dissolution, a winding arrangement,
    composition or readjustment of its debts;
    
	 
	 	     
    (d) have its controlling interests acquired
    by a third party manufacturer of an approved insulin product or
    an insulin product under clinical development at any time unless
    such manufacturer promptly and expressly assumes and agrees in
    writing to be directly bound by the terms of this
    Agreement; or
    
	 
	 	     
    (e) have its controlling interest acquired
    by any company reasonably deemed to be a competitor by Novo
    Nordisk or Aradigm, as applicable, unless such company promptly
    and expressly assumes and agrees in writing to be directly bound
    by the terms of this Agreement.
    

     
SECTION 10.05.     Rights
And Obligations Of The Parties After Termination.
(a) In the event that either Party terminates this
Agreement, both Parties shall retain perpetual, world-wide,
non-exclusive, royalty-free, licenses, to Aradigm New IPR and
Novo Nordisk New IPR Made Jointly by Aradigm and Novo Nordisk,
to the extent not already owned by such Party, to develop,
manufacture, use, market, distribute, sell, offer for sale, have
made, import and/or export any product within and outside the
Field; provided that, in the event of termination by Novo
Nordisk in accordance with the provisions set forth in
Section 10.02(b) or Section 10.04, and in the event
that Novo Nordisk elects to continue the Development Program
pursuant to Section 10.05(b)(i), the license retained by
Novo Nordisk hereunder shall be exclusive within the Field and
non-exclusive outside the Field.

     
(b) In the event that Novo Nordisk
terminates this Agreement in accordance with the provisions set
forth in Section 10.02(b) or Section 10.04, the
Parties hereto shall have the following additional rights and
obligations:

		
	 	     
    (i) in the event that Novo Nordisk, in its
    notice of termination, informs Aradigm of Novo Nordisk’s
    intent to continue the Development Program: (1) Novo
    Nordisk shall retain its licenses under Section 3.01 and
    Section 3.02 and pay royalties with respect thereto under
    Section 5.01 until the later of (A) the date that is
    ten (10) years from First Marketing of any Packaged Product
    and the Device and
    

A-29

 

		
	 	
    (B) the expiration date of the last patent
    required to cover the Packaged Product and the Device and the
    development, manufacturing, use, marketing, distribution, sale,
    offer for sale, importation and/or exportation thereof in and
    from the Territory, and (2) all rights and obligations of
    the Parties under Sections 2.02, 2.03, 2.04, 2.08, 4.01,
    6.03 and 6.04 will terminate. For the avoidance of doubt, the
    remaining provisions of this Agreement will survive, including
    Novo Nordisk’s license rights and payment obligations (as
    set forth in (1) above) and Novo Nordisk’s obligation
    to expend Diligent Efforts to clinically develop and register
    the Insulin Compound Packaged Product and the Device for Broad
    Regulatory Approval in the United States and the European Union.
    
	 
	 	     
    (ii) in the event that Novo Nordisk fails to
    provide Aradigm with written notice of its intent to continue
    the Development Program pursuant to Section 10.05(b)(i),
    the licenses granted to Novo Nordisk under Section 3.01 and
    Section 3.02, and to its permitted sublicensees thereunder,
    shall immediately terminate, and Novo Nordisk shall be, and
    hereby is, granted a perpetual, world-wide, non-exclusive,
    royalty-bearing, license, with the right to sublicense its
    customers and Joint Marketing Partners in accordance with
    Section 3.03, under the Aradigm Patent Rights, Aradigm
    Selected Pulmonary Delivery Patent Rights, Aradigm Know-How and
    Aradigm New IPR to develop, manufacture, use, market,
    distribute, sell, offer for sale, have made, import and/or
    export pulmonary products (other than Packaged Products, Devices
    or products that are substantially the same as such Packaged
    Products or Devices) in the Field. The royalty shall be payable
    on Net Sales within the Field (by any member of the Novo Nordisk
    Affiliate Group or any permitted sublicensee thereof), if any,
    of pulmonary products that use, or are covered by, any Aradigm
    Know-How or any know-how included in the Aradigm New IPR, or
    that are covered by any Aradigm Patent Rights, Aradigm Selected
    Pulmonary Delivery Patent Rights or any patents included in the
    Aradigm New IPR. Such royalty shall be payable until the later
    of (A) the date that is ten (10) years from First
    Marketing of such pulmonary product; and (B) the expiration
    date of the last patent required to cover such pulmonary product
    and the development, manufacturing, use, marketing,
    distribution, sale, offer for sale, importation and/or
    exportation thereof in and from the Territory. The rate for such
    royalty shall be determined in accordance with the provisions
    set forth in Section 5.03(a) in respect of those patents
    and know-how licensed to Novo Nordisk by Aradigm under this
    Section 10.05(b)(ii), but in no event shall such royalty
    exceed: (X) in the case of any pulmonary products using an
    Alternative Technology to deliver a specific insulin or insulin
    analog class, (1) for a First Marketed Product and Device,
    four and one quarter percent (4.25%) of Net Sales thereof during
    the applicable Stage 1 Commercialization Period, five
    percent (5.00%) of Net Sales thereof during the applicable
    Stage 2 Commercialization Period, and six percent (6.00%)
    of Net Sales thereof during the applicable Stage 3
    Commercialization Period or (2) for any Later Marketed
    Product and Device, five and one-quarter percent (5.25%) of Net
    Sales thereof during the applicable Stage 1
    Commercialization Period and six percent (6.00%) of Net Sales
    thereof during the applicable Stage 2 Commercialization
    Period and the applicable Stage 3 Commercialization Period;
    and (Y) for any other pulmonary products, five and
    one-quarter percent (5.25%) of Net Sales thereof during the
    applicable Stage 1 Commercialization Period and six percent
    (6.00%) of Net Sales thereof during the applicable Stage 2
    Commercialization Period and the applicable Stage 3
    Commercialization Period.
    

     
(c) In the event that Novo Nordisk
terminates this Agreement in accordance with any provision
contained herein other than as set forth in
Section 10.02(b) or Section 10.04, the Parties hereto
shall have the following additional rights and obligations:

		
	 	     
    (i) The licenses granted to Novo Nordisk
    under Section 3.01 and Section 3.02, and to its
    permitted sublicensees thereunder, shall immediately terminate,
    and Novo Nordisk shall be, and hereby is, granted a perpetual,
    world-wide, non-exclusive, royalty-bearing license, with the
    right to sublicense its customers and Joint Marketing Partners
    in accordance with Section 3.03, under the Aradigm Patent
    Rights, Aradigm Selected Pulmonary Delivery Patent Rights,
    Aradigm Know-How and Aradigm New IPR to develop, manufacture,
    use, market, distribute, sell, offer for sale, have made, import
    and/or export pulmonary products (other than Packaged Products,
    Devices or products that are substantially the same as such
    Packaged Products or Devices) in the Field. The royalty shall be
    payable on Net Sales within the Field (by any member of the Novo
    Nordisk Affiliate Group or any permitted sublicensee thereof),
    if any,
    

A-30

 

		
	 	
    of pulmonary products that use, or are covered
    by, any Aradigm Know-How or any know-how included in the Aradigm
    New IPR, or that are covered by any Aradigm Patent Rights,
    Aradigm Selected Pulmonary Delivery Patent Rights or any patents
    included in the Aradigm New IPR. Such royalty shall be payable
    until the later of (A) the date that is ten (10) years
    from First Marketing of such pulmonary product; and (B) the
    expiration date of the last patent required to cover such
    pulmonary product and the development, manufacturing, use,
    marketing, distribution, sale, offer for sale, importation
    and/or exportation thereof in and from the Territory. The rate
    for such royalty shall be determined in accordance with the
    provisions set forth in Section 5.03(a) in respect of those
    patents and know-how licensed to Novo Nordisk by Aradigm under
    this Section 10.05(c)(i), but in no event shall such
    royalty exceed: (X) in the case of any pulmonary products
    using an Alternative Technology to deliver a specific insulin or
    insulin analog class, (1) for a First Marketed Product and
    Device, four and one quarter percent (4.25%) of Net Sales
    thereof during the applicable Stage 1 Commercialization
    Period, five percent (5.00%) of Net Sales thereof during the
    applicable Stage 2 Commercialization Period, and six
    percent (6.00%) of Net Sales thereof during the applicable
    Stage 3 Commercialization Period; or (2) for any Later
    Marketed Product and Device, five and one-quarter percent
    (5.25%) of Net Sales thereof during the applicable Stage 1
    Commercialization Period and six percent (6.00%) of Net Sales
    during the applicable Stage 2 Commercialization Period and
    the applicable Stage 3 Commercialization Period; and
    (Y) for any other pulmonary products, five and one-quarter
    percent (5.25%) of Net Sales thereof during the applicable
    Stage 1 Commercialization Period and six percent (6.00%) of
    Net Sales thereof during the applicable Stage 2
    Commercialization Period and the applicable Stage 3
    Commercialization Period;
    
	 
	 	     
    (ii) Aradigm shall be, and hereby is,
    granted a perpetual, world-wide, non-exclusive, royalty-bearing
    (as described below in this Section 10.05(c)(ii)) license, with
    the right to sublicense, under the Novo Nordisk Know-How and
    know-how included within Novo Nordisk New IPR and certain claims
    under the Novo Nordisk Patent Rights and the patents included
    within Novo Nordisk New IPR, which are necessary to develop,
    manufacture, use, market, distribute, sell, offer for sale,
    import and/or export: (1) the Insulin Compound Packaged
    Product containing the Insulin Compound formulation as it exists
    on the date of termination and the Device and/or later
    generation pulmonary products in the Field derived from such
    Insulin Compound Packaged Product containing the Insulin
    Compound formulation as it exists on the date of termination and
    the Device; and (2) any pulmonary drug delivery product
    outside the Field. Novo Nordisk shall in good faith specify in
    writing to Aradigm promptly following termination the patent
    claims that describe such Insulin Compound formulation to enable
    Aradigm to practice its rights under the foregoing license, as
    further described below; provided that, if Aradigm
    notifies Novo Nordisk in writing of any additional claims that
    Aradigm believes are necessary to practice such license, then
    the Parties shall meet and discuss in good faith whether to
    specify such additional claims. For the avoidance of doubt,
    Aradigm’s license with respect to the Insulin Compound
    Packaged Product under the Novo Nordisk Know-How and the
    know-how included within the Novo Nordisk New TPR and the
    specific claims under the Novo Nordisk Patent Rights and the
    patents included in the Novo Nordisk New IPR permit Aradigm to
    make only (a) the exact formulation of the Insulin Compound
    as it exists at the time of termination; (b) a formulation
    of such Insulin Compound with a lower (but not higher)
    concentration of insulin, in each case falling within the
    concentration ranges in the specified claims; (c) subject
    to (b) above, a formulation of such Insulin Compound that
    increases or decreases the range of excipients or other
    non-Insulin Compound components included within such existing
    formulation, provided such excipients or other non-Insulin
    Compound components remain within a range of two (2) times
    the quality specification for such component; and/or (d) a
    formulation of such Insulin Compound to which excipients or
    other components may be added or deleted provided such
    additional excipients or other compounds do not infringe any
    intellectual property rights of Novo Nordisk or any of its
    Affiliates, other than such intellectual property rights
    licensed to Aradigm under this Section 10.05(c)(ii). Within the
    Field, such license shall be royalty-free prior to First
    Marketing of any Packaged Product and/or Device by Aradigm or
    its sublicensees; after such First Marketing, such license shall
    bear a royalty of (A) two and seven-tenths percent (2.70%)
    of Net Sales (by Aradigm, any of its Affiliates or permitted
    sublicensees) of Device and Packaged Products falling within
    (a)-(d) above for the first four (4) years following First
    Marketing and thereafter four percent (4.00%) of such Net Sales
    of the
    

A-31

 

		
	 	
    Packaged Product and the Device; and
    (B) four percent (4.00%) of Net Sales (by Aradigm, any of
    its Affiliates or sublicensees) of later generation pulmonary
    products derived from such Device and/or Packaged Products.
    Outside the Field, such royalty shall bear a royalty determined
    in accordance with the provisions set forth in
    Section 5.03(a). Additionally, Aradigm shall retain its
    license under Section 3.04(b), which license shall be
    expanded to include the ability to develop, manufacture, use,
    market, distribute, sell, offer for sale, have made, import
    and/or export any product inside the Field; and
    
	 
	 	     
    (iii) Novo Nordisk shall supply insulin to
    Aradigm in accordance with the provisions set forth in
    Section 10.05(f) until the date of the first Regulatory
    Submission if, and only if, Novo Nordisk shall have terminated
    this Agreement prior to First Marketing of the Insulin Compound
    Packaged Product and the Device.
    

     
(d) In the event that Aradigm terminates
this Agreement in accordance with the provisions set forth in
Section 10.03 or Section 10.04, Aradigm shall be, and
hereby is, granted a perpetual, world-wide, non-exclusive
license, with the right to sublicense, under the Novo Nordisk
Know-How and know-how included within Novo Nordisk New IPR and
certain claims under the Novo Nordisk Patent Rights and the
patents included within Novo Nordisk New IPR, which are
necessary to develop, manufacture, use, market, distribute,
sell, offer for sale, import and/or export: (1) the Insulin
Compound Packaged Product containing the Insulin Compound
formulation as it exists on the date of termination and the
Device and/or later generation pulmonary products in the Field
derived from such Insulin Compound Packaged Product containing
the Insulin Compound formulation as it exists on the date of
termination and the Device; and (2) any product outside the
Field. Such royalty shall be royalty-free in the Field and
royalty-bearing (as determined in accordance with the provisions
set forth in Section 5.03(a)) outside the Field. Novo
Nordisk shall in good faith specify in writing to Aradigm
promptly following termination the patent claims that describe
such Insulin Compound formulation to enable Aradigm to practice
its rights under the foregoing license, as further described
below; provided that, if Aradigm notifies Novo Nordisk in
writing of any additional claims that Aradigm believes are
necessary to practice such license, then the Parties shall meet
and discuss in good faith whether to specify such additional
claims. For the avoidance of doubt, Aradigm’s license with
respect to the Insulin Compound Packaged Product under the Novo
Nordisk Know-How and the know-how included within the Novo
Nordisk New IPR and the specific claims under the Novo Nordisk
Patent Rights and the patents included in the Novo Nordisk New
IPR permit Aradigm to make only (a) the exact formulation
of the Insulin Compound as it exists at the time of termination;
(b) a formulation of such Insulin Compound with a lower
(but not higher) concentration of insulin, in each case falling
within the concentration ranges in the specified claims;
(c) subject to (b) above, a formulation of such
Insulin Compound that increases or decreases the range of
excipients or other non-Insulin Compound components included
within such existing formulation, provided such excipients or
other non-Insulin Compound components remain within a range of
two (2) times the quality specification for such component;
and/or (d) a formulation of such Insulin Compound to which
excipients or other components may be added or deleted provided
such additional excipients or other compounds do not infringe
any intellectual property rights of Novo Nordisk or any of its
Affiliates, other than such intellectual property rights
licensed to Aradigm under this Section 10.05(d).
Additionally, Aradigm shall retain its license under
Section 3.04(b), which license shall be expanded to include
the ability to develop, manufacture, use, market, distribute,
sell, offer for sale, have made, import and/or export any
product inside the Field. In the event that Aradigm terminates
this Agreement prior to the first Regulatory Submission of the
Insulin Compound Packaged Product and the Device, Novo Nordisk
shall supply insulin to Aradigm in accordance with the
provisions set forth in Section 10.05(f).

     
(e) In the event that either Party
terminates this Agreement in accordance with the provisions set
forth herein, other than in accordance with the provisions set
forth in Section 10.02(b) or Section 10.04 as and to
the extent requested in writing by Aradigm, Novo Nordisk will
cooperate with Aradigm to transfer the technology and any
related development or production equipment (as specified by
Aradigm) back to Aradigm, and Aradigm will pay Novo Nordisk:
(i) for its transfer activities (on terms and conditions
substantially similar to those set forth in the Transition
Services Agreement and the Restructuring Agreement); and
(ii) the replacement value for any custom-made equipment
and the fair market value for

A-32

 

any equipment that is not custom-made to Novo
Nordisk for any such equipment; provided that, Novo
Nordisk shall be entitled to payment of fair market value for
any custom-made equipment in respect of which Novo Nordisk does
not provide Aradigm with reasonably satisfactory evidence of its
intention to replace such equipment. Additionally, Aradigm shall
be entitled to use the data generated under the Development
Program to work with a third party and shall have reasonable
access to the relevant sections of applicable regulatory filings
by any member of the Novo Nordisk Affiliate Group; provided
that, it is expressly understood that neither Aradigm nor
any marketing partner of Aradigm shall have access to any
Regulatory Approval in respect of Novo Nordisk bulk insulin or
Novo Nordisk Know-How, production process details or other
information relating to the production of bulk insulin by Novo
Nordisk or any of its Affiliates.

     
(f) In the event that either Party
terminates this Agreement in accordance with the provisions set
forth herein, other than in accordance with the provisions set
forth in Section 10.02(b) or Section 10.04 and if, and
only if, such termination occurs prior to First Marketing of the
Insulin Compound Packaged Product and the Device, Novo Nordisk
shall [****].

     
(g) In the event that either Party
terminates this Agreement in accordance with the provisions set
forth herein, Aradigm agrees that it will not use, directly or
indirectly, any Novo Nordisk Know-How or other confidential
information received from Novo Nordisk pursuant to this
Agreement, and Novo Nordisk agrees that it will not use,
directly or indirectly, any Aradigm Know-How or other
confidential information received from Aradigm pursuant to this
Agreement, in either case other than as expressly provided
herein.

     
(h) In the event that Novo Nordisk terminates this
Agreement for any reason, Novo Nordisk may elect to have granted to
it a (1) non-exclusive, royalty-bearing (as described below)
license to Aradigm’s [****], claims [****] or (2) a
semi-exclusive, royalty-bearing (as described below) license to
Aradigm’s [****], claims [****], in respect of which patent
Aradigm may only further license such patent to [****], in each case
by notifying Aradigm in writing within one (1) month of
the delivery of the termination notice and, in the case of (2) above,
[****]. Novo Nordisk will pay a royalty of [****] (by any member of
the Novo Nordisk Affiliate Group) of products covered by one (1)
or more of the licensed claims from Aradigm's [****]; provided
that,
in the event that Aradigm licenses the [****] patent to [****], Novo
Nordisk will pay Aradigm the [****].  [****].

     
(i) Upon termination of this Agreement,
Aradigm undertakes to return, upon Novo Nordisk’s written
request, all written documentation embodying Novo Nordisk
Know-How and any and all remaining Program Compound to Novo
Nordisk, except and to the extent retention thereof is
reasonably necessary during any post termination period in which
Novo Nordisk continues to supply insulin to Aradigm. In the
event that Aradigm terminates this Agreement in accordance with
the provisions set forth in Section 10.03, Novo Nordisk
shall return, upon Aradigm’s written request, all written
documentation embodying Aradigm Know- How to Aradigm.

     
SECTION 10.06.     Additional
Effects of Termination or Expiration. Termination or
expiration of this Agreement shall not affect the continuing
validity and enforceability of Sections 5.02, 5.03, 5.04,
5.05, 5.06, 5.07, 6.01, 6.02, 6.06, Articles 7, 8, 9, 10,
11 and 12 and the applicable definitions in Article 1 of
this Agreement. All confidential information provided under the
Agreement shall be returned to the respective Parties within
ninety (90) days of the termination date, except as
otherwise contemplated by this Agreement and except as to
confidential information required by the Parties to exercise
their respective rights under this Agreement.

ARTICLE 11

DISPUTE RESOLUTION AND GOVERNING LAW

     
SECTION 11.01.     Dispute
Resolution. (a) All disputes arising out of this
Agreement shall be settled as far as possible by negotiations
between the Parties. If the Parties cannot agree on an amicable
settlement within thirty (30) days from written submission
of the matter by one Party to the other Party, the matter shall
be submitted for decision and final resolution to arbitration to
the exclusion of any courts of law, under the Arbitration Rules
of the American Arbitration Association.

     
(b) The arbitration tribunal shall be
composed of three disinterested arbitrators, appointed pursuant
to the following procedure: the Party invoking arbitration shall
notify the other Party stating the substance of its claim and
the name and address of the arbitrator it has chosen, who may be
a citizen of any country. Within thirty (30) days of
receipt of such notification, the other Party shall notify the
first party of its answer to the

**** Certain confidential
information 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.

A-33

 

claim made, any counterclaim that it wishes to
assert in the arbitration, and the name and address of its
arbitrator, who may be a citizen of any country. If this is not
done within the 30-day period, appointment of the second
arbitrator shall be made in accordance with the Arbitration
Rules of the American Arbitration Association upon request of
the initiating Party.

     
(c) The arbitrators shall choose a third
arbitrator, who shall serve as president of the tribunal thus
composed. If the arbitrators fail to agree upon the choice of a
third arbitrator within thirty (30) days from the
appointment of the second arbitrator, the third arbitrator will
be appointed in accordance with the Arbitration Rules of the
American Arbitration Association upon the request of the
arbitrators or either of the Parties.

     
(d) The arbitrators shall decide the dispute
by majority decision and in accordance with the laws of the
State of New York. The decision shall be rendered in writing,
shall state the reasons on which it is based, and shall bear the
signatures of at least two arbitrators. It shall also identify
the members of the arbitration tribunal, and the time and place
of the award granted. Finally, it shall determine the expenses
of the arbitration and the Party who shall be charged therewith
or the allocation of the expenses between the Parties at the
discretion of the tribunal.

     
(e) The arbitration decision shall be
rendered as soon as possible, not later, however, if possible,
than six months after the constitution of the arbitration
tribunal. The arbitration decision shall be final and binding
upon both Parties and the Parties agree that any award granted
pursuant to such decision may be entered forthwith in any court
of competent jurisdiction. This arbitration clause and any award
granted pursuant to an arbitration decision thereunder shall be
enforceable against the Parties in accordance with the 1958
Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, as amended.

     
(f) The seat of arbitration shall be New
York City, unless the Parties otherwise agree in writing. The
official arbitration language shall be English.

     
SECTION 11.02.     Governing
Law. This Agreement shall be governed by and construed in
accordance with the law of the State of New York.

ARTICLE 12

MISCELLANEOUS

     
SECTION 12.01.     Bankruptcy
Code Considerations. (a) The Parties agree that this
Agreement is an “executory contract” (involving
continuing executory obligations of Aradigm to provide licenses
of the Aradigm Patent Rights, the Aradigm Selected Pulmonary
Delivery Patent Rights, the Aradigm New IPR and the Aradigm
Know-How, Novo Nordisk to provide licenses of the Novo Nordisk
Patent Rights, Novo Nordisk New IPR and the Novo Nordisk
Know-How, and continuing executory obligations to pay royalties
hereunder), under which Aradigm and Novo Nordisk, as the case
may be, is a “licensor of a right to intellectual
property,” and that this Agreement is governed under
11 U.S.C. § 365(n) of the United States
Bankruptcy Code (“Bankruptcy Code”).

     
(b) The Parties further agree that the
Aradigm Patent Rights, the Aradigm Selected Pulmonary Delivery
Patent Rights, the Aradigm New IPR and the Aradigm Know-How, the
Novo Nordisk Patent Rights, Novo Nordisk New IPR and the Novo
Nordisk Know-How collectively constitute the “intellectual
property” (as such term is defined in
section 11 U.S.C. § 101(35A) of the
Bankruptcy Code) being licensed hereunder. If a Party as debtor
in possession or a trustee of bankruptcy for a Party in a case
under the Bankruptcy Code, rejects this Agreement, the other
Party may elect to retain its rights under this Agreement as
provided for in 11 U.S.C. § 365(n). In addition,
if a Party as debtor in possession or a trustee of bankruptcy
for a Party in a case under the Bankruptcy Code chooses to
assign this Agreement to any Person as may be permitted under
the Bankruptcy Code, such Party or such trustee shall only
assign this Agreement to an assignee that, in conformity with
section 11 U.S.C. § 365(f) of the Bankruptcy
Code, affirmatively agrees to assume all of such Party’s
obligations under this Agreement, and that provides adequate
assurance of future performance.

A-34

 

     
SECTION 12.02.     Binding
Agreement. This Agreement shall not be binding upon the
Parties until it has been signed herein below by or on behalf of
each Party, in which event it shall be effective as of the
Effective Date.

     
SECTION 12.03.     Severability.
If any provision in any Article of this Agreement is found by
competent authority to be invalid, illegal or unenforceable in
any respect for any reason, the validity, legality and
enforceability of such other Article in every other respect and
the remainder of this Agreement shall continue in effect so long
as the Agreement still expresses the intent of the Parties.
However, if the intent of the Parties cannot be preserved, this
Agreement shall be either renegotiated or terminated.

     
SECTION 12.04.     Amendments
and Waivers. (a) Any provision of this Agreement may be
amended or waived if, but only if, such amendment or waiver is
in writing and is signed, in the case of an amendment, by each
Party to this Agreement, or in the case of a waiver, by the
Party against whom the waiver is to be effective.

     
(b) No failure or delay by any Party in
exercising any right, power or privilege hereunder shall operate
as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive
of any rights or remedies provided by law.

     
SECTION 12.05.     Expenses.
Except as otherwise provided herein, all costs and expenses
incurred in connection with this Agreement shall be paid by the
Party incurring such cost or expense.

     
SECTION 12.06.     Successors
and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the Parties hereto and
their respective successors and assigns; provided that,
no Party may assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement without the consent
of each other Party hereto, except pursuant to the provisions of
Articles 3 and 10.

     
SECTION 12.07.     Counterparts;
Third Party Beneficiaries. This Agreement may be signed in
any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto
were upon the same instrument. This Agreement shall become
effective when each Party hereto shall have received a
counterpart hereof signed by the other Party hereto. No
provision of this Agreement is intended to confer upon any
person other than the Parties hereto any rights or remedies
hereunder.

     
SECTION 12.08.     Entire
Agreement. This Agreement and the other Transaction
Agreements constitute the entire agreement between the Parties
with respect to the subject matter of this Agreement and
supersede all prior agreements and understandings, both oral and
written, between the Parties with respect to the subject matter
of this Agreement.

[SIGNATURE PAGE FOLLOWS]

A-35

 

		
	 	
    ARADIGM CORPORATION
    
	 
	 	
    By:
    
	 	
    

	 	
    Name: 
	 	
    Title:
    
	 
	 	
    NOVO NORDISK A/S
    
	 
	 	
    By:
    
	 	
    

	 	
    Name: 
	 	
    Title:
    

A-36

 

Appendix A

Aradigm Selected Pulmonary Delivery Patent Rights

 

 

 

[****]

	****	 	Certain confidential information 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.

A-37

 

EXHIBIT B

[ASSET PURCHASE AGREEMENT]

 

B-1

 

ASSET PURCHASE AGREEMENT

dated as of

                    ,
2004

between

ARADIGM CORPORATION

and

NOVO NORDISK DELIVERY TECHNOLOGIES,
INC.

 

B-2

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
					Page
					

	
     ARTICLE 1

     DEFINITIONS
    
	
    
     SECTION 1.01.
    

    	 	
     Definitions	 	 	B-4	 
	
    
     SECTION 1.02.
    

    	 	
     Other Definitional And
    Interpretative Provisions	 	 	B-5	 
	 
	
     ARTICLE 2

     PURCHASE AND SALE
    
	
    
     SECTION 2.01.
    

    	 	
     Purchase and
    Sale	 	 	B-6	 
	
    
     SECTION 2.02.
    

    	 	
     Excluded
    Assets	 	 	B-6	 
	
    
     SECTION 2.03.
    

    	 	
     Assumed
    Liabilities	 	 	B-6	 
	
    
     SECTION 2.04.
    

    	 	
     Excluded
    Liabilities	 	 	B-6	 
	
    
     SECTION 2.05.
    

    	 	
     Assignment of Contracts
    and Rights	 	 	B-7	 
	
    
     SECTION 2.06.
    

    	 	
     Purchase Price;
    Allocation of Purchase Price	 	 	B-7	 
	
    
     SECTION 2.07.
    

    	 	
     Closing	 	 	B-7	 
	 
	
     ARTICLE 3

     COVENANTS OF ARADIGM
    
	
    
     SECTION 3.01.
    

    	 	
     Access To Information;
    Confidentiality	 	 	B-7	 
	 
	
     ARTICLE 4

     COVENANTS OF NOVO NORDISK DELIVERY TECHNOLOGIES. INC. AND
    ARADIGM
    
	
    
     SECTION 4.01.
    

    	 	
     Trademarks;
    Tradenames	 	 	B-8	 
	 
	
     ARTICLE 5

     TAX MATTERS
    
	
    
     SECTION 5.01.
    

    	 	
     Tax
    Definitions	 	 	B-9	 
	
    
     SECTION 5.02.
    

    	 	
     Tax Matters	 	 	B-9	 
	
    
     SECTION 5.03.
    

    	 	
     Tax Cooperation;
    Allocation of Taxes	 	 	B-9	 
	 
	
     ARTICLE 6

     SURVIVAL; INDEMNIFICATION
    
	
    
     SECTION 6.01.
    

    	 	
     Survival	 	 	B-10	 
	
    
     SECTION 6.02.
    

    	 	
     Indemnification	 	 	B-10	 
	
    
     SECTION 6.03.
    

    	 	
     Procedures	 	 	B-11	 
	 
	
     ARTICLE 7

     MISCELLANEOUS
    
	
    
     SECTION 7.01.
    

    	 	
     Notices	 	 	B-11	 
	
    
     SECTION 7.02.
    

    	 	
     Amendments and
    Waivers	 	 	B-12	 
	
    
     SECTION 7.03.
    

    	 	
     Expenses	 	 	B-12	 
	
    
     SECTION 7.04.
    

    	 	
     Successors and
    Assigns	 	 	B-12	 
	
    
     SECTION 7.05.
    

    	 	
     Governing
    Law	 	 	B-12	 
	
    
     SECTION 7.06.
    

    	 	
     Dispute
    Resolution	 	 	B-12	 
	
    
     SECTION 7.07.
    

    	 	
     Counterparts;
    Effectiveness; Third Party Beneficiaries	 	 	B-13	 
	
    
     SECTION 7.08.
    

    	 	
     Entire
    Agreement	 	 	B-13	 
	
    
     SECTION 7.09.
    

    	 	
     Bulk Sales
    Laws	 	 	B-13	 
	
    
     SECTION 7.10.
    

    	 	
     Severability	 	 	B-13	 
	
    
     EXHIBIT A
    

    	 	
     Assignment and Assumption
    Agreement	 	 	B-15	 

B-3

 

ASSET PURCHASE AGREEMENT

     
AGREEMENT dated as
of                     ,
2004 between Aradigm Corporation, a corporation duly organized
and existing under the law of the State of California
(“Aradigm”) and Novo Nordisk Delivery
Technologies, Inc., a corporation duly organized and existing
under the law of the State of Delaware (“NOVO Nordisk
Delivery Technologies, Inc.”).

W I T N E S S E T H:

     
WHEREAS, Aradigm, Novo Nordisk Delivery
Technologies, Inc. and Novo Nordisk A/S, a company duly
organized and existing under the law of Denmark (“Novo
Nordisk”) entered into a Restructuring Agreement dated
as of September 28,2004 (the “Restructuring
Agreement”) pursuant to which they agreed to
restructure the existing arrangements between Aradigm and Novo
Nordisk regarding, among other things, the development and
commercialization of the Development Program; and

     
WHEREAS, it is a precondition to performance on
the part of Aradigm, Novo Nordisk Delivery Technologies, Inc.
and Novo Nordisk of their respective obligations under the
Restructuring Agreement that Aradigm and Novo Nordisk Delivery
Technologies, Inc. enter into this Agreement pursuant to which
Aradigm will transfer certain assets upon the terms and subject
to the conditions hereinafter set forth.

     
NOW, THEREFORE, in consideration of the premises
set forth above and for other good and valuable consideration,
receipt of which is hereby acknowledged, the parties hereto
agree as follows:

ARTICLE 1

DEFINITIONS

     
SECTION 1.01.     Definitions.

     
(a) The following terms, as used herein,
shall have the following meanings:

     
“Affiliate”
shall have the meaning set forth in
the Restructuring Agreement.

     
“Amended and Restated License
Agreement” shall have the meaning
set forth in the Restructuring Agreement.

     
“Assignment Agreements”
shall have the meaning set forth in
the Restructuring Agreement.

     
“Business Day”
shall mean a day, other than Saturday,
Sunday or other day on which commercial banks in New York, New
York or Copenhagen, Denmark are authorized or required by law to
close.

     
“Closing”
shall have the meaning set forth in
the Restructuring Agreement.

     
“Development Program”
shall have the meaning set forth in
the Restructuring Agreement.

     
“Device”
shall have the meaning set forth in
the Amended and Restated License Agreement.

     
“Device Manufacturing Facility”
shall have the meaning set forth in
the Sublease Agreement.

     
“Environmental Liabilities”
shall have the meaning set forth in
the Restructuring Agreement.

     
“Estimated Purchase Price”
shall have the meaning set forth in
the Restructuring Agreement.

     
“Facilities”
shall mean the facilities referred to
by the parties hereto as (i) “Building 1”
(but only with respect to the Device Manufacturing Facility), to
be subleased by Novo Nordisk Delivery Technologies, Inc. from
Aradigm pursuant to the Sublease Agreement, and
“Building 2” and “Building 3”, the
leases in respect thereof to be assigned to Novo Nordisk
Delivery Technologies, Inc. by Aradigm pursuant to the
Assignment Agreements.

     
“Insulin Compound Packaged Product”
shall have the meaning set forth in
the Amended and Restated License Agreement.

B-4

 

     
“Governmental Authority”
shall have the meaning set forth in
the Restructuring Agreement.

     
“Lien”
shall have the meaning set forth in
the Restructuring Agreement.

     
“London Interbank Offered Rate”
shall mean the rate for three-month
deposits in United States dollars that appears on the display
designated as page “3750” on Moneyline Telerate,
Inc. (or such other page as may replace the 3750 page on
that service or such other service or services as may be
nominated by the British Bankers’ Association for the
purposes of displaying London interbank offered rates for
U.S. dollar deposits) as of 11:00 a.m., London time,
on the date on which the 10-day period referred to in
Section 5.03(c) shall have expired without payment.

     
“Permits”
shall have the meaning set forth in
the Restructuring Agreement.

     
“Permitted Lien”
shall have the meaning set forth in
the Restructuring Agreement.

     
“Person”
shall mean an individual, corporation,
partnership, limited liability company, association, trust or
other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.

     
“Sublease Agreement”
shall have the meaning set forth in
the Restructuring Agreement.

     
“Transaction Agreements”
shall have the meaning set forth in
the Restructuring Agreement.

     
(b) Each of the following terms is defined
in the Section set forth opposite such term:

	 	 	 
	Term		Section
	
		

	
    
    Accounting Referee
    

    	 	
    2.06
    
	
    
    Allocation Statement
    

    	 	
    2.06
    
	
    
    Apportioned Obligations
    

    	 	
    5.03
    
	
    
    Aradigm Trademarks and Tradenames
    

    	 	
    4.01
    
	
    
    Assumed Liabilities
    

    	 	
    2.03
    
	
    
    Code
    

    	 	
    5.01
    
	
    
    Contracts
    

    	 	
    Annex 1 of Exhibit A
    
	
    
    Damages
    

    	 	
    6.02
    
	
    
    Excluded Assets
    

    	 	
    2.02
    
	
    
    Excluded Liabilities
    

    	 	
    2.04
    
	
    
    Indemnified Party
    

    	 	
    6.03
    
	
    
    Indemnifying Party
    

    	 	
    6.03
    
	
    
    Novo Nordisk
    

    	 	
    Recitals
    
	
    
    Post-Closing Tax Period
    

    	 	
    5.03
    
	
    
    Pre-Closing Tax Period
    

    	 	
    5.01
    
	
    
    Purchased Assets
    

    	 	
    2.01
    
	
    
    Purchase Price
    

    	 	
    2.06
    
	
    
    Restructuring Agreement
    

    	 	
    Recitals
    
	
    
    Tax
    

    	 	
    5.01
    
	
    
    Taxing Authority
    

    	 	
    5.01
    
	
    
    Transfer Taxes
    

    	 	
    5.03
    
	
    
    Warranty Breach
    

    	 	
    6.02
    

     
SECTION 1.02.     Other
Definitional and Interpretative Provisions. The words
“hereof”, “herein” and “hereunder”
and words of like import used in this Agreement shall refer to
this Agreement as a whole and not to any particular provision of
this Agreement. The captions herein are included for convenience
of reference only and shall be ignored in the construction or
interpretation hereof. References to Articles, Sections,

B-5

 

Exhibits and Schedules are to Articles, Sections,
Exhibits and Schedules of this Agreement unless otherwise
specified. All Exhibits and Schedules annexed hereto or referred
to herein are hereby incorporated in and made a part of this
Agreement as if set forth in full herein. Any capitalized terms
used in any Exhibit or Schedule but not otherwise defined
therein, shall have the meaning as defined in this Agreement.
Any singular term in this Agreement shall be deemed to include
the plural, and any plural term the singular. Whenever the words
“include”, “includes” or
“including” are used in this Agreement, they shall be
deemed to be followed by the words “without
limitation”, whether or not they are in fact followed by
those words or words of like import. “Writing”,
“written” and comparable terms refer to printing,
typing and other means of reproducing words (including
electronic media) in a visible form. References to any agreement
or contract are to that agreement or contract as amended,
modified or supplemented from time to time in accordance with
the terms hereof and thereof. References to any Person include
the successors and permitted assigns of that Person. References
from or through any date mean, unless otherwise specified, from
and including or through and including, respectively.

ARTICLE 2

PURCHASE AND SALE

     
SECTION 2.01.     Purchase
and Sale. Upon the terms and conditions of this Agreement,
Novo Nordisk Delivery Technologies, Inc. agrees to purchase from
Aradigm and Aradigm agrees to sell, convey, transfer, assign and
deliver, or cause to be sold, conveyed, transferred, assigned
and delivered, to Novo Nordisk Delivery Technologies, Inc. on
the date hereof, free and clear of all Liens, other than
Permitted Liens, all of Aradigm’s right, title and interest
in, to and under the assets, identified on Annex 1 of
Exhibit A hereto (the “Purchased Assets”).

EXCEPT AS SET FORTH IN THE RESTRUCTURING
AGREEMENT: (i) THE PURCHASED ASSETS ARE BEING TRANSFERRED
TO NOVO NORDISK DELIVERY TECHNOLOGIES, INC. “AS IS,”
AND “WHERE IS”, AND (ii) ARADIGM MAKES NO
REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED WITH
RESPECT TO THE DESIGN, OPERABILITY OR CONDITION OF THE PURCHASED
ASSETS OR ANY PART THEREOF; AS TO THE MERCHANTABILITY OR FITNESS
FOR ANY PARTICULAR PURPOSE; OR WITH RESPECT TO INFRINGEMENT OF
THIRD PARTY RIGHTS.

     
SECTION 2.02.     Excluded
Assets. Novo Nordisk Delivery Technologies, Inc. expressly
understands and agrees that all other assets of Aradigm (the
“Excluded Assets”) shall be excluded from the
Purchased Assets.

     
SECTION 2.03.     Assumed
Liabilities. Upon the terms and subject to the conditions of
this Agreement, Novo Nordisk Delivery Technologies, Inc. agrees,
effective on the date hereof, to assume only the liabilities and
obligations of Aradigm arising under the Contracts (other than
liabilities or obligations attributable to any failure by
Aradigm to comply with the terms thereof prior to the date
hereof) (the “Assumed Liabilities”).

     
SECTION 2.04.     Excluded
Liabilities. Notwithstanding any provision in this Agreement
or any other writing to the contrary, Novo Nordisk Delivery
Technologies, Inc. is assuming only the Assumed Liabilities and
is not assuming any other liability or obligation of Aradigm (or
any predecessor of Aradigm or any prior owner of all or part of
its businesses and assets) of whatever nature, whether presently
in existence or arising hereafter. All such other liabilities
and obligations shall be retained by, and remain obligations and
liabilities of, Aradigm (all such liabilities and obligations
not being assumed being herein referred to as the
“Excluded Liabilities”). Notwithstanding any
provision in this Agreement or any other writing to the
contrary, Excluded Liabilities shall include without limitation:

		
	 	     
    (a) any liability or obligation of Aradigm,
    or any member of any consolidated, affiliated, combined or
    unitary group of which Aradigm is or has been a member, for
    Taxes (except as provided in Article 5);
    
	 
	 	     
    (b) any liability or obligation relating to
    employee benefits or compensation arrangements existing on or
    prior to the Closing, including any liability or obligation
    under any of Aradigm’s employee benefit agreements, plans
    or other arrangements listed on Schedule 8.03(a) of the
    Restructuring Agreement;
    

B-6

 

		
	 	     
    (c) any liability of Aradigm related to the
    Facilities existing on or prior to the Closing;
    
	 
	 	     
    (d) any liability of Aradigm related to
    litigation that is pending as of the date hereof, including
    those matters set forth on Schedule 3.09 of the
    Restructuring Agreement;
    
	 
	 	     
    (e) any Environmental Liability to the
    extent caused or contributed to by Aradigm;
    
	 
	 	     
    (f) any liability of Aradigm contemplated by
    Section 2.09 of the Amended and Restated License
    Agreement; and
    
	 
	 	     
    (g) any liability or obligation relating to
    an Excluded Asset.
    

     
SECTION 2.05.     Assignment
of Contracts and Rights. Anything in this Agreement to the
contrary notwithstanding, this Agreement shall not constitute an
agreement to assign any Purchased Asset or any claim or right or
any benefit arising thereunder or resulting therefrom if such
assignment, without the consent of a third party thereto, would
constitute a breach or other contravention of such Purchased
Asset or in any way adversely affect the rights of Novo Nordisk
Delivery Technologies, Inc. or Aradigm thereunder.

     
SECTION 2.06.     Purchase
Price; Allocation of Purchase Price. The purchase price for
the Purchased Assets (the “Purchase Price”)
shall be the Estimated Purchase Price, as set forth in
Annex 1 of Exhibit A and as adjusted in accordance
with Section 2.01(b) of the Restructuring Agreement. The
Purchase Price shall be paid by Novo Nordisk Delivery
Technologies, Inc. to Aradigm on the date hereof.

     
(a) As soon as practicable after the
Closing, Novo Nordisk Delivery Technologies, Inc. shall deliver
to Aradigm a statement (the “Allocation
Statement”), allocating the Purchase Price (plus
Assumed Liabilities, to the extent properly taken into account
under Section 1060 of the Code) among the Purchased Assets
in accordance with Section 1060 of the Code. If within
30 days after the delivery of the Allocation Statement
Aradigm notifies Novo Nordisk Delivery Technologies, Inc. in
writing that Aradigm objects to the allocation set forth in the
Allocation Statement, Novo Nordisk Delivery Technologies, Inc.
and Aradigm shall use commercially reasonable efforts to resolve
such dispute within twenty (20) days. In the event that
Novo Nordisk Delivery Technologies, Inc. and Aradigm are unable
to resolve such dispute within twenty (20) days, Novo
Nordisk Delivery Technologies, Inc. and Aradigm shall jointly
retain a nationally recognized accounting firm (the
“Accounting Referee”) to resolve the disputed
items. Upon resolution of the disputed items, the allocation
reflected on the Allocation Statement shall be adjusted to
reflect such resolution. The costs, fees and expenses of the
Accounting Referee shall be borne equally by Novo Nordisk
Delivery Technologies, Inc. and Aradigm.

     
(b) Each of Aradigm and Novo Nordisk
Delivery Technologies, Inc. agrees to (i) be bound by the
Allocation Statement and (ii) act in accordance with the
Allocation Statement in the preparation, filing and audit of any
Tax return (including filing Form 8594 with its federal
income Tax return for the taxable year that includes the date of
the Closing).

     
(c) Not later than thirty (30) days
prior to the filing of their respective Forms 8594 relating to
the transactions contemplated by this Agreement, each party
hereto shall deliver to the other party a copy of its
Form 8594.

     
SECTION 2.07.     Closing.
The Closing shall take place as contemplated in
Section 2.02 of the Restructuring Agreement.

ARTICLE 3

COVENANTS OF ARADIGM

     
Aradigm agrees that:

     
SECTION 3.01.     Access
To Information; Confidentiality.

     
(a) From the date hereof until
December 31,2005, Aradigm will (i) give Novo Nordisk
Delivery Technologies, Inc., its counsel, financial advisors,
auditors and other authorized representatives full access to

B-7

 

the offices, properties, books and records of
Aradigm relating to Aradigm’s conduct of the Development
Program, (ii) furnish to Novo Nordisk Delivery
Technologies, Inc., its counsel, financial advisors, auditors
and other authorized representatives such financial and
operating data and other information relating to the Development
Program as such Persons may reasonably request and
(iii) instruct the employees of and counsel to Aradigm to
cooperate with Novo Nordisk Delivery Technologies, Inc. in its
review, analysis and synthesis of information concerning the
Development Program. No investigation by Novo Nordisk Delivery
Technologies, Inc. or other information received by Novo Nordisk
Delivery Technologies, Inc. shall operate as a waiver or
otherwise affect any representation, warranty or agreement given
or made by Aradigm hereunder.

     
(b) Aradigm will afford promptly to Novo
Nordisk Delivery Technologies, Inc. and its agents reasonable
access to its books of account, financial and other records
(including accountant’s work papers), information,
employees and auditors to the extent necessary or useful for
Novo Nordisk Delivery Technologies, Inc. in connection with any
audit, investigation, dispute or litigation or any other
reasonable business purpose relating to the Development Program;
provided that, any such access by Novo Nordisk Delivery
Technologies, Inc. shall not unreasonably interfere with the
conduct of the business of Aradigm.

ARTICLE 4

COVENANTS OF NOVO NORDISK DELIVERY TECHNOLOGIES,
INC. AND ARADIGM

     
Novo Nordisk Delivery Technologies, Inc. and
Aradigm agree that:

     
SECTION 4.01.     Trademarks;
Tradenames. Except as set forth in the other subsections of
this Section 4.01, Novo Nordisk Delivery Technologies, Inc.
and its Affiliates shall not use any of the marks or names set
forth on Schedule 4.01 (collectively or individually as the
context requires, the “Aradigm Trademarks and
Tradenames”).

		
	 	     
    (a) After the Closing, Novo Nordisk Delivery
    Technologies, Inc. and its Affiliates shall have the right to
    use existing supplies of (i) Device and Insulin Compound
    Packaged Product manufactured prior to the Closing Date for use
    in clinical trials, and (ii) existing packaging, labeling,
    containers, supplies, advertising materials, technical data
    sheets and any similar materials, in each case bearing any
    Aradigm Trademarks and Tradenames, until the date the items in
    (i) and (ii) are exhausted. Novo Nordisk Delivery Technologies,
    Inc. and its Affiliates shall comply with all applicable laws
    and regulations in any use of packaging or labeling containing
    the Aradigm Trademarks and Tradenames.
    
	 
	 	     
    (b) Novo Nordisk Delivery Technologies, Inc.
    and its Affiliates shall not be obligated to change the Aradigm
    Trademarks and Tradenames on goods in the hands of
    investigators, doctors and patients at the time of the
    expiration of a time period set forth in Section 4.01(a)
    above. The obliteration of the Aradigm Trademarks and Tradenames
    shall be deemed compliance with the covenant not to use the
    Aradigm Trademarks and Tradenames pursuant to this
    Section 4.01(b).
    
	 
	 	     
    (c) Novo Nordisk Delivery Technologies, Inc.
    shall, to its knowledge, take no action inconsistent with
    Aradigm’s exclusive ownership of the Aradigm Trademarks and
    Tradenames. In any materials in which any Aradigm Trademarks and
    Tradenames appear, Novo Nordisk Delivery Technologies, Inc.
    shall display a trademark legend in a form substantially similar
    to the following (tailored to reflect the applicable trademark
    or trade name being used):
    “       is a registered
    trademark of Aradigm Corporation or its affiliates in the United
    States and other countries.”
    

B-8

 

ARTICLE 5

TAX MATTERS

     
SECTION 5.01.     Tax
Definitions. The following terms, as used herein, have the
following meanings:

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

     
“Pre-Closing Tax Period”
means (i) any Tax period ending
on or before the date hereof and (ii) with respect to a Tax
period that commences before but ends after the date hereof, the
portion of such period up to and including the date hereof.

     
“Tax”
means (i) any tax, governmental
fee or other like assessment or charge of any kind whatsoever
(including withholding on amounts paid to or by any Person),
together with any interest, penalty, addition to tax or
additional amount imposed by any Governmental Authority (a
“Taxing Authority”) responsible for the
imposition of any such tax (domestic or foreign), or
(ii) liability for the payment of any amounts of the type
described in (i) as a result of being party to any
agreement or any express or implied obligation to indemnify any
other Person.

     
SECTION 5.02.     Tax
Matters. Aradigm hereby represents and warrants to Novo
Nordisk Delivery Technologies, Inc. that:

		
	 	     
    (a) Aradigm has timely paid all Taxes which
    will have been required to be paid on or prior to the date
    hereof, the non-payment of which would result in a Lien on any
    Purchased Asset, would otherwise adversely affect the
    Development Program or would result in Novo Nordisk Delivery
    Technologies, Inc. becoming liable or responsible therefor.
    
	 
	 	     
    (b) Aradigm has established, in accordance
    with generally accepted accounting principles applied on a basis
    consistent with that of preceding periods, adequate reserves for
    the payment of, and will timely pay, all Taxes which arise from
    or with respect to the Purchased Assets or the operation of the
    Development Program and are incurred in or attributable to the
    Pre-Closing Tax Period, the non-payment of which would result in
    a Lien on any Purchased Asset, would otherwise adversely affect
    the Development Program or would result in Novo Nordisk Delivery
    Technologies, Inc. becoming liable therefor.
    

     
SECTION 5.03.     Tax
Cooperation; Allocation of Taxes.

     
(a) Novo Nordisk Delivery Technologies, Inc.
and Aradigm agree to furnish or cause to be furnished to each
other, upon request, as promptly as practicable, such
information and assistance relating to the Development Program
and the Purchased Assets (including access to books and records)
as is reasonably necessary for the filing of all Tax returns,
the making of any election relating to Taxes, the preparation
for any audit by any taxing authority, and the prosecution or
defense of any claim, suit or proceeding relating to any Tax.
Novo Nordisk Delivery Technologies, Inc. and Aradigm shall
retain all books and records with respect to Taxes pertaining to
the Assets for a period of at least six years following the date
hereof. On or after the end of such period, each party hereto
shall provide the other with at least 10 days prior written
notice before destroying any such books and records, during
which period the party receiving such notice can elect to take
possession, at its own expense, of such books and records.
Aradigm and Novo Nordisk Delivery Technologies, Inc. shall
cooperate with each other in the conduct of any audit or other
proceeding relating to Taxes involving the Purchased Assets or
the Development Program.

     
(b) All real property taxes, personal
property taxes and similar ad valorem obligations levied
with respect to the Purchased Assets for a taxable period which
includes (but does not end on) the date hereof (collectively,
the “Apportioned Obligations”) shall be
apportioned between Aradigm and Novo Nordisk Delivery
Technologies, Inc. based on the number of days of such taxable
period included in the Pre-Closing Tax Period and the number of
days of such taxable period after the date hereof (such portion
of such taxable period, the “Post-Closing Tax
Period”). Aradigm shall be liable for the proportionate
amount of such taxes that is attributable to the Pre-Closing Tax
Period, and Novo Nordisk Delivery Technologies, Inc. shall be
liable for the proportionate amount of such taxes that is
attributable to the Post-Closing Tax Period.

B-9

 

     
(c) All excise, sales, use, value added,
registration stamp, recording, documentary, conveyancing,
franchise, property, transfer, gains and similar Taxes, levies,
charges and fees (collectively, “Transfer
Taxes”) incurred in connection with the transactions
contemplated by this Agreement shall be borne by Aradigm and
Novo Nordisk Delivery Technologies, Inc. as follows: Each Party
shall bear fifty percent (50.0%) of the Transfer Taxes,
calculated on an after-tax basis, taking into account any
deductions or other benefits received on the tax returns of the
parties hereto and their respective Affiliates. Novo Nordisk
Delivery Technologies, Inc. and Aradigm shall cooperate in
providing each other with any appropriate resale exemption
certifications and other similar documentation.

     
(d) Apportioned Obligations and Taxes
described in Section 5.03(c) shall be timely paid, and all
applicable filings, reports and returns shall be filed, as
provided by applicable law. The paying party shall be entitled
to reimbursement from the non-paying party in accordance with
Sections 5.03(b) or 5.03(c), as the case may be. Upon
payment of any such Apportioned Obligation or Tax, the paying
party shall present a statement to the non-paying party setting
forth the amount of reimbursement to which the paying party is
entitled under Section 5.03(b) or (c), as the case may be,
together with such supporting evidence as is reasonably
necessary to calculate the amount to be reimbursed. The
non-paying party shall make such reimbursement promptly but in
no event later than 10 days after the presentation of such
statement. Any payment not made within such time shall bear
interest at the London Interbank Offered Rate plus
5.00% per annum until paid.

ARTICLE 6

SURVIVAL; INDEMNIFICATION

     
SECTION 6.01.     Survival.
The representations and warranties of the parties hereto
contained in this Agreement or in any certificate or other
writing delivered pursuant hereto or in connection herewith
shall survive the Closing indefinitely or until the latest date
permitted by law. The covenants and agreements of the parties
hereto contained in this Agreement or in any certificate or
other writing delivered pursuant hereto or in connection
herewith shall survive the Closing indefinitely or for the
shorter period explicitly specified therein, except that for
such covenants and agreements that survive for such shorter
period, breaches thereof shall survive indefinitely or until the
latest date permitted by law. Notwithstanding the preceding
sentence, any breach of covenant, agreement, representation or
warranty in respect of which indemnity may be sought under this
Agreement shall survive the time at which it would otherwise
terminate pursuant to the preceding sentence, if notice of the
inaccuracy thereof giving rise to such right of indemnity shall
have been given to the party against whom such indemnity may be
sought prior to such time.

     
SECTION 6.02.     Indemnification.

     
(a) Effective at and after the Closing,
Aradigm hereby indemnifies Novo Nordisk Delivery Technologies,
Inc. and its Affiliates against and agrees to hold each of them
harmless from any and all damage, loss, liability and expense
(including reasonable expenses of investigation and reasonable
attorneys’ fees and expenses in connection with any action,
suit or proceeding whether involving a third-party claim or a
claim solely between the parties hereto and any incidental,
indirect or consequential damages, losses, liabilities or
expenses) (“Damages”) incurred or suffered by
Novo Nordisk Delivery Technologies, Inc. or any of its
Affiliates arising out of:

		
	 	     
    (i) any misrepresentation or breach of
    warranty (each such misrepresentation and breach of warranty a
    “Warranty Breach”) or breach of covenant or
    agreement made or to be performed by Aradigm pursuant to this
    Agreement; or
    
	 
	 	     
    (ii) any Excluded Liability.
    

     
(b) Effective at and after the Closing, Novo
Nordisk Delivery Technologies, Inc. hereby indemnifies Aradigm
and its Affiliates against and agrees to hold each of them
harmless from any and all Damages incurred or suffered by
Aradigm or any of its Affiliates arising out of any Warranty
Breach or breach of

B-10

 

covenant or agreement made or to be performed by
Novo Nordisk Delivery Technologies, Inc. pursuant to this
Agreement.

     
SECTION 6.03.     Procedures.
The party seeking indemnification under Section 6.02 (the
“Indemnified Party”) agrees to give prompt
notice to the party against whom indemnity is sought (the
“Indemnifying Party”) of the assertion of any
claim, or the commencement of any suit, action or proceeding in
respect of which indemnity may be sought under
Section 6.02, which notice shall include a brief
description of the specific facts relating to such claim, suit,
action or proceeding. The Indemnifying Party may at the request
of the Indemnified Party participate in and control the defense
of any such suit, action or proceeding at its own expense. The
Indemnifying Party shall not be liable under Section 6.02
for any settlement effected without its consent of any claim,
litigation or proceeding in respect of which indemnity may be
sought hereunder.

ARTICLE 7

MISCELLANEOUS

     
SECTION 7.01.     Notices.
Any notice to be given under this Agreement shall be sent in
writing in English by registered airmail or telecopied,

		
	 	
    if to Aradigm, to:
    
	 
	 	
    Aradigm Corporation
    
	 	
    3929 Point Eden Way
    
	 	
    Hayward, California 94545
    
	 	
    Attention: Chief Financial Officer
    
	 	
    Telephone: +1 510-265-9000
    
	 	
    Telefax: +1 510-265-0277
    
	 
	 	
    with a copy to:
    
	 
	 	
    Cooley Godward LLP
    
	 	
    3175 Hanover Street
    
	 	
    Palo Alto, California 94304-1 130
    
	 	
    Attention: James C. Kitch
    
	 	
    Telephone: +1 650-843-5027
    
	 	
    Telefax: +1 650-849-7400
    
	 
	 	
    if to Novo Nordisk Delivery Technologies, Inc.,
    to:
    
	 
	 	
    Novo Nordisk Delivery Technologies, Inc.
    
	 	
    c/o Novo Nordisk A/ S
    
	 	
    Novo Alle
    
	 	
    DK-2880 Bagsvaerd
    
	 	
    Denmark
    
	 	
    Attention: General Counsel
    
	 	
    Telephone: +45 44 44 88 88
    
	 	
    Telefax: +45 44 42 18 30
    
	 
	 	
    with a copy to:
    
	 
	 	
    Attention: Vice President, Business Development
    
	 	
    Telephone: +45 44 42 39 00
    
	 	
    Telefax: +45 44 42 16 98
    

or such other address or facsimile number as such
party may hereafter specify for the purpose by notice to the
other parties hereto. Any notice sent by registered airmail
shall be deemed to have been delivered within seven
(7) working days after dispatch and any notice sent by
telex or telefax shall be deemed to have been delivered within
twenty-four (24) hours after dispatch. Notice of change of
address shall be effective upon receipt.

B-11

 

     
SECTION 7.02.     Amendments
and Waivers.

     
(a) Any provision of this Agreement may be
amended or waived if, but only if, such amendment or waiver is
in writing and is signed, in the case of an amendment, by each
party hereto, or in the case of a waiver, by the party against
whom the waiver is to be effective.

     
(b) No failure or delay by either party
hereto in exercising any right, power or privilege hereunder
shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and
not exclusive of any rights or remedies provided by law.

     
SECTION 7.03.     Expenses.
Except as otherwise provided herein, all costs and expenses
incurred in connection with this Agreement shall be paid by the
party incurring such cost or expense.

     
SECTION 7.04.     Successors
and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns; provided that,
no party hereto may assign, delegate or otherwise transfer any
of its rights or obligations under this Agreement without the
consent of each other party hereto; except that Novo Nordisk
Delivery Technologies, Inc. may transfer or assign, in whole or
from time to time in part, to one or more of its Affiliates, the
right to purchase all or a portion of the Purchased Assets, but
no such transfer or assignment will relieve Novo Nordisk
Delivery Technologies, Inc. of its obligations hereunder.

     
SECTION 7.05.     Governing
Law. This Agreement shall be governed by and construed in
accordance with the law of the State of New York.

     
SECTION 7.06.     Dispute
Resolution.

     
(a) All disputes arising out of this
Agreement shall be settled as far as possible by negotiations
between the parties hereto. If the parties hereto cannot agree
on an amicable settlement within thirty (30) days from
written submission of the matter by one Party to the other
Party, the matter shall be submitted for decision and final
resolution to arbitration to the exclusion of any courts of law,
under the Arbitration Rules of the American Arbitration
Association.

     
(b) The arbitration tribunal shall be
composed of three disinterested arbitrators, appointed pursuant
to the following procedure: the Party invoking arbitration shall
notify the other Party stating the substance of its claim and
the name and address of the arbitrator it has chosen, who may be
a citizen of any country. Within thirty (30) days of
receipt of such notification, the other Party shall notify the
first party of its answer to the claim made, any counterclaim
that it wishes to assert in the arbitration, and the name and
address of its arbitrator, who may be a citizen of any country.
If this is not done within the thirty (30) day period,
appointment of the second arbitrator shall be made in accordance
with the Arbitration Rules of the American Arbitration
Association upon request of the initiating Party.

     
(c) The arbitrators shall chose a third
arbitrator, who shall serve as president of the tribunal thus
composed. If the arbitrators fail to agree upon the choice of a
third arbitrator within thirty (30) days from the
appointment of the second arbitrator, the third arbitrator will
be appointed in accordance with the Arbitration Rules of the
American Arbitration Association upon the request of the
arbitrators or either of the parties hereto.

     
(d) The arbitrators shall decide the dispute
by majority decision and in accordance with the laws of the
State of New York. The decision shall be rendered in writing,
shall state the reasons on which it is based, and shall bear the
signatures of at least two arbitrators. It shall also identify
the members of the arbitration tribunal, and the time and place
of the award granted. Finally, it shall determine the expenses
of the arbitration and the Party who shall be charged therewith
or the allocation of the expenses between the parties hereto at
the discretion of the tribunal.

     
(e) The arbitration decision shall be
rendered as soon as possible, not later, however, if possible,
than six (6) months after the constitution of the
arbitration tribunal. The arbitration decision shall be final
and binding upon both parties hereto and the parties hereto
agree that any award granted pursuant to such decision may be

B-12

 

entered forthwith in any court of competent
jurisdiction. This arbitration clause and any award granted
pursuant to an arbitration decision thereunder shall be
enforceable against the parties hereto in accordance with the
1958 Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, as amended.

     
(f) The seat of arbitration shall be New
York City, unless the parties hereto otherwise agree in writing.
The official arbitration language shall be English.

     
SECTION 7.07.     Counterparts;
Effectiveness; Third Party Beneficiaries. This Agreement may
be signed in any number of counterparts, each of which shall be
an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Agreement shall
become effective when each party hereto shall have received a
counterpart hereof signed by all of the other parties hereto.
Until and unless each party hereto has received a counterpart
hereof signed by the other party hereto, this Agreement shall
have no effect and no party hereto shall have any right or
obligation hereunder (whether by virtue of any other oral or
written agreement or other communication). No provision of this
Agreement is intended to confer any rights, benefits, remedies,
obligations or liabilities hereunder upon any Person other than
the parties hereto and their respective successors and assigns.

     
SECTION 7.08.     Entire
Agreement. This Agreement and the other Transaction
Agreements constitute the entire agreement between the parties
hereto with respect to the subject matter of this Agreement and
supersedes all prior agreements and understandings, both oral
and written, between the parties hereto with respect to the
subject matter of this Agreement.

     
SECTION 7.09.     Bulk
Sales Laws. Novo Nordisk Delivery Technologies, Inc. and
Aradigm each hereby waive compliance by Aradigm with the
provisions of the “bulk sales,” “bulk
transfer” or similar laws of any state. Aradigm agrees to
indemnify and hold Novo Nordisk Delivery Technologies, Inc.
harmless against any and all claims, losses, damages,
liabilities, costs and expenses incurred by Novo Nordisk
Delivery Technologies, Inc. or any of its Affiliates as a result
of any failure to comply with any such “bulk sales,”
“bulk transfer” or similar laws.

     
SECTION 7.10.     Severability.
If any provision in any Article of this Agreement is found by
competent authority to be invalid, illegal or unenforceable in
any respect for any reason, the validity, legality and
enforceability of such other Article in every other respect and
the remainder of this Agreement shall continue in effect so long
as the Agreement still expresses the intent of the parties
hereto. However, if the intent of the parties hereto cannot be
preserved, this Agreement shall be either renegotiated or
terminated.

[SIGNATURE PAGE FOLLOWS]

B-13

 

     
IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be duly executed by their respective
authorized officers as of the day and year first above written.

		
	 	
    ARADIGM CORPORATION
    

			
	 	By: 	

		
	 	
    

	 	
    Name:        

			
	 	Title:	

		
	 	
    NOVO NORDISK DELIVERY
    
	 	
    TECHNOLOGIES, INC.
    

			
	 	By: 	

		
	 	
    

	 	
    Name:        

			
	 	Title:	

B-14

 

			
	 		
    

EXHIBIT A

ASSIGNMENT AND ASSUMPTION AGREEMENT

     
ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as
of                     ,
2004, between Aradigm Corporation, a corporation duly organized
and existing under the laws of the State of California
(“Aradigm”)and Novo Nordisk Delivery
Technologies, Inc., a corporation duly organized and existing
under the laws of the State of Delaware (“Novo Nordisk
Delivery Technologies, Inc.”).

W I T N E S S E T H :

     
WHEREAS, Aradigm and Novo Nordisk Delivery
Technologies, Inc. have concurrently herewith consummated the
purchase by Novo Nordisk Delivery Technologies, Inc. of the
Purchased Assets pursuant to the terms and conditions of the
Asset Purchase Agreement
dated                     ,
2004 between Aradigm and Novo Nordisk Delivery Technologies,
Inc. (the “Asset Purchase Agreement”; terms
defined in the Asset Purchase Agreement and not otherwise
defined herein being used herein as therein defined); and

     
WHEREAS, pursuant to the Asset Purchase
Agreement, Novo Nordisk Delivery Technologies, Inc. has agreed
to assume certain liabilities and obligations of Aradigm with
respect to the Purchased Assets and the Development Program.

     
NOW, THEREFORE, in consideration of the sale of
the Purchased Assets and in accordance with the terms of the
Asset Purchase Agreement, Aradigm and Novo Nordisk Delivery
Technologies, Inc. agree as follows:

     
1. (a) Aradigm does hereby sell,
transfer, assign and deliver to Novo Nordisk Delivery
Technologies, Inc. all of the right, title and interest of
Aradigm in, to and under the Purchased Assets; provided
that, no sale, transfer, assignment or delivery shall be
made of any or any material portion of any of the Contracts or
Permits if an attempted sale, assignment, transfer or delivery,
without the consent of a third party, would constitute a breach
or other contravention thereof or in any way adversely affect
the rights of Aradigm or Novo Nordisk Delivery Technologies,
Inc. thereunder.

     
(b) Novo Nordisk Delivery Technologies, Inc.
does hereby accept all the right, title and interest of Aradigm
in, to and under all of the Purchased Assets (except as
aforesaid) and Novo Nordisk Delivery Technologies, Inc. assumes
and agrees to pay, perform and discharge promptly and fully when
due all of the Assumed Liabilities and to perform all of the
obligations of Aradigm to be performed under the Contracts
except to the extent liabilities thereunder constitute Excluded
Liabilities.

     
2. This Agreement shall be governed by and
construed in accordance with the law of the State of New York.

     
3. 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 shall constitute one and the
same instrument.

     
IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be duly executed as of the day and year
first above written.

		
	 	
    ARADIGM CORPORATION
    

			
	 	By: 	

		
	 	
    

	 	
    Name: 
	 	
    Title:
    

B-15

 

		
	 	
    NOVO NORDISK DELIVERY
    
	 	
    TECHNOLOGIES, INC.
    

			
	 	By: 	

		
	 	
    

	 	
    Name: 
	 	
    Title:
    

B-16

 

EXHIBIT C

[SUBLEASE AGREEMENT]

C-1

 

Sublease Agreement

     This Sublease Agreement (“Sublease”) is dated as of    , 2004
(the “Effective Date”) by and between Aradigm Corporation, a California
corporation (“Aradigm”), Novo Nordisk Delivery Technologies, Inc., a Delaware
corporation, and, solely for the purposes of Section 16, Novo Nordisk A/S, a
company organized under the laws of Denmark (“Novo Nordisk”).

RECITALS

     A. Aradigm is tenant under that certain Lease dated as of January 28, 1998
between Britannia Point Eden, LLC, a California limited liability company
(“Prime Landlord”) and Aradigm as amended by that certain First Amendment to
Lease dated as of December 16, 1998 and that certain Second Amendment to Lease
dated as of December 31, 2003 (collectively, the “Building 1 Lease”),
respecting certain improved premises (the “Building 1 Premises”) commonly known
as 3929 Point Eden Way, Hayward, California 94545 consisting of approximately
72,467 square feet, as more particularly described therein. The Building 1
Lease is attached hereto as Exhibit A. The Building 1 Premises contain
Aradigm’s corporate offices and an approximately 5,100 square foot device
manufacturing facility (the “Device Manufacturing Facility”), as more
particularly described in Exhibit B attached hereto and incorporated herein by
this reference.

     B. Aradigm, Novo Nordisk Delivery Technologies, Inc. and Novo Nordisk have
entered into a Restructuring Agreement dated as of September 28, 2004 (the
“Restructuring Agreement”) pursuant to which they agreed to restructure the
existing arrangements between Aradigm and Novo Nordisk regarding, among other
things, the development and commercialization of the Development Program (as
defined therein).

     C. In accordance with the Restructuring Agreement, the parties are to
enter into a short term sublease of the Device Manufacturing Facility, pursuant
to the terms and subject to the conditions set forth in this Sublease.

     Now Therefore, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Novo Nordisk, Novo Nordisk
Delivery Technologies, Inc. and Aradigm agree as follows:

     1. Demise

          Aradigm hereby subleases to Novo Nordisk Delivery Technologies, Inc. and
Novo Nordisk Delivery Technologies, Inc. hereby subleases from Aradigm, the
Device Manufacturing Facility, upon and subject to the terms and conditions set
forth in this Section 1. Novo Nordisk Delivery Technologies, Inc. shall be
responsible for constructing such demising walls and doors as the parties agree
are needed to segregate the Device Manufacturing Facility from the balance of
Building 1. To the degree that such segregation is not practicable, the
parties will agree on and implement policies to minimize the risk of any
disruption or other adverse effect that might result from an incomplete
segregation.

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     2. Term

          The term of this Sublease (the “Term”) shall commence on the Effective
Date and shall end on the last day of the fourteenth month following the
Effective Date (the “Termination Date”). Notwithstanding the foregoing, the
Termination Date may be extended by mutual written agreement of Aradigm and
Novo Nordisk, subject to consent of Prime Landlord, if required, and Novo
Nordisk Delivery Technologies, Inc. may terminate this Sublease at any time
during the Term upon thirty (30) day’s prior written notice to Aradigm.

     3. Use

          Novo Nordisk shall be permitted to use the Device Manufacturing Facility
solely for the assembly of Devices for use in the Development Program in a
manner consistent with the permitted uses under the Building 1 Lease.

     4. Rent

          4.1 Base Rent. Starting on the Effective Date, Novo Nordisk Delivery
Technologies, Inc. shall pay as base rent (“Base Rent”) for the Device
Manufacturing Facility, in advance, on or before the first day of each month,
without deduction or offset, monthly rent in the amount of ten thousand one
hundred thirty-four dollars and twenty-eight cents ($10,134.28). Base Rent and
Additional Rent (defined below) shall be payable to Aradigm at the address
stated herein for Aradigm. Base Rent and Additional Rent shall collectively be
referred to herein as “Rent.” Rent for any period that includes both days
during the Term and outside the Term shall be prorated on a per diem basis
based upon the number of days in the period in question that are during and
outside the Term.

          4.2 Additional Rent.

               (a) Novo Nordisk Delivery Technologies, Inc. shall pay to Aradigm, as
additional rent (“Additional Rent”), Novo Nordisk Delivery Technologies, Inc.’s
Pro Rata Share of Operating Expenses accruing under and as defined in the
Building 1 Lease during the term of this Sublease, together with all other
expenses of Aradigm occasioned by Novo Nordisk Delivery Technologies, Inc.’s
use of the Device Manufacturing Facility.

               (b) For purposes hereof, Novo Nordisk Delivery Technologies, Inc.’s “Pro
Rata Share” means seven and four hundredths percent (7.04%) (based on square
footage of Building 1).

               (c) For the calculation of Additional Rent, Aradigm shall provide Novo
Nordisk Delivery Technologies, Inc. a copy of each “notice of Prime Landlord’s
estimate of Operating Expenses” and each annual Statement (as defined in
Article 5 of the Building 1 Lease) delivered by Prime Landlord pursuant to
Article 5 of the Building 1 Lease, in each case, which is applicable to any
portion of the Term.

               (d) Payments of Additional Rent attributable to the Operating Expenses
shall be made (i) on or before the first day of each calendar month in the case
of estimated Operating Expenses and (ii) within 20 days after receipt of each
annual Statement, in

C-3

 

the case of actual Operating Expense adjustments made pursuant to Section
5.4(a) of the Building 1 Lease.

               (e) Novo Nordisk Delivery Technologies, Inc. shall pay as Additional Rent
any portion of any real property taxes or assessments paid by Aradigm pursuant
to Section 4.2 of the Prime Lease attributable in whole or in part to the
Device Manufacturing Facility which portion shall be (i) the Pro Rata Share if
such payment is attributable to the entire Building 1 Premises, (ii) the entire
payment if such payment is attributable to the Device Manufacturing Facility
only, or (iii) prorated based upon the square footage of the Device
Manufacturing Facility and the square footage of any other portion of the
Building 1 Premises to which such payment applies.

               (f) Aradigm shall pay to Novo Nordisk Delivery Technologies, Inc. the
portion of any payment received from Prime Landlord pursuant to Section 5.4(a)
or 5.4(b) of the Building 1 Lease attributable in whole or in part to the
Device Manufacturing Facility which portion shall be (i) the Pro Rata Share if
such payment is attributable to the entire Building 1 Premises, (ii) the entire
payment if such payment is attributable to the Device Manufacturing Facility
only, or (iii) prorated based upon the square footage of the Device
Manufacturing Facility and the square footage of any other portion of the
Building 1 Premises to which such payment applies.

     5. Utilities

          5.1 Novo Nordisk Delivery Technologies, Inc. shall pay to Aradigm its Pro
Rata Share of the costs of all utilities, maintenance and insurance provided to
the Building 1 Premises during the term of the Sublease, whether by Aradigm or
Prime Landlord. Payment shall be made within twenty (20) days after receipt by
Novo Nordisk Delivery Technologies, Inc. of a copy of each invoice from the
provider of the applicable utility, maintenance or insurance.

     6. As-Is

          Subject to Prime Landlord’s service, maintenance or repair obligations
under the Building 1 Lease and the provisions of this Sublease, Novo Nordisk
Delivery Technologies, Inc. accepts the Device Manufacturing Facility and all
improvements in an “as is” condition.

     7. Incorporation of Master Lease

          7.1 Except as otherwise provided in this Sublease, all of the terms and
provisions of the Building 1 Lease (the “Incorporated Provisions”) are
incorporated into and made a part of this Sublease, and the rights and
obligations of the parties under the Building 1 Lease are hereby imposed upon
the parties hereto with respect to the Device Manufacturing Facility, “Aradigm”
being substituted for “Landlord” in the Building 1 Lease, “Novo Nordisk
Delivery Technologies, Inc.” being substituted for the “Tenant” in the Building
1 Lease and the “Device Manufacturing Facility” being substituted for the
“Premises” in the Building 1 Lease; provided, however, that the term “Landlord”
in the following sections of the Building 1 Lease shall mean (i) Prime Landlord
(subject to Aradigm’s obligations under Paragraph 10 of this Sublease), not
Aradigm: 8.1, 9.6(a), 9.6(d), 10.1(b), 15.1, 15.2, 15.4, 17.4; and (ii) both
Prime Landlord and Aradigm: 7.1, 7.3 and 7.4. Notwithstanding the foregoing,
the following

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Paragraphs of the Building 1 Lease are not incorporated herein: 1.1, 1.2,
1.3, 1.4, 2.1, 2.2, 2.3, 2.4, 2.5, 3.1, 3.2, 4.2, 5.1, 5.2, 5.3, 5.4, 5.5, 6.1,
7.2, 10.1(a), 11.1, 11.2, 15, 16.1, 17.1, 17.8, 17.11, 17.15, 17.16, 17.19,
Exhibit A, Exhibit B, Exhibit C, Exhibit D and First Amendment to Lease.

          7.2 As incorporated herein and applicable hereunder, unless otherwise
provided herein, the Incorporated Provisions are deemed changed as follows:

               (a) References to a specific section or article number of, or exhibit or
schedule to, the Building 1 Lease preceded by the word “this” are deemed
changed by deleting the word “this” and adding the phrase “of the Building 1
Lease as incorporated hereby” after such section, article, schedule or exhibit
reference.

               (b) The words “hereof”, “herein”, “hereunder” and similar words are deemed
to refer to the provision of the Building 1 Lease in which they appear as
incorporated herein by reference.

               (c) With respect to Section 13.1:

          (i) each instance of the phrase “six (6) months from the date
of the damage or destruction in the case of damage or destruction
occurring prior to the last year of the term of this Lease, or
exceeds” shall be deemed deleted;

          (ii) each instance of the phrase “in the case of damage or
destruction occurring during the last year of the term of this
Lease” shall be deemed deleted;

          (iii) the phrase “pursuant to Section 10.1(b) hereof” in the
19th line shall be deemed deleted;

          (iv) the phrase “Landlord fails” in the 32nd line is deemed
changed to the phrase “Prime Landlord and Aradigm fail”;

          (v) the parenthetical proviso beginning on the 37th line shall
be deemed deleted; and

          (vi) following each reference to Section 2.4 and Exhibit C
there shall be deemed inserted the phrase “of the Building 1
Lease”.

               (d) Except as otherwise expressly set forth herein, the time limits set
forth in the Building 1 Lease for the giving of notices, making demands,
performance of any act, condition or covenant, or the exercise of any right,
remedy or option, are changed for the purposes of incorporation into this
Sublease, by shortening the same in each instance, as appropriate, so that
notices may be given, demands made, or any act, condition or covenant
performed, or any right, remedy or option hereunder exercised, by Aradigm or
Novo Nordisk Delivery Technologies, Inc., as the case may be (and each party
covenants that it will do so), at least three (3) days (not including
Saturdays, Sundays and legal holidays in the state of California) prior to the
expiration of the time limit, taking into account the maximum grace

C-5

 

period, if any, relating thereto contained in the Building 1 Lease. Each
party shall promptly deliver to the other party copies of all notices, requests
or demands which relate to the Device Manufacturing Facility or the use or
occupancy thereof after receipt of same from Prime Landlord. In the case of
any time limit described above which is one or two days after the giving of the
notice applicable thereto, such notice shall be delivered by facsimile as
provided in Paragraph 18 hereof.

     8. Compliance and Repairs

          Notwithstanding anything to the contrary in this Sublease, (i) Novo
Nordisk Delivery Technologies, Inc.’s repair obligations hereunder shall not
include the making of any capital repairs or improvements to the Device
Manufacturing Facility unless, and to the extent, required due to Novo Nordisk
Delivery Technologies, Inc.’s negligence or willful misconduct; and (ii) Novo
Nordisk Delivery Technologies, Inc. shall not be responsible for compliance
with any laws, codes, ordinances or other governmental directives where such
compliance is not related specifically to Novo Nordisk Delivery Technologies,
Inc.’s change in the use and occupancy of the Device Manufacturing Facility
during the Term or triggered by Novo Nordisk Delivery Technologies, Inc.’s
alterations or improvements to the Device Manufacturing Facility.

     9. Conflicts

          9.1 In the event of any conflict between this Sublease and the Building 1
Lease, as between Aradigm and Novo Nordisk Delivery Technologies, Inc., the
terms and conditions of this Sublease shall control.

          9.2 Nothing in this Sublease shall diminish the rights of either party
under any Transaction Agreement (as defined in the Restructuring Agreement).

     10. Aradigm’s Obligations

          10.1 Aradigm covenants that during the term of this Sublease it shall at
all times comply with all provisions of the Building 1 Lease and fulfill all
its obligations thereunder other than those, if any, which are to be fulfilled
directly by Novo Nordisk Delivery Technologies, Inc.

          10.2 If Prime Landlord shall default in any of its obligations to Aradigm
with respect to the Device Manufacturing Facility, Aradigm shall not, except as
and to the extent hereinafter set forth, be obligated to bring any action or
proceeding or to take any steps to enforce Aradigm’s rights against Prime
Landlord other than, upon the written request of Novo Nordisk Delivery
Technologies, Inc., making a demand upon Prime Landlord to perform its
obligations under the Building 1 Lease with respect to the Device Manufacturing
Facility. If following the making of such demand and the expiration of any
applicable grace period granted to Prime Landlord under the Building 1 Lease,
Prime Landlord shall fail to perform its obligations under the Building 1
Lease, then Novo Nordisk Delivery Technologies, Inc. shall have the right to
take such action in its own name. If (a) any such action against Prime
Landlord in Novo Nordisk Delivery Technologies, Inc.’s name is barred by reason
of lack of privity, non-assignability or otherwise, and (b) the failure of
Prime Landlord to perform its obligations under the Building 1 Lease has, or
may have, a materially adverse effect upon Device Manufacturing

C-6

 

Facility or Novo Nordisk Delivery Technologies, Inc.’s permitted use
thereof then, subject to and upon the following terms, Novo Nordisk Delivery
Technologies, Inc. may bring such action in Aradigm’s name and Aradigm shall
execute all documents reasonably required in connection therewith, provided (i)
the same is without cost and expense to Aradigm, (ii) Novo Nordisk Delivery
Technologies, Inc. shall indemnify Aradigm in connection therewith, and (iii)
Novo Nordisk Delivery Technologies, Inc. is not in default hereunder.

          10.3 Except as expressly otherwise provided herein Aradigm shall have no
obligation to Novo Nordisk Delivery Technologies, Inc. for the performance by
Prime Landlord of any obligations and representations of Prime Landlord under
the Building 1 Lease, except to use commercially reasonable efforts to enforce
Prime Landlord’s obligations and representations under the Building 1 Lease.

     11. Quiet Enjoyment

          11.1 Provided Novo Nordisk Delivery Technologies, Inc. is not in default
under this Sublease beyond any applicable periods of notice and cure, Aradigm
covenants and agrees not to (a) voluntarily cancel or surrender the Building 1
Lease without the prior consent of Novo Nordisk Delivery Technologies, Inc. nor
(b) consent to any modification, amendment or supplement to the Building 1
Lease which will deprive Novo Nordisk Delivery Technologies, Inc. of the
benefits under this Sublease except to a de minimis extent and/or to the extent
such failure to consent could result in a default by Aradigm under the Building
1 Lease. Aradigm shall promptly forward to Novo Nordisk Delivery Technologies,
Inc. any default or termination notice with respect to the Building 1 Lease
received by Aradigm and this Sublease shall terminate in the event of any such
termination of the Building 1 Lease. A termination of the Building 1 Lease due
to the default of Aradigm, other than a default resulting from or attributable
to any corresponding default of Novo Nordisk Delivery Technologies, Inc. under
this Sublease, shall be considered a voluntary cancellation or surrender of the
Building 1 Lease under this subparagraph.

          11.2 Aradigm covenants that Novo Nordisk Delivery Technologies, Inc., upon
paying the Rent and performing its obligations hereunder and subject to all the
terms and conditions of this Sublease shall peacefully and quietly have, hold
and enjoy the Device Manufacturing Facility throughout the Term or until this
Sublease is terminated as provided by this Sublease.

     12. Insurance

          Novo Nordisk Delivery Technologies, Inc. shall maintain with regard to the
Device Manufacturing Facility only, for the benefit of Novo Nordisk Delivery
Technologies, Inc. and Aradigm, the insurance coverages required of tenant by
Paragraph 10.1 of the Building 1 Lease and shall name Aradigm as an additional
insured thereunder.

     13. Surrender

          Notwithstanding any provision to the contrary, Novo Nordisk Delivery
Technologies, Inc. shall surrender the Device Manufacturing Facility upon
expiration or termination of this Sublease for any reason in the same condition
existing as of the Effective

C-7

 

Date, normal wear and tear excepted, except that Novo Nordisk and Novo
Nordisk Delivery Technologies, Inc., as applicable, shall retain title to and
remove all inventory, equipment and other personal property acquired pursuant
to the Transaction Agreements.

     14. Assignment and Subletting

          Novo Nordisk Delivery Technologies, Inc. shall not assign this Sublease or
sublet all or any portion of the Device Manufacturing Facility, or allow any
other person or entity to occupy all or any portion of the Device Manufacturing
Facility, or otherwise transfer any right, title or interest in this Sublease
or the Device Manufacturing Facility, by operation of law or otherwise, without
the express written consent of (i) Aradigm, which Aradigm may grant or withhold
in its sole and absolute discretion and (ii) Prime Landlord in accordance with
the provisions of Section 11.1 and 11.2 of the Building 1 Lease.
Notwithstanding the foregoing provisions, however, Novo Nordisk Delivery
Technologies, Inc. may assign this Sublease or sub-sublet the Device
Manufacturing Facility, or any portion thereof, without Aradigm’s or Prime
Landlord’s consent (but with prior or substantially concurrent written notice
to Aradigm and Prime Landlord), to any entity (i) which controls, is controlled
by, or is under common control with Novo Nordisk Delivery Technologies, Inc. or
(ii) to which is assigned the Amended and Restated License Agreement (as
defined in the Restructuring Agreement). Any such attempted transfer shall be
deemed null and void.

     15. Late Payments; Expenses

          Any payment under this Sublease that is not paid when due shall bear
interest at the London Interbank Offered Rate (as defined in the Asset Purchase
Agreement) plus five percent (5%) per annum until paid in full. In addition,
the collecting party shall be entitled to recover from the non-paying party its
expenses, including reasonable attorneys’ fees and costs, incurred in enforcing
this Sublease.

     16. Parent Guarantee.

          Novo Nordisk hereby guarantees the performance in full of the obligations
of Novo Nordisk Delivery Technologies, Inc. under this Sublease.

     17. Estoppel

          Aradigm hereby certifies to the Novo Nordisk Delivery Technologies, Inc.
that (i) it is not in default under the Building 1 Lease nor to its knowledge
is there any event which with notice or lapse of time or both would constitute
a default by Aradigm thereunder and (ii) to its knowledge, Prime Landlord is
not in default under the Building 1 Lease nor is there any event which with
notice or lapse of time or both would constitute a default by Prime Landlord
thereunder.

     18. Notices.

          All notices required or permitted to be given under this Sublease shall be
given in writing and shall be sent by: (a) hand delivery; (b) registered mail,
return receipt requested; (c)

C-8

 

overnight delivery service; or (d) facsimile transmission, with
confirmation received, and shall be sent or delivered as follows:

     If to Novo Nordisk Technologies, Inc. or Novo Nordisk N/A:

	 	 	 
	

	 	Novo Nordisk A/S
	

	 	Novo Alle
	

	 	DK-2880 Bagsvaerd
	

	 	Denmark
	

	 	Attention: General Counsel
	

	 	Telephone: +45 44 44 88 88
	

	 	Telefax: +45 44 42 18 30
	 
	 	 
	with a copy to:
	 	 
	 
	 	 
	

	 	Attention: Vice President, Business Development
	

	 	Telephone: +45 44 42 39 00
	

	 	Telefax: +45 44 42 16 98
	 
	 	 
	If to Aradigm Corporation:
	 	 
	 
	 	 
	

	 	Aradigm Corporation
	

	 	3929 Point Eden Way
	

	 	Hayward, California 94545
	

	 	Attention: Chief Financial Officer
	

	 	Telephone: +1 510-265-9000
	

	 	Telefax: +1 510-265-0277
	 
	 	 
	with a copy to:
	 	 
	 
	 	 
	

	 	Cooley Godward LLP
	

	 	3175 Hanover Street
	

	 	Palo Alto, California 94304-1130
	

	 	Attention: James C. Kitch
	

	 	Telephone: +1 650-843-5027
	

	 	Telefax: +1 650-849-7400

     19. Governing Law

          This Sublease shall in all respects be governed by, and construed and
enforced in accordance with, the laws of the State of California, United
States.

C-9

 

     20. Successors and Assigns

          This Sublease shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns.

     21. Counterparts

          This Sublease may be executed in multiple counterparts, each of which
shall be deemed an original.

          [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

C-10

 

     Executed to be effective as of the Effective Date.

	 	 	 	 	 
	 	Aradigm Corporation, a California corporation

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

	 	 	 	 	 
	 	Novo Nordisk Delivery

Technologies, Inc., a Delaware corporation

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

	 	 	 	 	 
	 	Novo Nordisk A/S, a corporation organized under the laws of Denmark, as guarantor, solely for the purposes of Section 16

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

C-11

 

	 	 	 	 	 

EXHIBIT A

[Building 1 Lease]

C-12

 

EXHIBIT D

[CONTRACT MANUFACTURING AGREEMENT]

D-1

 

CONTRACT MANUFACTURING AGREEMENT

     This Contract Manufacturing Agreement (the “Agreement”) is made and
entered into as of                                       , 2004 by and between Novo Nordisk Delivery
Technologies, Inc., a Delaware corporation (“Novo Nordisk Delivery
Technologies, Inc.”) and Aradigm Corporation, a California corporation
(“Aradigm”). Novo Nordisk Delivery Technologies, Inc. and Aradigm may be
referred to herein as a “Party” or, collectively, as “Parties.”

Recitals

     WHEREAS, Novo Nordisk A/S and Aradigm entered into a Development and
License Agreement dated as of June 2, 1998, as amended by Amendment No. 1
thereto dated as of October 22, 2001 (the “Development and License Agreement”)
to develop a system for pulmonary delivery of insulin (and potentially other
compounds) and under which Aradigm granted to Novo Nordisk A/S an exclusive,
world-wide license under certain patent rights and “know-how” to use, market,
distribute, sell and sublicense products resulting from such development
program in the Field (as defined therein);

     WHEREAS, Aradigm, Novo Nordisk A/S and Novo Nordisk Delivery Technologies,
Inc., are Parties to a Restructuring Agreement dated as of September 28, 2004
(the “Restructuring Agreement”) pursuant to which they have agreed to
restructure their existing arrangements regarding the development, production
and commercialization of the Development Program (as defined therein) and to
certain other matters as set forth therein;

     WHEREAS, as part of such transaction, the Parties are entering into an
Amended and Restated License Agreement dated as of the even date herewith (the
“Amended and Restated License Agreement”) pursuant to which they have agreed to
alter the rights and responsibilities of Aradigm and Novo Nordisk A/S with
respect to the Development Program; and

     WHEREAS, as part of such transaction, the Parties are entering into this
Agreement to provide Aradigm the right to purchase certain devices and dosage
forms from Novo Nordisk Delivery Technologies, Inc. on the terms set forth
below.

     NOW, THEREFORE, in consideration of the premises set forth above and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the Parties hereto agree as follows:

Agreement

	1.	 	Definitions.

	1.1	 	The following terms, as used herein, shall have the following meanings:

     “Act” means the United States Food, Drug and Cosmetics Act of 1938, as the
same may be amended or re-enacted from time to time.

D-2

 

     “Actual Capacity” means the calculated net annual production capacity
measured in time of the existing Facility when staffed to produce three (3)
fifteen liter (15L) lots per two (2) months and three to five (3-5)
devices/shift.

     “Affiliate” has the meaning set forth in the Restructuring Agreement.

     “API” means, for each Packaged Dosage Form, the active pharmaceutical
ingredient of that Packaged Dosage Form that is provided by Aradigm to Novo
Nordisk Delivery Technologies, Inc. under this Agreement prior to Manufacture
into a Formulation.

     “Applicable Laws” means the Act, together with any regulations promulgated
thereunder, and any equivalent applicable laws and regulations within the
European Union, Canada, and Japan.

     “Batch” means a specific quantity of Packaged Devices and/or Packaged
Dosage Forms that in each case is intended to have uniform character and
quality, within specified limits, and is produced according to a single
manufacturing order during the same cycle of Manufacture as defined under
Applicable Laws.

     “Business Day” has the meaning set forth in the Amended and Restated
License Agreement.

     “cGMPs” means all Applicable Laws related to the Manufacture of the
Packaged Dosage Forms and Packaged Devices including the current “Good
Manufacturing Practice” regulation and guidelines promulgated under the Act at
21 CFR (chapters 210, 211, 600 and 610), as the same may be amended or
re-enacted from time to time.

     “Closing Date” has the meaning set forth in the Restructuring Agreement.

     “Contract Quarter” means any three (3) calendar month period beginning on
the first day of the 1st, 4th, 7th and 10th months of each calendar year.

     “Defects” means current or latent Significant Deviations, foreign
material, contaminant, defect, and/or adulteration under Applicable Laws.

     “Device” means any pulmonary delivery device used in clinical trials that
is: (a) in compliance with the applicable Specifications; (b) identical to the
iDMS device that is being produced for the iDMS program and that is based on
the Aradigm device technology licensed under the Amended and Restated License
Agreement; and (c) intended to be used to administer Dosage Forms in human
clinical trials.

     “Development Program” has the meaning set forth in the Restructuring
Agreement.

     “Diligent Efforts” means, with respect to efforts of any Party hereto, no
less than the efforts that such Party applies to development or manufacture of
its own devices or dosage forms with similar regulatory requirements.

D-3

 

     “Dosage Form” means the iDMS identical Primary Packaging, containing
Formulation, that is made by Novo Nordisk Delivery Technologies, Inc. for
Aradigm.

     “Facilities” means the facilities located at: (a) Building 2 at 3955 Trust
Way, Hayward, California 94545, including manufacturing facility #1 (“MF1”) (b)
Building 3 at 3920 Point Eden Way, Hayward, California 94545; and (c) Building
1 (Device Manufacturing facilities only) at 3929 Point Eden Way, Hayward,
California 94545; or (d) any other location agreed to in writing by the
Parties.

     “FDA” means the United States government agency known as the Food and Drug
Administration, or any successor thereto.

     “Formulation” means the inhalation solution that is Manufactured by Novo
Nordisk Delivery Technologies, Inc. under the Agreement in accordance with the
applicable Specifications and that contains an API provided by Aradigm and
Other Excipients.

     “Full Manufacturing Cost” means the cost of raw materials (excluding the
API and Other Excipients provided by Aradigm, unless otherwise stated),
components, labor (production), quality (labor, reagents and external
analysis), third party royalties, freight, import duties, taxes and reasonably
allocated facilities costs, depreciation of equipment and facilities, lease of
equipment and facilities, product and professional support, and manufacturing
overheads relating to the production of the specified items. Full
Manufacturing Cost will also include an allocation of unusable manufacturing
capacity, to be defined as two and one-half (2.5) months per twelve (12) month
period, such allocation to be made based on Aradigm’s actual usage of the
Facilities during such period as a percentage of Actual Capacity.

     “iDMS” means the insulin Diabetes Management System developed under the
Development Program (as defined in the Amended and Restated License Agreement).

     “Manufacture” and “Manufacturing” mean the following operations required
to produce and assemble Formulations, Packaged Dosage Forms and/or Packaged
Devices from API and iDMS identical materials using then current
Specifications: upstream processing; formulation; form, fill, & seal;
downstream processing; quality control; quality assurance and testing (solely
for iDMS identical testing); and packaging and related services.

     “Manufacturing Requirements Documents” or “MRD” refers to the Aradigm
documents that describe the requirements for Manufacturing, testing, storage
and release of Packaged Dosage Forms and/or Packaged Devices at a specific site
and shall identify critical and non-critical parameters relating to the
Formulation and process and shall include the associated tech transfer
documents.

     “Master Batch Record” means, for a given Packaged Device or Packaged
Dosage Form, the current approved manufacturing instructions to be followed by
Novo Nordisk Delivery Technologies, Inc. with respect to the Manufacture,
handling and storage of that Packaged Device or Packaged Dosage Form, and their
components.

D-4

 

     “Other Excipients” means any raw materials or components, which are
different from then current raw materials and components provided by Aradigm
and used for iDMS.

     “Packaged Device” means the Device, contained in Secondary Packaging, that
is intended for use in phase 2 and/or phase 3 clinical trials.

     “Packaged Dosage Forms” means the disposable Dosage Forms, contained in
Secondary Packaging, that are intended for use in phase 2 and/or phase 3
clinical trials.

     “Person” means an individual, corporation, partnership, limited liability
company, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.

     “Primary Packaging” means those packaging components that are or may be in
direct contact with the Device or the Formulation contained in a Dosage Form.
The primary packaging components of a Dosage Form are the nozzle layer, the lid
layer, the blister layer and the label laminate.

     “Quality Agreement” means the Quality Agreement, dated as of the even date
herewith, for any Packaged Devices and Packaged Dosage Forms that are
Manufactured by Novo Nordisk Delivery Technologies, Inc., describing the
quality control and regulatory responsibilities of the Parties with respect to
such Packaged Devices and Packaged Dosage Forms.

     “Regulatory Agency” means the FDA (within the United States) and any other
governmental authority (national, federal, provincial and/or local) in the EU,
Japan, and Canada that is a counterpart to the FDA or otherwise has
jurisdiction over the Manufacture or approval of any Packaged Device or
Packaged Dosage Form.

     “Secondary Packaging” means bulk packaging that is used for containment,
for storage, for shipment, or for identification of materials or as otherwise
agreed in writing between the Parties.

     “Significant Change” means any change that: (a) materially affects the
scope or content of a previously filed and active “Investigational New Drug
Application” for the Packaged Dosage Forms and/or Packaged Devices; (b) may
require revalidation; or (c) would result in changing or modifying the
Specifications.

     “Significant Deviation” means any material non-conformity from established
requirements as provided in the applicable product registration, applicable
validation and/or qualification documents as well as applicable Batch
production records and associated procedures, methods and Specifications.

     “Specifications” mean the quality control and technical procedures, test
results, storage conditions, transportation conditions, requirements, standards
and other data and documentation with respect to API, Devices, Formulation,
Dosage Forms, Other Excipients, Primary Packaging, and Secondary Packaging (and
the excipients and components thereof).

D-5

 

     “Third Party” means any entity other than Novo Nordisk Delivery
Technologies, Inc., Aradigm or any of their Affiliates.

     “Transaction Agreements” has the meaning set forth in the Restructuring
Agreement.

1.2 Other Defined Terms. Each of the following terms is defined in the Section
set forth opposite such term:

	 	 	 	 	 
	Term
	 	Section

	Agreement
	 	Recitals
	Amended and Restated License Agreement
	 	Recitals
	Aradigm
	 	Recitals
	Confidential Information
	 	 	7.1	(d)
	Damages
	 	 	8.1	 
	DEA
	 	 	2.4	 
	Dedicated Equipment
	 	 	2.9	 
	Deficiency Notice
	 	 	5.4	 
	Development and License Agreement
	 	Recitals
	DMF
	 	 	6.3	 
	Firm Order
	 	 	3.3	 
	Forecast
	 	 	3.2	 
	GLP
	 	 	6.4	 
	Indemnified Party
	 	 	8.3	 
	Indemnifying Party
	 	 	8.3	 
	Manufacturing Responsibilities
	 	 	2.2	 
	Novo Nordisk Delivery Technologies, Inc.
	 	Recitals
	Parties
	 	Recitals
	Party
	 	Recitals
	Restructuring Agreement
	 	Recitals
	SOPs
	 	 	2.1	 
	Term
	 	 	10.1	 

1.3 Other Definitional and Interpretative Provisions. Unless specified
otherwise, in this Agreement the obligations of any Party consisting of more
than one (1) person are joint and

D-6

 

several. The words “hereof”, “herein” and “hereunder” and words of like import
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof. References to Articles, Sections, and Exhibits are to
Articles, Sections, and Exhibits of this Agreement unless otherwise specified.
All Exhibits annexed hereto or referred to herein are hereby incorporated in
and made a part of this Agreement as if set forth in full herein. Any
capitalized terms used in any Exhibit but not otherwise defined therein, shall
have the meaning as defined in this Agreement. Any singular term in this
Agreement shall be deemed to include the plural, and any plural term the
singular. Whenever the words “include”, “includes” or “including” are used in
this Agreement, they shall be deemed to be followed by the words “without
limitation”, whether or not they are in fact followed by those words or words
of like import. “Writing”, “written” and comparable terms refer to printing,
typing and other means of reproducing words (including electronic media) in a
visible form. References to any agreement or contract are to that agreement or
contract as amended, modified or supplemented from time to time in accordance
with the terms hereof and thereof. References to any Party include the
successors and permitted assigns of that Party. References from or through any
date mean, unless otherwise specified, from and including or through and
including, respectively.

2. Scope of Work.

2.1 General. This Agreement, the Quality Agreement, and other exhibits hereto
shall serve as a supply agreement governing the Manufacture, purchase and
supply of Packaged Dosage Forms and/or Packaged Devices between the Parties.
Each Party shall use Diligent Efforts to perform the responsibilities assigned
to such Party as defined herein. Promptly after the Closing Date, Novo Nordisk
Delivery Technologies, Inc. shall prepare detailed standard operating
procedures (“SOPs”) to facilitate the performance of the Parties’ obligations
under this Agreement, including SOPs for managing change control in accordance
with Section 2.5. Novo Nordisk Delivery Technologies, Inc. shall submit such
SOPs to Aradigm for review and approval, such approval not to be unreasonably
withheld or delayed.

2.2 Manufacture and Supply. During the Term, Novo Nordisk Delivery
Technologies, Inc. shall Manufacture and supply to Aradigm such quantities of
each Packaged Device and/or Packaged Dosage Form as may be ordered by Aradigm
in accordance with Section 3.3 for the compensation described in Article 4.
All such Manufacture and supply shall occur at the Facilities unless otherwise
agreed in writing by the Parties. Aradigm shall deliver the applicable MRDs
and Specifications at least twelve (12) weeks prior to the planned
Manufacturing to permit Novo Nordisk Delivery Technologies, Inc. to update its
SOPs and other documents; provided that, if Aradigm does not meet such 12-week
timeline, then Novo Nordisk Delivery Technologies, Inc. shall use reasonable
efforts to accommodate such planned Manufacturing. Novo Nordisk Delivery
Technologies, Inc. shall Manufacture and supply each order of Packaged Device
and/or Packaged Dosage Form in accordance with the applicable MRD, Quality
Agreement, and Applicable Laws (hereinafter collectively the “Manufacturing
Responsibilities”). For the avoidance of doubt, Novo Nordisk Delivery
Technologies, Inc. shall Manufacture and supply the Dosage Forms and Devices
for Aradigm that are identical to the dosage forms and devices produced for the
Product (as defined in the Amended and Restated License Agreement) and Device
(as defined in the Amended and Restated License Agreement)

D-7

 

using the then current Novo Nordisk Delivery Technologies, Inc. Specifications,
with the exception of API and Specifications with respect to Other Excipients.
Additionally, Novo Nordisk Delivery Technologies, Inc. may reject Aradigm’s
request to Manufacture or supply Aradigm with any of the excluded products
identified on Exhibit A, as amended from time to time, or any products that
contain proteolytic activity, allergenic excipients, penicillins,
cephalosporins, potent steroids and hormones, cytotoxics, viable
micro-organisms or vira or substances that can cause anaphylaxis, and/or have
unknown toxicity. Novo Nordisk Delivery Technologies, Inc. may reject
Aradigm’s request to Manufacture any Dosage Forms that cannot be introduced
under cGMPs into a facility that also makes Product (as defined in the Amended
and Restated License Agreement) for phase 3a and b clinical trials.

2.3 Materials.

(a) Novo Nordisk Delivery Technologies, Inc. Novo Nordisk Delivery
Technologies, Inc. shall purchase and test all raw materials and components
identical to iDMS (other than API and Other Excipients) necessary for such
Manufacture in accordance with the then current Specifications. Novo Nordisk
Delivery Technologies, Inc. shall notify Aradigm in writing prior to changing
any supplier of components of the Packaged Device and Packaged Dosage Form.
Novo Nordisk Delivery Technologies, Inc. shall at all times maintain an
inventory of all materials and components (excluding API and Other Excipients)
sufficient in its reasonable judgment to Manufacture the relevant Packaged
Dosage Forms and/or Packaged Devices to fill Aradigm’s binding orders and
forecasts for at least the following one (1) month or such different period of
time as may be agreed in writing by the Parties.

(b) Aradigm. Aradigm shall (at Aradigm’s expense) purchase and provide Novo
Nordisk Delivery Technologies, Inc., in accordance with the delivery schedule
agreed to in writing by the Parties, with all API and Other Excipients that are
necessary to produce Formulations, such APIs and Other Excipients to be free
from any Defects. Aradigm shall supply Other Excipients that are of
pharmacopoeia quality, provided that Other Excipients of such quality are
available. Furthermore, Aradigm shall (at Aradigm’s expense) provide to Novo
Nordisk Delivery Technologies, Inc. all analytical methods, Specifications,
including verified cleaning methods, and other documentation necessary to
Manufacture and supply the applicable Packaged Dosage Forms and/or Packaged
Devices under this Agreement. For clarity, Aradigm will be responsible for
developing and conducting analytical testing for all non-iDMS identical
materials and components and cleaning agents including API and Other Excipients
and testing to verify cleaning of Novo Nordisk Delivery Technologies, Inc.’s
facilities after manufacture of Dosage Forms. Aradigm will be responsible for
qualifying and approving all non-iDMS identical materials, components and its
suppliers. In the event that any API and Other Excipients contain Defects,
Aradigm shall promptly replace such API and Other Excipients and Novo Nordisk
Delivery Technologies, Inc.’s obligations to manufacture and supply Packaged
Dosage Forms will be extended for an amount of time provided that, the capacity
limitations set forth in Section 3.1(a) are not exceeded. Aradigm shall
provide all test results and release certificates to Novo Nordisk Delivery
Technologies, Inc. related to API, Other Excipients, components, in-process
controls tests and cleaning tests conducted by Aradigm.

2.4 Compliance with Laws. Novo Nordisk Delivery Technologies, Inc. shall
comply with all Applicable Laws related to: (a) the transportation, storage,
use, handling and disposal of

D-8

 

controlled substances and/or hazardous materials in connection with its
obligations under this Agreement; and (b) Novo Nordisk Delivery Technologies,
Inc.’s Manufacture of Packaged Device and Packaged Dosage Form under this
Agreement. Novo Nordisk Delivery Technologies, Inc. covenants that it shall
not use, in any capacity, the services of any person who is disbarred under
Applicable Law. Novo Nordisk Delivery Technologies, Inc. shall maintain during
the Term all government permits and Drug Enforcement Administration (“DEA”)
licenses required for the conduct of the actions and procedures that it
undertakes pursuant to this Agreement.

2.5 Change Control. Novo Nordisk Delivery Technologies, Inc. shall notify
Aradigm in writing if Novo Nordisk Delivery Technologies, Inc. wishes to make
any Significant Change. Novo Nordisk Delivery Technologies, Inc. shall not
make any Significant Change without Aradigm’s prior written consent, which
shall not be unreasonably withheld or delayed.

2.6 Reprocess and Rework. Novo Nordisk Delivery Technologies, Inc. shall not
rework or reprocess any Packaged Dosage Forms or Packaged Devices without prior
written consent from Aradigm. Novo Nordisk Delivery Technologies, Inc. shall
document appropriately all rework and reprocessing conducted under this
Agreement.

2.7 Deviations. Novo Nordisk Delivery Technologies, Inc. shall notify Aradigm
within three (3) business days after its discovery of any Packaged Dosage Form
or Packaged Devices Batch failure or Significant Deviation, and Novo Nordisk
Delivery Technologies, Inc. shall use Diligent Efforts to replace such Packaged
Dosage Forms or Packaged Device at Aradigm’s expense, except in the event such
failure or Significant Deviation arose or resulted from the gross negligence or
willful misconduct of Novo Nordisk Delivery Technologies, Inc., in which case
such replacement shall occur at no expense to Aradigm (except for the cost of
replacing API and Other Excipients, which shall be at Aradigm’s expense).

2.8 Storage and Handling. Novo Nordisk Delivery Technologies, Inc. shall store
and handle all API, iDMS identical materials, components, work-in-process
materials, and finished Packaged Dosage Forms and Packaged Devices as set forth
in the applicable Specifications, MRDs, and in accordance with cGMPs, and shall
conform to established safety practices and procedures set forth in Aradigm’s
then-current material safety data sheet. In addition, Novo Nordisk Delivery
Technologies, Inc. shall take such actions as are reasonably necessary to
protect API and Other Excipients from damage, theft, and deterioration. If
requested by Aradigm in writing, Novo Nordisk Delivery Technologies, Inc. shall
return or destroy, at Aradigm’s expense, any unused API in accordance with
Aradigm’s written instructions.

2.9 Equipment and Facilities. Aradigm shall notify Novo Nordisk Delivery
Technologies, Inc. in writing if any additional equipment is required for
Manufacturing of Packaged Dosage Forms (“Dedicated Equipment”). Aradigm shall
purchase, deliver, and maintain (or cause to be maintained) such Dedicated
Equipment at its own expense. If such Dedicated Equipment becomes an
integrated part of the Facilities, Novo Nordisk Delivery Technologies, Inc.
shall validate and maintain the cGMP status of such Dedicated Equipment at
Aradigm’s expense.

D-9

 

3. Capacity, Forecasts and Ordering.

3.1 Supply Capacity. Subject to Section 3.1(a), Novo Nordisk Delivery
Technologies, Inc. shall maintain sufficient production capacity for the
current and forecasted requirements of Packaged Device and/or Packaged Dosage
Form, as set forth in the applicable Forecast as defined below.

(a) Capacity Limits. During the Term, Novo Nordisk Delivery Technologies, Inc.
shall provide Aradigm with the Manufacturing capacity, which includes Device
production and packaging, indicated in the chart below for each of the three
(3) process groups (i.e., upstream processing; compounding/filling; and
downstream processing, including handle lamination through packaging).
Notwithstanding the foregoing, if Novo Nordisk Delivery Technologies, Inc.
provides Aradigm with ninety (90) days prior written notice that Novo Nordisk
Delivery Technologies, Inc. needs additional capacity for itself to provide
Device and/or Dosage Forms for the phase 3 insulin trial that it will conduct,
then Novo Nordisk Delivery Technologies, Inc. may shift the capacity allocated
to Aradigm’s requirements as set forth in this Agreement as follows: (i) in
2005, Novo Nordisk Delivery Technologies, Inc. may shift the
1/6th of actual
capacity to the fourth Contract Quarter of 2005 or split the 1/6th of actual
capacity between the first and second half of 2005; (ii) in 2006, Novo Nordisk
Delivery Technologies, Inc. may shift the 1/4 of actual capacity to either of
the last 2 Contract Quarters of 2006 or split the 1/4 of actual capacity
between the first and second half of 2006; and (iii) in 2007, Novo Nordisk
Delivery Technologies, Inc. may shift the 1/4th of actual capacity to either of
the last 2 Contract Quarters of 2007 or split the 1/4th of actual capacity
between the first and second half of 2007. For the avoidance of doubt, the
table below lists calendar year capacity. Therefore, in the event that this
Agreement terminates before December 31, 2007, Aradigm will only have a
corresponding proportional amount of capacity for that year.

	 	 	 	 	 
	Contract Year
	 	Capacity for Each Unit Operation

	2005
	 	1/6th of actual capacity
	2006
	 	1/4th of actual capacity
	2007
	 	1/4th of actual capacity

Notwithstanding this Section 3.1, Novo Nordisk Delivery Technologies, Inc.
shall not be obligated to provide Aradigm with the Manufacturing capacity
related to use of the sterile core and other filling activities, as described
above, if, in its sole discretion, it concludes that the provision of such
Manufacturing capacity would, in any manner, impair Novo Nordisk Delivery
Technologies, Inc.’s ability to supply any capacity related to its activities
under the Amended and Restated License Agreement.

3.2 Forecasts. Within ten (10) days of the Closing Date, and on the 15th day
of the first month of each Contract Quarter thereafter, Aradigm will provide
Novo Nordisk Delivery Technologies, Inc. with a six (6) Contract Quarter
rolling forecast of Aradigm’s orders for Packaged Dosage Forms and/or Packaged
Devices on a worldwide basis (each a “Forecast”).

D-10

 

The first Contract Quarter of each Forecast will be binding, and the two
subsequent Contract Quarters of each Forecast may represent a deviation of up
to plus or minus twenty-five percent (25%) from the previous Forecast for such
Contract Quarter. All remaining Contract Quarters of each Forecast will be
prepared on a reasonable basis, but will be nonbinding.

3.3 Orders. Aradigm shall submit to Novo Nordisk Delivery Technologies, Inc.
written purchase orders for Packaged Device and/or Packaged Dosage Form in
accordance with the applicable Forecast (each, a “Firm Order”). Each such
purchase order will specify the quantity ordered, the required delivery dates,
and any special instructions or invoicing information.

4. Compensation.

4.1 Clinical. Aradigm shall reimburse Novo Nordisk Delivery Technologies, Inc.
for the Full Manufacturing Cost of Manufacturing all Packaged Device and/or
Packaged Dosage Form ordered by Aradigm pursuant to this Agreement.

4.2 Payments. Novo Nordisk Delivery Technologies, Inc. shall invoice Aradigm
for the Full Manufacturing Cost for each shipment of Packaged Device and/or
Packaged Dosage Form ordered by Aradigm pursuant to this Agreement. Aradigm
shall pay Novo Nordisk Delivery Technologies, Inc. the amount owed pursuant to
each such invoice in advance of shipment, in accordance with the compensation
described in Section 4.1 within thirty (30) days of receiving each such
invoice. All amounts owed under this Agreement shall be paid in the legal
currency of the United States.

5. Delivery and Acceptance.

5.1 Quality Control Sample. Novo Nordisk Delivery Technologies, Inc. shall
provide Aradigm with the following: (a) a quality control sample of such Batch
for the purpose of confirming that such Batch meets the Specifications; (b) a
copy of the manufacturing Batch records and all relevant documentation for such
Batch, together with written confirmation that such Batch records have been
reviewed and approved by the quality assurance unit; and (c) and results of
analysis performed by Novo Nordisk Delivery Technologies, Inc. in connection
with its obligations under this Agreement. The quality control sample shall
consist of Packaged Device and/or Packaged Dosage Form sampled so as to be
representative of the Batch. No Batch of Packaged Dosage Forms or Packaged
Devices shall be deemed to have been accepted until the quality control sample
and associated documentation related to such Batch have been accepted by
Aradigm pursuant to Section 5.4, such acceptance not to be unreasonably
withheld or delayed.

5.2 Shipping and Title. Novo Nordisk Delivery Technologies, Inc. shall ship
Batches to Aradigm as soon as practicable after such Batches are released by
Aradigm pursuant to the Quality Agreement, unless otherwise agreed in writing
by the Parties. Packaged Dosage Forms containing controlled substances shall
be shipped as soon as practicable. Aradigm will use Diligent Efforts to release
all Batches within six (6) weeks of the receipt of deliverables specified in
Section 5.1 above. Unless otherwise agreed in writing by the Parties, all
shipments shall be shipped FCA (Incoterms, 2000) the Facility at Aradigm’s
expense, and Aradigm shall bear all
risk of loss or damage after the Batch of Packaged Device and/or Packaged
Dosage Form is

D-11

 

shipped from the Facility. Novo Nordisk Delivery Technologies,
Inc. will package all Packaged Dosage Forms in accordance with the
Specifications. Title to all API shall at all times remain with Aradigm.
Title to all Packaged Dosage Forms and Packaged Devices shall in each case
transfer to Aradigm upon shipment of such Packaged Dosage Forms and Packaged
Device from the Facility.

5.3 Delivery. Novo Nordisk Delivery Technologies, Inc. shall deliver all
batches of Packaged Dosage Forms and/or Packaged Devices hereunder on the
scheduled delivery dates as set forth in the relevant Firm Orders; however,
Novo Nordisk Delivery Technologies, Inc. may, if it provides Aradigm with at
least ninety (90) days prior written notice, delay delivery of any clinical
Batch of Packaged Device and/or Packaged Dosage Form for up to sixty (60) days.
In the event of four (4) or more instances of late delivery of more than
thirty (30) days over a minimum period of twelve (12) consecutive months for
reasons due to Novo Nordisk Delivery Technologies, Inc.’s default, such late
deliveries may, at Aradigm’s discretion, be treated as a material breach of
this Agreement for the purpose of Section 10.2(a). Upon Aradigm’s receipt of
such prior notification of a potential delivery delay, Aradigm and Novo Nordisk
Delivery Technologies, Inc. shall use Diligent Efforts to make up the delay
during the release period.

5.4 Approval. Aradigm shall review documentation for the Packaged Dosage Forms
and Packaged Devices Manufactured by Novo Nordisk Delivery Technologies, Inc.
upon receipt thereof and, within six (6) weeks of its receipt, shall give Novo
Nordisk Delivery Technologies, Inc. written notice (a “Deficiency Notice”) of
all claims for Packaged Dosage Forms and Packaged Devices that contains a
Significant Deviation. If Aradigm does not provide Novo Nordisk Delivery
Technologies, Inc. with written notice of its rejection of the Batch within
such six (6) weeks, then the Batch shall be deemed to have been accepted by
Aradigm at the end of the six-week period after delivery of the Batch
documentation and the quality control sample. Aradigm shall pay Novo Nordisk
Delivery Technologies, Inc. for any rejected Batch; provided that, Aradigm
shall have the right to reject and return, at no expense to Aradigm (except for
the cost of replacing API and Other Excipients, which shall be at Aradigm’s
expense), any portion of any shipment of Packaged Device and/or Packaged Dosage
Form that contains a Significant Deviation, without invalidating any remainder
of such shipment, to the extent that such Significant Deviation arises from
Novo Nordisk Delivery Technology Inc.’s gross negligence or willful misconduct.

6. Audits, Record Keeping, and Visits.

6.1 General Audits. Aradigm may audit the Facilities during reasonable hours
once per year during the Term for determining Novo Nordisk Delivery
Technologies, Inc.’s compliance with the terms of this Agreement and the
Quality Agreement. Aradigm shall provide Novo Nordisk Delivery Technologies,
Inc. with sixty (60) days written notice in advance of each such audit, and
Novo Nordisk Delivery Technologies, Inc. shall cooperate with Aradigm during
each such audit.

6.2 Regulatory Audits. Each Party shall promptly notify the other Party in
writing in advance of any inspection of the Facilities by any Regulatory Agency
that potentially relates to the Manufacture and supply of Packaged Device or
Packaged Dosage Form. Prior to and during
each inspection by a Regulatory Agency, each Party shall provide reasonably
requested

D-12

 

assistance to support such inspection. In the event that such
inspection relates to the Packaged Device and Packaged Dosage Form, each Party
shall inform and provide copies to the other Party of any critical or major
observations made during any such inspection.

6.3 Record Keeping. During the term of this Agreement, Novo Nordisk Delivery
Technologies, Inc. shall keep complete and accurate accounts, notes, data and
records of the work performed under this Agreement. Novo Nordisk Delivery
Technologies, Inc. shall also maintain during the term of this Agreement, and
for three (3) years after the expiration of the shelf life of Packaged Device
and/or Packaged Dosage Form (as applicable), complete and accurate records
pertaining to the Manufacture, testing, storage and shipping of Packaged Dosage
Forms, Packaged Devices and the Facilities as required by Applicable Laws,
including maintaining all records for controlled substances in accordance with
DEA and other governmental regulations. Additionally, Novo Nordisk Delivery
Technologies, Inc. shall maintain a Drug Master File (“DMF”) and all necessary
current manufacturing licenses (including DEA permits) in accordance with the
guidelines provided by Regulatory Authorities and provide Aradigm with letters
of access to such DMF.

6.4 Facility Visits. From time to time during the Term, Aradigm may bring
Third Parties (who are potential or existing partners with Aradigm) into the
Facility upon fourteen (14) days prior written notice and with Novo Nordisk
Delivery Technologies, Inc.’s consent; provided that, Novo Nordisk Delivery
Technologies, Inc. shall not be obligated to grant consent when Aradigm’s
partners are engaged in the field of (a) pulmonary administration of insulin,
insulin analogs and any other compounds whose principal therapeutic effect is
to control blood glucose levels in humans, including but not limited to
glucagon-like peptide (“GLP”), GLP-1 and analogs of GLP and/or (b) insulin,
insulin analogs, GLP, GLP-1 and analogs of GLP.

7. Confidential Information.

7.1 Confidentiality.

(a) Each Party agrees that it shall use, and that it shall cause any Person to
whom Confidential Information is disclosed pursuant to clause (b)(i) below to
use, the Confidential Information only in connection with the Transaction
Agreements, and the exercise of its rights hereunder and not for any other
purpose.

(b) Each Party further acknowledges and agrees that it shall not disclose any
Confidential Information to any Person, except that Confidential Information
may be disclosed:

          (i) to such Party’s Representatives (as defined below) in the normal
course of the performance of their duties or to any financial institution
providing credit to such Party,

          (ii) to the extent required by applicable law, rule or regulation
(including complying with any oral or written questions, interrogatories,
requests for information or documents, subpoena, civil investigative demand or
similar process to which a Party is subject; provided that, such Party shall
give the other Party prompt notice of such request(s), to
the extent practicable, so that such other Party may seek an appropriate
protective order or

D-13

 

similar relief (and the Party shall cooperate with such
efforts by such other Party, and shall in any event make only the minimum
disclosure required by such law, rule or regulation)),

          (iii) to any governmental or regulatory authority or agency in order to
obtain from such authority or agency any authorization required or contemplated
by this Agreement or any of the other Transaction Agreements as long as such
authority or agency is advised of the confidential nature of such information,
or

          (iv) as mutually agreed between the Parties.

(c) Nothing contained herein shall prevent the use (subject, to the extent
possible, to a protective order) of Confidential Information in connection with
the assertion or defense of any claim by or against any Party.

(d) “Confidential Information” means any information concerning this Agreement
or the Parties’ respective rights and obligations hereunder, including trade
secrets, business methods, cost, manufacturing and customer information and
information relating to the patent rights and the know-how in the possession of
or furnished to a Party by the other Party; provided that, the term
“Confidential Information” does not include information to the extent that it
(a) is or becomes generally available to the public other than as a result of a
disclosure by a Party or its Representatives in violation of this Agreement or
any of the Transaction Agreements, (b) is or was available to such Party on a
non-confidential basis (as demonstrated by the written records of such Party)
prior to its disclosure to such Party by the other Party or (c) was or becomes
available to such Party on a non-confidential basis from a source other than
the other Party, which source is or was (at the time of receipt of the relevant
information) not, to the best of such Party’s knowledge, bound by a
confidentiality agreement with (or other confidentiality obligation to) the
other Party or another Person. As used herein, “Representative” means a
Party’s partners, directors, officers, employees, agents, counsel, investment
advisers or representatives.

8. Indemnities and Insurance.

8.1 Novo Nordisk Delivery Technologies, Inc. Novo Nordisk Delivery
Technologies, Inc. shall defend, indemnify and hold harmless Aradigm against
any damage, judgment, liability, loss, cost or other expense, including
reasonable legal fees resulting from a third party action or claim arising out
of personal injury or death or property damage (collectively, “Damages”)
proximately caused by: (i) Novo Nordisk Delivery Technologies, Inc.’s material
default or breach of this Agreement, including any failure to meet applicable
Manufacturing Responsibilities; or (ii) Novo Nordisk Delivery Technologies,
Inc.’s gross negligence or willful misconduct in the performance of its
obligations under this Agreement. Notwithstanding anything to the contrary,
such obligation of indemnity will not apply to the extent that such Damages are
proximately caused by: (1) Aradigm’s material default or breach of this
Agreement; (2) Aradigm’s gross negligence or willful misconduct in the
performance of its obligations under this Agreement; (3) any defect, latent
defect or failure to comply with applicable Specifications of API and Other
Excipients and which is not caused by Novo Nordisk Delivery Technologies, Inc.;
or (4) any defect or latent defect in Packaged Dosage Forms and/or

D-14

 

Packaged Devices that is introduced after delivery by Novo Nordisk Delivery
Technologies, Inc. pursuant to Article 5, and which Novo Nordisk Delivery
Technologies, Inc. did not cause.

8.2 Aradigm. Aradigm shall defend, indemnify and hold harmless Novo Nordisk
Delivery Technologies, Inc. against any Damages proximately caused by: (i)
Aradigm’s material default or breach of this Agreement; (ii) Aradigm’s gross
negligence or willful misconduct in the performance of its obligations under
this Agreement; (iii) any failure to comply with applicable Specifications of
API and Other Excipients and which is not caused by Novo Nordisk Delivery
Technologies, Inc.; and (iv) any defect or latent defect in Packaged Dosage
Forms and/or Packaged Devices that is introduced after delivery by Novo Nordisk
Delivery Technologies, Inc. pursuant to Article 5 or the result of a design
defect in the Device, and which Novo Nordisk Delivery Technologies, Inc. did
not cause. Notwithstanding anything to the contrary, such obligation of
indemnity will not apply to the extent that such Damages are proximately caused
by: (1) Novo Nordisk Delivery Technologies, Inc.’s material default or breach
of this Agreement, including any failure to meet applicable Manufacturing
Responsibilities or any defect or latent defect in a Packaged Device and/or
Packaged Dosage Form as delivered by Novo Nordisk Delivery Technologies, Inc.
pursuant to Article 5; or (2) Novo Nordisk Delivery Technologies, Inc.’s gross
negligence or willful misconduct in the performance of its obligations under
this Agreement.

8.3 Procedures. The Party (the “Indemnified Party”) seeking indemnification
under Section 8.1 or Section 8.2, as applicable, agrees to give prompt written
notice to the Party against whom indemnity is sought (the “Indemnifying Party”)
of the assertion of any claim, or the commencement of any suit, action or
proceeding in respect of which indemnity may be sought under such Section 8.1
or Section 8.2, which notice shall include a brief description of the specific
facts relating to such claim, suit, action, or proceeding. The Indemnifying
Party may at the request of the Indemnified Party participate in and control
the defense of any such suit, action or proceeding at its own expense. The
Indemnifying Party shall not be liable under Section 8.1 or Section 8.2, as
applicable, for any settlement effected without its consent of any claim,
litigation or proceeding in respect of which indemnity may be sought hereunder.

8.4 Insurance. Novo Nordisk Delivery Technologies, Inc. shall carry insurance
against such risks, losses, and other casualties that can be reasonably insured
against and in such amounts as are reasonable under the circumstances,
including workmen’s compensation insurance, general liability insurance, and
product liability insurance covering Formulation, Packaged Dosage Forms and
Packaged Devices during Manufacturing. Aradigm shall carry insurance against
such risks, losses, and other casualties that can be reasonably insured against
and in such amounts as are reasonable under the circumstances, including
insurance for API, Other Excipients, and for Packaged Device and/or Packaged
Dosage Form from point of shipment to destination.

9. Representations and Warranties.

9.1 Novo Nordisk Delivery Technologies, Inc. Novo Nordisk Delivery
Technologies, Inc. warrants that all Packaged Device and/or Packaged Dosage
Form delivered hereunder shall: (a) be Manufactured by Novo Nordisk Delivery
Technologies, Inc. in accordance with the Manufacturing Responsibilities,
including the procedures described in the applicable Master Batch Records supplied to Novo Nordisk Delivery Technologies,
Inc. by Aradigm; and (b)

D-15

 

conform to the applicable Specifications at the time
of release. Novo Nordisk Delivery Technologies, Inc. represents and warrants
that it does not use in any capacity the services of any person who is debarred
under Applicable Law.

10. Term and Termination.

10.1 Term. The term of this Agreement shall begin on the Closing Date and
expire three (3) years thereafter (the “Term”), unless earlier termination
pursuant to Section 10.2.

10.2 Termination.

     (a) With Cause. Either Party may terminate this Agreement for any
material breach of this Agreement by the other Party if such breach is not
cured within sixty (60) days after the breaching Party receives written notice
of such breach by the nonbreaching Party. Such termination shall be effective
upon expiration of such sixty (60) day period.

     (b) Automatic. This Agreement shall automatically terminate upon the
expiration or earlier termination of the Amended and Restated License
Agreement.

10.3 Remedies. Termination of this Agreement shall not affect the rights and
obligations of the Parties that accrued prior to the effective date of such
termination. Except as set forth in Section 2.7, the rights and remedies
provided to each Party in this Agreement are cumulative and in addition to any
other rights and remedies available to such Party at law or in equity.

10.4 Survival. The provisions of Articles 1, 7, 8, 9 and 11 and Sections 6.3,
10.3 and 10.4 shall survive termination or expiration of this Agreement as
specified in this Agreement, or, if not specified in this Agreement, then such
provisions shall survive indefinitely.

11. Miscellaneous.

11.1 Dispute Resolution.

(a) All disputes arising out of this Agreement shall be settled as far as
possible by negotiations between the Parties. If the Parties cannot agree on
an amicable settlement within thirty (30) days from written submission of the
matter by one (1) Party to the other Party, the matter shall be submitted for
decision and final resolution to arbitration to the exclusion of any courts of
law, under the Arbitration Rules of the American Arbitration Association.

(b) The arbitration tribunal shall be composed of three (3) disinterested
arbitrators, appointed pursuant to the following procedure: the Party invoking
arbitration shall notify the other Party stating the substance of its claim and
the name and address of the arbitrator it has chosen, who may be a citizen of
any country. Within thirty (30) days of receipt of such notification, the
other Party shall notify the first party of its answer to the claim made, any
counterclaim that it wishes to assert in the arbitration, and the name and
address of its arbitrator, who may be a citizen of any country. If this is not
done within the 30-day period, appointment of the second arbitrator
shall be made in accordance with the Arbitration Rules of the American
Arbitration Association upon request of the initiating Party.

D-16

 

(c) The arbitrators shall choose a third arbitrator, who shall serve as
president of the tribunal thus composed. If the arbitrators fail to agree upon
the choice of a third arbitrator within thirty (30) days from the appointment
of the second arbitrator, the third arbitrator will be appointed in accordance
with the Arbitration Rules of the American Arbitration Association upon the
request of the arbitrators or either of the Parties.

(d) The arbitrators shall decide the dispute by majority decision and in
accordance with the laws of the State of New York. The decision shall be
rendered in writing, shall state the reasons on which it is based, and shall
bear the signatures of at least two arbitrators. It shall also identify the
members of the arbitration tribunal, and the time and place of the award
granted. Finally, it shall determine the expenses of the arbitration and the
Party who shall be charged therewith or the allocation of the expenses between
the Parties at the discretion of the tribunal.

(e) The arbitration decision shall be rendered as soon as possible, not later,
however, if possible, than six (6) months after the constitution of the
arbitration tribunal. The arbitration decision shall be final and binding upon
both Parties, and the Parties agree that any award granted pursuant to such
decision may be entered forthwith in any court of competent jurisdiction. This
arbitration clause and any award granted pursuant to an arbitration decision
thereunder shall be enforceable against the Parties in accordance with the 1958
Convention on the Recognition and Enforcement of Foreign Arbitral Awards, as
amended.

(f) The seat of arbitration shall be New York City, unless the Parties
otherwise agree in writing. The official arbitration language shall be
English.

11.2 Notices. Any notices, requests and other communications to any party
hereunder shall be in writing (including facsimile transmission) and shall be
given,

if to Novo Nordisk Delivery Technologies, Inc. or to Novo Nordisk A/S to:

	 	 	 
	:

	 	Novo Nordisk A/S
	

	 	Novo Alle
	

	 	DK-2880 Bagsvaerd
	

	 	Denmark
	

	 	Attention: General Counsel
	

	 	Telephone: +45 44 44 88 88
	

	 	Telefax: +45 44 42 18 30
	 
	 	 
	and:

	 	Attention: Vice President, Business Development
	

	 	Telephone: +45 44 42 39 00
	

	 	Telefax: +45 44 42 16 98
	 
	 	 
	if to Aradigm:

	 	Aradigm Corporation
	

	 	3929 Point Eden Way
	

	 	Hayward, California 94545
	

	 	Telephone: +1 510-265-9000
	

	 	Telefax: +1 510-265-0277

D-17

 

	 	 	 
	

	 	Attn: Chief Financial Officer
	 
	 	 
	with a copy to:

	 	Cooley Godward llp
	

	 	5 Palo Alto Square
	

	 	3000 El Camino Real
	

	 	Palo Alto, CA 94306
	

	 	Telephone: +1 650-843-5027
	

	 	Telefax: +1 650-849-7400
	

	 	Attn: James C. Kitch, Esq.

or to such other addresses and telecopier numbers as may from time to time be
notified by any party to the other parties hereunder. All such notices,
requests and other communications shall be deemed to have been delivered within
seven (7) Business Days after dispatch and notice sent by telex or telefax
shall be deemed to have been delivered within twenty-four (24) hours after
dispatch. Notice of change of address shall be effective upon receipt.

11.3 Governing Law. This Agreement shall in all respects be governed by, and
construed and enforced in accordance with, the laws of the State of New York,
United States. The United Nations Convention on Contracts for the
International Sale of Goods (or any successor thereto) does not apply to this
Agreement.

11.4 Independent Contractors. The relationship between Novo Nordisk Delivery
Technologies, Inc. and Aradigm is that of independent contractors, and not
agents, joint venturers or partners of the other. Therefore, neither Novo
Nordisk Delivery Technologies, Inc. nor Aradigm shall have the power to bind
the other Party to any agreement.

11.5 Force Majeure. Each Party shall be excused for any failure or delay in
performing any of its obligations under this Agreement if such failure or delay
is caused by any accident, explosion, fire, storm, earthquake, flood, or other
act of God, any failure or delay of transportation, shortage of or inability to
obtain supplies, equipment, fuel, or labor or any other circumstance or event
beyond its reasonable control; however, any such failure or delay resulting
from one (1) or more of the above causes must be cured as soon as is
practicable after the occurrence of such cause(s) but in no event more than one
hundred twenty (120) days after the date of occurrence; provided that, in the
event the Party is making Diligent Efforts to remedy the failure or delay in
performing, such time period shall be extended accordingly.

11.6 Entire Agreement. This Agreement and the other Transaction Agreements
constitute the entire agreement between the Parties with respect to the subject
matter of this Agreement and supersede all prior agreements and understandings,
both oral and written, between the Parties with respect to the subject matter
of this Agreement.

11.7 Assignment. Neither Party may assign this Agreement hereunder without the
prior written consent of the other Party, except that (a) Novo Nordisk Delivery
Technologies, Inc. may assign this Agreement to an Affiliate, or any successor
in interest by merger or sale of all or substantially all of its business to
which this Agreement relates; and (b) Aradigm may assign this Agreement to an
Affiliate, or any successor in interest by merger or sale of all or
substantially all of its business to which this Agreement relates, that in each
case is not a Novo Nordisk

D-18

 

Competitor. A “Novo Nordisk Competitor” means any
Person that is engaged in the field of (a) pulmonary administration of insulin,
insulin analogs and any other compounds whose principal therapeutic effect is
to control blood glucose levels in humans, including but not limited to GLP,
GLP-1 and analogs of GLP and/or (b) insulin, insulin analogs, GLP, GLP-1 and
analogs of GLP. Notwithstanding anything to the contrary, the assignor shall
remain liable and responsible for the performance and observance of all its
duties and obligations hereunder. Any assignment not in accordance with this
Section 11.7 shall be null and void.

11.8 Amendment; Waiver.

(a) Any provision of this Agreement may be amended or waived if, but only if,
such amendment or waiver is in writing and is signed, in the case of an
amendment, by each Party to this Agreement, or in the case of a waiver, by the
Party against whom the waiver is to be effective.

(b) No failure or delay by any Party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or remedies
provided by Law.

11.9 Severability. If any provision of this Agreement is found by a court of
competent jurisdiction to be unenforceable, then such provision will be
construed, to the extent feasible, so as to render the provision enforceable,
and if no feasible interpretation would save such provision, it will be severed
from the remainder of this Agreement. The remainder of this Agreement will
remain in full force and effect, unless the severed provision is essential and
material to the rights or benefits received by either Party. In such event,
the Parties will negotiate, in good faith, and substitute a valid and
enforceable provision or agreement that most nearly implements the Parties’
intent in entering into this Agreement

11.10 Construction. No rule of strict construction will be applied in the
interpretation or construction of this Agreement. The Section and Article
headings are included in this Agreement merely for convenience of reference,
and they are not to be considered part of this Agreement or used in the
interpretation of this Agreement. Time is “of the essence” in the performance
of obligations under this Agreement. This Agreement is in the English language
only, which language shall be controlling in all respects, and all versions
hereof in any other language shall be for accommodation only and shall not be
binding upon the Parties. In the event of any conflict or ambiguity between
this Agreement, the Quality Agreement (any Addenda attached thereto) or any
other Exhibit hereto, this Agreement will control.

11.11 Counterparts; Third Party Beneficiaries. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each Party hereto shall have
received a counterpart hereof signed by the other Party hereto. No provision
of this Agreement is intended to confer upon any person other than the Parties
hereto any rights or remedies hereunder.

D-19

 

11.12 Performance by Affiliates and Subcontractors. Each Party’s obligations
under this Agreement may be performed solely by such Party’s Affiliates and
subcontractors upon the other Party’s prior written consent. Wherever a Party
delegates responsibility to any of its Affiliates or local operating entities,
the Parties agree that such entities shall not make decisions inconsistent with
this Agreement, amend the terms of this Agreement, or act contrary to its terms
in any way.

11.13 Guaranty. Novo Nordisk A/S hereby guarantees the performance by Novo
Nordisk Delivery Technologies, Inc. and its Affiliates and approved
subcontractors of all their obligations under the Agreement. Novo Nordisk A/S
executes this Agreement solely for the purpose of acting as guarantor of the
performance of Novo Nordisk Delivery Technologies, Inc. and its Affiliates and
approved subcontractors under this Section 11.13.

[Signature Page Follows]

D-20

 

     In Witness Whereof, the Parties have executed this Agreement as of the
Closing Date.

	 	 	 	 	 	 	 	 	 
	NOVO NORDISK DELIVERY	 	 	 	ARADIGM CORPORATION
	TECHNOLOGIES, INC.	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	By:	 	 
	

	 	

	 	 	 	 	 	

	 
	 	 	 	 	 	 	 	 
	Name:

	 	 	 	 
	 	Name:	 	 
	

	 	

	 	 	 	 	 	

	 
	 	 	 	 	 	 	 	 
	Title:

	 	 	 	 
	 	 Title:	 	 
	

	 	

	 	 	 	 	 	

	 
	 	 	 	 	 	 	 	 
	NOVO NORDISK A/S (solely for purposes

as Guarantor under Section 11.13)	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 
	

	 	
	 	 	 	 	 	 
	Name:
	 	 	 	 	 	 	 	 
	

	 	
	 	 	 	 	 	 
	Title:
	 	 	 	 	 	 	 	 
	

	 	
	 	 	 	 	 	 

D-21

 

Exhibit A

EXCLUDED PRODUCTS

Excluded products are any products that contain proteolytic activity,
allergenic excipients, penicillins, cephalosporins, potent steroids and
hormones, cytotoxics, viable micro-organisms or vira or substances that can
cause anaphylaxis, and/or have unknown toxicity.

D-22

 

EXHIBIT E

[QUALITY AGREEMENT]

E-1

 

QUALITY AGREEMENT

BETWEEN

NOVO NORDISK DELIVERY TECHNOLOGIES, INC.

and

ARADIGM CORPORATION

E-2

 

QUALITY AGREEMENT

     This Quality Agreement (the “Quality Agreement”) is made and entered into
effective as of                                       , 2004 by and between Novo Nordisk Delivery
Technologies, Inc., a Delaware corporation (“Novo Nordisk Delivery
Technologies, Inc.”) and Aradigm Corporation, a California corporation
(“Aradigm”). Novo Nordisk Delivery Technologies, Inc. and Aradigm may be
referred to herein as a “Party” or, collectively, as “Parties.”

Recitals

     WHEREAS, Novo Nordisk A/S and Aradigm entered into a Development and
License Agreement dated as of June 2, 1998, as amended by Amendment No. 1
thereto dated as of October 22, 2001 (the “Development and License Agreement”)
to develop a system for pulmonary delivery of insulin (and potentially other
compounds) and under which Aradigm granted to Novo Nordisk A/S an exclusive,
world-wide license under certain patent rights and “know-how” to use, market,
distribute, sell and sublicense products resulting from such development
program in the Field (as defined therein);

     WHEREAS, Aradigm, Novo Nordisk A/S and Novo Nordisk Delivery Technologies,
Inc., are Parties to a Restructuring Agreement dated as of September 28, 2004
(the “Restructuring Agreement”) pursuant to which they have agreed to
restructure their existing arrangements regarding the development, production
and commercialization of the Development Program (as defined therein) and to
certain other matters as set forth therein;

     WHEREAS, as part of such transaction, the Parties are entering into an
Amended and Restated License Agreement dated as of the even date herewith (the
“Amended and Restated License Agreement”) pursuant to which they have agreed to
alter the rights and responsibilities of Aradigm and Novo Nordisk A/S with
respect to the Development Program; and

     WHEREAS, as part of such transaction, the Parties are entering into a
Contract Manufacturing Agreement dated as of the even date herewith (the
“Contract Manufacturing Agreement”) to provide Aradigm the right to purchase
certain devices and product from Novo Nordisk Delivery Technologies, Inc. on
the terms set forth below, and the Parties are entering into this Quality
Agreement to specify the applicable quality and/or technical requirements and
responsibilities for the manufacture of such devices and products.

     NOW, THEREFORE, in consideration of the premises set forth above and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the Parties hereto agree as follows:

E-3

 

Agreement

1. Definitions.

1.1 The following terms, as used herein, shall have the following
meanings:

“Approval” and its cognates means the mutual approval of Novo Nordisk Delivery
Technologies, Inc. and Aradigm, which approval shall include but not be limited
to agreement with a proposed change, an investigation and/or Significant
Deviation report provided in writing and signed by the Parties or their
authorized delegates.

“cGMPs” has the meaning set forth in the Contract Manufacturing Agreement.

“Focus Visits” means site visits, other than audits, to address specific
actions, to resolve issues (for example, investigations, validations,
Significant Deviation resolution and regulatory agency inspections) and/or to
observe Packaged Dosage Forms and/or Packaged Device Manufacturing activities.
The meaning of Focus Visits shall not include routine auditing requirements.

“Manufacturing Requirements Documents” or “MRD” has the meaning set forth in
the Contract Manufacturing Agreement.

“Significant Change” has the meaning set forth in the Contract Manufacturing
Agreement.

“Significant Deviation” has the meaning set forth in the Contract Manufacturing
Agreement.

“Specifications” has the meaning set forth in the Contract Manufacturing
Agreement.

1.2 Other Defined Terms. Each of the following terms is defined in the Section
set forth opposite such term, or, if not defined below or in Section 1.1, the
meaning as set forth in the text of the Contract Manufacturing Agreement:

	 	 	 	 	 
	Term
	 	Section

	Amended and Restated License Agreement
	 	Recitals
	Aradigm
	 	Recitals
	Development and License Agreement
	 	Recitals
	Novo Nordisk Delivery Technologies, Inc.
	 	Recitals
	Parties
	 	Recitals
	Party
	 	Recitals
	Quality Agreement
	 	Recitals
	Restructuring Agreement
	 	Recitals

E-4

 

1.3 Other Definitional and Interpretative Provisions. Unless specified
otherwise, in this Quality Agreement the obligations of any Party consisting of
more than one (1) person are joint and several. The words “hereof”, “herein”
and “hereunder” and words of like import used in this Quality Agreement shall
refer to this Quality Agreement as a whole and not to any particular provision
of this Quality Agreement. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof. References to Articles, Sections, and Addenda are to Articles,
Sections, and Addenda of this Quality Agreement unless otherwise specified.
All Addenda annexed hereto or referred to herein are hereby incorporated in and
made a part of this Quality Agreement as if set forth in full herein. Any
capitalized terms used in any Addendum but not otherwise defined therein, shall
have the meaning as defined in this Agreement. Any singular term in this
Quality Agreement shall be deemed to include the plural, and any plural term
the singular. Whenever the words “include”, “includes” or “including” are used
in this Quality Agreement, they shall be deemed to be followed by the words
“without limitation”, whether or not they are in fact followed by those words
or words of like import. “Writing”, “written” and comparable terms refer to
printing, typing and other means of reproducing words (including electronic
media) in a visible form. References to any agreement or contract are to that
agreement or contract as amended, modified or supplemented from time to time in
accordance with the terms hereof and thereof. References to any Party include
the successors and permitted assigns of that Party. References from or through
any date mean, unless otherwise specified, from and including or through and
including, respectively.

2. Scope.

This Quality Agreement covers the Manufacture of the Packaged Dosage Forms
and/or Packaged Devices ordered by Aradigm pursuant to the Contract
Manufacturing Agreement, and any applicable analytical/biological testing and
inspection performed by Novo Nordisk Delivery Technologies, Inc. on behalf of
Aradigm.

3. Purpose.

This Quality Agreement specifies the quality and/or technical requirements and
responsibilities necessary for the Manufacture of Packaged Dosage Forms and/or
Packaged Devices at the Facilities provided by Novo Nordisk Delivery
Technologies, Inc. to Aradigm. All provisions of this Quality Agreement are to
be read in conjunction with the current Contract Manufacturing Agreement. This
Quality Agreement is an integral and enforceable part of the Contract
Manufacturing Agreement.

4. Manufacturing Standards.

4.1 Standards. At all times and in all respects, Novo Nordisk Delivery
Technologies, Inc. will comply with the requirements of the cGMPs, the
applicable MRD, all testing methods, Approved master Batch record, and relevant
written SOPs.

4.2 Documentation. Novo Nordisk Delivery Technologies, Inc. and Aradigm will
jointly Approve the qualification and/or validation protocols and reports on
the processes transferred from Aradigm and implemented by Novo Nordisk Delivery
Technologies,

E-5

 

Inc.. Once Approved, no Significant Changes to the process, associated
procedures and/or Batch related documentation described in such documentation
shall be permitted unless such changes are mutually Approved prior to
implementation by the Parties in accordance with the mutually agreed upon
change control process. MRD, inspection, analyses and packaging of the Dosage
Forms and/or Device changes must be Approved by both Parties in writing using
the mutually agreed upon change control procedures. It is the responsibility
of Novo Nordisk Delivery Technologies, Inc. to supply to Aradigm all applicable
documentation related to Manufacture of the Packaged Dosage Forms for Approval
by Aradigm when said documents are created or if substantial modifications are
made. Before destruction of any Manufacturing records held by Novo Nordisk
Delivery Technologies, Inc., Novo Nordisk Delivery Technologies, Inc. shall
provide Aradigm with prior written notice of the intended destruction and, if
requested by Aradigm, will provide Aradigm with copies of any such records or,
if required by Applicable Laws, originals.

4.3 Specifications. Aradigm will provide Specification requirements for
non-iDMS identical components, Other Excipients, API, container closures,
in-process, and final release. Novo Nordisk Delivery Technologies, Inc. will
provide Specification requirements for iDMS identical components, excipients,
container closures, in-process, and final release. Aradigm is responsible to
ensure that the Specifications appropriately reflect the requirements listed in
the MRD. Novo Nordisk Delivery Technologies, Inc. will comply with all
Specifications mutually agreed upon for the Packaged Dosage Forms and the
Packaged Device unless otherwise authorized by appropriate exception
documentation Approved by Aradigm, provided that, such Approval shall not to be
unreasonably withheld or delayed.

4.4 Sampling and Testing.

          (a) Aradigm will be responsible for sampling of Other Excipients, API and
non-iDMS identical components. Novo Nordisk Delivery Technologies, Inc. will
be responsible for all other sampling of all iDMS identical materials and the
Packaged Dosage Forms.

          (b) Aradigm will be responsible for developing and carrying out tests and
analyses (including in-process testing and the release of starting material) of
each Batch of Other Excipients, components and materials, Packaged Dosage
Forms, all cleaning samples and API not identical to iDMS. Novo Nordisk
Delivery Technologies, Inc. will be responsible for all other analytical
testing (including microbiology testing, in-process testing, final Packaged
Dosage Forms sterility testing, and the release of starting material) on all
other materials identical to iDMS materials. Aradigm shall provide all test
results and release certificates to Novo Nordisk Delivery Technologies, Inc.
related to API, Other Excipients, components, in-process control tests, and
cleaning tests conducted by Aradigm.

E-6

 

4.5 Shipment of Packaged Dosage Forms and/or Packaged Devices. Novo Nordisk
Delivery Technologies, Inc. will package and ship all Packaged Dosage Forms
and/or Packaged Devices according to Approved Specifications and SOPs.

4.6 Subcontracting. Except as set forth in the Contract Manufacturing
Agreement, Novo Nordisk Delivery Technologies, Inc. shall not subcontract any
aspects of the Manufacturing and/or testing of Packaged Dosage Forms and/or
Packaged Devices without prior written authorization of Aradigm.
Notwithstanding anything in the foregoing sentence, Novo Nordisk Delivery
Technologies, Inc. is permitted to subcontract any aspects of the Manufacturing
and/or testing that is currently already subcontracted by Aradigm.

4.7 Batch Approval and Final Release.

          (a) The applicable SOPs will describe the process for Batch release and
communication of Batch related documentation for release purposes, in
accordance with the principles described in Sections 4.7(b) and (c) below.

          (b) Novo Nordisk Delivery Technologies, Inc. will be responsible for Batch
Approval of Dosage Form according to Specifications. Novo Nordisk Delivery
Technologies, Inc. will Approve the final assembly of Packaged Devices
(excluding final calibration and performance tests, which will be Approved by
Aradigm).

          (c) Aradigm will be responsible for final release of Packaged Dosage Forms
and Packaged Devices. Novo Nordisk Delivery Technologies, Inc. will provide
Aradigm with the results of tests, certificates of analysis, certificate of
compliance and, if required by Aradigm, copies of Batch documentation arising
out of its obligations under the Contract Manufacturing Agreement relating
thereto.

4.8 Deviations. Deviations shall be managed by the use of SOPs.

4.9 Labeling. Novo Nordisk Delivery Technologies, Inc. will label the bulk
Packaged Dosage Forms and Packaged Devices as required under Applicable Law,
the Specifications, and applicable transportation requirements.

5. Health and Safety.

Aradigm shall provide Novo Nordisk Delivery Technologies, Inc. with any
necessary material safety data and information concerning the safe handling,
storage, transportation and disposal of the Packaged Dosage Forms and/or the
Packaged Device. Upon the request of Novo Nordisk Delivery Technologies, Inc.,
Aradigm shall provide the underlying data and documentation for the material
safety data previously provided to Novo Nordisk Delivery Technologies, Inc. by
Aradigm.

E-7

 

6. Audits/Regulatory Contacts.

6.1 Regulatory Inspections. Because Aradigm owns the regulatory licenses for
Packaged Dosage Forms and/or Packaged Devices the regulatory responsibility for
maintaining such licenses and any supplements or filings thereto shall be the
sole responsibility of Aradigm. Similarly, it shall be the sole responsibility
of Novo Nordisk Delivery Technologies, Inc. to maintain a compliant cGMPs
posture with regard to the Facilities and any Manufacture of Packaged Dosage
Forms and/or Packaged Device performed there. To permit and ensure that the
Parties perform their respective regulatory compliance obligations, each Party
shall provide the other Party with copies of all communications received from
any Regulatory Authority concerning the Packaged Dosage Forms and/or Packaged
Device within five (5) business days. Novo Nordisk Delivery Technologies, Inc.
and Aradigm, as the case may be, shall submit copies of all proposed
communications concerning the Packaged Dosage Forms and/or Packaged Device to
be made to any Regulatory Authority for review and comment by the other Party.
The other Party shall respond promptly but in no case later than two weeks from
receipt of communications from Novo Nordisk Delivery Technologies, Inc. or
Aradigm, as the case may be. It shall be the responsibility of Novo Nordisk
Delivery Technologies, Inc. or Aradigm, as the case may be, to ensure that due
consideration has been given to all comments made by the other Party and shall
notify the other Party in writing and prior to any submission to the FDA or
other Regulatory Authority of any such communications, if it declines to
address the other Party’s comments, stating the reason(s) therefor. Any
decision by Novo Nordisk Delivery Technologies, Inc. or Aradigm, as the case
may be to decline the other Party’s input will require direct discussions
between the senior quality management officers of each Party prior to
submission of such communications to the FDA or other Regulatory Authority.

6.2 Reporting Requirements. Aradigm will fulfill all reporting requirements of
the FDA and all other Regulatory Agencies with respect to the Packaged Dosage
Forms and/or Packaged Device. Aradigm will be responsible for all regulatory
communication as pertains to Packaged Dosage Forms and/or Packaged Device.

7. Customer Complaints and Adverse Event Reporting.

7.1 Complaint Handling. Aradigm will be responsible for all first line
customer support, including handling medical and technical inquires and
complaints. In the event Aradigm is unable to resolve a complaint or inquiry,
Aradigm will forward such complaint to Novo Nordisk Delivery Technologies, Inc.
Novo Nordisk Delivery Technologies, Inc. will be responsible for providing
Aradigm with the available information and material or additional information
that may be reasonably obtained to enable Aradigm to respond to any such
inquiry as soon as reasonably possible.

7.2 Adverse Events. Aradigm shall promptly notify Novo Nordisk Delivery
Technologies, Inc. if Aradigm becomes aware of any adverse events with respect
to the quality of the Packaged Dosage Forms and/or Device that have been
Manufactured at the Facilities. Aradigm is responsible for responding directly
to the Person who has reported the adverse event, provided that, Aradigm shall
provide copies of all proposed responses to Novo Nordisk Delivery Technologies,
Inc. for review and comment. Novo Nordisk

E-8

 

Delivery Technologies, Inc. shall respond to the proposed response from Aradigm
within fifteen (15) days. It shall be the responsibility of Aradigm to ensure
that due consideration has been given to all comments made by Novo Nordisk
Delivery Technologies, Inc. and shall notify Novo Nordisk Delivery
Technologies, Inc. in writing and prior to any response, if practicable, if it
declines to address Novo Nordisk Delivery Technologies, Inc.’s comments,
stating the reason(s) therefor. Additionally, each Party shall immediately
notify the Authorized Quality Representative of the other Party of any
information it receives relating to the quality of the Packaged Dosage Forms
and/or Packaged Device in human clinical trials, which in the notifying Party’s
judgment, relates to the Manufacturing process of the Packaged Dosage Forms
and/or Packaged Device. Any determinations on how to address the information
impacting product quality and safety shall be the responsibility of the Aradigm
Authorized Quality Representative.

8. Recalls.

The Parties have the responsibility to notify each other within twenty-four
(24) hours of a situation which could be reasonably expected to result in a
recall and/or withdrawal of Packaged Dosage Forms and/or Packaged Device. The
sole decision to recall the Packaged Dosage Forms and/or the Packaged Device
shall reside with Aradigm, pursuant to Aradigm’s written policy. Aradigm will
be responsible for formal notification of the Governmental Authorities (as such
term is defined in the Restructuring Agreement). Aradigm shall provide copies
of all proposed notifications for review and comment by Novo Nordisk Delivery
Technologies, Inc. Novo Nordisk Delivery Technologies, Inc. shall respond
within fifteen (15) days to the proposed notification from Aradigm. It shall
be the responsibility of Aradigm to ensure that due consideration has been
given to all comments made by Novo Nordisk Delivery Technologies, Inc. and
shall notify Novo Nordisk Delivery Technologies, Inc. in writing and prior to
any notification if it declines to address Novo Nordisk Delivery Technologies,
Inc.’s comments, stating the reason(s) therefor.

9. The Retention of Raw Material Samples.

Novo Nordisk Delivery Technologies, Inc. shall retain samples of all non-active
materials provided by Novo Nordisk Delivery Technologies, Inc. for at least one
(1) year past the expiration date for the last Batch of Packaged Dosage Forms
and/or Packaged Device impacted by the materials used in its manufacture in
accordance with Novo Nordisk Delivery Technologies, Inc.’s SOPs for such
material retention; provided that, this standard shall not apply to materials
having an expiry date that occurs prior to one year after the Batch expiry
date. The samples shall be of a size, which will allow full analytical and
microbiological testing in duplicate, if required. The samples shall be stored
under conditions recommended by the supplier of the materials concerned and be
appropriately labeled with relevant details of identity. Novo Nordisk Delivery
Technologies, Inc. shall have a procedure for retention of raw material
samples, as required by cGMPs.

10. The Disposal of Packaged Dosage Forms, Packaged Devices and/or Retained
Samples that are Rejected, Non-Conforming, or

       Expired.

E-9

 

Novo Nordisk Delivery Technologies, Inc. shall have a procedure for the
disposal of in-process and final Packaged Dosage Forms, Packaged Devices and/or
retained samples thereof that are rejected, non-conforming or expired. Novo
Nordisk Delivery Technologies, Inc. may dispose of the Packaged Dosage Forms or
Packaged Device or retained samples thereof according to such procedure.

11. Conflict Resolution.

Any disputes or conflicts relating to this Quality Agreement will be resolved
by the Parties pursuant to Section 11.1 of the Contract Manufacturing
Agreement.

12. Roles and Responsibilities.

In addition to the roles and responsibilities provided for in the Contract
Manufacturing Agreement, roles and responsibilities between Novo Nordisk
Delivery Technologies, Inc. and Aradigm are identified in the applicable SOPs.
If there is a conflict between SOPs and the Contract Manufacturing Agreement or
the Quality Agreement, the meaning of the Contract Manufacturing Agreement
shall take precedence over the meaning of the Quality Agreement and the meaning
of the Quality Agreement shall take precedence over the meaning of the SOPs,
unless any of these agreements will compromise the US and/or the European cGMP
compliance of Novo Nordisk Delivery Technologies, Inc., in which case the cGMP
compliance rules shall take precedence.

13. Communication.

All communication regarding this Quality Agreement will be between the
Authorized Quality Representatives.

14. Authorized Quality Representatives (or Designee).

The list of each Party’s Authorized Quality Representative will be maintained
by each Party. Each Party shall notify the other Party in writing of any
change in a Party’s Authorized Quality Representative, temporary or otherwise.

14.1 Aradigm’s Authorized Quality Representative is Aradigm’s officer
responsible for Quality.

14.2 Novo Nordisk Delivery Technologies, Inc.’s Authorized Quality
Representatives is the head of Quality at Novo Nordisk Delivery Technologies,
Inc. Delivery Technologies, Inc.

15. Amendments.

This Quality Agreement may be amended from time to time with written addenda
that are agreed to by the Parties and attached hereto (each, an “Addendum” and
collectively, the “Addenda”). Such Addenda are intended to provide added
clarity and/or procedural definition. Addenda to this Quality Agreement shall
be adopted based upon Approval of the Authorized Quality Representatives
identified in Section 14 of this Quality

E-10

 

Agreement. Any conflict or ambiguity between the terms of this Quality
Agreement and any Addendum shall be governed by the terms of this Quality
Agreement.

[SIGNATURE PAGE FOLLOWS]

E-11

 

IN WITNESS WHEREOF, the Parties hereto have caused this Quality Agreement
to be duly executed by their respective authorized officers as of the day and
year first above written.

	 	 	 	 	 
	 	ARADIGM CORPORATION

 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

	 	 	 	 	 
	 	NOVO NORDISK DELIVERY TECHNOLOGIES, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

E-12

 

EXHIBIT F

[AMENDED AND RESTATED STOCK PURCHASE AGREEMENT]

F-1

 

The attached draft shall not be considered final as to any party unless executed and delivered
by such party.

AMENDED AND RESTATED

STOCK PURCHASE AGREEMENT

ARADIGM CORPORATION

                                                          , 2004

F-2

 

TABLE OF CONTENTS

	 	 	 	 	 
	1.
	 	AGREEMENTS OF THE PARTIES	 	F-4
	 
	 	1.1 Definitions	 	F-4
	 
	 	1.2 Amendment and Restatement of Purchase Agreement	 	F-4
	 
	 	1.3 “Market Stand-Off” Agreements	 	F-5
	 
	 	1.4 Public Offering Lock-Up	 	F-6
	 
	 	1.5 Demand Registration	 	F-6
	2.
	 	REPRESENTATIONS AND WARRANTIES OF THE PARTIES	 	F-7
	 
	 	2.1 Legal Power	 	F-7
	 
	 	2.2 Due Execution	 	F-7
	3.
	 	COVENANTS OF ARADIGM	 	F-7
	 
	 	3.1 Access to Information	 	F-7
	 
	 	3.2 Delivery of Certain Information	 	F-8
	4.
	 	COVENANTS OF NOVO NORDISK	 	F-9
	 
	 	4.1 Voting Agreement	 	F-9
	5.
	 	MISCELLANEOUS	 	F-9
	 
	 	5.1 Governing Law	 	F-9
	 
	 	5.2 Successors and Assigns	 	F-9
	 
	 	5.3 Entire Agreement	 	F-10
	 
	 	5.4 Severability	 	F-10
	 
	 	5.5 Amendment and Waiver	 	F-10
	 
	 	5.6 Delays or Omissions	 	F-10
	 
	 	5.7 Notices, etc	 	F-10
	 
	 	5.8 Information Confidential	 	F-11
	 
	 	5.9 Specific Performance	 	F-12
	 
	 	5.10 Titles and Subtitles	 	F-12
	 
	 	5.11 Counterparts	 	F-12

F-3

 

AMENDED AND RESTATED

STOCK PURCHASE AGREEMENT

     This Amended and Restated Stock Purchase Agreement (the “Agreement”) is
made and entered into as of                                                           , 2004, by and among Aradigm
Corporation, a corporation duly organized and existing under the law of the
State of California (“Aradigm”), Novo Nordisk A/S, a company organized and
existing under the Law of Denmark (“Novo Nordisk”) and Novo Nordisk
Pharmaceuticals, Inc. a corporation duly organized and existing under the law
of the State of Delaware (“Novo Nordisk Pharmaceuticals, Inc.”).

Recitals

     WHEREAS, pursuant to a Stock Purchase Agreement dated as of June 2, 1998
by and between Aradigm and Novo Nordisk, Novo Nordisk purchased 1,020,612
shares (the “Initial Shares”) of Aradigm’s Common Stock, no par value (the
“Common Stock”);

     WHEREAS, pursuant to a Stock Purchase Agreement dated as of October 22,
2001 by and between Aradigm and Novo Nordisk Pharmaceuticals, Inc. (the
“Purchase Agreement”), Novo Nordisk Pharmaceuticals, Inc. purchased 6,847,757
shares of Common Stock (together with the Initial Shares, the “Shares”);

     WHEREAS, Aradigm, Novo Nordisk and Novo Nordisk Delivery Technologies,
Inc., a corporation duly organized and existing under the law of the State of
Delaware (“Novo Nordisk Delivery Technologies, Inc.”) entered into a
Restructuring Agreement dated as of September 28, 2004 (the “Restructuring
Agreement”); and

     WHEREAS, it is a precondition to performance on the part of Aradigm, Novo
Nordisk and Novo Nordisk Delivery Technologies, Inc. of their respective
obligations under the Restructuring Agreement that Aradigm, Novo Nordisk and
Novo Nordisk Pharmaceuticals, Inc. amend and restate the Purchase Agreement.

     NOW, THEREFORE, in consideration of the premises set forth above and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the parties hereto agree as follows:

1. Agreements of the Parties

     1.1 Definitions. All capitalized terms used herein but not defined herein
shall have the meanings set forth in the Restructuring Agreement.

     1.2 Amendment and Restatement of Purchase Agreement. The Purchase
Agreement is hereby amended and restated in its entirety. Aradigm and Novo
Nordisk Pharmaceuticals, Inc. agree to accept the rights and obligations
contained in this Agreement in lieu of their rights and obligations under the
Purchase Agreement.

F-4

 

     1.3
“Market Stand-Off” Agreements.

          (a) Subject to Section 1.3(b), Novo Nordisk and Novo Nordisk
Pharmaceuticals, Inc. hereby agree that prior to the earlier of (i) First
Marketing (as such term is defined under the Amended and Restated License
Agreement dated as of the date hereof by and between Aradigm and Novo Nordisk
Delivery Technologies, Inc. (the “Amended and Restated License Agreement”) in
the Territory (as such term is defined under the Amended and Restated License
Agreement), (ii) the acquisition of, or the commencement of a tender offer
acceptance of which is recommended by Aradigm’s Board of Directors for, all or
substantially all of the outstanding Common Stock by a third party other than
Common Stock beneficially owned by such third party, (iii) the termination by
Aradigm or Novo Nordisk of the Amended and Restated License Agreement, (iv) the
filing by Aradigm of a voluntary petition for bankruptcy protection (or the
filing of an involuntary petition that is not dismissed or withdrawn within 60
days after it is filed), (v) the initiation by Aradigm of an assignment for the
benefit of creditors or other similar insolvency proceeding, (vi) the cessation
of all of Aradigm’s business activities, (vii) a judicial or other governmental
determination of the insolvency of Aradigm, (viii) the occurrence of a material
change in Aradigm’s business activities that is incompatible with accepted
ethical standards within the pharmaceutical industry, and (ix) January 1, 2009
(the “Market Stand-Off Period”), neither of them shall, directly or indirectly,
sell, offer to sell, contract to sell, pledge, grant any option for sale or
purchase of, agree to sell or otherwise transfer or dispose of any of the
Shares. Aradigm may impose stop-transfer instructions with respect to the
Shares until the end of the Market Stand-Off Period.

          (b) Notwithstanding the restrictions set forth in Section 1.3(a), Novo
Nordisk and/or Novo Nordisk Pharmaceuticals, Inc. may sell the Shares in any
sale, transfer or other disposition made to an Affiliate of Novo Nordisk that
agrees to be bound by the provisions of this Agreement. In addition, Novo
Nordisk and Novo Nordisk Pharmaceuticals may (i) no later than six (6) months
after the completion of any transaction or series of related transactions in
which holders of Common Stock other than Novo Nordisk and Novo Nordisk
Pharmaceuticals, Inc. have transferred in excess of thirty percent (30%) of the
outstanding Common Stock (all such shares of Common Stock that are so
transferred being referred to as the “Transferred Shares”) to a third party,
transfer up to the number of shares then held by Novo Nordisk and Novo Nordisk
Pharmaceuticals, Inc. multiplied by a fraction, the numerator of which shall be
the total number of Transferred Shares and the denominator of which shall be
the total number of shares of Common Stock held by shareholders other than Novo
Nordisk and Novo Nordisk Pharmaceuticals, Inc. and (ii) sell, offer to sell,
contract to sell, pledge, grant any option for sale or purchase of, agree to
sell or otherwise transfer and/or dispose of some or all of the Shares to
employees of Novo Nordisk Delivery Technologies, Inc. pursuant to the
arrangements contemplated in the offer letters delivered to the Development
Program Employees (as such term is defined in the Restructuring Agreement) on
or prior to the Closing Date, the option grants contemplated therein and
delivery of Shares in connection with the exercise of any such options or
pursuant to such other equity incentive plans or arrangements as may be
approved by Aradigm, such approval not to be unreasonably withheld or delayed.
Aradigm will lift the stop-transfer instructions with respect to any of the
Shares transferred pursuant to arrangements set forth in (i) and (ii) above.

F-5

 

     1.4 Public Offering Lock-Up. In addition, Novo Nordisk and Novo Nordisk
Pharmaceuticals, Inc. hereby agree that during the time period recommended by a
nationally-recognized underwriter not to exceed one hundred eighty (180) days
following the effective date of a registration statement of Aradigm filed under
the 1933 Act, to the extent requested by such underwriter, neither Novo Nordisk
nor Novo Nordisk Pharmaceuticals, Inc. shall sell or otherwise transfer or
dispose of the Shares at any time during such period (except for any Shares
included in such registration or any sale, transfer or other disposition of any
Shares made to an Affiliate of Novo Nordisk that agrees to be bound by the
provisions of this Agreement); provided, that:

          (a) Such agreement shall be applicable only to registration statements of
Aradigm which cover Common Stock (or other securities) to be sold on its behalf
to the public;

          (b) Such agreement shall be applicable only if Novo Nordisk (together with
its Affiliates) holds at least five percent (5%) of the Common Stock then
outstanding; and

          (c) All officers and directors of Aradigm and any other stockholders
owning at least five percent (5%) of the Common Stock then outstanding
(excluding stockholders that acquired their positions in the public market)
enter into similar agreements.

During the period in which this Section 1.4 remains in effect, if Novo Nordisk
and Novo Nordisk Pharmaceuticals, Inc. are requested to enter into such a
lock-up agreement in connection with a public offering of Common Stock in which
any other shareholders of Aradigm are allowed to sell shares held by them, Novo
Nordisk and Novo Nordisk Pharmaceuticals, Inc. shall have a “piggyback” right
at their option to include shares of Common Stock then held by them in such
offering on a pro rata basis with such other selling shareholders.

     1.5 Demand Registration. If at any time after the Market Stand-Off Period
Novo Nordisk and Novo Nordisk Pharmaceuticals, Inc. desire to effect the
registration on Form S-3 or other applicable form under the 1933 Act of any of
the Shares owned by them or any of their Affiliates (“Registrable Shares”),
they may make one (1) written request (the “Demand Request”) that Aradigm
effect such registration; provided that such request is made no earlier than
(i) sixty (60) days prior to the expiration of the Market Stand-Off Period or
(ii) sixty (60) days prior to the expiration of any “lock-up” period required
of Novo Nordisk and Novo Nordisk Pharmaceuticals, Inc. by the underwriters in
connection with a public offering by Aradigm. The Demand Request will specify
the number of Registrable Shares proposed to be sold and will also specify the
intended method of disposition thereof. Upon receipt of such Demand Request,
Aradigm shall, at its own expense (which expense shall include all fees and
expenses of counsel, public accountants or other advisors or experts retained
by Aradigm, all reasonable fees and expenses of counsel for Novo Nordisk, Novo
Nordisk Pharmaceuticals, Inc. and their Affiliates (which counsel shall be
selected by Novo Nordisk and Novo Nordisk Pharmaceuticals, Inc.) in an amount
which shall not exceed fifty thousand dollars ($50,000), all filing fees, all
fees and expenses incurred to comply with blue sky or other securities laws,
all printing expenses and all internal expenses of Aradigm, but shall not
include underwriting fees, discounts or commissions attributable to the sale of
the Registrable Shares, out-of-pocket expenses of Novo Nordisk, Novo Nordisk
Pharmaceuticals, Inc. or any of their Affiliates, transfer taxes or the fees
and expenses of underwriter’s counsel) prepare and file with
the SEC a registration statement on Form S-3 or

F-6

 

other applicable form (the
“Resale Registration Statement”) under the 1933 Act to provide for the resale
by Novo Nordisk, Novo Nordisk Pharmaceuticals, Inc. and their Affiliates of the
number of Registrable Shares specified in the Demand Request. In the event
Novo Nordisk and Novo Nordisk Pharmaceuticals, Inc. deliver to Aradigm a Demand
Request prior to the end of a Market Stand-Off Period or a “lock-up” period,
Aradigm shall use its reasonable efforts to file and cause the Resale
Registration Statement to be effective prior to the expiration of such Market
Stand-Off Period or “lock-up” period, as the case may be. In all other cases,
Aradigm will use its reasonable efforts to cause the Resale Registration
Statement to be filed and become effective as soon as reasonably practicable
after receipt of the Demand Request. Aradigm shall cause the Resale
Registration Statement filed pursuant to this Section 1.4 to remain effective
for no less than six (6) months (or, if earlier, until the date all of the
Registrable Shares covered by the Resale Registration Statement have been
sold); provided, however, Aradigm may suspend the use of, or delay the
effective date of, any Resale Registration Statement by giving written notice
to the sellers identified therein, if Aradigm shall have determined, in its
good faith reasonable judgment, that such suspension or delay in the effective
date of the Resale Registration Statement is advisable because the filing or
effectiveness of the Resale Registration Statement would be detrimental to
Aradigm and its shareholders; and provided further that Aradigm suspends the
use of or delays the effective date of all other registration statements of
Aradigm that register the securities of Aradigm being or to be resold by the
holders thereof. Any suspension or delay in the effective date of the Resale
Registration Statement by Aradigm pursuant to this Section 1.4 shall be for the
shortest reasonable period of time (but shall not exceed one hundred twenty
(120) days).

2. Representations And Warranties Of the Parties

     Aradigm, Novo Nordisk and Novo Nordisk Pharmaceuticals, Inc., each hereby
represents and warrants as follows:

     2.1 Legal Power. It has the requisite legal power to enter into this
Agreement and to carry out and perform its obligations under the terms of this
Agreement.

     2.2 Due Execution. This Agreement has been duly authorized, executed and
delivered by it, and, upon due execution and delivery by it, this Agreement
will be a valid and binding agreement of it.

3. Covenants of Aradigm

     3.1 Access to Information. So long as Novo Nordisk and Novo Nordisk
Pharmaceuticals, Inc., together with their Affiliates, own at least five
percent (5%) of the Common Stock outstanding, Aradigm will afford promptly to
Novo Nordisk and Novo Nordisk Pharmaceuticals, Inc. and their authorized agents
reasonable access to the properties, books, records, employees and auditors of
Aradigm to the extent reasonably related to their holding of shares of Common
Stock. Without limiting the generality of the foregoing, Aradigm agrees to
make its auditors and appropriate employees available to Novo Nordisk and Novo
Nordisk Pharmaceuticals, Inc. to discuss the accounting practices and
policies of Aradigm with respect to certain items in order to allow Novo
Nordisk to properly account for such items in its books and records as may be
necessary.

F-7

 

     3.2 Delivery of Certain Information.

          (a) So long as Novo Nordisk is required to report its share of Aradigm’s
earnings or loss from its investment in Aradigm under the equity method of
accounting, Aradigm shall cause to be prepared and delivered to Novo Nordisk
the following information, which, in the case of financial information, shall
be prepared in accordance with GAAP consistently applied:

               (i) no later than thirty (30) Business Days after the end of each fiscal
month, an unaudited consolidated balance sheet of Aradigm as of the end of such
fiscal month and the related unaudited consolidated statements of income and
cash flows for such fiscal month and for the elapsed portion of the fiscal year
ended with the last day of such month, and where Aradigm prepares such
financial information, setting forth in comparative form the figures for the
corresponding periods in the previous fiscal year for the periods in such
fiscal year and providing corresponding information indicating the total number
of shares of Common Stock issued and outstanding, the total number of shares of
Common Stock issuable upon exercise of issued and outstanding incentive stock
options, the total changes reflected in the consolidated statements of income
due to the grant or exercise of incentive stock options (if any) and a summary
narrative explaining the reason for and the financial impact of changes in
accounting principles having a material impact on Aradigm’s operations (if
any); provided that if Aradigm believes that the financial information required
to be delivered to Novo Nordisk pursuant to this Section 3.2(a) will not be
available for delivery within the time prescribed by this Section 3.2(a), then
Aradigm shall (i) promptly (but in no event later than thirty (30) Business
Days after the end of the relevant fiscal month) deliver to Novo Nordisk an
estimated unaudited consolidated balance sheet of Aradigm as of the end of such
fiscal month and the related estimated unaudited consolidated statements of
income and cash flows for such fiscal month and for the elapsed portion of the
fiscal year ended with the last day of such month (in each case clearly
indicating that such financial information represents estimates) and (ii)
deliver to Novo Nordisk the final version of such financial information no
later than five (5) Business Days after Aradigm prepares the final version of
the estimated financial information;

               (ii) within ten (10) days of receipt, any notice or other communication
from any lender, bank or other person to whom Aradigm is indebted, alleging the
existence of any facts or circumstances that, individually or in the aggregate,
constitute or with the passing of time would constitute, a default under, or
give rise to any termination, cancellation or acceleration of any right or
obligation of Aradigm or to a loss of any benefit to which Aradigm is entitled
under any provision of any note, loan, credit or similar instrument or
agreement; and

               (iii) no later than April 30, July 31, October 31, and January 31 of each
calendar year in which Novo Nordisk is required to report its share of
Aradigm’s earnings or loss from its investment in Aradigm under the equity
method of accounting, a condensed forecasted statement of income representing
one (1) quarterly forecast for a three (3) month period only once every three
(3) months.

          (b) Novo Nordisk promptly shall deliver written notification to Aradigm at
such time when Novo Nordisk is no longer required to report its share of
Aradigm’s earnings or loss from its investment in Aradigm under the equity
method of accounting.

F-8

 

4. Covenants of Novo Nordisk

     4.1 Voting Agreement.

          (a) Novo Nordisk agrees that at each election of directors of Aradigm in
which the shareholders are entitled to elect directors of Aradigm, neither Novo
Nordisk nor any of its Affiliates that holds Shares will nominate, or vote any
shares of Common Stock so as to elect, any person who is employed by Novo
Nordisk or any of its Affiliates, including without limitation any of their
respective current and past directors and officers, and current employees,
advisors and sales agents. Except as expressly set forth in this Section
4.1(a), nothing in this Agreement shall restrict or otherwise limit the rights
of Novo Nordisk and Novo Nordisk Pharmaceuticals, Inc. to vote Shares held by
them in their discretion on any matters to be voted upon by the shareholders of
Aradigm.

          (b) Subject to Section 4.1(c), Novo Nordisk and Novo Nordisk
Pharmaceuticals, Inc. acknowledge that each certificate representing the Shares
will be endorsed with the following restrictive legend:

“THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE TERMS AND CONDITIONS OF AN AGREEMENT WHICH PLACES
CERTAIN RESTRICTIONS ON THE VOTING OF THE SHARES REPRESENTED
HEREBY. ANY PERSON ACCEPTING ANY INTEREST IN SUCH SHARES
SHALL BE DEEMED TO AGREE AND SHALL BECOME BOUND BY ALL THE
PROVISIONS OF SUCH AGREEMENT. A COPY OF SUCH AGREEMENT WILL
BE FURNISHED TO THE RECORD HOLDER OF THIS CERTIFICATE
WITHOUT CHARGE UPON WRITTEN REQUEST TO ARADIGM CORPORATION
AT ITS PRINCIPAL PLACE OF BUSINESS.”

          (c) The provisions of Sections 4.1(a) and (b) shall not be binding upon
successors in interest to any of the Shares who are not Affiliates of Novo
Nordisk.

          (d) Aradigm agrees to remove the legend set forth in Section 4.1(b) from
any Shares (i) held by Novo Nordisk or any of its Affiliates upon the
expiration of the Market Stand-Off Period or (ii) that are transferred or
otherwise disposed of by Novo Nordisk or any of its Affiliates to a third party
that is not an Affiliate of Novo Nordisk in compliance with the terms and
conditions of this Agreement.

5. Miscellaneous.

     5.1 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents, made and to be performed entirely within the State of
California.

     5.2 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs,

F-9

 

executors, and administrators of the
parties hereto; provided that, any third party that is not an Affiliate of Novo
Nordisk to whom any Shares are transferred in compliance with the terms and
conditions of this Agreement shall not be bound by the terms and conditions of
this Agreement. The foregoing notwithstanding, no party may assign its rights
or obligations hereunder to any other person, except that Novo Nordisk or Novo
Nordisk Pharmaceuticals, Inc. may assign its rights hereunder to one or more
Affiliates of Novo Nordisk; provided, that such Affiliate(s) agree to be bound
by the provisions of this Agreement.

     5.3 Entire Agreement. This Agreement, together with the Restructuring
Agreement and the other agreements described therein, constitutes the entire
agreement between the parties hereto with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral and
written with respect to the subject matter hereof.

     5.4 Severability. In case any provision of this Agreement shall be
invalid, illegal, or unenforceable, it shall, to the extent practicable, be
modified so as to make it valid, legal and enforceable and to retain as nearly
as practicable the intent of the parties, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.

     5.5 Amendment and Waiver. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance, either retroactively or prospectively, and either for
a specified period of time or indefinitely), with the written consent of
Aradigm, Novo Nordisk and Novo Nordisk Pharmaceuticals, Inc. Any amendment or
waiver effected in accordance with this Section shall be binding upon Novo
Nordisk and Novo Nordisk Pharmaceuticals, Inc., each future holder of the
Shares, and Aradigm.

     5.6 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to Novo Nordisk, Novo Nordisk Pharmaceuticals, Inc. or
any subsequent holder of any Shares upon any breach, default or noncompliance
of Aradigm under this Agreement, shall impair any such right, power, or remedy,
nor shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of any similar breach, default
or noncompliance thereafter occurring. It is further agreed that any waiver,
permit, consent, or approval of any kind or character on Novo Nordisk’s or Novo
Nordisk Pharmaceuticals, Inc.’s part of any breach, default or noncompliance
under this Agreement or any waiver on Novo Nordisk’s or Novo Nordisk
Pharmaceuticals, Inc.’s part of any provisions or conditions of this Agreement
must be in writing and shall be effective only to the extent specifically set
forth in such writing, and that all remedies, either under this
Agreement, by law, or otherwise afforded to Novo Nordisk or Novo Nordisk
Pharmaceuticals, Inc., shall be cumulative and not alternative.

     5.7 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
(a) upon personal delivery, (b) on report of successful transmission by
facsimile machine that automatically generates a printed report indicating
whether transmission was completed successfully, at the conclusion of each
transmission, (c) on the first Business Day after receipted delivery to a
courier service which guarantees next business-day delivery, under
circumstances in which such guaranty is

F-10

 

applicable, or (d) on the earlier of
delivery or five (5) Business Days after mailing by United States certified by
mail, postage and fees prepaid, to the appropriate party at the address set
forth below or to such other address as the part so notifies the other in
writing:

          (a) if to Aradigm, to:

	 	 	 
	

	 	Aradigm Corporation
	

	 	3929 Point Eden Way
	

	 	Hayward, California 94545
	

	 	Telephone: (510) 265-8850
	

	 	Facsimile: (510) 265-0277
	

	 	Attention: Chairman and Chief Executive Officer
	 
	 	 
	

	 	with a copy to:
	 
	 	 
	

	 	Cooley Godward llp
	

	 	3175 Hanover Street
	

	 	Palo Alto, CA 94304-1130
	

	 	Attention: James C. Kitch, Esq.
	

	 	Facsimile: (650) 849-7400

          (b) if to Novo Nordisk and/or Novo Nordisk Pharmaceuticals, Inc., to:

	 	 	 
	

	 	Novo Nordisk Pharmaceuticals, Inc.
	

	 	100 College Road West
	

	 	Princeton, New Jersey 08540
	

	 	Attention: Phil Fornecker, Chief Financial Officer
	

	 	Telephone: (609) 989-5800
	

	 	Telefax: (609) 987-2792
	 
	 	 
	

	 	Novo Nordisk A/S
	

	 	Novo Alle
	

	 	DK-2880 Bagsvaerd
	

	 	Denmark
	

	 	Attention: General Counsel
	

	 	Telephone: +45 44 44 88 88
	

	 	Telefax: +45 44 42 18 30

or to such other addresses and telecopier numbers as may from time to time be
notified by either party to the other hereunder.

     5.8 Information Confidential. Novo Nordisk and Novo Nordisk
Pharmaceuticals, Inc. acknowledge that any non-public information regarding
Aradigm received by them pursuant hereto is confidential and for their use
only, and they will refrain from using such information or disclosing or
disseminating such information to any other person (other than their employees,
affiliates, agents, or partners having a need to know the contents of such
information and their attorneys, in each case who are made aware of this
Section 5.8), except in connection with the

F-11

 

exercise of rights under this
Agreement, unless such information (i) becomes available to the public
generally, (ii) was or becomes available to Novo Nordisk and Novo Nordisk
Pharmaceuticals, Inc. on a non-confidential basis from a source other than
Aradigm, which source is or was (at time of receipt of the relevant
information) not, to the best of their knowledge, bound by a confidentiality
agreement with (or other confidentiality obligation to) Aradigm or (iii) is
required to be disclosed by a Governmental Authority (as such term is defined
in the Restructuring Agreement).

     5.9 Specific Performance. The parties hereto hereby declare that it is
impossible to measure in money the damages which will accrue to a party hereto
or to its successors or assigns by reason of a failure to perform any of the
obligations under Section 4 of this Agreement and agree that the terms of
Section 4 of this Agreement shall be specifically enforceable. If any party
hereto or its successors or assigns institutes any action or proceeding to
specifically enforce the provisions of Section 4 of this Agreement, any party
against whom such action or proceeding is brought hereby waives the claim or
defense therein that such party or such successor or assign has an adequate
remedy at law, and such party shall not offer in any such action or proceeding
the claim or defense that such remedy at law exists.

     5.10 Titles and Subtitles. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.

     5.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.

F-12

 

     The foregoing Agreement is hereby executed as of the date first above
written.

	 	 	 	 	 	 	 	 	 
	Aradigm Corporation	 	 	 	Novo Nordisk A/S
	 
	 	 	 	 	 	 	 	 
	By:

	 	 	 	 
	 	By:	 	 
	

	 	

	 	 	 	 	 	

	

	 	   Richard P. Thompson
	 	 	 	 	 	   Name:
	

	 	   Chairman
	 	 	 	 	 	   Title:
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Novo Nordisk Pharmaceuticals, Inc.
	 
	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	By:	 	 
	

	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	   Name:
	

	 	 	 	 	 	 	 	   Title:

F-13

 

EXHIBIT G

[TRANSITION SERVICE AGREEMENT

G-1

 

TRANSITION SERVICES AGREEMENT

dated as of

                                                          , 2004

between

ARADIGM CORPORATION

and

NOVO NORDISK DELIVERY TECHNOLOGIES, INC.

G-2

 

	 	 	 	 	 
	ARTICLE 1
	 	 	 	 
	DEFINITIONS
	 	 	 	 
	Section 1.01. Definitions
	 	 	G-5	 
	Section 1.02. Other Definitional and Interpretative Provisions
	 	 	G-7	 
	ARTICLE 2
	 	 	 	 
	SERVICES
	 	 	 	 
	Section 2.01. Provision Of Services
	 	 	G-8	 
	Section 2.02. Service Limitations
	 	 	G-8	 
	Section 2.03. Exceptions to Obligations
	 	 	G-8	 
	Section 2.04. Additional Services
	 	 	G-8	 
	ARTICLE 3
	 	 	 	 
	TERM
	 	 	 	 
	Section 3.01. Term
	 	 	G-9	 
	ARTICLE 4
	 	 	 	 
	COMPENSATION
	 	 	 	 
	Section 4.01. Charges for Services
	 	 	G-9	 
	Section 4.02. Payment Terms
	 	 	G-10	 
	ARTICLE 5
	 	 	 	 
	GENERAL OBLIGATIONS; STANDARD OF CARE
	 	 	 	 
	Section 5.01. Performance Standards
	 	 	G-10	 
	Section 5.02. Disclaimer of Warranties
	 	 	G-10	 
	Section 5.03. Transitional Nature of Services; Changes
	 	 	G-10	 
	Section 5.04. Transitional Assistance
	 	 	G-10	 
	Section 5.05. Good Faith Cooperation
	 	 	G-11	 
	Section 5.06. Alternatives
	 	 	G-11	 
	ARTICLE 6
	 	 	 	 
	TERMINATION
	 	 	 	 
	Section 6.01. Termination
	 	 	G-11	 
	Section 6.02. Survival
	 	 	G-12	 
	Section 6.03. User Identifications, Passwords
	 	 	G-12	 

G-3

 

	 	 	 	 	 
	ARTICLE 7
	 	 	 	 
	RELATIONSHIP BETWEEN THE PARTIES
	 	 	 	 
	Section 7.01. Relationship Between The Parties
	 	 	G-12	 
	ARTICLE 8
	 	 	 	 
	SUBCONTRACTORS
	 	 	 	 
	Section 8.01. Subcontractors
	 	 	G-12	 
	ARTICLE 9
	 	 	 	 
	USE OF INFORMATION; CONFIDENTIALITY
	 	 	 	 
	Section 9.01. Confidentiality
	 	 	G-13	 
	Section 9.02 . Access to Computer Systems
	 	 	G-14	 
	ARTICLE 10
	 	 	 	 
	INDEMNIFICATION AND INTELLECTUAL PROPERTY
	 	 	 	 
	Section 10.01. Indemnification
	 	 	G-14	 
	Section 10.02. Allocation of Rights
	 	 	G-15	 
	Section 10.03. Existing Ownership Rights Unaffected
	 	 	G-15	 
	Section 10.04. No Other Obligations
	 	 	G-15	 
	ARTICLE 11
	 	 	 	 
	FORCE MAJEURE
	 	 	 	 
	Section 11.01. Force Majeure
	 	 	G-16	 
	ARTICLE 12
	 	 	 	 
	DISPUTE RESOLUTION, GOVERNING LAW AND CONTINUITY OF SERVICE
	 	 	 	 
	Section 12.01. Dispute Resolution
	 	 	G-16	 
	Section 12.02. Governing Law
	 	 	G-17	 
	Section 12.03. Continuity of Service and Performance
	 	 	G-17	 
	ARTICLE 13
	 	 	 	 
	MISCELLANEOUS
	 	 	 	 
	Section 13.01. No Third Party Beneficiaries
	 	 	G-18	 
	Section 13.02. Counterparts and Facsimile Signature
	 	 	G-18	 
	Section 13.03. Notices
	 	 	G-18	 
	Section 13.04. Amendments and Waivers
	 	 	G-18	 
	Section 13.05. Severability
	 	 	G-18	 
	Section 13.06. Successors and Assigns
	 	 	G-18	 
	Section 13.07. Entire Agreement
	 	 	G-19	 

G-4

 

TRANSITION SERVICES AGREEMENT

     TRANSITION SERVICES AGREEMENT (the “Agreement”), effective as of the
Effective Date (as defined below), by and between Aradigm Corporation, a
corporation duly organized and existing under the laws of the State of
California (“Aradigm”) and Novo Nordisk Delivery Technologies, Inc., a
corporation duly organized and existing under the laws of the State of Delaware
(“Novo Nordisk Delivery Technologies, Inc.”).

W I T N E S S E T H:

     WHEREAS, Aradigm, Novo Nordisk A/S, a company duly organized and existing
under the law of Denmark (“Novo Nordisk”) and Novo Nordisk Delivery
Technologies, Inc. are parties to a Restructuring Agreement dated as of
September 28, 2004 (the “Restructuring Agreement”) pursuant to which they have
agreed to restructure existing arrangements between Aradigm and Novo Nordisk
regarding, among other things, the development and commercialization of the
Development Program and to certain other matters as set forth therein; and

     WHEREAS, it is a precondition to performance on the part of Aradigm, Novo
Nordisk and Novo Nordisk Delivery Technologies, Inc. of their respective
obligations under the Restructuring Agreement that Aradigm and Novo Nordisk
Delivery Technologies, Inc. enter into this Agreement.

     NOW, THEREFORE, in consideration of the premises set forth above and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the parties hereto agree as follows:

ARTICLE 1

Definitions

     Section 1.01 . Definitions.

     (a) The following terms, as used herein, shall have the following
meanings:

     “Affiliate” shall have the meaning set forth in the Restructuring
Agreement.

     “Amended and Restated License Agreement” shall have the meaning set forth
in the Restructuring Agreement.

     “Asset Purchase Agreement” shall have the meaning set forth in the
Restructuring Agreement.

G-5

 

     “Development Program” shall have the meaning set forth in the Amended and
Restated License Agreement.

     “Effective Date” shall mean the Closing Date (as defined in the
Restructuring Agreement).

     “EURIBOR” shall mean the offered rate per annum for deposits in U.S.
dollars for a period of three months as such rate appears on the display
designated as page “248” on the Telerate service.

     “Intellectual Property Rights” shall have the meaning set forth in the
Restructuring Agreement.

     “Know-How” shall have the meaning set forth in the Amended and Restated
License Agreement.

     “Person” shall mean an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.

     “Real Property” shall have the meaning set forth in the Restructuring
Agreement.

     “Receiving Party” shall mean Novo Nordisk Delivery Technologies, Inc. or
any of its Affiliates who receive any Services hereunder.

     “Services” shall mean the services, functions and tasks of the Service
Providers described in the Transition Services Schedules, as they may be
changed or supplemented during the term of this Agreement pursuant to the terms
of this Agreement. If any service, function or task not specifically described
in this Agreement is an inherent or necessary part of the performance of the
Services, it will be deemed included within the scope of the Services.

     “Transaction Agreements” shall have the meaning set forth in the
Restructuring Agreement.

     “Transferred Assets” shall have the meaning set forth in the Restructuring
Agreement.

     “Transition Services Schedules” shall mean the transition services
schedules (each such schedule, a “Schedule”) describing the Services, the
related charges, the frequency of billing and the term of such Services
attached to this Agreement.

     (b) Each of the following terms is defined in the Section set forth
opposite such term:

G-6

 

	 	 	 
	Term	 	Section
	Additional Services
	 	2.04
	Aradigm
	 	Recitals
	Aradigm Computer Systems
	 	9.02
	Damages
	 	10.01
	Expiration Date
	 	3.01
	Force Majeure Event
	 	11.01
	Novo Nordisk
	 	Recitals
	Novo Nordisk Delivery Technologies, Inc.
	 	Recitals
	Restructuring Agreement
	 	Recitals
	Service Providers
	 	2.01
	subcontractor
	 	8.01

     Section 1.02 . Other Definitional and Interpretative Provisions. Unless specified otherwise, in this Agreement the obligations of any party hereto
consisting of more than one person are joint and several. The words “hereof”,
“herein” and “hereunder” and words of like import used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement. The captions herein are included for convenience of reference only
and shall be ignored in the construction or interpretation hereof. References
to Appendices, Articles, Sections, Exhibits and Schedules are to Appendices,
Articles, Sections, Exhibits and Schedules of this Agreement unless otherwise
specified. All Appendices, Exhibits and Schedules annexed hereto or referred
to herein are hereby incorporated in and made a part of this Agreement as if
set forth in full herein. Any capitalized terms used in any Exhibit or
Schedule but not otherwise defined therein, shall have the meaning as defined
in this Agreement. Any singular term in this Agreement shall be deemed to
include the plural, and any plural term the singular. Whenever the words
“include”, “includes” or “including” are used in this Agreement, they shall be
deemed to be followed by the words “without limitation”, whether or not they
are in fact followed by those words or words of like import. “Writing”,
“written” and comparable terms refer to printing, typing and other means of
reproducing words (including electronic media) in a visible form. References
to any agreement or contract are to that agreement or contract as amended,
modified or supplemented from time to time in accordance with the terms hereof
and thereof. References to any Person include the successors and permitted
assigns of that Person. References from or through any date mean, unless
otherwise specified, from and including or through and including, respectively.

G-7

 

ARTICLE 2

Services

     Section 2.01 . Provision Of Services. On the terms and subject to the conditions contained herein, Aradigm shall provide, or shall cause third
parties designated or hired by it (such designated third parties, together with
Aradigm, the “Service Providers”) to provide to Novo Nordisk Delivery
Technologies, Inc. and its designated Affiliates, the Services for the time
period and to the extent specified with respect to each such Service in the
applicable Schedule.

     Section 2.02 . Service Limitations. Except as provided in a Schedule for a specific Service: (a) no Service Provider shall be required to provide any
Services except to the extent and at the locations such services, functions and
tasks were conducted (or contemplated to be conducted by Aradigm) as of
immediately prior to the date of the Restructuring Agreement; and (b) the
Services will be available only for purposes of conducting the Development
Program in substantially the same manner as conducted by Aradigm and Novo
Nordisk immediately prior to the Effective Date.

     Section 2.03 . Exceptions to Obligations. The only exceptions to the obligations of any Service Provider to provide any Service as contemplated
hereby are if (a) such Service Provider cannot provide such Service due to
causes which are outside its reasonable control as determined under Article 11
or (b) if providing such Service would be prohibited by applicable law,
regulation or court order.

     Section 2.04 . Additional Services.

     (a) From time to time after the Effective Date, the parties hereto may
identify and mutually agree upon additional services to be provided to any
Receiving Party in accordance with the terms of this Agreement (the “Additional
Services”). At such times, the parties hereto shall execute an additional
Schedule setting forth a description of any Additional Service, the time period
during which such Additional Service will be provided, the charge for such
Additional Service and any other terms applicable thereto.

     (b) As part of the Services, Aradigm will provide to the Receiving Party a
list of Aradigm’s preferred providers of services related to the Real Property
and the Transferred Assets, and the Receiving Party may in its discretion
engage such providers to provide services directly to the Receiving Party. If
the Receiving Party desires to engage any other provider of services in
connection with the Real Property, the Receiving Party will give to Aradigm
reasonable advance notice and will cooperate to minimize interference with the
conduct of Aradigm’s business.

G-8

 

     (c) From time to time after the Effective Date, each party hereto may
reasonably request the assistance of the other party’s employees listed on
Schedule 2.04(c) hereto on a consulting basis with respect to any matters
relating to AERx device and strip (including next generation devices and
strips) development, manufacturing and/or associated support activities. In
addition, each party hereto may reasonably request the assistance of additional
employees of the other party. Each party hereto will use commercially
reasonable efforts to make such requested employees available. In the event
that such an employee is available, the parties hereto shall execute a separate
consulting agreement setting forth a description of the consulting services to
be performed by such employee, the time period during which such consulting
services are to be provided, the base salary for such employee plus a mark-up
that will in no event exceed fifty percent (50%) of such base salary, and any
other terms applicable thereto.

ARTICLE 3

Term

     Section 3.01 . Term. The term of this Agreement shall commence on the Effective Date and, unless earlier terminated under Section 6.01, shall
terminate no later than the second anniversary of the Effective Date (the
“Expiration Date”). The parties hereto agree to negotiate in good faith if any
Receiving Party needs to extend this Agreement and/or any provision of any
Service beyond its respective Expiration Date (and the parties hereby
acknowledge that the negotiation of any such extension may involve a
renegotiation of the charges set forth on the Transition Services Schedule with
respect to any such Services). This Agreement may be extended upon the mutual
agreement of the parties hereto in writing, either in whole or with respect to
one (1) or more of the Services; provided that, such extension shall only apply
to the specific Services for which this Agreement was extended. Services shall
be provided up to and including the applicable Expiration Date, subject to
earlier termination as provided herein.

ARTICLE 4

Compensation

     Section 4.01 . Charges for Services. The Receiving Party shall pay to the Service Provider the charges set forth on the Schedules for each of the
Services listed therein (unless a particular Schedule explicitly provides that
no charge will be made). The parties hereto understand and agree that one or
more of the charges set forth on a Schedule hereto are or may be estimates
based on current usage or utilization and that the applicable charge for any
such Service may be more or less than the estimated or quoted charge on such
Schedule based on actual usage or utilization, and each party hereto agrees to
pay the amounts

G-9

 

associated with such actual usage or utilization; provided that, the
foregoing shall not be applicable to any charges for Services which are
expressed as a fixed cost per hour or other time period, or fixed cost per
unit, volume or similar metric.

     Section 4.02 . Payment Terms. Novo Nordisk Delivery Technologies, Inc. shall pay quarterly in arrears the duly-documented charges for the performance
of the specific Services based on the charges set forth on the applicable
Schedules for each of the Services. Late payments shall bear interest at the
rate equal to EURIBOR plus three percent (3.00%) per annum.

ARTICLE 5

General Obligations; Standard Of Care

     Section 5.01 . Performance Standards. Subject to Section 2.03, Aradigm shall cause each Service Provider within its control to maintain sufficient
resources to perform its obligations hereunder. Aradigm shall provide or cause
the Service Providers to provide the Services in accordance with the policies,
procedures and practices in effect as of immediately prior to the date of the
Restructuring Agreement and shall exercise the same care and skill as they
exercise in performing similar services for Aradigm and/or its Affiliates.

     Section 5.02 . Disclaimer of Warranties. SUBJECT TO SECTION 5.01, NO PARTY MAKES ANY WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT
LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY, BUSINESS CONTINUITY OR
FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE SERVICES, MATERIALS OR
OTHER DELIVERABLES PROVIDED, OR CAUSED TO BE PROVIDED, BY IT HEREUNDER.

     Section 5.03 . Transitional Nature of Services; Changes. The parties hereto acknowledge the transitional nature of the Services and that the Service
Provider may make changes from time to time in the manner of performing such
Services if the Service Provider is making similar changes in performing
similar services for itself so long as the Service Provider furnishes to the
Receiving Party reasonable advanced written notice regarding such changes.

     Section 5.04 . Transitional Assistance. During the term of this Agreement, Aradigm will use commercially reasonable efforts to provide to Novo
Nordisk Delivery Technologies, Inc. and its Affiliates, at Novo Nordisk
Delivery Technologies, Inc.’s expense, consultation, assistance and information
as reasonably requested by them, and will otherwise perform the Services, so as
to effect a smooth transition from Novo Nordisk Delivery Technologies, Inc.’s
utilization of the Services to Novo Nordisk Delivery Technologies, Inc.’s

G-10

 

utilization of its own systems and personnel in connection with the
Development Program prior to the termination or expiration of this Agreement.

     Section 5.05 . Good Faith Cooperation. The parties hereto will use commercially reasonable efforts to cooperate with each other in all matters
relating to the provision and receipt of the Services. The parties hereto will
maintain in accordance with their standard document retention procedures,
documentation supporting the information relevant to charges contained in the
Transition Service Schedules and cooperate with each other in making such
information available as needed in the event of a tax audit, whether in the
United States or any other country.

     Section 5.06 . Alternatives. Notwithstanding anything to the contrary, if any Service Provider reasonably believes it is unable to provide a Service
(a) because of a failure to obtain necessary consents, licenses, sublicenses or
approvals or (b) for any reason pursuant to Section 2.03, the parties hereto
shall cooperate to determine the best alternative approach. Until such
alternative approach is found or the problem otherwise resolved to the
satisfaction of the parties hereto, such Service Provider shall use reasonable
efforts to continue providing the Service. To the extent an alternative
approach agreed upon by Aradigm and Novo Nordisk Delivery Technologies, Inc.
requires payment in excess of that which is included in the Service Provider’s
charge for the Service in question, the Receiving Party shall be responsible
for making any such payment.

ARTICLE 6

Termination

     Section 6.01 . Termination. (a) The parties hereto agree that if any Receiving Party chooses to discontinue any Service prior to its Expiration
Date, then such Receiving Party shall give the applicable Service Provider
prior written notice within the notice period specified in the relevant
Schedule, or if no such notice period is specified, at least thirty (30) days
prior written notice, of its intent to terminate this Agreement as to that
particular Service, which termination as to that particular service shall be
effective on the last day of the month on which the thirty (30) days prior
written notice lapses. The Receiving Party will pay the other party hereto the
fees and costs of any terminated Service up until the effective date of
termination.

     (a) Notwithstanding anything to the contrary contained herein, this
Agreement may be terminated, in whole or in part, at any time: (i) by the
mutual consent of the parties hereto; or (ii) by any party hereto in the event
of any material breach or default by the other party of any of its obligations
under this Agreement and the failure of such defaulting party to cure, or to
take substantial steps towards the curing of, such breach or default within
fourteen (14) days after

G-11

 

receipt of written notice from the non-defaulting party requesting such
breach or default to be cured.

     Section 6.02 . Survival. Articles 4, 9, 10 and 12 and Sections 6.02 and 6.03 and of this Agreement shall survive termination of this Agreement for the
applicable statutes of limitations. Article 13 shall survive termination of
this Agreement. Notwithstanding the foregoing, in the event of any termination
with respect to one or more, but less than all, Services, this Agreement shall
continue in full force and effect with respect to any Services not terminated
hereby.

     Section 6.03 . User Identifications, Passwords. Except as provided in any other Transaction Agreement, the parties hereto shall use good faith
efforts at the termination or expiration of this Agreement or any specific
Service hereto to ensure that all copies of user identifications and passwords
that provide any party hereto with access to another party’s premises or
equipment are canceled or destroyed.

ARTICLE 7

Relationship Between The Parties

     Section 7.01 . Relationship Between The Parties. The relationship between the parties hereto established under this Agreement is that of
independent contractors and no party hereto shall be deemed an employee, agent,
partner, or joint venturer of or with the other. Each Service Provider will be
solely responsible for any employment-related taxes, insurance premiums or
other employment benefits respecting its personnel’s performance of any
Services under this Agreement. Each Receiving Party agrees to grant to any
applicable Service Provider’s personnel reasonable access to sites, systems and
information as necessary for the Service Provider to perform its obligations
hereunder. The personnel of each party hereto shall agree to obey any and all
security regulations and other published policies of the other party relevant
to the provision or receipt of any Services.

ARTICLE 8

Subcontractors

     Section 8.01 . Subcontractors. A Service Provider may, subject to mutual agreement of the parties hereto, in writing, engage a subcontractor to perform
all or any portion of its duties under this Agreement subject to the
requirements that: (a) any such subcontractor agrees in writing to be bound by
confidentiality obligations substantially similar to those set forth in Article
9; (b) any such subcontractor will perform the services for compensation as
specified in Article 4

G-12

 

or if not the Service Provider agrees to pay the subcontractor the
compensation in excess of that specified in Article 4; and (c) the Service
Provider shall remain responsible for the performance of such subcontractor.
As used in this Agreement, “subcontractor” will mean any individual,
partnership, corporation, firm, association, unincorporated organization, joint
venture, trust or other entity engaged to perform hereunder, other than the
Service Provider.

ARTICLE 9

Use Of Information; Confidentiality

     Section 9.01 . Confidentiality. (a) Any information from time to time communicated or delivered by any party to the other party hereof, including
without limitation trade secrets, business methods, and cost, supplier,
manufacturing and customer information, shall be treated by Novo Nordisk
Delivery Technologies, Inc. and Aradigm, respectively, as confidential
information of the other party, and shall not be disclosed or revealed to any
third party whatsoever or used in any manner except as expressly provided for
herein and solely in connection with the Transaction Agreements; provided that,
such confidential information shall not be subject to the restrictions and
prohibitions set forth in this Article 9 to the extent that such confidential
information:

     (i) is available to the public in public literature or otherwise,
or after disclosure by one party to the other becomes public knowledge
through no default of the party receiving such confidential information;
or

     (ii) was known to the party (as demonstrated by the written records
of such party) receiving such confidential information with no
obligation to maintain confidentiality prior to the receipt of such
confidential information by such party, whether received before or after
the date of this Agreement; or

     (iii) is obtained by the party receiving such confidential
information from a third party not subject to a requirement of
confidentiality with respect to such confidential information.

     For the avoidance of doubt, information will not be considered to be
available to the public, in the public literature, or in the prior possession
of the Receiving Party merely because individual elements thereof are available
to the public, in the public literature, or in the prior possession of the
Receiving Party, unless the combination of such elements is available to the
public, in the public literature, or in the prior possession of the Receiving
Party.

     (b) Each party hereto shall take all such precautions as it normally takes
with its own confidential information to prevent any improper disclosure of
such

G-13

 

confidential information to any third party; provided that, such
confidential information may be disclosed: (i) pursuant to any order of a court
having jurisdiction and power to order such information to be released or made
public; (ii) within the limits required to obtain any authorization from any
governmental or regulatory agency or; (iii) with the prior written consent of
the other party hereto, which shall not be unreasonably withheld, as may
otherwise be required in connection with the purposes of this Agreement.

     Section 9.02 . Access to Computer Systems. If the Receiving Party (or any of its Affiliates) is given access to any computer equipment, computer,
software, network, electronic files, or electronic data storage system owned or
controlled by Aradigm (“Aradigm Computer Systems”), then the Receiving Party
shall limit (and, as applicable, cause its Affiliates to limit) (in each case,
other than as contemplated in the Restructuring Agreement) access and use of
such Aradigm Computer Systems solely to receive Services under this Agreement
and shall not access, attempt to access or use any Aradigm Computer Systems,
other than those specifically required to receive the Services; provided that,
Aradigm shall be obligated to put in place procedures effective in
differentiating between Aradigm Computer Systems to which the Receiving Party
and any of its Affiliates are entitled to access and the Aradigm Computer
Systems to which Aradigm or any of its Affiliates are not entitled to access.
The Receiving Party shall limit such access to those of its employees,
contractors, and advisers with a specific requirement to have such access in
connection with this Agreement, shall advise Aradigm in writing of the name of
each such Person who will be granted such access, and shall strictly follow all
Aradigm’s security rules and procedures for use of the Aradigm Computer
Systems. All user identification numbers and passwords disclosed to the
Receiving Party (or its Affiliates) and any of Aradigm’s confidential
information obtained by the Receiving Party (or its Affiliates) as a result of
their access to and use of any such Aradigm Computer Systems shall be deemed to
be, and shall be treated as, Aradigm’s confidential information under
applicable provisions of this Agreement. The Receiving Party agrees to
cooperate (and cause its Affiliates to cooperate) with Aradigm in the
investigation of any apparent unauthorized access by the Receiving Party or its
Affiliates to any Aradigm Computer Systems, or any apparent unauthorized
release of Aradigm’s confidential information by the employees, contractors, or
advisers of the Receiving Party or any of its Affiliates.

ARTICLE 10

Indemnification and intellectual Property

     Section 10.01 . Indemnification.

     (a) Novo Nordisk Delivery Technologies, Inc. hereby indemnifies Aradigm
and its Affiliates against and agrees to hold each of them harmless from

G-14

 

any and all damage, loss, liability and expense (including reasonable
expenses of investigation and reasonable attorneys’ fees and any incidental,
indirect or consequential damages, losses, liabilities or expenses) (“Damages”)
incurred or suffered by Aradigm or any of its Affiliates (other than Damages
incurred or suffered by Aradigm or any of its Affiliates arising from any
claims made by employees of Aradigm or any of its Affiliates) that arise from
any third-party claim for personal injury or damage to property based upon the
performance of the Services by any of Aradigm’s employees acting as consultants
for Novo Nordisk Delivery Technologies, Inc. pursuant to Section 2.04(c),
except to the extent such third-party claim arises out of such consultant’s
negligence, willful misconduct or breach of obligations under this Agreement.

     (b) Aradigm hereby indemnifies Novo Nordisk Delivery Technologies, Inc. and its Affiliates against and agrees to hold each of them harmless from any
and all Damages incurred or suffered by Novo Nordisk Delivery Technologies, Inc.. or any of its Affiliates (other than Damages incurred or suffered by Novo Nordisk Delivery Technologies, Inc. or any of its Affiliates arising from any
claims made by employees of Novo Nordisk Delivery Technologies, Inc. or any of
its Affiliates) that arise from any third-party claim for personal injury or
damage to property based upon the performance of the Services by any of Novo
Nordisk Delivery Technologies, Inc.’s employees acting as consultants for
Aradigm pursuant to Section 2.04(c), except to the extent such third-party
claim arises out of such consultant’s negligence, willful misconduct or breach
of obligations under this Agreement.

     Section 10.02 . Allocation of Rights. This Agreement and the performance of this Agreement will not affect the ownership of any Intellectual Property
Rights.

     Section 10.03 . Existing Ownership Rights Unaffected. No party hereto will gain, by virtue of this Agreement, any rights or ownership of copyrights,
patents, Know-How, trade secrets, trademarks or any other Intellectual Property
Rights owned by the other.

     Section 10.04 . No Other Obligations. NO PARTY HERETO ASSUMES ANY RESPONSIBILITY OR OBLIGATIONS WHATSOEVER, OTHER THAN THE RESPONSIBILITIES AND
OBLIGATIONS EXPRESSLY SET FORTH IN THIS AGREEMENT OR A SEPARATE WRITTEN
AGREEMENT BETWEEN THE PARTIES. NOTWITHSTANDING ANYTHING CONTAINED IN THIS
AGREEMENT TO THE CONTRARY, IN NO EVENT SHALL ANY PARTY HERETO BE LIABLE TO ANY
OTHER PARTY HERETO FOR ANY LOST PROFITS, LOSS OF DATA, LOSS OF USE, BUSINESS
INTERRUPTION OR OTHER SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES.

G-15

 

ARTICLE 11

Force Majeure

     Section 11.01 . Force Majeure. Each party hereto will be excused for any failure or delay in performing any of its obligations under this Agreement,
other than the obligations to make payments pursuant to Article 4 for services
rendered, if such failure or delay is caused by a Force Majeure Event. For
purposes of this Agreement, “Force Majeure Event” shall mean any act of God or
the public enemy, any accident, explosion, fire, storm, earthquake, flood,
labor shortage, strike, terrorist act, or any other circumstance or event
beyond the reasonable control of such party. In any such event, obligations of
any party hereto failing to perform hereunder shall be postponed for such time
as its performance is suspended or delayed on account thereof, and the other
party hereto shall not be required to pay for services that are not performed
on the basis of a Force Majeure Event. Each party hereto will promptly notify
the other party hereto, either orally or in writing, whenever a Force Majeure
Event becomes reasonably foreseeable and shall use all commercially reasonable
efforts to overcome its effects as promptly as possible. Upon the cessation of
the Force Majeure Event, the party hereto failing to perform will use all
reasonable efforts to promptly resume, or cause any other relevant Service
Provider to resume, its performance.

ARTICLE 12

Dispute Resolution, Governing Law and Continuity of Service

     Section 12.01 . Dispute Resolution. (a) All disputes arising out of this Agreement shall be settled as far as possible by negotiations between the
parties hereto. If the parties hereto cannot agree on an amicable settlement
within thirty (30) days from written submission of the matter by one (1) party
hereto to the other party hereto, the matter shall be submitted for decision
and final resolution to arbitration to the exclusion of any courts of law,
under the Arbitration Rules of the American Arbitration Association.

     (b) The arbitration tribunal shall be composed of three (3) disinterested
arbitrators, appointed pursuant to the following procedure: the party hereto
invoking arbitration shall notify the other party hereto stating the substance
of its claim and the name and address of the arbitrator it has chosen, who may
be a citizen of any country. Within thirty (30) days of receipt of such
notification, the other party hereto shall notify the first party of its answer
to the claim made, any counterclaim that it wishes to assert in the
arbitration, and the name and address of its arbitrator, who may be a citizen
of any country. If this is not done within the 30-day period, appointment of
the second arbitrator shall be made in accordance with the Arbitration Rules of
the American Arbitration Association upon request of the initiating party.

G-16

 

     (c) The arbitrators shall choose a third arbitrator, who shall serve as
president of the tribunal thus composed. If the arbitrators fail to agree upon
the choice of a third arbitrator within thirty (30) days from the appointment
of the second arbitrator, the third arbitrator will be appointed in accordance
with the Arbitration Rules of the American Arbitration Association upon the
request of the arbitrators or either of the parties hereto.

     (d) The arbitrators shall decide the dispute by majority decision and in
accordance with the laws of the State of New York. The decision shall be
rendered in writing, shall state the reasons on which it is based, and shall
bear the signatures of at least two (2) arbitrators. It shall also identify
the members of the arbitration tribunal, and the time and place of the award
granted. Finally, it shall determine the expenses of the arbitration and the
party hereto who shall be charged therewith or the allocation of the expenses
between the parties hereto at the discretion of the tribunal.

     (e) The arbitration decision shall be rendered as soon as possible, not
later, however, if possible, than six (6) months after the constitution of the
arbitration tribunal. The arbitration decision shall be final and binding upon
both parties hereto and the parties hereto agree that any award granted
pursuant to such decision may be entered forthwith in any court of competent
jurisdiction. This arbitration clause and any award granted pursuant to an
arbitration decision thereunder shall be enforceable against the parties hereto
in accordance with the 1958 Convention on the Recognition and Enforcement of
Foreign Arbitral Awards, as amended.

     (f) The seat of arbitration shall be New York City, unless the parties
hereto otherwise agree in writing. The official arbitration language shall be
English.

     Section 12.02 . Governing Law. This Agreement shall be governed by and construed in accordance with the law of the State of New York.

     Section 12.03 . Continuity of Service and Performance. Unless otherwise agreed in writing, the parties hereto will continue to provide service and
honor all other commitments under this Agreement during the course of dispute
resolution pursuant to the provisions of this Article 12 with respect to all
matters not subject to such dispute, controversy or claim.

G-17

 

ARTICLE 13

Miscellaneous

     Section 13.01 . No Third Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the parties hereto and
their respective successors and permitted assigns.

     Section 13.02 . Counterparts and Facsimile Signature. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same
instrument. This Agreement may be executed by facsimile signature.

     Section 13.03 . Notices. All notices and other communications hereunder will be in writing and deemed to have been duly given if given in accordance
with Section 12.01 of the Restructuring Agreement and as otherwise provided in
the applicable Schedule hereto.

     Section 13.04 . Amendments and Waivers. The parties hereto may mutually amend any provision of this Agreement. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by all
of the parties hereto. No waiver of any right or remedy hereunder shall be
valid unless the same shall be in writing and signed by the party hereto giving
such waiver. No waiver by any party hereto with respect to any default,
misrepresentation or breach of warranty or covenant hereunder shall be deemed
to extend to any prior or subsequent default, misrepresentation or breach of
warranty or covenant hereunder or affect in any way any rights arising by
virtue of any prior or subsequent such occurrence.

     Section 13.05 . Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party hereto.
Upon such a determination, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties hereto
as closely as possible in an acceptable manner in order that the transactions
contemplated hereby be consummated as originally contemplated to the fullest
extent possible.

     Section 13.06 . Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that, as expressly provided in the
Agreement, no party hereto may assign, delegate or otherwise transfer any of
its rights or obligations under this Agreement without the consent of each
other party

G-18

 

hereto; except that Novo Nordisk Delivery Technologies, Inc. may transfer
or assign, in whole or from time to time in part, to one or more of its
Affiliates, the right to receive all or a portion of the Services, but no such
transfer or assignment will relieve Novo Nordisk Delivery Technologies, Inc. of
its obligations hereunder.

     Section 13.07 . Entire Agreement. This Agreement and the other Transaction Agreements constitute the entire agreement between the parties
hereto with respect to the subject matter of this Agreement and supersede all
prior agreements and understandings, both oral and written, between the parties
with respect to the subject matter. If the terms and conditions of this
Agreement conflict with the terms and conditions of any Schedule, then the
terms and conditions of this Agreement shall govern.

[SIGNATURE PAGE FOLLOWS]

G-19

 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.

	 	 	 	 	 	 	 
	 	 	ARADIGM CORPORATION
	 
	 	 	 	 	 	 
	

	 	By:
	 	
	 	 
	

	 	 	 	Name:	 	 
	

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 	NOVO NORDISK DELIVERY TECHNOLOGIES, INC.
	 
	 	 	 	 	 	 
	

	 	By:
	 	
	 	 
	

	 	 	 	Name:	 	 
	

	 	 	 	Title:	 	 

G-20

 

EXHIBIT H

[ASSIGNMENT AGREEMENTS]

H-1

 

ASSIGNMENT AND ASSUMPTION OF LEASE, LANDLORD

AGREEMENT AND LENDER CONSENT

     ASSIGNMENT AND ASSUMPTION OF LEASE, LANDLORD AGREEMENT AND LENDER CONSENT
(“Agreement”), dated as of                                                           , 2004, between ARADIGM CORPORATION, a
California corporation (“Assignor”), NOVO NORDISK DELIVERY TECHNOLOGIES, INC.,
a Delaware corporation (“Assignee”), HAYWARD POINT EDEN I LIMITED PARTNERSHIP,
a Delaware limited partnership (“Landlord”) and NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY, a Wisconsin Corporation (“Lender”).

W I T N E S S E T H :

     WHEREAS, Assignor is the tenant of certain premises (the “Premises”) (more
particularly described in Exhibit A hereto and located on real property
described in Exhibit B hereto, the “Property”) under a Lease dated as of
January 28, 1998 between Landlord, as landlord, and Assignor, as tenant (a
Memorandum of which is recorded in [ ], Alameda County Records), as
amended by a First Amendment to Lease dated November 30, 1998 between Landlord
and Assignor, a Second Amendment to Lease dated November 30, 1998 between
Landlord and Assignor and a Third Amendment to Lease dated December 21, 2000
between Landlord and Assignor (the “Building 2 Lease”);

     WHEREAS, Assignor and Assignee are restructuring their existing business
relationships and, accordingly, Assignor desires to assign to Assignee and
Assignee desires to acquire from Assignor all right, title and interest in and
under the Building 2 Lease, subject to and upon the terms and conditions
hereinafter set forth;

     WHEREAS, Landlord is the owner and holder of landlord’s interest under the
Building 2 Lease and desires to consent to the assignment and agree that the
cross default contained in the Building 2 Lease shall be effective only as
modified by this Agreement; and

     WHEREAS, Lender is the owner and holder of the mortgage described in
Exhibit C hereto covering the Property and desires to consent to this
Agreement;

     NOW, THEREFORE, in consideration of the agreements contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Assignee, Assignor, Landlord and Lender agree as follows:

H-2

 

     Section 1 . Assignment. Assignor hereby assigns, transfers, sets over
and conveys to Assignee all of Assignor’s right, title and interest in, to and
under the Building 2 Lease including, without limitation, any rights to tenant
improvements constructed by Assignor therein and rights to the security deposit
thereunder. The tenant improvements are transferred on an “as-is-where-is”
basis, without representation or warranty of any kind.

     Section 2 . Assumption And Indemnification. (a) Assignee hereby assumes
and agrees to pay, perform and discharge, as and when due, all of Assignor’s
liabilities and obligations under the Building 2 Lease arising and accruing
from and after the date hereof.

     (b) Assignee hereby agrees to indemnify, defend and hold harmless
Assignor from and against all of Assignor’s obligations and liabilities under
and with respect to the Building 2 Lease and the Premises arising or accruing
from and after the date hereof.

     (c) Assignor hereby agrees to indemnify, defend and hold harmless Assignee
from and against all of Assignor’s obligations and liabilities under and with
respect to the Building 2 Lease and the Premises arising or accruing prior to
the date hereof.

     Section 3 . Apportionments Of Payments. Assignee or Assignor, as
applicable, shall reimburse the other for its (the reimbursing party’s)
proportionate share of any payments made by the other pursuant to the Building
2 Lease attributable to any period during which the reimbursing party is in
possession of the Premises, on a per diem basis based upon the actual number of
days in the relevant payment period. Additionally, Assignee shall pay Assignor
the amount of Aradigm’s security deposit under the Building 2 Lease less the
sum of all amounts, if any, claimed by Landlord pursuant to Section 7(b)
hereof.

     Section 4 . Landlord Agreement. (a) Landlord hereby consents to the
assignment set forth in Section 1 above and agrees that Section 14.1(i)
(“Cross-Default”) of the Building 2 Lease shall not apply with respect to any
lease under which, at the time of any default under such lease, Assignee or any
person or entity which controls, is controlled by or is under common control of
the Assignee, is not the tenant.

     Section 5 . First Refusal Right. Landlord hereby ratifies and confirms
Assignee’s first refusal right with respect to the Option Space (as defined in
the Building 2 Lease) under Section 1.3 of the Building 2 Lease and hereby
certifies that the Property includes the Option Space. Landlord, Assignor and
Assignee acknowledge that Assignor and Landlord or Landlord’s affiliate are by
separate instrument terminating or subordinating to the rights of Assignee any
first refusal rights with respect to the Option Space granted to Assignor under
the Phase V Lease (as defined in the Building 2 Lease).

H-3

 

     Section 6 . Lender Consent. Lender hereby consents to each of the
provisions of this Agreement including Landlord’s agreements set forth in
Sections 4 and 5 above.

     Section 7 . Estoppels. (a) Assignor hereby certifies to the other
parties hereto that (i) it is not in default under the Building 2 Lease nor to
its knowledge is there any event which with notice or lapse of time or both
would constitute a default by Assignor thereunder, (ii) to its knowledge,
except as set forth in Section 7(b) hereof, Landlord has no claim against the
security deposit under the Building 2 Lease nor is there any event which with
notice or lapse of time would give rise to such a claim by Landlord and (iii)
to its knowledge, Landlord is not in default under the Building 2 Lease nor is
there any event which with notice or lapse of time or both would constitute a
default by Landlord thereunder.

     (b) Landlord hereby certifies to the other parties that (i) the definition
of the Building 2 Lease contained in the recitals hereto correctly describes
the Building 2 Lease and that the Building 2 Lease has not been further
supplemented, amended or otherwise modified, (ii) to its knowledge, Assignor is
not in default under the Building 2 Lease nor is there any event which with
notice or lapse of time or both would constitute a default by Assignor
thereunder, (iii) Landlord holds a security deposit under the Building 2 Lease
from Assignor in the amount of $7,200 and (iv) Landlord has no existing claim
against such security deposit nor, to its knowledge, is there any event which
with notice or lapse of time or both would give rise to such a claim by
Landlord.

     Section 8 . Representations And Warranties. Each party hereto represents
to the others that it (the party giving the representation) has the right and
power to enter into this Agreement, that this Agreement has been duly
authorized, executed and delivered by it, and that this Agreement is valid,
binding and enforceable against it, except with regards to bankruptcy and
similar laws affecting creditors’ rights generally and general principles of
equity.

     Section 9 . Miscellaneous. (a) The parties hereto agree to execute and
deliver such further Agreements and do such further acts and things as may be
required or desirable to carry out the intent and purpose of this Agreement.

     (b) Any provision of this Agreement may be amended or waived if, and only
if, such amendment or waiver is in writing and is signed, in the case of an
amendment, by the parties hereto or, in the case of a waiver, by the party
against whom the waiver is to be effective. No failure or delay by any party
in exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.

H-4

 

     (c) Nothing in this Agreement shall diminish the rights of either party
under the Restructuring Agreement dated September 28, 2004 between Assignor,
Assignee and Novo Nordisk A/S or any other Transaction Agreement (as defined
therein).

     (d) The provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. This Agreement is for the sole benefit of the parties hereto and
their successors and permitted assigns, and, except as otherwise contemplated
herein, nothing herein express or implied shall give or be construed to give
any person, other than the parties hereto and their successors and permitted
assigns, any legal or equitable rights hereunder.

     (e) This Agreement shall be governed by and construed in accordance with
the law of California, without regard to the conflicts of law rules thereof.

     (f) This Agreement may be executed in one or more counterparts (including
by photocopy or facsimile), each of which shall be deemed to be an original and
all of which, when taken together, shall constitute one and the same Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

H-5

 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.

	 	 	 	 	 	 	 
	 	 	ARADIGM CORPORATION, as Assignor
	 
	 	 	 	 	 	 
	

	 	By:
	 	

Name:	 	 
	

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	

	 	NOVO
NORDISK DELIVERY TECHNOLOGIES, INC., as Assignee

	 
	 	 	 	 	 	 
	

	 	By:
	 	

Name:	 	 
	

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	

	 	HAYWARD
POINT EDEN I LIMITED PARTNERSHIP, as Landlord

	 
	 	 	 	 	 	 
	

	 	By:
	 	BRITTANIA
DEVELOPMENTS, INC, a California Corporation, General Partner
	 
	 	 	 	 	 	 
	

	 	By:
	 	

Name:	 	 
	

	 	 	 	Title:	 	 
	

	 	 	 	 	 	 
	

	 	NORTHWESTERN
MUTUAL LIFE INSURANCE COMPANY, as Lender

	 
	 	 	 	 	 	 
	

	 	By:
	 	

Name:	 	 
	

	 	 	 	Title:	 	 

H-6

 

	 	 	 
	STATE OF                    

	 	 )
	

	 	 )    ss
	COUNTY OF

	 	 )
	                   
	 	 

     On                                                           , 2004, before me,                                       
personally appeared                                       , a                    of ARADIGM
CORPORATION, a                    corporation, personally known to me (or proved to me
on the basis of satisfactory evidence) to be the person(s) whose names(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signatures(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

	 	 	 
	

	 	 
	Notary Public

	 	 

(This area for official seal)

	 	 	 
	STATE OF                    

	 	 )
	

	 	 )     ss
	COUNTY OF

	 	 )
	                   
	 	 

     On                                                           , 2004, before me,                                       
personally appeared                                       , a                    of NOVO NORDISK
DELIVERY TECHNOLOGIES, INC., a                     corporation, personally known to me
(or proved to me on the basis of satisfactory evidence) to be the person(s)
whose names(s) is/are subscribed to the within instrument and acknowledged to
me that he/she/they executed the same in his/her/their authorized
capacity(ies), and that by his/her/their signatures(s) on the instrument the
person(s), or the entity upon behalf of which the person(s) acted, executed the
instrument.

WITNESS my hand and official seal.

	 	 	 
	

	 	 
	Notary Public

	 	 

(This area for official seal)

H-7

 

	 	 	 
	STATE OF                    

	 	 )
	

	 	 )     ss
	COUNTY OF

	 	 )
	                   
	 	 

     On                                                           , 2004, before me,                                       
personally appeared                                       , a                     of BRITTANIA
DEVELOPMENTS, INC, a California corporation, personally known to me (or proved
to me on the basis of satisfactory evidence) to be the person(s) whose names(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signatures(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

	 	 	 
	

	 	 
	Notary Public

	 	 

(This area for official seal)

	 	 	 
	STATE OF                    

	 	 )
	

	 	 )     ss
	COUNTY OF

	 	 )
	                   
	 	 

     On                                                           , 2004, before me,                                        personally
appeared                
                      , a                    of NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY, a                     corporation, personally known to me (or proved
to me on the basis of satisfactory evidence) to be the person(s) whose names(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signatures(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

	 	 	 
	

	 	 
	Notary Public

	 	 

(This area for official seal)

H-8

 

EXHIBIT A

[Location of Premises]

H-9

 

EXHIBIT B

Improved real property located in the City of Hayward, County of Alameda, State
of California, more particularly described as follows:

Lots 2, 3, 4, 5 and 7, Tract 4019, filed June 28, 1979, Map Book 110, Pages 97,
98 and 99, Alameda County Records.

Subject to easements, restrictions and other matters of record affecting title.

H-10

 

Exhibit C

[Description of Mortgage to be provided by Landlord and Lender]

H-11

 

ASSIGNMENT AND ASSUMPTION OF LEASE, LANDLORD

AGREEMENT AND LENDER CONSENT

     ASSIGNMENT AND ASSUMPTION OF LEASE, LANDLORD AGREEMENT AND LENDER CONSENT
(“Agreement”), dated as of                                                           , 2004, between ARADIGM CORPORATION, a
California corporation (“Assignor”), NOVO NORDISK DELIVERY TECHNOLOGIES, INC.,
a Delaware corporation (“Assignee”), HAYWARD POINT EDEN I LIMITED PARTNERSHIP,
a Delaware limited partnership (“Landlord”) and NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY, a Wisconsin Corporation (“Lender”).

W I T N E S S E T H :

     WHEREAS, Assignor is the tenant of certain premises (the “Premises”) (more
particularly described in Exhibit A hereto and located on real property
described in Exhibit B hereto, the “Property”) under a Lease dated as of July
1, 2000 between Landlord, as landlord, and Assignor, as tenant (a Memorandum of
which is recorded in [ ], Alameda County Records) (the “Building 3
Lease”);

     WHEREAS, Assignor and Assignee are restructuring their existing business
relationships and, accordingly, Assignor desires to assign to Assignee and
Assignee desires to acquire from Assignor all right, title and interest in and
under the Building 3 Lease, subject to and upon the terms and conditions
hereinafter set forth;

     WHEREAS, Landlord is the owner and holder of landlord’s interest under the
Building 3 Lease and desires to consent to the assignment and agree that the
cross default contained in the Building 3 Lease shall be effective only as
modified by this Agreement; and

     WHEREAS, Lender is the owner and holder of the mortgage described in
Exhibit C hereto covering the Property and desires to consent to this
Agreement;

     NOW, THEREFORE, in consideration of the agreements contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Assignee, Assignor, Landlord and Lender agree as follows:

     Section 1 . Assignment. Assignor hereby assigns, transfers, sets over
and conveys to Assignee all of Assignor’s right, title and interest in, to and
under the Building 3 Lease including, without limitation, any rights to tenant
improvements constructed by Assignor therein and rights to the security deposit
thereunder. The

H-12

 

tenant improvements are transferred on an “as-is-where-is” basis, without
representation or warranty of any kind.

     Section 2 . Assumption And Indemnification. (a) Assignee hereby assumes
and agrees to pay, perform and discharge, as and when due, all of Assignor’s
liabilities and obligations under the Building 3 Lease arising and accruing
from and after the date hereof.

     (a) Assignee hereby agrees to indemnify, defend and hold harmless
Assignor from and against all of Assignor’s obligations and liabilities under
and with respect to the Building 3 Lease and the Premises arising or accruing
from and after the date hereof.

     (b) Assignor hereby agrees to indemnify, defend and hold harmless Assignee
from and against all of Assignor’s obligations and liabilities under and with
respect to the Building 3 Lease and the Premises arising or accruing prior to
the date hereof.

     Section 3 . Apportionments Of Payments. Assignee or Assignor, as
applicable, shall reimburse the other for its (the reimbursing party’s)
proportionate share of any payments made by the other pursuant to the Building
3 Lease attributable to any period during which the reimbursing party is in
possession of the Premises, on a per diem basis based upon the actual number of
days in the relevant payment period. Additionally, Assignee shall pay Assignor
the amount of Aradigm’s security deposit under the Building 3 Lease less the
sum of all amounts, if any, claimed by Landlord pursuant to Section 6(b)
hereof.

     Section 4 . Landlord Agreement. (a) Landlord hereby consents to the
assignment set forth in Section 1 above and agrees that Section 14.1(i)
(“Cross-Default”) of the Building 3 Lease shall not apply with respect to any
lease under which, at the time of any default under such lease, Assignee or any
person or entity which controls, is controlled by or is under common control of
the Assignee, is not the tenant.

     Section 5 . Lender Consent. Lender hereby consents to each of the
provisions of this Agreement including Landlord’s agreement set forth in
Section 4 above.

     Section 6 . Estoppels. (a) Assignor hereby certifies to the other
parties hereto that (i) it is not in default under the Building 3 Lease nor to
its knowledge is there any event which with notice or lapse of time or both
would constitute a default by Assignor thereunder, (ii) to its knowledge,
except as set forth in Section 6(b) hereof, Landlord has no claim against the
security deposit under the Building 3 Lease nor is there any event which with
notice or lapse of time would give rise to such a claim by Landlord and (iii)
to its knowledge, Landlord is not in default under the Building 3 Lease nor is
there any event which with notice or lapse of time or both would constitute a
default by Landlord thereunder.

H-13

 

     (b) Landlord hereby certifies to the other parties that (i) the definition
of the Building 3 Lease contained in the recitals hereto correctly describes
the Building 3 Lease and that the Building 3 Lease has not been further
supplemented, amended or otherwise modified, (ii) to its knowledge, Assignor is
not in default under the Building 3 Lease nor is there any event which with
notice or lapse of time or both would constitute a default by Assignor
thereunder, (iii) Landlord holds a security deposit under the Building 3 Lease
from Assignor in the amount of $10,566.43 and (iv) Landlord has no existing
claim against such security deposit nor, to its knowledge, is there any event
which with notice or lapse of time or both would give rise to such a claim by
Landlord.

     Section 7 . Representations And Warranties. Each party hereto represents
to the others that it (the party giving the representation) has the right and
power to enter into this Agreement, that this Agreement has been duly
authorized, executed and delivered by it, and that this Agreement is valid,
binding and enforceable against it, except with regards to bankruptcy and
similar laws affecting creditors’ rights generally and general principles of
equity.

     Section 8 . Miscellaneous. (a) The parties hereto agree to execute and
deliver such further Agreements and do such further acts and things as may be
required or desirable to carry out the intent and purpose of this Agreement.

     (b) Any provision of this Agreement may be amended or waived if, and only
if, such amendment or waiver is in writing and is signed, in the case of an
amendment, by the parties hereto or, in the case of a waiver, by the party
against whom the waiver is to be effective. No failure or delay by any party
in exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.

     (c) Nothing in this Agreement shall diminish the rights of either party
under the Restructuring Agreement dated September 28, 2004 between Assignor,
Assignee and Novo Nordisk A/S or any other Transaction Agreement (as defined
therein).

     (d) The provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. This Agreement is for the sole benefit of the parties hereto and
their successors and permitted assigns, and, except as otherwise contemplated
herein, nothing herein express or implied shall give or be construed to give
any person, other than the parties hereto and their successors and permitted
assigns, any legal or equitable rights hereunder.

     (e) This Agreement shall be governed by and construed in accordance with
the law of California, without regard to the conflicts of law rules thereof.

H-14

 

     (f) This Agreement may be executed in one or more counterparts (including
by photocopy or facsimile), each of which shall be deemed to be an original and
all of which, when taken together, shall constitute one and the same Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

H-15

 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.

	 	 	 	 	 	 	 
	 	 	ARADIGM CORPORATION,
as
      Assignor
	 
	 	 	 	 	 	 
	

	 	By:
	 	

Name:	 	 
	

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 	NOVO NORDISK
DELIVERY
      
TECHNOLOGIES, INC., as Assignee
	 
	 	 	 	 	 	 
	

	 	By:
	 	

Name:	 	 
	

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 	HAYWARD POINT EDEN I
LIMITED
       PARTNERSHIP,as Landlord

	 
	 	 	 	 	 	 
	 	 	By: 	 	BRITTANIA DEVELOPMENTS,
INC, a
California Corporation,
General Partner
	 
	 	 	 	 	 	 
	

	 	By:
	 	

Name:	 	 
	

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 	NORTHWESTERN MUTUAL
LIFE
       INSURANCE COMPANY,as Lender
	 
	 	 	 	 	 	 
	

	 	By:
	 	

Name:	 	 
	

	 	 	 	Title:	 	 

H-16

 

	 	 	 
	STATE OF                    

	 	 )
	

	 	 )ss
	COUNTY OF

	 	 )
	                   
	 	 

     On                                                           , 2004, before me,                                                                               
personally appeared                                       , a
                   of ARADIGM CORPORATION, a                     corporation, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person(s) whose names(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signatures(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.

WITNESS my hand and official seal.

	 	 	 
	

	 	 
	Notary Public
	 	 

	 	 	 
	STATE OF                    

	 	 )
	

	 	 )ss
	COUNTY OF

	 	 )
	                   
	 	 

     On                                                           , 2004, before me,                                                                                
personally appeared                                       , a
                   of NOVO NORDISK DELIVERY TECHNOLOGIES, INC., a                    
corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person(s) whose names(s) is/are subscribed to
the within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies), and that by his/her/their
signatures(s) on the instrument the person(s), or the entity upon behalf of
which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

	 	 	 
	

	 	 
	Notary Public
	 	 

H-17

 

(This area for official seal)

	 	 	 
	STATE OF                    

	 	 )
	

	 	 )ss
	COUNTY OF

	 	 )
	                   
	 	 

     On                                                           , 2004, before me,                                       
                                       personally appeared                                       , a
                                      of BRITTANIA DEVELOPMENTS, INC, a California corporation,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose names(s) is/are subscribed to the within instrument
and acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signatures(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.

WITNESS my hand and official seal.

	 	 	 
	

	 	 
	Notary Public
	 	 

(This area for official seal)

	 	 	 
	STATE OF                    

	 	 )
	

	 	 )ss
	COUNTY OF

	 	 )
	                   
	 	 

     On                                                           , 2004, before me,                                       
                                       personally appeared                                       , a
                                      of NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a                   
corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person(s) whose names(s) is/are subscribed to
the within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies), and that by his/her/their
signatures(s) on the instrument the person(s), or the entity upon behalf of
which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

	 	 	 
	

	 	 
	Notary Public
	 	 

	 
	(This area for official seal)

H-18

 

EXHIBIT A

[Location of Premises]

H-19

 

EXHIBIT B

Improved real property located in the City of Hayward, County of Alameda, State
of California, more particularly described as follows:

Lots 2, 3, 4, 5 and 7, Tract 4019, filed June 28, 1979, Map Book 110, Pages 97,
98 and 99, Alameda County Records.

Subject to easements, restrictions and other matters of record affecting title.

H-20

 

Exhibit C

[Description of Mortgage to be provided by Landlord and Lender]

H-21<PAGE>

EXHIBIT 10.54

================================================================================

                      AMENDED AND RESTATED CREDIT AGREEMENT

                            Dated as of June 18, 2004

                                      among

                              NAVARRE CORPORATION,

                                  as Borrower,

                          THE LENDERS SIGNATORY HERETO

                               FROM TIME TO TIME,

                                   as Lenders,

                                       and

                      GENERAL ELECTRIC CAPITAL CORPORATION,

                    as Administrative Agent, Agent and Lender

                        GECC CAPITAL MARKETS GROUP, INC.

                                as Lead Arranger

================================================================================

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                           Page
                                                                                                                           ----
<S>                                                                                                                        <C>
1.  AMOUNT AND TERMS OF CREDIT.........................................................................................      2

    1.1     Credit Facilities..........................................................................................      2
    1.2     Letters of Credit..........................................................................................      6
    1.3     Prepayments................................................................................................      6
    1.4     Use of Proceeds............................................................................................      8
    1.5     Interest and Applicable Margins............................................................................      8
    1.6     Eligible Accounts..........................................................................................     10
    1.7     Eligible Inventory.........................................................................................     13
    1.8     Cash Management Systems....................................................................................     14
    1.9     Fees.......................................................................................................     14
    1.10    Receipt of Payments........................................................................................     15
    1.11    Application and Allocation of Payments.....................................................................     15
    1.12    Loan Account and Accounting................................................................................     16
    1.13    Indemnity..................................................................................................     16
    1.14    Access.....................................................................................................     17
    1.15    Taxes......................................................................................................     18
    1.16    Capital Adequacy; Increased Costs; Illegality..............................................................     19
    1.17    Single Loan................................................................................................     20

2.  CONDITIONS PRECEDENT...............................................................................................     20

    2.1     Conditions to the Initial Loans............................................................................     20
    2.2     Further Conditions to Each Loan............................................................................     21

3.  REPRESENTATIONS AND WARRANTIES.....................................................................................     22

    3.1     Corporate Existence; Compliance with Law...................................................................     22
    3.2     Executive Offices, Collateral Locations, FEIN..............................................................     23
    3.3     Corporate Power, Authorization, Enforceable Obligations....................................................     23
    3.4     Financial Statements and Projections.......................................................................     23
    3.5     Material Adverse Effect....................................................................................     24
    3.6     Ownership of Property; Liens...............................................................................     24
    3.7     Labor Matters..............................................................................................     25
    3.8     Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness..................................     25
    3.9     Government Regulation......................................................................................     25
    3.10    Margin Regulations.........................................................................................     26
    3.11    Taxes......................................................................................................     26
    3.12    ERISA......................................................................................................     26
    3.13    No Litigation..............................................................................................     27
    3.14    Brokers....................................................................................................     27
    3.15    Intellectual Property......................................................................................     28
    3.16    Full Disclosure............................................................................................     28
    3.17    Environmental Matters......................................................................................     28
    3.18    Insurance..................................................................................................     29
</TABLE>

                                        i
<PAGE>

<TABLE>
<S>                                                                                                                         <C>
    3.19    Deposit and Disbursement Accounts..........................................................................     29
    3.20    Government Contracts.......................................................................................     29
    3.21    Customer and Trade Relations...............................................................................     29
    3.22    Agreements and Other Documents.............................................................................     29
    3.23    Solvency...................................................................................................     30
    3.24    E-Splice...................................................................................................     30

4.  FINANCIAL STATEMENTS AND INFORMATION...............................................................................     30

    4.1     Reports and Notices........................................................................................     30
    4.2     Communication with Accountants.............................................................................     30

5.  AFFIRMATIVE COVENANTS..............................................................................................     30

    5.1     Maintenance of Existence and Conduct of Business...........................................................     30
    5.2     Payment of Charges.........................................................................................     31
    5.3     Books and Records..........................................................................................     31
    5.4     Insurance; Damage to or Destruction of Collateral..........................................................     31
    5.5     Compliance with Laws.......................................................................................     33
    5.6     Supplemental Disclosure....................................................................................     33
    5.7     Intellectual Property......................................................................................     33
    5.8     Environmental Matters......................................................................................     33
    5.9     Landlords' Agreements......................................................................................     34
    5.10    Borrowing Availability.....................................................................................     35
    5.11    Clean Down.................................................................................................     35
    5.12    Further Assurances.........................................................................................     35

6.  NEGATIVE COVENANTS.................................................................................................     35

    6.1     Mergers, Subsidiaries, Etc.................................................................................     35
    6.2     Investments; Loans and Advances............................................................................     38
    6.3     Indebtedness...............................................................................................     40
    6.4     Employee Loans and Affiliate Transactions..................................................................     40
    6.5     Capital Structure and Business.............................................................................     41
    6.6     Guaranteed Indebtedness....................................................................................     41
    6.7     Liens......................................................................................................     41
    6.8     Sale of Stock and Assets...................................................................................     41
    6.9     ERISA......................................................................................................     42
    6.10    Financial Covenants........................................................................................     42
    6.11    Hazardous Materials........................................................................................     42
    6.12    Sale-Leasebacks............................................................................................     42
    6.13    Cancellation of Indebtedness...............................................................................     42
    6.14    Restricted Payments........................................................................................     42
    6.15    Change of Corporate Name or Location; Change of Fiscal Year................................................     43
    6.16    No Impairment of Intercompany Transfers....................................................................     43
    6.17    No Speculative Transactions................................................................................     43
    6.18    Leases; Real Estate Purchases..............................................................................     43
    6.19    Amendments.................................................................................................     44
    6.20    Trade Debt.................................................................................................     44
</TABLE>

                                       ii
<PAGE>

<TABLE>
<S>                                                                                                                         <C>
7. TERM ...............................................................................................................     44

    7.1     Termination................................................................................................     44
    7.2     Survival of Obligations Upon Termination of Financing Arrangements.........................................     44

8.  EVENTS OF DEFAULT; RIGHTS AND REMEDIES.............................................................................     44

    8.1     Events of Default..........................................................................................     44
    8.2     Remedies...................................................................................................     46
    8.3     Waivers by Credit Parties..................................................................................     47

9.  ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT................................................................     47

    9.1     Assignment and Participations..............................................................................     47
    9.2     Appointment of Agent.......................................................................................     49
    9.3     Agent's Reliance, Etc......................................................................................     50
    9.4     GE Capital and Affiliates..................................................................................     51
    9.5     Lender Credit Decision.....................................................................................     51
    9.6     Indemnification............................................................................................     51
    9.7     Successor Agent............................................................................................     52
    9.8     Setoff and Sharing of Payments.............................................................................     52
    9.9     Advances and Acquisition Loan Advances; Payments; Non-Funding Lenders; Information; Actions in Concert.....     53

10. SUCCESSORS AND ASSIGNS.............................................................................................     55

    10.1    Successors and Assigns.....................................................................................     55

11. MISCELLANEOUS .....................................................................................................     56

    11.1    Complete Agreement; Modification of Agreement..............................................................     56
    11.2    Amendments and Waivers.....................................................................................     56
    11.3    Fees and Expenses..........................................................................................     58
    11.4    No Waiver..................................................................................................     59
    11.5    Remedies...................................................................................................     59
    11.6    Severability...............................................................................................     59
    11.7    Conflict of Terms..........................................................................................     59
    11.8    Confidentiality............................................................................................     60
    11.9    GOVERNING LAW..............................................................................................     60
    11.10   Notices ...................................................................................................     61
    11.11   Section Titles ............................................................................................     61
    11.12   Counterparts ..............................................................................................     61
    11.13   WAIVER OF JURY TRIAL.......................................................................................     61
    11.14   Press Releases and Related Matters.........................................................................     62
    11.15   Reinstatement .............................................................................................     62
    11.16   Advice of Counsel .........................................................................................     62
    11.17   No Strict Construction.....................................................................................     62

12. AMENDMENT AND RESTATEMENT..........................................................................................     63

    12.1    Interrelationship with the Existing Credit Agreement.......................................................     63
</TABLE>

                                       iii
<PAGE>

<TABLE>
<S>                                                                                                                         <C>
    12.2    Confirmation of Existing Obligations.......................................................................     63
</TABLE>

                               INDEX OF APPENDICES

<TABLE>
<S>                                   <C>               <C>
Annex A (Recitals)                    -                 Definitions
Annex B (Section 1.2)                 -                 Letters of Credit
Annex C (Section 1.8)                 -                 Cash Management System
Annex D (Section 2.1(a))              -                 Closing Checklist
Annex E (Section 4.1(a))              -                 Financial Statements and Projections -- Reporting
Annex F (Section 4.1(b))              -                 Collateral Reports
Annex G (Section 6.10)                -                 Financial Covenants
Annex H (Section 9.9(a))              -                 Lenders' Wire Transfer Information
Annex I (Section 11.10)               -                 Notice Addresses
Annex J (from Annex A-
    Commitments definition)           -                 Commitments as of Closing Date

Exhibit 1.1(a)(i)                     -                 Form of Notice of Revolving Credit Advance
Exhibit 1.1(a)(ii)                    -                 Form of Revolving Note
Exhibit 1.1(b)(ii)                    -                 Form of Swing Line Note
Exhibit 1.1(c)(i)                     -                 Form of Notice of Acquisition Loan Advance
Exhibit 1.1(c)(iii)                   -                 Form of Acquisition Loan Note
Exhibit 1.5(e)                        -                 Form of Notice of Conversion/Continuation
Exhibit 4.1(b)                        -                 Form of Borrowing Base Certificate
Exhibit 9.1(a)                        -                 Form of Assignment Agreement
Exhibit B-1                           -                 Application for Standby Letter of Credit
Schedule  1.1                         -                 Agent's Representatives
Disclosure Schedule  3.1              -                 Type of Entity; State of Organization
Disclosure Schedule  3.2              -                 Executive Offices, Collateral Locations, FEIN
Disclosure Schedule  3.4(a)           -                 Financial Statements
Disclosure Schedule  3.4(b)           -                 Projections
Disclosure Schedule  3.6              -                 Real Estate and Leases
Disclosure Schedule  3.7              -                 Labor Matters
Disclosure Schedule  3.8              -                 Ventures, Subsidiaries and Affiliates; Outstanding Stock
Disclosure Schedule  3.11             -                 Tax Matters
Disclosure Schedule  3.12             -                 ERISA Plans
Disclosure Schedule  3.13             -                 Litigation
Disclosure Schedule  3.15             -                 Intellectual Property
Disclosure Schedule  3.17             -                 Hazardous Materials
Disclosure Schedule  3.18             -                 Insurance
Disclosure Schedule  3.19             -                 Deposit and Disbursement Accounts
Disclosure Schedule  3.20             -                 Government Contracts
Disclosure Schedule  3.22             -                 Material Agreements
Disclosure Schedule  5.1              -                 Trade Names
Disclosure Schedule  6.2              -                 Vendor Advances
Disclosure Schedule  6.3              -                 Indebtedness
Disclosure Schedule  6.4(a)           -                 Transactions with Affiliates
</TABLE>

                                       iv
<PAGE>

<TABLE>
<S>                                   <C>               <C>
Disclosure Schedule  6.7              -                 Existing Liens
</TABLE>

                                        v
<PAGE>

            This AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement"), dated
as of June 18, 2004, by and among Navarre Corporation, a Minnesota corporation
("Borrower"), the Credit Parties signatory hereto, GENERAL ELECTRIC CAPITAL
CORPORATION, a Delaware corporation (in its individual capacity, "GE Capital"),
for itself, as Lender, and as Agent for Lenders, and the other Lenders signatory
hereto from time to time.

                                    RECITALS

            WHEREAS, Borrower, Agent and the Lenders signatory thereto are
parties to that certain Credit Agreement dated as of October 3, 2001 (as amended
or otherwise modified prior to the date hereof, the "Existing Credit
Agreement");

            WHEREAS, Borrower has requested that Lenders extend (i) a revolving
credit facility to Borrower of up to Forty Million Dollars ($40,000,000) in the
aggregate for the purpose of providing (a) working capital financing for
Borrower, (b) funds for other general corporate purposes of Borrower and (c)
funds for other purposes permitted hereunder and (ii) an acquisition loan
facility to Borrower up to Ten Million Dollars ($10,000,000) in the aggregate
for the purposes of providing acquisition financing upon the terms and
conditions set forth herein; and for these purposes, Lenders are willing to make
certain loans and other extensions of credit to Borrower of up to such amount
upon the terms and conditions set forth herein;

            WHEREAS, Borrower has agreed to secure all of its obligations under
the Loan Documents by granting to Agent, for the benefit of Agent and Lenders, a
security interest in and lien upon all of its existing and after-acquired
personal and real property;

            WHEREAS, the Credit Parties signatory hereto (other than Borrower)
have agreed to guarantee the Obligations and to grant to Agent, for the benefit
of Agent and Lenders, a security interest in and lien upon all of their existing
and after-acquired personal and real property to secure the Obligations; and

            WHEREAS, capitalized terms used in this Agreement shall have the
meanings ascribed to them in Annex A and, for purposes of this Agreement and the
other Loan Documents, the rules of construction set forth in Annex A shall
govern. All Annexes, Disclosure Schedules, Exhibits and other attachments
(collectively, "Appendices") hereto, or expressly identified to this Agreement,
are incorporated herein by reference, and taken together with this Agreement,
shall constitute but a single agreement. These Recitals shall be construed as
part of the Agreement.

            NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, and for other good and valuable consideration,
the parties hereto agree to amend and restate the Existing Credit Agreement in
its entirety as set forth herein:

<PAGE>

1. AMOUNT AND TERMS OF CREDIT

            1.1 Credit Facilities.

            (a) Revolving Credit Facility.

                  (i) Subject to the terms and conditions hereof, each Revolving
Lender agrees to make available to Borrower from time to time until the
Commitment Termination Date its Pro Rata Share of advances (each, a "Revolving
Credit Advance"). The Pro Rata Share of the Revolving Loan of any Revolving
Lender shall not at any time exceed its separate Revolving Loan Commitment. The
obligations of each Revolving Lender hereunder shall be several and not joint.
Until the Commitment Termination Date, Borrower may from time to time borrow,
repay and reborrow under this Section 1.1(a); provided, that (A) the amount of
any Revolving Credit Advance to be made at any time shall not exceed Borrowing
Availability at such time and (B) the Borrower shall not request, and shall not
borrow, a Revolving Credit Advance to fund all or any portion of a Permitted
Acquisition or a Permitted Intellectual Property Acquisition (1) if the amount
of such Revolving Credit Advance would exceed Revolving Acquisition Loan
Availability at such time, (2) unless, in the case of a Permitted Acquisition,
the Acquisition Loan Funding Termination Date has occurred or the then
outstanding principal balance of Acquisition Loans equals the Maximum
Acquisition Loan Amount at such time, or (3) to the extent that the aggregate
amount of the then outstanding Revolving Credit Advances used to fund such
transactions has exceeded, or would exceed after giving effect to all such
requested Revolving Credit Advances, $10,000,000. Borrowing Availability may be
further reduced by Reserves imposed by Agent in its reasonable credit judgment
for reasons relating to any Credit Party, any Credit Party's business or
industry and/or the Agent's ability to collect or realize the full value of any
Collateral. Each Revolving Credit Advance shall be made on notice by Borrower to
one of the representatives of Agent identified in Schedule 1.1 at the address
specified therein. Any such notice must be given no later than (1) 11:00 a.m.
(Chicago time) on the Business Day of the proposed Revolving Credit Advance, in
the case of an Index Rate Loan, or (2) 11:00 a.m. (Chicago time) on the date
which is 3 Business Days prior to the proposed Revolving Credit Advance, in the
case of a LIBOR Loan. Each such notice (a "Notice of Revolving Credit Advance")
must be given in writing (by telecopy or overnight courier) substantially in the
form of Exhibit 1.1(a)(i), and shall include the information required in such
Exhibit and such other information as may be required by Agent. If Borrower
desires to have the Revolving Credit Advances bear interest by reference to a
LIBOR Rate, it must comply with Section 1.5(e).

                  (ii) Except as provided in Section 1.12, Borrower shall
execute and deliver to each Revolving Lender a note to evidence the Revolving
Loan Commitment of that Revolving Lender. Each note shall be in the principal
amount of the Revolving Loan Commitment of the applicable Revolving Lender,
dated the Closing Date and substantially in the form of Exhibit 1.1(a)(ii) (each
a "Revolving Note" and, collectively, the "Revolving Notes"). Each Revolving
Note shall represent the obligation of Borrower to pay the amount of Revolving
Lender's Revolving Loan Commitment or, if less, such Revolving Lender's Pro Rata
Share of the aggregate unpaid principal amount

                                       2
<PAGE>

of all Revolving Credit Advances to Borrower together with interest thereon as
prescribed in Section 1.5. The entire unpaid balance of the Revolving Loan and
all other non-contingent Obligations shall be immediately due and payable in
full in immediately available funds on the Commitment Termination Date.

            (b) Swing Line Facility.

                  (i) Agent shall notify the Swing Line Lender upon Agent's
receipt of any Notice of Revolving Credit Advance. Subject to the terms and
conditions hereof, the Swing Line Lender may, in its discretion, make available
from time to time until the Commitment Termination Date advances (each, a "Swing
Line Advance") in accordance with any such notice. The provisions of this
Section 1.1(b) shall not relieve Revolving Lenders of their obligations to make
Revolving Credit Advances under Section 1.1(a); provided that if the Swing Line
Lender makes a Swing Line Advance pursuant to any such notice, such Swing Line
Advance shall be in lieu of any Revolving Credit Advance that otherwise may be
made by Revolving Credit Lenders pursuant to such notice. The aggregate amount
of Swing Line Advances outstanding shall not exceed at any time the lesser of
(A) the Swing Line Commitment and (B) the lesser of the Maximum Amount and the
Borrowing Base, in each case, less the outstanding balance of the Revolving Loan
at such time ("Swing Line Availability"). Until the Commitment Termination Date,
Borrower may from time to time borrow, repay and reborrow under this Section
1.1(b). Each Swing Line Advance shall be made pursuant to a Notice of Revolving
Credit advance delivered by Borrower to Agent in accordance with Section 1.1(a).
Any such notice must be given no later than 11:00 a.m. (Chicago time) on the
Business Day of the proposed Swing Line Advance. Unless the Swing Line Lender
has received at least one Business Day's prior written notice from Requisite
Lenders instructing it not to make a Swing Line Advance, the Swing Line Lender
shall, notwithstanding the failure of any condition precedent set forth in
Sections 2.2, be entitled to fund that Swing Line Advance, and to have such
Revolving Lender make Revolving Credit Advances in accordance with Section
1.1(b)(iii) or purchase participating interests in accordance with Section
1.1(b)(iv). Notwithstanding any other provision of this Agreement or the other
Loan Documents, the Swing Line Loan shall constitute an Index Rate Loan.
Borrower shall repay the aggregate outstanding principal amount of the Swing
Line Loan upon demand therefor by Agent.

                  (ii) Borrower shall execute and deliver to the Swing Line
Lender a promissory note to evidence the Swing Line Commitment. Such note shall
be in the principal amount of the Swing Line Commitment of the Swing Line
Lender, dated the Closing Date and substantially in the form of Exhibit
1.1(b)(ii) (the "Swing Line Note"). The Swing Line Note shall represent the
obligation of Borrower to pay the amount of the Swing Line Commitment or, if
less, the aggregate unpaid principal amount of all Swing Line Advances made to
Borrower together with interest thereon as prescribed in Section 1.5. The entire
unpaid balance of the Swing Line Loan and all other noncontingent Obligations
shall be immediately due and payable in full in immediately available funds on
the Commitment Termination Date if not sooner paid in full.

                                       3
<PAGE>

                  (iii) The Swing Line Lender, at any time and from time to time
in its sole and absolute discretion, may on behalf of Borrower (and Borrower
hereby irrevocably authorizes the Swing Line Lender to so act on its behalf)
request each Revolving Lender (including the Swing Line Lender) to make a
Revolving Credit Advance to Borrower (which shall be an Index Rate Loan) in an
amount equal to that Revolving Lender's Pro Rata Share of the principal amount
of the Swing Line Loan (the "Refunded Swing Line Loan") outstanding on the date
such notice is given. Unless any of the events described in Sections 8.1(h) or
8.1(i) has occurred (in which event the procedures of Section 1.1(b)(iv) shall
apply) and regardless of whether the conditions precedent set forth in this
Agreement to the making of a Revolving Credit Advance are then satisfied, each
Revolving Lender shall disburse directly to Agent, its Pro Rata Share of a
Revolving Credit Advance on behalf of the Swing Line Lender, prior to 2:00 p.m.
(Chicago time), in immediately available funds on the Business Day next
succeeding the date that notice is given. The proceeds of those Revolving Credit
Advances shall be immediately paid to the Swing Line Lender and applied to repay
the Refunded Swing Line Loan.

                  (iv) If, prior to refunding a Swing Line Loan with a Revolving
Credit Advance pursuant to Section 1.1(b)(iii), one of the events described in
Sections 8.1(h) or 8.1(i) has occurred, then, subject to the provisions of
Section 1.1(b)(v) below, each Revolving Lender shall, on the date such Revolving
Credit Advance was to have been made for the benefit of Borrower, purchase from
the Swing Line Lender an undivided participation interest in the Swing Line Loan
in an amount equal to its Pro Rata Share of such Swing Line Loan. Upon request,
each Revolving Lender shall promptly transfer to the Swing Line Lender, in
immediately available funds, the amount of its participation interest.

                  (v) Each Revolving Lender's obligation to make Revolving
Credit Advances in accordance with Section 1.1(b)(iii) and to purchase
participation interests in accordance with Section 1.1(b)(iv) shall be absolute
and unconditional and shall not be affected by any circumstance, including (A)
any setoff, counterclaim, recoupment, defense or other right that such Revolving
Lender may have against the Swing Line Lender, Borrower or any other Person for
any reason whatsoever; (B) the occurrence or continuance of any Default or Event
of Default; (C) any inability of Borrower to satisfy the conditions precedent to
borrowing set forth in this Agreement at any time or (D) any other circumstance,
happening or event whatsoever, whether or not similar to any of the foregoing.
If any Revolving Lender does not make available to Agent or the Swing Line
Lender, as applicable, the amount required pursuant to Sections 1.1(b)(iii) or
1.1(b)(iv), as the case may be, the Swing Line Lender shall be entitled to
recover such amount on demand from such Revolving Lender, together with interest
thereon for each day from the date of non-payment until such amount is paid in
full at the Federal Funds Rate for the first two Business Days and at the Index
Rate thereafter.

            (c) Acquisition Loan Facility.

                  (i) Subject to the terms and conditions hereof, each
Acquisition Loan Lender agrees to make available to Borrower from time to time
until

                                       4
<PAGE>

the Acquisition Loan Funding Termination Date its Pro Rata Share of acquisition
loan advances (each, an "Acquisition Loan Advance"). The Pro Rata Share of the
Acquisition Loan of any Acquisition Loan Lender shall not at any time exceed its
separate Acquisition Loan Commitment. Until the Acquisition Loan Funding
Termination Date, Borrower may from time to time borrow, repay and reborrow
under this Section 1.1(c); provided, that the aggregate outstanding principal
balance of all Acquisition Loan Advances at any time shall not exceed the
Maximum Acquisition Loan Amount at such time. The obligations of each
Acquisition Loan Lender hereunder shall be several and not joint. Each
Acquisition Loan Advance shall be made on notice by Borrower to one of the
representatives of Agent identified in Schedule 1.1 at the address specified
therein. Any such notice must be given no later than 11:00 a.m. (Chicago time)
on the date which is 3 Business Days prior to the proposed Acquisition Loan
Advance. Each such notice (a "Notice of Acquisition Loan Advance") must be given
in writing (by telecopy or overnight courier) substantially in the form of
Exhibit 1.1(c)(i), and shall include the information required in such Exhibit
and such other information as may be required by Agent.

                  (ii) The Borrower shall repay the principal amount of each
Acquisition Loan Advance in equal quarterly installments, payable on the first
Business Day of each calendar quarter, based on an amortization of thirty six
(36) months, commencing with the first Business Day of the first calendar
quarter to occur at least thirty (30) days after the date of the extension of
such Acquisition Loan Advance by Acquisition Loan Lenders to Borrower; provided
that the entire unpaid balance of each of the Acquisition Loan Advances and all
other non-contingent Obligations shall be immediately due and payable in full in
immediately available funds on the Commitment Termination Date.

                  (iii) Except as provided in Section 1.12, Borrower shall
execute and deliver to each Acquisition Loan Lender a note to evidence the
Acquisition Loan Commitment of that Acquisition Loan Lender. Each note shall be
in the principal amount of the Acquisition Loan Commitment of the applicable
Acquisition Loan Lender, dated the Closing Date and substantially in the form of
Exhibit 1.1(c)(iii) (each a "Acquisition Loan Note" and, collectively, the
"Acquisition Loan Notes"). Each Acquisition Loan Note shall represent the
obligation of Borrower to pay the amount of Acquisition Loan Lender's
Acquisition Loan Commitment or, if less, such Acquisition Loan Lender's Pro Rata
Share of the aggregate unpaid principal amount of all Acquisition Loan Advances
to Borrower together with interest thereon as prescribed in Section 1.5.

            (d) Reliance on Notices. Agent shall be entitled to rely upon, and
shall be fully protected in relying upon, any Notice of Revolving Credit
Advance, Notice of Acquisition Loan Advance, Notice of Conversion/Continuation
or similar notice believed by Agent to be genuine. Agent may assume that each
Person executing and delivering any notice in accordance herewith was duly
authorized, unless the responsible individual acting thereon for Agent has
actual knowledge to the contrary.

                                       5
<PAGE>

            1.2 Letters of Credit. Subject to and in accordance with the terms
and conditions contained herein and in Annex B, Borrower shall have the right to
request, and Revolving Lenders agree to incur, or purchase participations in,
Letter of Credit Obligations in respect of Borrower.

            1.3 Prepayments.

            (a) Voluntary Prepayments; Reductions in Revolving Loan Commitments
and Acquisition Loan Commitments. Borrower may at any time on at least 5 days'
prior written notice to Agent permanently reduce (but not terminate) the
Revolving Loan Commitment or the Acquisition Loan Commitment; provided that (A)
any such reductions shall be in a minimum amount of $5,000,000 and integral
multiples of $250,000 in excess of such amount, (B) the Revolving Loan
Commitment shall not be reduced to an amount less than the amount of the
Revolving Loan outstanding and the Acquisition Loan Commitment shall not be
reduced to an amount less than the amount of the Acquisition Loan outstanding,
and (C) after giving effect to such reductions, Borrower shall comply with
Section 1.3(b)(i). Borrower may at any time on at least ten 10 days' prior
written notice to Agent terminate the Revolving Loan Commitment and the
Acquisition Loan Commitment; provided that upon such termination all Loans and
other Obligations shall be immediately due and payable in full and all Letter of
Credit Obligations shall be cash collateralized or otherwise satisfied in
accordance with Annex B hereto. Borrower may at any time on at least ten 10
days' prior written notice to Agent terminate only the Acquisition Loan
Commitment; provided that upon such termination all Acquisition Loans and other
Obligations relating to the Acquisition Loans shall be immediately due and
payable in full. Any voluntary prepayment and any reduction or termination of
the Revolving Loan Commitment or the Acquisition Loan Commitment must be
accompanied by payment of the Fee required by Section 1.9(c), if any, plus the
payment of any LIBOR funding breakage costs in accordance with Section 1.13(b).
Upon any such reduction or termination of the Revolving Loan Commitment,
Borrower's right to request Revolving Credit Advances, or request that Letter of
Credit Obligations be incurred on its behalf, or request Swing Line Advances,
shall simultaneously be permanently reduced or terminated, as the case may be;
provided that a permanent reduction of the Revolving Loan Commitment shall
require a corresponding pro rata reduction in the L/C Sublimit. Upon any such
reduction or termination of the Acquisition Loan Commitment, Borrower's right to
request Acquisition Loan Advances shall simultaneously be permanently reduced or
terminated, as the case may be. Each notice of partial prepayment shall
designate the Loan or other Obligations to which such prepayment is to be
applied.

            (b) Mandatory Prepayments.

                  (i) If at any time the outstanding balances of the Revolving
Loan and the Swing Line Loan exceed the lesser of (A) the Maximum Amount and (B)
the Borrowing Base, Borrower shall immediately repay the aggregate outstanding
Revolving Credit Advances to the extent required to eliminate such excess. If
any such excess remains after repayment in full of the aggregate outstanding
Revolving Credit Advances, Borrower shall provide cash collateral for the Letter
of Credit Obligations in the manner set forth in Annex B to the extent required
to eliminate such excess. If at any time the outstanding balances of the
Acquisition Loans exceed the Maximum Acquisition

                                       6
<PAGE>

Loan Amount, the Borrower shall immediately repay the aggregate outstanding
Acquisition Loan Advances to the extent necessary to eliminate such excess.

                  (ii) Immediately upon receipt by any Credit Party of any
proceeds of any asset disposition (excluding proceeds of asset dispositions
permitted by Section 6.8(a), but including any sale of Stock of any Subsidiary
of any Credit Party, Borrower shall prepay the Loans in an amount equal to all
such proceeds, net of (A) commissions and other reasonable and customary
transaction costs, fees and expenses properly attributable to such transaction
and payable by Borrower in connection therewith (in each case, paid to
non-Affiliates), (B) transfer taxes, (C) amounts payable to holders of senior
Liens (to the extent such Liens constitute Permitted Encumbrances hereunder), if
any, and (D) an appropriate reserve for income taxes in accordance with GAAP in
connection therewith. Any such prepayment shall be applied in accordance with
Section 1.3(c).

                  (iii) If Borrower issues Stock, no later than the Business Day
following the date of receipt of the proceeds thereof, Borrower shall prepay the
Loans in an amount equal to all such proceeds, net of underwriting discounts and
commissions and other reasonable costs paid to non-Affiliates in connection
therewith. Any such prepayment shall be applied in accordance with Section
1.3(c). Notwithstanding anything herein to the contrary, as long as no Default
or Event of Default has occurred and is continuing, proceeds from the Private
Issuance in an aggregate amount not to exceed $4,550,000 and any future proceeds
received upon the exercise of one or more PIPE Warrants (i) shall not be
required to be used to prepay Loans and (ii) may be used by Borrower to make (a)
Permitted Acquisitions and Permitted Intellectual Property Acquisitions
otherwise permitted pursuant to Section 6.1 hereof and (b) investments, loans
and advances to the extent otherwise permitted under Section 6.2 hereof.

                  (iv) On the date that is twenty (20) days after the earlier of
(A) the date on which Borrower's annual audited Financial Statements for the
immediately preceding Fiscal Year are delivered pursuant to Annex E or (B) the
date on which such annual audited Financial Statements were required to be
delivered pursuant to Annex E, Borrower shall prepay the scheduled principal
installments of each of the outstanding Acquisition Loan Advance on a pro rata
basis, in an aggregate amount equal to one hundred percent (100%) of Excess Cash
Flow for the immediately preceding Fiscal Year. Each such prepayment shall be
accompanied by a certificate signed by Borrower's chief financial officer
certifying the manner in which Excess Cash Flow and the resulting prepayment
were calculated, which certificate shall be in form and substance satisfactory
to Agent.

            (c) Application of Certain Mandatory Prepayments. Any prepayments
made by Borrower pursuant to Sections 1.3(b)(ii) or (b)(iii) above shall be
applied as follows: first, to Fees and reimbursable expenses of Agent then due
and payable pursuant to any of the Loan Documents; second, to interest then due
and payable on the Swing Line Loan; third, to the principal balance of the Swing
Line Loan until the same has been repaid in full; fourth, to interest then due
and payable on the Revolving Credit Advances; fifth, to the outstanding
principal balance of Revolving Credit Advances until the same has been paid in
full; sixth, to any

                                       7
<PAGE>

Letter of Credit Obligations, to provide cash collateral therefor in the manner
set forth in Annex B, until all such Letter of Credit Obligations have been
fully cash collateralized in the manner set forth in Annex B.; seventh, to
interest then due and payable on the Acquisition Loan Advances; and eighth, to
the Acquisition Loan Advances, pro rata among all such Acquisition Loan
Advances, and to the scheduled amortization payments thereon in inverse order of
maturity, until the same have been repaid in full. None of the Revolving Loan
Commitment, the Acquisition Loan Commitment or the Swing Line Commitment shall
be permanently reduced by the amount of any such prepayments. All prepayments
from Excess Cash Flow paid pursuant to Section 1.1(b)(iv) above shall be applied
to prepay Acquisition Loan Advances, pro rata among all such Acquisition Loan
Advances, and to the scheduled amortization payments thereon, in inverse order
of maturity, until each of the outstanding Acquisition Loan Advances shall have
been prepaid in full.

            (d) Application of Prepayments from Insurance Proceeds and
Condemnation Proceeds. Prepayments from insurance or condemnation proceeds in
accordance with Section 5.4(c), shall be applied as follows: insurance proceeds
from casualties or losses to cash or Inventory shall be applied first, to the
Swing Line Loans, second, to the Revolving Credit Advances and third, to the
Acquisition Loan Advances, pro rata among all such Acquisition Loan Advances,
and to the scheduled amortization payments thereon, in inverse order of
maturity, until the same have been repaid in full. None of the Revolving Loan
Commitment, the Acquisition Loan Commitment or the Swing Line Loan Commitment
shall be permanently reduced by the amount of any such prepayments.

            (e) No Implied Consent. Nothing in this Section 1.3 shall be
construed to constitute Agent's or any Lender's consent to any transaction that
is not permitted by other provisions of this Agreement or the other Loan
Documents.

            1.4 Use of Proceeds.

            (a) Borrower shall utilize the proceeds of the Revolving Loan and
the Swing Line Loan solely for the financing of Borrower's ordinary working
capital, Permitted Acquisitions and Permitted Intellectual Property Acquisitions
permitted pursuant to Section 6.1 hereof, general corporate needs, and subject
to Section 1.1 hereof for Permitted Acquisitions and Permitted Intellectual
Property Acquisitions.

            (b) Borrower shall utilize the proceeds of the Acquisition Loan
solely for the purposes of financing Permitted Acquisitions and Permitted
Intellectual Property Acquisitions.

            1.5 Interest and Applicable Margins.

            (a) Borrower shall pay interest to Agent, for the ratable benefit of
Lenders in accordance with the various Loans being made by each Lender, in
arrears on each applicable Interest Payment Date, at the following rates: (i)
with respect to the Revolving Credit Advances, the Index Rate plus the
Applicable Revolver Index Margin per annum or, at the election of Borrower, the
applicable LIBOR Rate plus the Applicable Revolver LIBOR Margin per annum, based
on the aggregate Revolving Credit Advances outstanding from time to time; (ii)
with respect to the Swing Line Loan, the Index Rate plus the Applicable Revolver
Index Margin per

                                       8
<PAGE>

annum; and (iii) with respect to the Acquisition Loan Advances, the greater of
(i) 10.5% or (ii) the Index Rate plus the Applicable Acquisition Loan Index
Margin per annum or, at the election of Borrower, the applicable LIBOR Rate plus
the Applicable Acquisition Loan LIBOR Margin per annum.

            The Applicable Margins are as follows:

      Applicable Revolver Index Margin                  0.25%

      Applicable Revolver LIBOR Margin                  2.50%

      Applicable L/C Margin                             2.50%

      Applicable Acquisition Loan Index Margin          6.00%

      Applicable Acquisition Loan LIBOR Margin          8.50%

            (b) If any payment on any Loan becomes due and payable on a day
other than a Business Day, the maturity thereof will be extended to the next
succeeding Business Day (except as set forth in the definition of LIBOR Period)
and, with respect to payments of principal, interest thereon shall be payable at
the then applicable rate during such extension.

            (c) All computations of Fees calculated on a per annum basis and
interest shall be made by Agent on the basis of a 360-day year, in each case for
the actual number of days occurring in the period for which such interest and
Fees are payable. The Index Rate is a floating rate determined for each day.
Each determination by Agent of an interest rate and Fees hereunder shall be
final, binding and conclusive on Borrower, absent manifest error.

            (d) So long as an Event of Default has occurred and is continuing
under Section 8.1(a), (h) or (i), or so long as any other Default or Event of
Default has occurred and is continuing and at the election of Agent (or upon the
written request of Requisite Lenders) confirmed by written notice from Agent to
Borrower, the interest rates applicable to the Loans and the Letter of Credit
Fees shall be increased by two percentage points (2%) per annum above the rates
of interest or the rate of such Fees otherwise applicable hereunder ("Default
Rate"), and all outstanding Obligations shall bear interest at the Default Rate
applicable to such Obligations. Interest and Letter of Credit Fees at the
Default Rate shall accrue from the initial date of such Default or Event of
Default until that Default or Event of Default is cured or waived and shall be
payable upon demand.

            (e) Subject to the conditions precedent set forth in Section 2.2,
Borrower shall have the option to (i) request that any Revolving Credit Advance
be made as a LIBOR Loan, (ii) convert at any time all or any part of outstanding
Loans (other than the Swing Line Loan) from Index Rate Loans to LIBOR Loans,
(iii) convert any LIBOR Loan to an Index Rate Loan, subject to payment of LIBOR
breakage costs in accordance with Section 1.13(b) if such conversion is made
prior to the expiration of the LIBOR Period applicable thereto, or (iv) continue
all or any portion of any Loan (other than the Swing Line Loan) as a LIBOR Loan
upon the expiration of

                                       9
<PAGE>

the applicable LIBOR Period and the succeeding LIBOR Period of that continued
Loan shall commence on the first day after the last day of the LIBOR Period of
the Loan to be continued. Any Loan or group of Loans having the same proposed
LIBOR Period to be made or continued as, or converted into, a LIBOR Loan must be
in a minimum amount of $1,000,000 and integral multiples of $500,000 in excess
of such amount. Any such election must be made by 11:00 a.m. (Chicago time) on
the 3rd Business Day prior to (1) the date of any proposed Advance which is to
bear interest at the LIBOR Rate, (2) the end of each LIBOR Period with respect
to any LIBOR Loans to be continued as such, or (3) the date on which Borrower
wishes to convert any Index Rate Loan to a LIBOR Loan for a LIBOR Period
designated by Borrower in such election. If no election is received with respect
to a LIBOR Loan by 11:00 a.m. (Chicago time) on the 3rd Business Day prior to
the end of the LIBOR Period with respect thereto (or if a Default or an Event of
Default has occurred and is continuing or the additional conditions precedent
set forth in Section 2.2 shall not have been satisfied), that LIBOR Loan shall
be converted to an Index Rate Loan at the end of its LIBOR Period. Borrower must
make such election by notice to Agent in writing, by telecopy or overnight
courier. In the case of any conversion or continuation, such election must be
made pursuant to a written notice (a "Notice of Conversion/Continuation") in the
form of Exhibit 1.5(e).

            (f) Notwithstanding anything to the contrary set forth in this
Section 1.5, if a court of competent jurisdiction determines in a final order
that the rate of interest payable hereunder exceeds the highest rate of interest
permissible under law (the "Maximum Lawful Rate"), then so long as the Maximum
Lawful Rate would be so exceeded, the rate of interest payable hereunder shall
be equal to the Maximum Lawful Rate. Thereafter, interest hereunder shall be
paid at the rate(s) of interest and in the manner provided in Sections 1.5(a)
through (e), unless and until the rate of interest again exceeds the Maximum
Lawful Rate, and at that time this paragraph shall again apply. In no event
shall the total interest received by any Lender pursuant to the terms hereof
exceed the amount that such Lender could lawfully have received had the interest
due hereunder been calculated for the full term hereof at the Maximum Lawful
Rate. If the Maximum Lawful Rate is calculated pursuant to this paragraph, such
interest shall be calculated at a daily rate equal to the Maximum Lawful Rate
divided by the number of days in the year in which such calculation is made. If,
notwithstanding the provisions of this Section 1.5(f), a court of competent
jurisdiction shall finally determine that a Lender has received interest
hereunder in excess of the Maximum Lawful Rate, Agent shall, to the extent
permitted by applicable law, promptly apply such excess in the order specified
in Section 1.11 and thereafter shall refund any excess to Borrower or as a court
of competent jurisdiction may otherwise order.

            1.6 Eligible Accounts. All of the Accounts owned by one or more of
the Eligible Credit Parties and reflected in the most recent Borrowing Base
Certificate delivered by Borrower to Agent shall be "Eligible Accounts" for
purposes of this Agreement, except any Account to which any of the exclusionary
criteria set forth below applies. Agent shall have the right to establish or
modify or eliminate Reserves against Eligible Accounts from time to time in its
reasonable credit judgment. In addition, Agent reserves the right, at any time
and from time to time after the Closing Date, to adjust any of the criteria set
forth below, to establish new criteria and to adjust advance rates with respect
to Eligible Accounts, in its reasonable credit judgment for reasons relating to
any Credit Party, any Credit Party's business or industry and/or the Agent's
ability to collect or realize the full value of any Collateral, subject to the
approval of Supermajority Revolving Lenders in the case of adjustments or new
criteria or changes in

                                       10
<PAGE>

advance rates or the elimination of Reserves which have the effect of making
more credit available. Eligible Accounts shall not include any Account of any
Eligible Credit Party:

            (a) that does not arise from the sale of goods or the performance of
services by such Eligible Credit Party in the ordinary course of its business;

            (b) (i) upon which the right of such Eligible Credit Party to
receive payment is not absolute or is contingent upon the fulfillment of any
condition whatsoever or (ii) as to which such Eligible Credit Party is not able
to bring suit or otherwise enforce its remedies against the Account Debtor
through judicial process, or (iii) if the Account represents a progress billing
consisting of an invoice for goods sold or used or services rendered pursuant to
a contract under which the Account Debtor's obligation to pay that invoice is
subject to such Eligible Credit Party's completion of further performance under
such contract or is subject to the equitable lien of a surety bond issuer;

            (c) to the extent that any defense, counterclaim, setoff or dispute
is asserted as to such Account;

            (d) that is not a true and correct statement of bona fide
indebtedness incurred in the amount of the Account for merchandise sold to or
services rendered and accepted by the applicable Account Debtor;

            (e) with respect to which an invoice has not been sent to the
applicable Account Debtor;

            (f) that (i) is not owned by such Eligible Credit Party or (ii) is
subject to any right, claim, security interest or other interest of any other
Person, other than Liens in favor of Agent, on behalf of itself and Lenders;

            (g) that arises from a sale to any director, officer, other employee
or Affiliate of any Credit Party, or to any entity that has any common officer
or director with any Credit Party;

            (h) that is the obligation of an Account Debtor that is the United
States government or a political subdivision thereof, or any state, county or
municipality or department, agency or instrumentality thereof unless Agent, in
its sole discretion, has agreed to the contrary in writing and such Eligible
Credit Party, if necessary or desirable, has complied with respect to such
obligation with the Federal Assignment of Claims Act of 1940, or any applicable
state, county or municipal law restricting the assignment thereof with respect
to such obligation;

            (i) that is the obligation of an Account Debtor located in a foreign
country other than Canada (excluding the province of Newfoundland, the Northwest
Territories and the Territory of Nunavit) unless payment thereof is assured by a
letter of credit assigned and delivered to Agent, satisfactory to Agent as to
form, amount and issuer;

            (j) to the extent such Eligible Credit Party or any of its
Subsidiaries is liable for goods sold or services rendered by the applicable
Account Debtor to such Eligible Credit Party or any of its Subsidiaries but only
to the extent of the potential offset;

                                       11
<PAGE>

            (k) that arises with respect to goods that are delivered on a
bill-and-hold, cash-on-delivery basis or placed on consignment, guaranteed sale
or other terms by reason of which the payment by the Account Debtor is or may be
conditional;

            (l) that is in default; provided, that, without limiting the
generality of the foregoing, an Account shall be deemed in default upon the
occurrence of any of the following:

                  (i) the Account is not paid within the earlier of: 60 days
following its due date or 90 days following its original invoice date;

                  (ii) the Account Debtor obligated upon such Account suspends
business, makes a general assignment for the benefit of creditors or fails to
pay its debts generally as they come due; or

                  (iii) a petition is filed by or against any Account Debtor
obligated upon such Account under any bankruptcy law or any other federal, state
or foreign (including any provincial) receivership, insolvency relief or other
law or laws for the relief of debtors;

            (m) that is the obligation of an Account Debtor if 50% or more of
the Dollar amount of all Accounts owing by that Account Debtor are ineligible
under the other criteria set forth in this Section 1.6;

            (n) as to which Agent's Lien thereon, on behalf of itself and
Lenders, is not a first priority perfected Lien;

            (o) as to which any of the representations or warranties in the Loan
Documents are untrue;

            (p) to the extent such Account is evidenced by a judgment,
Instrument or Chattel Paper;

            (q) to the extent such Account exceeds any credit limit established
by Agent, in its reasonable credit judgment;

            (r) to the extent that such Account, together with all other
Accounts owing by such Account Debtor and its Affiliates as of any date of
determination exceed 20% of all otherwise Eligible Accounts (provided, however
that on and after the first anniversary of the Closing Date, Accounts owing by
an Approved Obligor and its Affiliates which constitute less than 25% of all
otherwise Eligible Accounts shall not be deemed ineligible pursuant to this
clause (r));

            (s) that is payable in any currency other than Dollars or Canadian
Dollars; or

            (t) that is otherwise unacceptable to Agent in its reasonable credit
judgment for reasons relating to any Credit Party, any Credit Party's business
or industry and/or the Agent's ability to collect or realize the full value of
any Collateral.

                                       12
<PAGE>

            1.7 Eligible Inventory. All of the inventory owned by one or more of
the Eligible Credit Parties and reflected in the most recent Borrowing Base
Certificate delivered by Borrower to Agent shall be "Eligible Inventory" for
purposes of this Agreement, except any Inventory to which any of the
exclusionary criteria set forth below applies. Agent shall have the right to
establish, modify, or eliminate Reserves against Eligible Inventory from time to
time in its reasonable credit judgment. In addition, Agent reserves the right,
at any time and from time to time after the Closing Date, to adjust any of the
criteria set forth below, to establish new criteria and to adjust advance rates
with respect to Eligible Inventory in its reasonable credit judgment, subject to
the approval of Supermajority Revolving Lenders in the case of adjustments or
new criteria or changes in advance rates or the elimination of Reserves which
have the effect of making more credit available. Eligible Inventory shall not
include any Inventory of any Eligible Credit Party that:

            (a) is not owned by such Eligible Credit Party free and clear of all
Liens and rights of any other Person (including the rights of a purchaser that
has made progress payments and the rights of a surety that has issued a bond to
assure the performance of such Eligible Credit Party with respect to that
Inventory), except the Liens in favor of Agent, on behalf of itself and Lenders;

            (b) (i) is not located on premises owned, leased or rented by such
Eligible Credit Party and set forth in Disclosure Schedule (3.2) or (ii) is
stored at a leased location, unless Agent has given its prior consent thereto
and unless (x) a reasonably satisfactory landlord waiver has been delivered to
Agent, or (y) Reserves satisfactory to Agent have been established with respect
thereto, (iii) is stored with a bailee or warehouseman unless a reasonably
satisfactory, acknowledged bailee letter has been received by Agent and Reserves
reasonably satisfactory to Agent have been established with respect thereto, or
(iv) is located at an owned location subject to a mortgage in favor of a lender
other than Agent, unless a reasonably satisfactory mortgagee waiver has been
delivered to Agent, or (v) is located at any site if the aggregate book value of
Inventory at any such location is less than $100,000;

            (c) is placed on consignment or is in transit, except for Inventory
in transit between domestic locations of Credit Parties as to which Agent's
Liens have been perfected at origin and destination;

            (d) is covered by a negotiable document of title, unless such
document has been delivered to Agent with all necessary endorsements, free and
clear of all Liens except those in favor of Agent and Lenders;

            (e) is excess, obsolete, unsalable, shopworn, seconds, damaged or
unfit for sale;

            (f) consists of display items or packing or shipping materials,
manufacturing supplies, work-in-process Inventory or replacement parts;

            (g) consists of goods which have been returned by the buyer;

            (h) is not of a type held for sale in the ordinary course of such
Eligible Credit Party's business;

                                       13
<PAGE>

            (i) is not subject to a first priority lien in favor of Agent on
behalf of itself and Lenders subject to Permitted Encumbrances;

            (j) breaches any of the representations or warranties pertaining to
Inventory set forth in the Loan Documents;

            (k) consists of any costs associated with "freight-in" charges;

            (l) consists of Hazardous Materials or goods that can be transported
or sold only with licenses that are not readily available;

            (m) is not covered by casualty insurance reasonably acceptable to
Agent;

            (n) unless such Inventory is computer software, has been produced or
published by anyone other than one of the Major Labels;

            (o) consists of the "reserve for inventory valuation" on the general
ledger of such Eligible Credit Party; or

            (p) is otherwise unacceptable to Agent in its reasonable credit
judgment for reasons relating to any Credit Party, any Credit Party's business
or industry and/or the Agent's ability to collect or realize the full value of
any Collateral."

            1.8 Cash Management Systems. On or prior to the Closing Date,
Borrower will establish and will maintain until the Termination Date, the cash
management systems described in Annex C (the "Cash Management Systems").

            1.9 Fees.

            (a) Borrower shall pay to GE Capital, individually, the Fees
specified in the GE Capital Fee Letter, at the times specified for payment
therein..

            (b) As additional compensation for the Revolving Lenders, Borrower
shall pay to Agent, for the ratable benefit of such Lenders, in arrears, on the
first Business Day of each month prior to the Commitment Termination Date and on
the Commitment Termination Date, a Fee for Borrower's non-use of available funds
in an amount equal to one half of one percent (0.5%) per annum (calculated on
the basis of a 360 day year for actual days elapsed) multiplied by the
difference between (x) the Maximum Amount (as it may be reduced from time to
time) and (y) the average for the period of the daily closing balances of the
Revolving Loan and the Swing Line Loan outstanding during the period for which
the such Fee is due.

            (c) If, on or prior to the third anniversary of the Closing Date,
Borrower prepays the Revolving Loan or the Acquisition Loan and/or reduces or
terminates the Revolving Loan Commitment or the Acquisition Loan Commitment,
whether voluntarily or involuntarily and whether before or after acceleration of
the Obligations or if the Revolving Loan Commitments or the Acquisition Loan
Commitments are reduced or terminated, Borrower shall pay to Agent, for the
benefit of Lenders as liquidated damages and compensation for the costs of being
prepared to make funds available hereunder an amount equal to the Applicable
Percentage

                                       14
<PAGE>

(as defined below) multiplied by the amount of the reduction of the Revolving
Loan Commitment or the Acquisition Loan Commitment. As used herein, the term
"Applicable Percentage" shall mean (x) two percent (2%), in the case of a
reduction on or prior to the first anniversary of the Closing Date, (y) one
percent (1%), in the case of a reduction after the first anniversary of the
Closing Date but on or prior to the second anniversary thereof and (z) one half
of one percent (0.5%), in the case of a reduction after the second anniversary
of the Closing Date but on or prior to the third anniversary thereof. The Credit
Parties agree that the Applicable Percentages are a reasonable calculation of
Lenders' lost profits in view of the difficulties and impracticality of
determining actual damages resulting from an early termination of the Revolving
Loan Commitment or the Acquisition Loan Commitment. Notwithstanding the
foregoing, no prepayment fee shall be payable by Borrower upon a mandatory
prepayment made pursuant to Sections 1.3(b) or 1.16(c); provided that Borrower
does not permanently reduce or terminate the Revolving Loan Commitment or the
Acquisition Loan Commitment upon any such prepayment and, in the case of
prepayments made pursuant to Sections 1.3(b)(ii) or (b)(iii), the transaction
giving rise to the applicable prepayment is expressly permitted under Section 6.

            (d) Borrower shall pay to Agent, for the ratable benefit of
Revolving Lenders, the Letter of Credit Fee as provided in Annex B.

            1.10 Receipt of Payments. Borrower shall make each payment under
this Agreement not later than 2:00 p.m. (Chicago time) on the day when due in
immediately available funds in Dollars to the Collection Account. For purposes
of computing interest and Fees and determining Borrowing Availability as of any
date, all payments shall be deemed received on the first Business Day following
the Business Day on which immediately available funds therefor are received in
the Collection Account prior to 2:00 p.m. Chicago time. Payments received after
2:00 p.m. Chicago time on any Business Day or on a day that is not a Business
Day shall be deemed to have been received on the following Business Day.

            1.11 Application and Allocation of Payments.

            (a) So long as no Default or Event of Default has occurred and is
continuing, (i) payments consisting of proceeds of Accounts received in the
ordinary course of business shall be applied, first, to the Swing Line Loan and,
second, to the Revolving Loan; (ii) payments matching specific scheduled
payments then due shall be applied to those scheduled payments; (iii) voluntary
prepayments shall be applied as determined by Borrower, subject to the
provisions of Section 1.3(a); and (iv) mandatory prepayments shall be applied as
set forth in Sections 1.3(c) and 1.3(d). All payments and prepayments applied to
a particular Loan shall be applied ratably to the portion thereof held by each
Lender as determined by its Pro Rata Share. As to any other payment, and as to
all payments made when a Default or Event or Default has occurred and is
continuing or following the Commitment Termination Date, Borrower hereby
irrevocably waives the right to direct the application of any and all payments
received from or on behalf of Borrower, and Borrower hereby irrevocably agrees
that Agent shall have the continuing exclusive right to apply any and all such
payments against the Obligations as Agent may deem advisable notwithstanding any
previous entry by Agent in the Loan Account or any other books and records. In
the absence of a specific determination by Agent with respect thereto, payments
shall be applied to amounts then due and payable in the following order: (1) to
Fees and Agent's expenses reimbursable hereunder; (2) to interest on the Swing
Line Loan; (3) to principal

                                       15
<PAGE>

payments on the Swing Line Loan;(4) to interest on the Revolving Loans; (5) to
principal payments on the Revolving Loans and to provide cash collateral for
Letter of Credit Obligations in the manner described in Annex B; (6) to interest
on the Acquisition Loan Advances, ratably in proportion to the interest accrued
as to each Acquisition Loan Advance; (7) to principal payments on the
Acquisition Loan Advances, pro rata among all such Acquisition Loan Advances,
and to the scheduled amortization payments thereon in inverse order of maturity,
and (8) to all other Obligations including expenses of Lenders to the extent
reimbursable under Section 11.3.

            (b) Agent is authorized to, and at its sole election may, charge to
the Revolving Loan balance on behalf of Borrower and cause to be paid all Fees,
expenses, Charges, costs (including insurance premiums in accordance with
Section 5.4(a)) and interest and principal, other than principal of the
Revolving Loan, owing by Borrower under this Agreement or any of the other Loan
Documents if and to the extent Borrower fails to pay promptly any such amounts
as and when due, even if the amount of such charges would exceed Borrowing
Availability at such time. At Agent's option and to the extent permitted by law,
any charges so made shall constitute part of the Revolving Loan hereunder.

            1.12 Loan Account and Accounting. Agent shall maintain a loan
account (the "Loan Account") on its books to record: all Advances and
Acquisition Loan Advances, all payments made by Borrower, and all other debits
and credits as provided in this Agreement with respect to the Loans or any other
Obligations. All entries in the Loan Account shall be made in accordance with
Agent's customary accounting practices as in effect from time to time. The
balance in the Loan Account, as recorded on Agent's most recent printout or
other written statement, shall, absent manifest error, be presumptive evidence
of the amounts due and owing to Agent and Lenders by Borrower; provided that any
failure to so record or any error in so recording shall not limit or otherwise
affect Borrower's duty to pay the Obligations. Agent shall render to Borrower a
monthly accounting of transactions with respect to the Loans setting forth the
balance of the Loan Account for the immediately preceding month. Unless Borrower
notifies Agent in writing of any objection to any such accounting (specifically
describing the basis for such objection), within 90 days after the date thereof,
each and every such accounting shall, absent manifest error, be deemed final,
binding and conclusive on Borrower in all respects as to all matters reflected
therein. Only those items expressly objected to in such notice shall be deemed
to be disputed by Borrower. Notwithstanding any provision herein contained to
the contrary, any Lender may elect (which election may be revoked) to dispense
with the issuance of Notes to that Lender and may rely on the Loan Account as
evidence of the amount of Obligations from time to time owing to it.

            1.13 Indemnity.

            (a) Each Credit Party that is a signatory hereto shall jointly and
severally indemnify and hold harmless each of Agent, Lenders and their
respective Affiliates, and each such Person's respective officers, directors,
employees, attorneys, agents and representatives (each, an "Indemnified
Person"), from and against any and all suits, actions, proceedings, claims,
damages, losses, liabilities and expenses (including reasonable attorneys' fees
and disbursements and other costs of investigation or defense, including those
incurred upon any appeal) that may be instituted or asserted against or incurred
by any such Indemnified Person as the result of credit

                                       16
<PAGE>

having been extended, suspended or terminated under this Agreement and the other
Loan Documents and the administration of such credit, and in connection with or
arising out of the transactions contemplated hereunder and thereunder and any
actions or failures to act in connection therewith, including any and all
Environmental Liabilities and legal costs and expenses arising out of or
incurred in connection with disputes between or among any parties to any of the
Loan Documents (collectively, "Indemnified Liabilities"); provided, that no such
Credit Party shall be liable for any indemnification to an Indemnified Person to
the extent that any such suit, action, proceeding, claim, damage, loss,
liability or expense results from that Indemnified Person's gross negligence or
willful misconduct. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY
OTHER PARTY TO ANY LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY
BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY
THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES
WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR
TERMINATED UNDER ANY LOAN DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION
CONTEMPLATED HEREUNDER OR THEREUNDER.

            (b) To induce Lenders to provide the LIBOR Rate option on the terms
provided herein, if (i) any LIBOR Loans are repaid in whole or in part prior to
the last day of any applicable LIBOR Period (whether that repayment is made
pursuant to any provision of this Agreement or any other Loan Document or occurs
as a result of acceleration, by operation of law or otherwise); (ii) Borrower
shall default in payment when due of the principal amount of or interest on any
LIBOR Loan; (iii) Borrower shall refuse to accept any borrowing of, or shall
request a termination of any borrowing, conversion into or continuation of LIBOR
Loans after Borrower has given notice requesting the same in accordance
herewith; or (iv) Borrower shall fail to make any prepayment of a LIBOR Loan
after Borrower has given a notice thereof in accordance herewith, then Borrower
shall indemnify and hold harmless each Lender from and against all losses, costs
and expenses resulting from or arising from any of the foregoing. Such
indemnification shall include any loss (including loss of margin) or expense
arising from the reemployment of funds obtained by it or from fees payable to
terminate deposits from which such funds were obtained. For the purpose of
calculating amounts payable to a Lender under this subsection, each Lender shall
be deemed to have actually funded its relevant LIBOR Loan through the purchase
of a deposit bearing interest at the LIBOR Rate in an amount equal to the amount
of that LIBOR Loan and having a maturity comparable to the relevant LIBOR
Period; provided, that each Lender may fund each of its LIBOR Loans in any
manner it sees fit, and the foregoing assumption shall be utilized only for the
calculation of amounts payable under this subsection. This covenant shall
survive the termination of this Agreement and the payment of the Notes and all
other amounts payable hereunder. As promptly as practicable under the
circumstances, each Lender shall provide Borrower with its written calculation
of all amounts payable pursuant to this Section 1.13(b), and such calculation
shall be binding on the parties hereto unless Borrower shall object in writing
within 10 Business Days of receipt thereof, specifying the basis for such
objection in detail.

            1.14 Access. Each Credit Party that is a party hereto shall, during
normal business hours, from time to time upon 5 Business Day's prior notice as
frequently as Agent determines to be appropriate: (a) provide Agent and any of
its officers, employees and

                                       17
<PAGE>

agents access to its properties, facilities, advisors and employees (including
officers) of each Credit Party and to the Collateral (provided, however, that
unless an Event of Default has occurred, no Credit Party shall be required to
provide the Agent access to its properties and facilities more than four times
during any calendar year), (b) permit Agent, and any of its officers, employees
and agents, to inspect, audit and make extracts from any Credit Party's books
and records, and (c) permit Agent, and its officers, employees and agents, to
inspect, review, evaluate and make test verifications and counts of the
Accounts, Inventory and other Collateral of any Credit Party. If a Default or
Event of Default has occurred and is continuing or if access is necessary to
preserve or protect the Collateral as determined by the Agent, each such Credit
Party shall provide such access to Agent and to each Lender at all times and
without advance notice. Furthermore, so long as any Event of Default has
occurred and is continuing, Borrower shall provide Agent and each Lender with
access to its suppliers and customers. Each Credit Party shall make available to
Agent and its counsel, as quickly as is possible under the circumstances,
originals or copies of all books and records that Agent may reasonably request.
Each Credit Party shall deliver any document or instrument necessary for Agent,
as it may from time to time request, to obtain records from any service bureau
or other Person that maintains records for such Credit Party, and shall maintain
duplicate records or supporting documentation on media, including computer tapes
and discs owned by such Credit Party. Agent will give Lenders at least 5 days'
prior notice (10 days' prior notice for any audit to be commenced during the
period from and including October 1 through and including January 15) of
regularly scheduled audits. Representatives of other Lenders may accompany
Agent's representatives on regularly scheduled audits at no charge to Borrower.

            1.15 Taxes.

            (a) Any and all payments by Borrower hereunder or under the Notes
shall be made, in accordance with this Section 1.15, free and clear of and
without deduction for any and all present or future Taxes. If Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under the Notes, (i) the sum payable shall be increased as much as
shall be necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 1.15) Agent
or Lenders, as applicable, receive an amount equal to the sum they would have
received had no such deductions been made, (ii) Borrower shall make such
deductions, and (iii) Borrower shall pay the full amount deducted to the
relevant taxing or other authority in accordance with applicable law. Within 30
days after the date of any payment of Taxes, Borrower shall furnish to Agent the
original or a certified copy of a receipt evidencing payment thereof. Agent and
Lenders shall not be obligated to return or refund any amounts received pursuant
to this Section.

            (b) Each Credit Party that is a signatory hereto shall indemnify
and, within 10 days of demand therefor, pay Agent and each Lender for the full
amount of Taxes (including any Taxes imposed by any jurisdiction on amounts
payable under this Section 1.15) paid by Agent or such Lender, as appropriate,
and any liability (including penalties, interest and expenses) arising therefrom
or with respect thereto, whether or not such Taxes were correctly or legally
asserted.

            (c) Each Lender organized under the laws of a jurisdiction outside
the United States (a "Foreign Lender") as to which payments to be made under
this Agreement or under the Notes are exempt from United States withholding tax
under an applicable statute or tax treaty

                                       18
<PAGE>

shall provide to Borrower and Agent a properly completed and executed IRS Form
W-8ECI or Form W-8BEN or other applicable form, certificate or document
prescribed by the IRS or the United States certifying as to such Foreign
Lender's entitlement to such exemption (a "Certificate of Exemption"). Any
foreign Person that seeks to become a Lender under this Agreement shall provide
a Certificate of Exemption to Borrower and Agent prior to becoming a Lender
hereunder. No foreign Person may become a Lender hereunder if such Person fails
to deliver a Certificate of Exemption in advance of becoming a Lender.

            1.16 Capital Adequacy; Increased Costs; Illegality.

            (a) If any Lender shall have determined that any law, treaty,
governmental (or quasi-governmental) rule, regulation, guideline or order
regarding capital adequacy, reserve requirements or similar requirements or
compliance by any Lender with any request or directive regarding capital
adequacy, reserve requirements or similar requirements (whether or not having
the force of law), in each case, adopted after the Closing Date, from any
central bank or other Governmental Authority increases or would have the effect
of increasing the amount of capital, reserves or other funds required to be
maintained by such Lender and thereby reducing the rate of return on such
Lender's capital as a consequence of its obligations hereunder, then Borrower
shall from time to time upon demand by such Lender (with a copy of such demand
to Agent) pay to Agent, for the account of such Lender, additional amounts
sufficient to compensate such Lender for such reduction. A certificate as to the
amount of that reduction and showing the basis of the computation thereof
submitted by such Lender to Borrower and to Agent shall, absent manifest error,
be final, conclusive and binding for all purposes.

            (b) If, due to either (i) the introduction of or any change in any
law or regulation (or any change in the interpretation thereof) or (ii) the
compliance with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law), in each case
adopted after the Closing Date, there shall be any increase in the cost to any
Lender of agreeing to make or making, funding or maintaining any Loan, then
Borrower shall from time to time, upon demand by such Lender (with a copy of
such demand to Agent), pay to Agent for the account of such Lender additional
amounts sufficient to compensate such Lender for such increased cost. A
certificate as to the amount of such increased cost, submitted to Borrower and
to Agent by such Lender, shall be conclusive and binding on Borrower for all
purposes, absent manifest error. Each Lender agrees that, as promptly as
practicable after it becomes aware of any circumstances referred to above which
would result in any such increased cost, the affected Lender shall, to the
extent not inconsistent with such Lender's internal policies of general
application, use reasonable commercial efforts to minimize costs and expenses
incurred by it and payable to it by Borrower pursuant to this Section 1.16(b).

            (c) Notwithstanding anything to the contrary contained herein, if
the introduction of or any change in any law or regulation (or any change in the
interpretation thereof) shall make it unlawful, or any central bank or other
Governmental Authority shall assert that it is unlawful, for any Lender to agree
to make or to make or to continue to fund or maintain any LIBOR Loan, then,
unless that Lender is able to make or to continue to fund or to maintain such
LIBOR Loan at another branch or office of that Lender without, in that Lender's
opinion, adversely affecting it or its Loans or the income obtained therefrom,
on notice thereof and demand therefor by such Lender to Borrower through Agent,
(i) the obligation of such Lender to

                                       19
<PAGE>

agree to make or to make or to continue to fund or maintain LIBOR Loans shall
terminate and (ii) Borrower shall forthwith prepay in full all outstanding LIBOR
Loans owing to such Lender, together with interest accrued thereon, unless
Borrower, within 5 Business Days after the delivery of such notice and demand,
converts all LIBOR Loans into Index Rate Loans.

            (d) Within 15 days after receipt by Borrower of written notice and
demand from any Lender (an "Affected Lender") for payment of additional amounts
or increased costs as provided in Sections 1.15(a), 1.16(a) or 1.16(b), Borrower
may, at its option, notify Agent and such Affected Lender of its intention to
replace the Affected Lender. So long as no Default or Event of Default has
occurred and is continuing, Borrower, with the consent of Agent, may obtain, at
Borrower's expense, a replacement Lender ("Replacement Lender") for the Affected
Lender, which Replacement Lender must be reasonably satisfactory to Agent. If
Borrower obtains a Replacement Lender within 90 days following notice of its
intention to do so, the Affected Lender must sell and assign its Loans and
Commitments to such Replacement Lender for an amount equal to the principal
balance of all Loans held by the Affected Lender and all accrued interest and
Fees with respect thereto through the date of such sale; provided, that Borrower
shall have reimbursed such Affected Lender for the additional amounts or
increased costs that it is entitled to receive under this Agreement through the
date of such sale and assignment. Notwithstanding the foregoing, Borrower shall
not have the right to obtain a Replacement Lender if the Affected Lender
rescinds its demand for increased costs or additional amounts within 15 days
following its receipt of Borrower's notice of intention to replace such Affected
Lender. Furthermore, if Borrower gives a notice of intention to replace and does
not so replace such Affected Lender within 90 days thereafter, Borrower's rights
under this Section 1.16(d) shall terminate and Borrower shall promptly pay all
increased costs or additional amounts demanded by such Affected Lender pursuant
to Sections 1.15(a), 1.16(a) and 1.16(b).

            1.17 Single Loan. All Loans to Borrower and all of the other
Obligations of Borrower arising under this Agreement and the other Loan
Documents shall constitute one general obligation of Borrower secured, until the
Termination Date, by all of the Collateral.

2. CONDITIONS PRECEDENT

            2.1 Conditions to the Initial Loans. No Lender shall be obligated to
make any Loan or incur any Letter of Credit Obligations on the Closing Date, or
to take, fulfill, or perform any other action hereunder, until the following
conditions have been satisfied or provided for in a manner satisfactory to
Agent, or waived in writing by Agent and Requisite Lenders:

            (a) Credit Agreement; Loan Documents. This Agreement or counterparts
hereof shall have been duly executed by, and delivered to, Borrower, Agent and
Lenders; and Agent shall have received such documents, instruments, agreements
and legal opinions as Agent shall reasonably request in connection with the
transactions contemplated by this Agreement and the other Loan Documents,
including all those listed in the Closing Checklist attached hereto as Annex D,
each in form and substance reasonably satisfactory to Agent.

                                       20
<PAGE>

            (b) Approvals. Agent shall have received (i) satisfactory evidence
that the Credit Parties have obtained all required consents and approvals of all
Persons including all requisite Governmental Authorities, to the execution,
delivery and performance of this Agreement and the other Loan Documents and the
consummation of the Related Transactions or (ii) an officer's certificate in
form and substance reasonably satisfactory to Agent affirming that no such
consents or approvals are required.

            (c) Opening Availability. The Eligible Accounts and Eligible
Inventory supporting the initial Revolving Credit Advance and the initial Letter
of Credit Obligations incurred and the amount of the Reserves to be established
on the Closing Date shall be sufficient in value, as determined by Agent, to
provide Borrower with Borrowing Availability, after giving effect to the initial
Revolving Credit Advance, the incurrence of any initial Letter of Credit
Obligations and the consummation of the Related Transactions (on a pro forma
basis, with trade payables being paid currently, and expenses and liabilities
being paid in the ordinary course of business and without acceleration of sales)
of at least $25,000,000.

            (d) Payment of Fees. Borrower shall have paid the Fees required to
be paid on the Closing Date in the respective amounts specified in Section 1.9
(including the Fees specified in the GE Capital Fee Letter), and shall have
reimbursed Agent for all fees, costs and expenses of closing presented as of the
Closing Date.

            (e) Capital Structure: Other Indebtedness. The capital structure of
each Credit Party and the terms and conditions of all Indebtedness of each
Credit Party shall be acceptable to Agent in its sole discretion.

            (f) Due Diligence. Agent shall have completed its business and legal
due diligence with results reasonably satisfactory to Agent.

            2.2 Further Conditions to Each Loan. Except as otherwise expressly
provided herein, no Lender shall be obligated to fund any Advance or any
Acquisition Loan Advance, convert or continue any Loan as a LIBOR Loan or incur
any Letter of Credit Obligation, if, as of the date thereof:

            (a) any representation or warranty by any Credit Party contained
herein or in any other Loan Document is untrue or incorrect as of such date,
except to the extent that such representation or warranty expressly relates to
an earlier date and except for changes therein expressly permitted or expressly
contemplated by this Agreement, and Agent or Requisite Lenders have determined
not to make such Advance or such Acquisition Loan Advance, convert or continue
any Loan as LIBOR Loan or incur such Letter of Credit Obligation as a result of
the fact that such warranty or representation is untrue or incorrect;

            (b) any event or circumstance having a Material Adverse Effect has
occurred since the date hereof as determined by the Requisite Lenders, and Agent
or Requisite Lenders have determined not to make such Advance or such
Acquisition Loan Advance, convert or continue any Loan as a LIBOR Loan or incur
such Letter of Credit Obligation as a result of the fact that such event or
circumstance has occurred;

                                       21
<PAGE>

            (c) any Default or Event of Default has occurred and is continuing
or would result after giving effect to any Advance or Acquisition Loan Advance
(or the incurrence of any Letter of Credit Obligation), and Agent or Requisite
Lenders shall have determined not to make any Advance or Acquisition Loan
Advance, convert or continue any Loan as a LIBOR Loan or incur any Letter of
Credit Obligation as a result of that Default or Event of Default;

            (d) after giving effect to any Advance (or the incurrence of any
Letter of Credit Obligations), the outstanding principal amount of the Revolving
Loan would exceed the lesser of the Borrowing Base and the Maximum Amount, in
each case, less the then outstanding principal amount of the Swing Line Loan, or
after giving effect to any Acquisition Loan Advance, the outstanding principal
amount of the Acquisition Loans would exceed the Maximum Acquisition Loan
Amount; or

            (e) Borrower shall have paid all Fees owing and payable to GE
Capital, Agent and Lenders as of such date under this Agreement and the GE
Capital Fee Letter.

The request and acceptance by Borrower of the proceeds of any Advance or
Acquisition Loan Advance, the incurrence of any Letter of Credit Obligations or
the conversion or continuation of any Loan into, or as, a LIBOR Loan shall be
deemed to constitute, as of the date thereof, (i) a representation and warranty
by Borrower that the conditions in this Section 2.2 have been satisfied and (ii)
a reaffirmation by Borrower of the granting and continuance of Agent's Liens, on
behalf of itself and Lenders, pursuant to the Collateral Documents.

3. REPRESENTATIONS AND WARRANTIES

            To induce Lenders to make the Loans and to incur Letter of Credit
Obligations, the Credit Parties executing this Agreement, jointly and severally,
make the following representations and warranties to Agent and each Lender with
respect to all Credit Parties, each and all of which shall survive the execution
and delivery of this Agreement.

            3.1 Corporate Existence; Compliance with Law. Each Credit Party (a)
is a corporation, limited liability company or limited partnership duly
organized, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation or organization set forth in Disclosure
Schedule (3.1); (b) is duly qualified to conduct business and is in good
standing in each other jurisdiction where its ownership or lease of property or
the conduct of its business requires such qualification, except where the
failure to be so qualified would not result in exposure to losses, damages or
liabilities in excess of $50,000; (c) has the requisite power and authority and
the legal right to own, pledge, mortgage or otherwise encumber and operate its
properties, to lease the property it operates under lease and to conduct its
business as now, heretofore and proposed to be conducted; (d) subject to
specific representations regarding Environmental Laws, has all material
licenses, permits, consents or approvals from or by, and has made all material
filings with, and has given all material notices to, all Governmental
Authorities having jurisdiction, to the extent required for such ownership,
operation and conduct; (e) is in compliance with its charter and bylaws or
partnership or operating agreement, as applicable; and (f) subject to specific
representations set forth herein regarding ERISA, Environmental Laws, tax and
other laws, is in compliance with all applicable provisions of law,

                                       22
<PAGE>

except where the failure to comply, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.

            3.2 Executive Offices, Collateral Locations, FEIN. As of the Closing
Date, each Credit Party's name as it appears in official filings in its state of
incorporation or organization, state of incorporation or organization,
organization type, organization number, if any, issued by its state
incorporation or organization, and the current location of each Credit Party's
chief executive office and the warehouses and premises at which any Collateral
is located are set forth in Disclosure Schedule (3.2), and none of such
locations has changed within 12 months preceding the Closing Date. In addition,
Disclosure Schedule (3.2) lists the federal employer identification number of
each Credit Party.

            3.3 Corporate Power, Authorization, Enforceable Obligations. The
execution, delivery and performance by each Credit Party of the Loan Documents
to which it is a party and the creation of all Liens provided for therein: (a)
are within such Person's power; (b) have been duly authorized by all necessary
corporate, limited liability company or limited partnership action; (c) do not
contravene any provision of such Person's charter, bylaws or partnership or
operating agreement as applicable; (d) do not violate any law or regulation, or
any order or decree of any court or Governmental Authority; (e) do not conflict
with or result in the breach or termination of, constitute a default under or
accelerate or permit the acceleration of any performance required by, any
indenture, mortgage, deed of trust, lease, agreement or other instrument to
which such Person is a party or by which such Person or any of its property is
bound; (f) do not result in the creation or imposition of any Lien upon any of
the property of such Person other than those in favor of Agent, on behalf of
itself and Lenders, pursuant to the Loan Documents; and (g) do not require the
consent or approval of any Governmental Authority or any other Person, except
those referred to in Section 2.1(c), all of which will have been duly obtained,
made or complied with prior to the Closing Date. Each of the Loan Documents
shall be duly executed and delivered by each Credit Party that is a party
thereto and each such Loan Document shall constitute a legal, valid and binding
obligation of such Credit Party enforceable against it in accordance with its
terms.

            3.4 Financial Statements and Projections. Except for the
Projections, all Financial Statements concerning Borrower and its Subsidiaries
that are referred to below have been prepared in accordance with GAAP
consistently applied throughout the periods covered (except as disclosed therein
and except, with respect to unaudited Financial Statements, for the absence of
footnotes and normal year-end audit adjustments) and present fairly in all
material respects the financial position of the Persons covered thereby as at
the dates thereof and the results of their operations and cash flows for the
periods then ended.

            (a) Financial Statements. The following Financial Statements
attached hereto as Disclosure Schedule (3.4(a)) have been delivered on the date
hereof:

                  (i) The audited consolidated and consolidating balance sheets
at March 31, 2003 and the related statements of income and cash flows of
Borrower and its Subsidiaries for the Fiscal Years then ended, certified by
Ernst & Young, LLP.

                                       23
<PAGE>

                  (ii) The unaudited balance sheet(s) at April 30, 2004 and the
related statement(s) of income and cash flows of Borrower and its Subsidiaries
for the five month period then ended.

            (b) Projections. The Projections delivered on the date hereof and
attached hereto as Disclosure Schedule (3.4(b)) have been prepared by Borrower
in light of the past operations of its businesses, and reflect projections for
the three year period beginning on April 30, 2004 on a month-by-month basis for
the two years and on a year-by-year basis thereafter. The Projections are based
upon estimates and assumptions stated therein, all of which Borrower believes to
be reasonable and fair in light of current conditions and current facts known to
Borrower and, as of the Closing Date, reflect Borrower's good faith and
reasonable estimates of the future financial performance of Borrower and of the
other information projected therein for the period set forth therein.

            3.5 Material Adverse Effect. Between March 31, 2003 and the Closing
Date, (a) no Credit Party has incurred any obligations, contingent or
noncontingent liabilities, liabilities for Charges, long-term leases or unusual
forward or long-term commitments that, alone or in the aggregate, could
reasonably be expected to have a Material Adverse Effect, (b) no contract, lease
or other agreement or instrument has been entered into by any Credit Party or
has become binding upon any Credit Party's assets and no law or regulation
applicable to any Credit Party has been adopted that has had or could reasonably
be expected to have a Material Adverse Effect, and (c) no Credit Party is in
default and to the best of Borrower's knowledge no third party is in default
under any material contract, lease or other agreement or instrument, that alone
or in the aggregate could reasonably be expected to have a Material Adverse
Effect. Between March 31, 2003 and the Closing Date no event has occurred, that
alone or together with other events, could reasonably be expected to have a
Material Adverse Effect.

            3.6 Ownership of Property; Liens. As of the Closing Date, the real
estate ("Real Estate") listed in Disclosure Schedule (3.6) constitutes all of
the real property owned, leased, subleased, or used by any Credit Party. Each
Credit Party owns good and marketable fee simple title to all of its owned Real
Estate, and valid and marketable leasehold interests in all of its leased Real
Estate, all as described on Disclosure Schedule (3.6), and copies of all such
leases or a summary of terms thereof reasonably satisfactory to Agent have been
delivered to Agent. Disclosure Schedule (3.6) further describes any Real Estate
with respect to which any Credit Party is a lessor, sublessor or assignor as of
the Closing Date. Each Credit Party also has good and marketable title to, or
valid leasehold interests in, all of its personal property and assets. As of the
Closing Date, none of the properties and assets of any Credit Party are subject
to any Liens other than Permitted Encumbrances, and there are no facts,
circumstances or conditions known to any Credit Party that may result in any
Liens (including Liens arising under Environmental Laws) other than Permitted
Encumbrances. Each Credit Party has received all deeds, assignments, waivers,
consents, nondisturbance and attornment or similar agreements, bills of sale and
other documents, and has duly effected all recordings, filings and other actions
necessary to establish, protect and perfect such Credit Party's right, title and
interest in and to all such Real Estate and other properties and assets.
Disclosure Schedule (3.6) also describes any purchase options, rights of first
refusal or other similar contractual rights pertaining to any Real Estate. As of
the Closing Date, no portion of any Credit Party's Real Estate has suffered any
material damage by fire or other casualty loss that has not heretofore

                                       24
<PAGE>

been repaired and restored in all material respects to its original condition or
otherwise remedied. As of the Closing Date, all material permits required to
have been issued or appropriate to enable the Real Estate to be lawfully
occupied and used for all of the purposes for which it is currently occupied and
used have been lawfully issued and are in full force and effect.

            3.7 Labor Matters. As of the Closing Date (a) no strikes or other
material labor disputes against any Credit Party are pending or, to any Credit
Party's knowledge, threatened; (b) hours worked by and payment made to employees
of each Credit Party comply with the Fair Labor Standards Act and each other
federal, state, local or foreign law applicable to such matters; (c) all
payments due from any Credit Party for employee health and welfare insurance
have been paid or accrued as a liability on the books of such Credit Party; (d)
except as set forth in Disclosure Schedule (3.7), no Credit Party is a party to
or bound by any collective bargaining agreement, management agreement,
consulting agreement, employment agreement, bonus, restricted stock, stock
option, or stock appreciation plan or agreement or any similar plan, agreement
or arrangement (and true and complete copies of any agreements described on
Disclosure Schedule (3.7) have been delivered to Agent); (e) there is no
organizing activity involving any Credit Party pending or, to any Credit Party's
knowledge, threatened by any labor union or group of employees; (f) there are no
representation proceedings pending or, to any Credit Party's knowledge,
threatened with the National Labor Relations Board, and no labor organization or
group of employees of any Credit Party has made a pending demand for
recognition; and (g) except as set forth in Disclosure Schedule (3.7), there are
no material complaints or charges against any Credit Party pending or, to the
knowledge of any Credit Party, threatened to be filed with any Governmental
Authority or arbitrator based on, arising out of, in connection with, or
otherwise relating to the employment or termination of employment by any Credit
Party of any individual.

            3.8 Ventures, Subsidiaries and Affiliates; Outstanding Stock and
Indebtedness. Except as set forth in Disclosure Schedule (3.8), as of the
Closing Date, no Credit Party has any Subsidiaries, is engaged in any joint
venture or partnership with any other Person, or is an Affiliate of any other
Person. All of the issued and outstanding Stock of each Credit Party is owned by
each of the Stockholders and in the amounts set forth in Disclosure Schedule
(3.8). Except as set forth in Disclosure Schedule (3.8), there are no
outstanding rights to purchase, options, warrants or similar rights or
agreements pursuant to which any Credit Party may be required to issue, sell,
repurchase or redeem any of its Stock or other equity securities or any Stock or
other equity securities of its Subsidiaries. All outstanding Indebtedness and
Guaranteed Indebtedness of each Credit Party as of the Closing Date (except for
the Obligations) is described in Section 6.3 (including Disclosure Schedule
(6.3)).

            3.9 Government Regulation. No Credit Party is an "investment
company" or an "affiliated person" of, or "promoter" or "principal underwriter"
for, an "investment company," as such terms are defined in the Investment
Company Act of 1940. No Credit Party is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, or any other federal
or state statute that restricts or limits its ability to incur Indebtedness or
to perform its obligations hereunder. The making of the Loans by Lenders to
Borrower, the incurrence of the Letter of Credit Obligations on behalf of
Borrower, the application of the proceeds thereof and repayment thereof and the
consummation of the Related

                                       25
<PAGE>

Transactions will not violate any provision of any such statute or any rule,
regulation or order issued by the Securities and Exchange Commission.

            3.10 Margin Regulations. No Credit Party is engaged, nor will it
engage, principally or as one of its important activities, in the business of
extending credit for the purpose of "purchasing" or "carrying" any "margin
stock" as such terms are defined in Regulation U of the Federal Reserve Board as
now and from time to time hereafter in effect (such securities being referred to
herein as "Margin Stock"). No Credit Party owns any Margin Stock, and none of
the proceeds of the Loans or other extensions of credit under this Agreement
will be used, directly or indirectly, for the purpose of purchasing or carrying
any Margin Stock, for the purpose of reducing or retiring any Indebtedness that
was originally incurred to purchase or carry any Margin Stock or for any other
purpose that might cause any of the Loans or other extensions of credit under
this Agreement to be considered a "purpose credit" within the meaning of
Regulations T, U or X of the Federal Reserve Board. No Credit Party will take or
permit to be taken any action that might cause any Loan Document to violate any
regulation of the Federal Reserve Board.

            3.11 Taxes. All tax returns, reports and statements, including
information returns, required by any Governmental Authority to be filed by any
Credit Party have been filed with the appropriate Governmental Authority and all
Charges have been paid prior to the date on which any fine, penalty, interest or
late charge may be added thereto for nonpayment thereof (or any such fine,
penalty, interest, late charge or loss has been paid), excluding Charges or
other amounts being contested in accordance with Section 5.2(b). Proper and
accurate amounts have been withheld by each Credit Party from its respective
employees for all periods in full and complete compliance with all applicable
federal, state, local and foreign laws and such withholdings have been timely
paid to the respective Governmental Authorities. Disclosure Schedule (3.11) sets
forth as of the Closing Date those taxable years for which any Credit Party's
tax returns are currently being audited by the IRS or any other applicable
Governmental Authority and any assessments or threatened assessments in
connection with such audit, or otherwise currently outstanding. Except as
described in Disclosure Schedule (3.11), no Credit Party has executed or filed
with the IRS or any other Governmental Authority any agreement or other document
extending, or having the effect of extending, the period for assessment or
collection of any Charges. None of the Credit Parties and their respective
predecessors are liable for any Charges: (a) under any agreement (including any
tax sharing agreements) or (b) to each Credit Party's knowledge, as a
transferee. As of the Closing Date, no Credit Party has agreed or been requested
to make any adjustment under IRC Section 481(a), by reason of a change in
accounting method or otherwise, which would have a Material Adverse Effect.

            3.12 ERISA.

            (a) Disclosure Schedule (3.12) lists all Plans and separately
identifies all Pension Plans, including Title IV Plans, Multiemployer Plans,
ESOPs and Welfare Plans, including all Retiree Welfare Plans. Copies of all such
listed Plans, together with a copy of the latest form. IRS/DOL 5500-series for
each such Plan have been delivered to Agent. Except with respect to
Multiemployer Plans, each Qualified Plan has been determined by the IRS to
qualify under Section 401 of the IRC, the trusts created thereunder have been
determined to be exempt

                                       26
<PAGE>

from tax under the provisions of Section 501 of the IRC, and nothing has
occurred that would cause the loss of such qualification or tax-exempt status.
Each Plan is in compliance with the applicable provisions of ERISA and the IRC,
including the timely filing of all reports required under the IRC or ERISA,
including the statement required by 29 CFR Section 2520.104-23. Neither any
Credit Party nor ERISA Affiliate has failed to make any contribution or pay any
amount due as required by either Section 412 of the IRC or Section 302 of ERISA
or the terms of any such Plan. Neither any Credit Party nor ERISA Affiliate has
engaged in a "prohibited transaction," as defined in Section 406 of ERISA and
Section 4975 of the IRC, in connection with any Plan, that would subject any
Credit Party to a material tax on prohibited transactions imposed by Section
502(i) of ERISA or Section 4975 of the IRC.

            (b) Except as set forth in Disclosure Schedule (3.12): (i) no Title
IV Plan has any Unfunded Pension Liability; (ii) no ERISA Event or event
described in Section 4062(e) of ERISA with respect to any Title IV Plan has
occurred or is reasonably expected to occur; (iii) there are no pending, or to
the knowledge of any Credit Party, threatened claims (other than claims for
benefits in the normal course), sanctions, actions or lawsuits, asserted or
instituted against any Plan or any Person as fiduciary or sponsor of any Plan;
(iv) no Credit Party or ERISA Affiliate has incurred or reasonably expects to
incur any liability as a result of a complete or partial withdrawal from a
Multiemployer Plan; (v) within the last five years no Title IV Plan of any
Credit Party or ERISA Affiliate has been terminated, whether or not in a
"standard termination" as that term is used in Section 404(b)(1) of ERISA, nor
has any Title IV Plan of any Credit Party or ERISA Affiliate (determined at any
time within the past five years) with Unfunded Pension Liabilities been
transferred outside of the "controlled group" (within the meaning of Section
4001(a)(14) of ERISA) of any Credit Party or ERISA Affiliate; (vi) except in the
case of any ESOP, Stock of all Credit Parties and their ERISA Affiliates makes
up, in the aggregate, no more than 10% of fair market value of the assets of any
Plan measured on the basis of fair market value as of the latest valuation date
of any Plan; and (vii) no liability under any Title IV Plan has been satisfied
with the purchase of a contract from an insurance company that is not rated AAA
by the Standard & Poor's Corporation or an equivalent rating by another
nationally recognized rating agency.

            3.13 No Litigation. No action, claim, lawsuit, demand, investigation
or proceeding is now pending or, to the knowledge of any Credit Party,
threatened against any Credit Party, before any Governmental Authority or before
any arbitrator or panel of arbitrators (collectively, "Litigation"), (a) that
challenges any Credit Party's right or power to enter into or perform any of its
obligations under the Loan Documents to which it is a party, or the validity or
enforceability of any Loan Document or any action taken thereunder, or (b) that
has a reasonable risk of being determined adversely to any Credit Party and
that, if so determined, could reasonably be expected to have a Material Adverse
Effect. Except as set forth on Disclosure Schedule (3.13), as of the Closing
Date there is no Litigation pending or threatened that seeks damages in excess
of $100,000 or injunctive relief against, or alleges criminal misconduct of, any
Credit Party.

            3.14 Brokers. No broker or finder acting on behalf of any Credit
Party or Affiliate thereof brought about the obtaining, making or closing of the
Loans or the Related Transactions, and no Credit Party or Affiliate thereof has
any obligation to any Person in respect of any finder's or brokerage fees in
connection therewith.

                                       27
<PAGE>

            3.15 Intellectual Property. As of the Closing Date, each Credit
Party owns or has rights to use all Intellectual Property necessary to continue
to conduct its business as now or heretofore conducted by it or proposed to be
conducted by it, and each Patent, Trademark, Copyright and License is listed,
together with application or registration numbers, as applicable, in Disclosure
Schedule (3.15). Each Credit Party conducts its business and affairs without
infringement of or interference with any Intellectual Property of any other
Person in any material respect. Except as set forth in Disclosure Schedule
(3.15), no Credit Party is aware of any infringement claim by any other Person
with respect to any Intellectual Property.

            3.16 Full Disclosure. No information contained in this Agreement,
any of the other Loan Documents, any Projections, Financial Statements or
Collateral Reports or other written reports from time to time delivered
hereunder or any written statement furnished by or on behalf of any Credit Party
to Agent or any Lender pursuant to the terms of this Agreement contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made. Projections
from time to time delivered hereunder are or will be based upon the estimates
and assumptions stated therein, all of which Borrower believed at the time of
delivery to be reasonable and fair in light of current conditions and current
facts known to Borrower as of such delivery date, and reflect Borrower's good
faith and reasonable estimates of the future financial performance of Borrower
and of the other information projected therein for the period set forth therein.
The Liens granted to Agent, on behalf of itself and Lenders, pursuant to the
Collateral Documents will at all times be fully perfected first priority Liens
in and to the Collateral described therein, subject, as to priority, only to
Permitted Encumbrances.

            3.17 Environmental Matters.

            (a) Except as set forth in Disclosure Schedule (3.17), as of the
Closing Date: (i) the Credit Parties are and have been in compliance with all
Environmental Laws, except for such noncompliance that would not result in
Environmental Liabilities which could reasonably be expected to exceed $100,000;
(ii) the Credit Parties have obtained, and are in compliance with, all
Environmental Permits required by Environmental Laws for the operations of their
respective businesses as presently conducted or as proposed to be conducted,
except where the failure to so obtain or comply with such Environmental Permits
would not result in Environmental Liabilities that could reasonably be expected
to exceed $100,000, and all such Environmental Permits are valid, uncontested
and in good standing; (iii) no Credit Party is involved in operations or knows
of any facts, circumstances or conditions, including any Releases of Hazardous
Materials, that are likely to result in any Environmental Liabilities of such
Credit Party which could reasonably be expected to exceed $100,000, and no
Credit Party has permitted any current or former tenant or occupant of the Real
Estate to engage in any such operations; (iv) there is no Litigation arising
under or related to any Environmental Laws, Environmental Permits or Hazardous
Material that seeks damages, penalties, fines, costs or expenses in excess of
$25,000 or injunctive relief against, or that alleges criminal misconduct by,
any Credit Party; (v) no notice has been received by any Credit Party
identifying it as a "potentially responsible party" or requesting information
under CERCLA or analogous state statutes, and to the knowledge of the Credit
Parties, there are no facts, circumstances or conditions that may result in any
Credit Party being identified as a "potentially responsible party"

                                       28
<PAGE>

under CERCLA or analogous state statutes; and (vi) the Credit Parties have
provided to Agent copies of all existing environmental reports, reviews and
audits and all written information pertaining to actual or potential
Environmental Liabilities, in each case relating to any Credit Party.

            (b) Each Credit Party hereby acknowledges and agrees that Agent (i)
is not now, and has not ever been, in control of any of the Real Estate or any
Credit Party's affairs, and (ii) does not have the capacity through the
provisions of the Loan Documents or otherwise to influence any Credit Party's
conduct with respect to the ownership, operation or management of any of its
Real Estate or compliance with Environmental Laws or Environmental Permits.

            3.18 Insurance. Disclosure Schedule (3.18) lists all insurance
policies of any nature maintained, as of the Closing Date, for current
occurrences by each Credit Party, as well as a summary of the terms of each such
policy.

            3.19 Deposit and Disbursement Accounts. Disclosure Schedule (3.19)
lists all banks and other financial institutions at which any Credit Party
maintains deposit or other accounts as of the Closing Date, including any
Disbursement Accounts, and such Schedule correctly identifies the name, address
and telephone number of each depository, the name in which the account is held,
a description of the purpose of the account, and the complete account number
therefor.

            3.20 Government Contracts. Except as set forth in Disclosure
Schedule (3.20), as of the Closing Date, no Credit Party is a party to any
contract or agreement with any Governmental Authority and no Credit Party's
Accounts are subject to the Federal Assignment of Claims Act (31 U.S.C. Section
3727) or any similar state or local law.

            3.21 Customer and Trade Relations. As of the Closing Date, there
exists no actual or, to the knowledge of any Credit Party, threatened
termination or cancellation of, or any material adverse modification or change
in: the business relationship of any Credit Party with any customer or group of
customers whose purchases during the preceding 12 months caused them to be
ranked among the ten largest customers of such Credit Party; or the business
relationship of any Credit Party with any supplier material to its operations.

            3.22 Agreements and Other Documents. As of the Closing Date, each
Credit Party has provided to Agent or its counsel, on behalf of Lenders,
accurate and complete copies (or summaries) of all of the following agreements
or documents to which it is subject and each of which is listed in Disclosure
Schedule (3.22): supply agreements and purchase agreements involving
transactions in excess of $2,000,000 per annum; agreements relating to advances
to Vendors in excess of $2,000,000; leases of Equipment having a remaining term
of one year or longer and requiring aggregate rental and other payments in
excess of $1,000,000 per annum; licenses and permits held by the Credit Parties,
the absence of which could be reasonably likely to have a Material Adverse
Effect; instruments and documents evidencing any Indebtedness or Guaranteed
Indebtedness of such Credit Party and any Lien granted by such Credit Party with
respect thereto; and instruments and agreements evidencing the issuance of any
equity securities, warrants, rights or options to purchase equity securities of
such Credit Party.

                                       29
<PAGE>

            3.23 Solvency. Both before and after giving effect to (a) the Loans
and Letter of Credit Obligations to be made or incurred on the Closing Date or
such other date as Loans and Letter of Credit Obligations requested hereunder
are made or incurred, (b) the disbursement of the proceeds of such Loans
pursuant to the instructions of Borrower, (c) the payment and accrual of all
transaction costs in connection with the foregoing, each Credit Party is and
will be Solvent.

            3.24 E-Splice. The assets of E-Splice, Inc. have a fair market value
of less than $10,000 and E-Splice does not have any operations.

4. FINANCIAL STATEMENTS AND INFORMATION

            4.1 Reports and Notices.

            (a) Each Credit Party executing this Agreement hereby agrees that
from and after the Closing Date and until the Termination Date, it shall deliver
to Agent or to Agent and Lenders, as required, the Financial Statements,
notices, Projections and other information at the times, to the Persons and in
the manner set forth in Annex E.

            (b) Each Credit Party executing this Agreement hereby agrees that
from and after the Closing Date and until the Termination Date, it shall deliver
to Agent or to Agent and Lenders, as required, the various Collateral Reports
(including Borrowing Base Certificates in the form of Exhibit 4.1(b)) at the
times, to the Persons and in the manner set forth in Annex F.

            4.2 Communication with Accountants. Each Credit Party executing this
Agreement authorizes (a) Agent and (b) so long as an Event of Default has
occurred and is continuing, each Lender, to communicate directly with the
partner in charge of such Credit Party's audit at such Credit Party's
independent certified public accountants, and authorizes and shall instruct
those accountants and advisors to communicate to Agent and each Lender
information relating to any Credit Party with respect to the business, results
of operations and financial condition of any Credit Party.

5. AFFIRMATIVE COVENANTS

            Each Credit Party executing this Agreement jointly and severally
agrees as to all Credit Parties that from and after the date hereof and until
the Termination Date:

            5.1 Maintenance of Existence and Conduct of Business. Each Credit
Party shall: do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence and its rights and franchises;
continue to conduct its business substantially as now conducted or as otherwise
permitted hereunder; at all times maintain, preserve and protect all of its
assets and properties used or useful in the conduct of its business, and keep
the same in good repair, working order and condition in all material respects
(taking into consideration ordinary wear and tear) and from time to time make,
or cause to be made, all necessary or appropriate repairs, replacements and
improvements thereto consistent with industry practices; and transact business
only in such corporate and trade names as are set forth in Disclosure Schedule
(5.1).

                                       30
<PAGE>

            5.2 Payment of Charges.

            (a) Subject to Section 5.2(b), each Credit Party shall pay and
discharge or cause to be paid and discharged promptly all Charges payable by it,
including (i) Charges imposed upon it, its income and profits, or any of its
property (real, personal or mixed) and all Charges with respect to tax, social
security and unemployment withholding with respect to its employees, (ii) lawful
claims for labor, materials, supplies and services or otherwise, and (iii) all
storage or rental charges payable to warehousemen and bailees, in each case,
before any thereof shall become past due.

            (b) Each Credit Party may in good faith contest, by appropriate
proceedings, the validity or amount of any Charges, Taxes or claims described in
Section 5.2(a); provided, that (i) adequate reserves with respect to such
contest are maintained on the books of such Credit Party, in accordance with
GAAP; (ii) no Lien shall be imposed to secure payment of such Charges (other
than payments to warehousemen and/or bailees) that is superior to any of the
Liens securing payment of the Obligations and such contest is maintained and
prosecuted continuously and with diligence and operates to suspend collection or
enforcement of such Charges, (iii) none of the Collateral becomes subject to
forfeiture or loss as a result of such contest, (iv) such Credit Party shall
promptly pay or discharge such contested Charges, Taxes or claims and all
additional charges, interest, penalties and expenses, if any, and shall deliver
to Agent evidence reasonably acceptable to Agent of such compliance, payment or
discharge, if such contest is terminated or discontinued adversely to such
Credit Party or the conditions set forth in this Section 5.2(b) are no longer
met, and (v) Agent has not advised Borrower in writing that Agent reasonably
believes that nonpayment or nondischarge thereof could have or result in a
Material Adverse Effect.

            5.3 Books and Records. Each Credit Party shall keep adequate books
and records with respect to its business activities in which proper entries,
reflecting all financial transactions, are made in accordance with GAAP and on a
basis consistent with the Financial Statements attached as Disclosure Schedule
(3.4(a)).

            5.4 Insurance; Damage to or Destruction of Collateral.

            (a) The Credit Parties shall, at their sole cost and expense,
maintain the policies of insurance described on Disclosure Schedule (3.18) as in
effect on the date hereof or otherwise in form and amounts and with insurers
reasonably acceptable to Agent. Such policies of insurance (or the loss payable
and additional insured endorsements delivered to Agent) shall contain provisions
pursuant to which the insurer agrees to provide 30 days prior written notice to
Agent in the event of any non-renewal, cancellation or amendment of any such
insurance policy. If any Credit Party at any time or times hereafter shall fail
to obtain or maintain any of the policies of insurance required above or to pay
all premiums relating thereto, Agent may at any time or times thereafter obtain
and maintain such policies of insurance and pay such premiums and take any other
action with respect thereto that Agent deems advisable. Agent shall have no
obligation to obtain insurance for any Credit Party or pay any premiums
therefor. By doing so, Agent shall not be deemed to have waived any Default or
Event of Default arising from any Credit Party's failure to maintain such
insurance or pay any premiums therefor. All sums so disbursed, including
reasonable attorneys' fees, court costs and other charges related thereto,

                                       31
<PAGE>

shall be payable on demand by Borrower to Agent and shall be additional
Obligations hereunder secured by the Collateral.

            (b) Agent reserves the right at any time upon any change in any
Credit Party's risk profile (including any change in the product mix maintained
by any Credit Party or any laws affecting the potential liability of such Credit
Party) to require additional forms and limits of insurance to, in Agent's
reasonable opinion, adequately protect both Agent's and Lender's interests in
all or any portion of the Collateral and to ensure that each Credit Party is
protected by insurance in amounts and with coverage customary for its industry.
If reasonably requested by Agent, each Credit Party shall deliver to Agent from
time to time a report of a reputable insurance broker, reasonably satisfactory
to Agent, with respect to its insurance policies.

            (c) Borrower shall deliver to Agent, in form and substance
reasonably satisfactory to Agent, endorsements to (i) all "All Risk" and
business interruption insurance naming Agent, on behalf of itself and Lenders,
as loss payee, and (ii) all general liability and other liability policies
naming Agent, on behalf of itself and Lenders, as additional insured. Borrower
irrevocably makes, constitutes and appoints Agent (and all officers, employees
or agents designated by Agent), so long as any Default or Event of Default has
occurred and is continuing or the anticipated insurance proceeds exceed
$1,000,000, as Borrower's true and lawful agent and attorney-in-fact for the
purpose of making, settling and adjusting claims under such "All Risk" policies
of insurance, endorsing the name of Borrower on any check or other item of
payment for the proceeds of such "All Risk" policies of insurance and for making
all determinations and decisions with respect to such "All Risk" policies of
insurance. Agent shall have no duty to exercise any rights or powers granted to
it pursuant to the foregoing power-of-attorney. Borrower shall promptly notify
Agent of any loss, damage, or destruction to the Collateral in the amount of
$250,000 or more, whether or not covered by insurance. After deducting from such
proceeds the expenses, if any, incurred by Agent in the collection or handling
thereof, Agent may, at its option, apply such proceeds to the reduction of the
Obligations in accordance with Section 1.3(d), or permit or require Borrower to
use such money, or any part thereof, to replace, repair, restore or rebuild the
Collateral in a diligent and expeditious manner with materials and workmanship
of substantially the same quality as existed before the loss, damage or
destruction. Notwithstanding the foregoing, if the casualty giving rise to such
insurance proceeds could not reasonably be expected to have a Material Adverse
Effect and such insurance proceeds do not exceed $1,000,000 in the aggregate,
Agent shall permit Borrower to replace, restore, repair or rebuild the property;
provided that if Borrower has not completed or entered into binding agreements
to complete such replacement, restoration, repair or rebuilding within 180 days
of such casualty, Agent may apply such insurance proceeds to the Obligations in
accordance with Section 1.3(d). All insurance proceeds that are to be made
available to Borrower to replace, repair, restore or rebuild the Collateral
shall be applied by Agent to reduce the outstanding principal balance of the
Revolving Loan (which application shall not result in a permanent reduction of
the Revolving Loan Commitment) and upon such application, Agent shall establish
a Reserve against the Borrowing Base in an amount equal to the amount of such
proceeds so applied. All insurance proceeds made available to any Credit Party
that is not a Borrower to replace, repair, restore or rebuild Collateral shall
be deposited in a cash collateral account. Thereafter, such funds shall be made
available to Borrower to provide funds to replace, repair, restore or rebuild
the Collateral as follows: (i) Borrower shall request a Revolving Credit Advance
be made to Borrower in the amount requested to be released; (ii) so

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<PAGE>

long as the conditions set forth in Section 2.2 have been met, Revolving Lenders
shall make such Revolving Credit Advance or Agent shall release funds from the
cash collateral account; and (iii) in the case of insurance proceeds applied
against the Revolving Loan, the Reserve established with respect to such
insurance proceeds shall be reduced by the amount of such Revolving Credit
Advance. To the extent not used to replace, repair, restore or rebuild the
Collateral, such insurance proceeds shall be applied in accordance with Section
1.3(d).

            5.5 Compliance with Laws. Each Credit Party shall comply with all
federal, state, local and foreign laws and regulations applicable to it,
including those relating to ERISA and labor matters and Environmental Laws and
Environmental Permits, except to the extent that the failure to comply,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.

            5.6 Supplemental Disclosure. From time to time as may be reasonably
requested by Agent (which request will not be made more frequently than once
each year absent the occurrence and continuance of a Default or an Event of
Default), the Credit Parties shall supplement each Disclosure Schedule hereto,
or any representation herein or in any other Loan Document, with respect to any
matter hereafter arising that, if existing or occurring at the date of this
Agreement, would have been required to be set forth or described in such
Disclosure Schedule or as an exception to such representation or that is
necessary to correct any information in such Disclosure Schedule or
representation which has been rendered inaccurate thereby (and, in the case of
any supplements to any Disclosure Schedule, such Disclosure Schedule shall be
appropriately marked to show the changes made therein); provided that (a) no
such supplement to any such Disclosure Schedule or representation shall amend,
supplement or otherwise modify any Disclosure Schedule or representation, or be
or be deemed a waiver of any Default or Event of Default resulting from the
matters disclosed therein, except as consented to by Agent and Requisite Lenders
in writing, and (b) no supplement shall be required or permitted as to
representations and warranties that relate solely to the Closing Date.

            5.7 Intellectual Property. Each Credit Party will conduct its
business and affairs without infringement of or interference with any
Intellectual Property of any other Person in any material respect.

            5.8 Environmental Matters. Each Credit Party shall and shall cause
each Person within its control to: (a) conduct its operations and keep and
maintain its Real Estate in compliance with all Environmental Laws and
Environmental Permits other than noncompliance that could not reasonably be
expected to have a Material Adverse Effect; (b) implement any and all
investigation, remediation, removal and response actions that are appropriate or
necessary to maintain the value and marketability of the Real Estate or to
otherwise comply with Environmental Laws and Environmental Permits pertaining to
the presence, generation, treatment, storage, use, disposal, transportation or
Release of any Hazardous Material on, at, in, under, above, to, from or about
any of its Real Estate; (c) notify Agent promptly after such Credit Party
becomes aware of any violation of Environmental Laws or Environmental Permits or
any Release on, at, in, under, above, to, from or about any Real Estate that is
reasonably likely to result in Environmental Liabilities in excess of $25,000;
and (d) promptly forward to Agent a copy of any order, notice, request for
information or any communication or report received by such Credit Party in
connection with any such violation or

                                       33
<PAGE>

Release or any other matter relating to any Environmental Laws or Environmental
Permits that could reasonably be expected to result in Environmental Liabilities
in excess of $50,000, in each case whether or not the Environmental Protection
Agency or any Governmental Authority has taken or threatened any action in
connection with any such violation, Release or other matter. If Agent at any
time has a reasonable basis to believe that there may be a violation of any
Environmental Laws or Environmental Permits by any Credit Party or any
Environmental Liability arising thereunder, or a Release of Hazardous Materials
on, at, in, under, above, to, from or about any of its Real Estate, that, in
each case, could reasonably be expected to have a Material Adverse Effect, then
each Credit Party shall, upon Agent's written request (i) cause the performance
of such environmental audits including subsurface sampling of soil and
groundwater, and preparation of such environmental reports, at Borrower's
expense, as Agent may from time to time reasonably request, which shall be
conducted by reputable environmental consulting firms reasonably acceptable to
Agent and shall be in form and substance reasonably acceptable to Agent, and
(ii) permit Agent or its representatives to have access to all Real Estate for
the purpose of conducting such environmental audits and testing as Agent deems
appropriate, including subsurface sampling of soil and groundwater. Borrower
shall reimburse Agent for the costs of such audits and tests and the same will
constitute a part of the Obligations secured hereunder.

            5.9 Landlords' Agreements. Each Credit Party shall obtain a
landlord's agreement, mortgagee agreement and bailee letter as applicable, from
the lessor of each leased property, mortgagee of owned property or bailee with
respect to any warehouse, processor or converter facility or other location
where Collateral is stored or located, which agreement or letter shall contain a
waiver or subordination of all Liens or claims that the landlord, mortgagee or
bailee may assert against the Collateral at that location, and shall otherwise
be reasonably satisfactory in form and substance to Agent. With respect to such
locations or warehouse space leased or owned as of the Closing Date and
thereafter, if Agent has not received a landlord or mortgagee agreement or
bailee letter as of the Closing Date (or, if later, as of the date such location
is acquired or leased), Borrower's Eligible Inventory at that location shall, in
Agent's discretion, be excluded from the Borrowing Base or be subject to such
Reserves as may be established by Agent in its reasonable credit judgment. After
the Closing Date, no real property or warehouse space shall be leased by any
Credit Party and no Inventory shall be shipped to a processor or converter under
arrangements established after the Closing Date without the prior written
consent of Agent (which consent, in Agent's discretion, may be conditioned upon
the exclusion from the Borrowing Base of Eligible Inventory at that location or
the establishment of Reserves acceptable to Agent) or, unless and until a
satisfactory landlord agreement or bailee letter, as appropriate, shall first
have been obtained with respect to such location. Each Credit Party shall timely
and fully pay and perform its obligations under all leases and other agreements
with respect to each leased location or public warehouse where any Collateral is
or may be located. To the extent permitted hereunder, if any Credit Party
proposes to acquire a fee ownership interest in Real Estate after the Closing
Date, it shall first provide to Agent a mortgage or deed of trust granting Agent
a first priority Lien on such Real Estate, together with environmental audits,
mortgage title insurance commitment, real property survey, local counsel
opinion(s), and, if required by Agent, supplemental casualty insurance and flood
insurance, and such other documents, instruments or agreements reasonably
requested by Agent, in each case, in form and substance reasonably satisfactory
to Agent.

                                       34
<PAGE>

            5.10 Borrowing Availability. The Borrower shall at all times
maintain Borrowing Availability of at least $10,000,000 (or such lesser amount
as agreed to in writing by the Agent in its sole discretion).

            5.11 Clean Down. The Borrower shall cause the aggregate outstanding
principal amount of Revolving Credit Advances to be zero at all times for at
least one consecutive thirty day period from and including April 1 until and
including June 30 of each year.

            5.12 Further Assurances. Each Credit Party executing this Agreement
agrees that it shall and shall cause each other Credit Party to, at such Credit
Party's expense and upon request of Agent, duly execute and deliver, or cause to
be duly executed and delivered, to Agent such further instruments and do and
cause to be done such further acts as may be necessary or proper in the
reasonable opinion of Agent to carry out more effectively the provisions and
purposes of this Agreement or any other Loan Document.

6. NEGATIVE COVENANTS

            Each Credit Party executing this Agreement jointly and severally
agrees as to all Credit Parties that from and after the date hereof until the
Termination Date:

            6.1 Mergers, Subsidiaries, Etc. Without the prior written consent of
the Agent (which consent may be provided or withheld in the Agent's sole
discretion), no Credit Party shall directly or indirectly, by operation of law
or otherwise, (a) form or acquire any Subsidiary, (b) merge with, consolidate
with, acquire all or substantially all of the assets or Stock of, or otherwise
combine with or acquire, any Person, or (c) other than purchases of Inventory
and licenses of Intellectual Property, in each case in the ordinary course of
business consistent with practices as in effect on the date hereof, purchase
assets from any Person if (i) such purchase is not a Capital Expenditure or (ii)
the amount paid for such purchase does not reduce the EBITDA, during the period
such purchase is made and by the amount paid for such purchase, of the Credit
Party which makes such purchase. Notwithstanding the foregoing, Borrower, may
(i) acquire all or substantially all of the assets or Stock of any Person (the
"Target") (in each case, a "Permitted Acquisition") and (ii) make Permitted
Intellectual Property Acquisitions from any Person (a "Seller"), in the case of
each of (i) and (ii) subject to the satisfaction of each of the following
conditions:

            (i) in the case of a Permitted Acquisition, Agent shall receive at
least 30 Business Days' prior written notice of such proposed Permitted
Acquisition, which notice shall include a reasonably detailed description of
such proposed Permitted Acquisition;

            (ii) in the case of a Permitted Intellectual Property Acquisition,
promptly following the consummation of such Permitted Intellectual Property
Acquisition, Agent shall receive notice thereof, which notice shall include a
reasonably detailed description thereof;

            (iii) in the case of a Permitted Acquisition, such Permitted
Acquisition shall only involve assets located in the United States or Canada and
solely comprising a business of distributing (exclusive of distributing via
internet) and/or publishing of music, videogames, software and/or videos, or the
assets of such business, and which business would not subject

                                       35
<PAGE>

Agent or any Lender to regulatory or third party approvals in connection with
the exercise of its rights and remedies under this Agreement or any other Loan
Documents other than approvals applicable to the exercise of such rights and
remedies with respect to Borrower prior to such Permitted Acquisition;

            (iv) such transaction shall be consensual and shall have been
approved by the Target's or Seller's board of directors;

            (v) no additional Indebtedness, Guaranteed Indebtedness, Contingent
Obligations or other liabilities shall be incurred, assumed or otherwise be
reflected on a consolidated balance sheet of Borrower and Target (if applicable)
after giving effect to such transaction, except (A) Loans made hereunder and (B)
ordinary course trade payables, accrued expenses and , to the extent approved by
the Agent in writing in its sole direction and otherwise permitted hereunder,
unsecured Indebtedness of the Target (if applicable) to the extent no Default or
Event of Default has occurred and is continuing or would result after giving
effect to such transaction;

            (vi) (a) the sum of all amounts payable in connection with any such
transaction (including all transaction costs and all Indebtedness, liabilities
and Contingent Obligations incurred or assumed in connection therewith or
otherwise reflected on a consolidated balance sheet of Borrower, its
Subsidiaries and Target (if applicable)) shall not exceed $1,000,000 and the sum
of all amounts payable in connection with all Permitted Acquisitions and
Permitted Intellectual Property Acquisitions (including all transaction costs
and all Indebtedness, liabilities and Contingent Obligations incurred or assumed
in connection therewith or otherwise reflected on a consolidated balance sheet
of Borrower, its Subsidiaries and Target) (if applicable) during any Fiscal Year
shall not exceed $2,500,000 in the aggregate (provided, however, that this
clause (a) shall not apply to Permitted Acquisitions consummated on or prior to
the Acquisition Loan Funding Termination Date) and (b) the sum of all amounts
payable in connection with any Permitted Acquisition consummated on or prior to
the Acquisition Loan Funding Termination Date (including all transaction costs
and all Indebtedness, liabilities and Contingent Obligations incurred or assumed
in connection therewith or otherwise reflected on a consolidated balance sheet
of Borrower, its Subsidiaries and Target (if applicable)) shall not exceed
$20,000,000 and the sum of all amounts payable in connection with all Permitted
Acquisitions consummated on or prior to the Acquisition Loan Funding Termination
Date (including all transaction costs and all Indebtedness, liabilities and
Contingent Obligations incurred or assumed in connection therewith or otherwise
reflected on a consolidated balance sheet of Borrower, its Subsidiaries and
Target) (if applicable) during any Fiscal Year shall not exceed $40,000,000 in
the aggregate;

            (vii) in the case of a Permitted Acquisition, the Target shall not
have incurred an operating loss for the trailing twelve-month period preceding
the date of the Permitted Acquisition, as determined based upon the Target's
financial statements for its most recently completed fiscal year and its most
recent interim financial period completed within sixty (60) days prior to the
date of consummation of such Permitted Acquisition;

            (viii) the business and assets acquired in such transaction shall be
free and clear of all Liens (other than Permitted Encumbrances);

                                       36
<PAGE>

            (ix) at or prior to the closing of each such transaction, Agent will
be granted a first priority perfected Lien (subject to Permitted Encumbrances)
in all assets acquired pursuant thereto or in the assets and Stock of the
Target, and Borrower and the Target shall have executed such documents and taken
such actions as may be required by Agent in connection therewith;

            (x) in the case of a Permitted Acquisition, concurrently with
delivery of the notice referred to in clause (i) above, Borrower shall deliver
to Agent, in form and substance reasonably satisfactory to Agent:

                  (A) a pro forma consolidated balance sheet, income statement
            and cash flow statement of Borrower and its Subsidiaries (the
            "Acquisition Pro Forma"), based on recent financial statements,
            which shall be complete and shall fairly present in all material
            respects the assets, liabilities, financial condition and results of
            operations of Borrower and its Subsidiaries in accordance with GAAP
            consistently applied, but taking into account such Permitted
            Acquisition and the funding of all Loans in connection therewith,
            and such Acquisition Pro Forma shall reflect that (x) average daily
            Borrowing Availability for the 90-day period preceding the
            consummation of such Permitted Acquisition would have exceeded
            $22,500,000 on a pro forma basis (after giving effect to such
            Permitted Acquisition and all Loans funded in connection therewith
            as if made on the first day of such period and calculated as if
            there has been no deteriorations from the date hereof in the working
            capital position of Borrower) and the Acquisition Projections (as
            hereinafter defined) shall reflect that such Borrowing Availability
            of $22,500,000 shall continue for at least 90 days after the
            consummation of such Permitted Acquisition, and (y) on a pro forma
            basis, no Event of Default has occurred and is continuing or would
            result after giving effect to such Permitted Acquisition and
            Borrower would have been in compliance with the financial covenants
            set forth in Annex G to the Credit Agreement for the four quarter
            period reflected in the Compliance Certificate most recently
            delivered to Agent pursuant to clause (a) of Annex E to the Credit
            Agreement prior to the consummation of such Permitted Acquisition
            (after giving effect to such Permitted Acquisition and all Loans
            funded in connection therewith as if made on the first day of such
            period);

                  (B) updated versions of the most recently delivered
            Projections covering the 3 year period commencing on the date of
            such Permitted Acquisition and otherwise prepared in accordance with
            the Projections (the "Acquisition Projections") and based upon
            historical financial data of a recent date reasonably satisfactory
            to Agent, taking into account such Permitted Acquisition; and

                  (C) a certificate of the chief financial officer of Borrower
            to the effect that: (w) Borrower is Solvent immediately following
            the consummation of the Permitted Acquisition; (x) the Acquisition
            Pro Forma fairly presents the financial condition of Borrower and
            its Subsidiaries (on a consolidated basis) as of the date thereof
            after giving effect to the Permitted Acquisition; (y) the
            Acquisition Projections are reasonable estimates of the future
            financial performance of Borrower and its Subsidiaries subsequent to
            the date thereof based

                                       37
<PAGE>

            upon the historical performance of Borrower and its Subsidiaries and
            the Target and show that Borrower and its Subsidiaries shall
            continue to be in compliance with the financial covenants set forth
            in Annex G to the Credit Agreement for the 3-year period thereafter;
            and (z) Borrower and its Subsidiaries have completed their due
            diligence investigation with respect to the Target and such
            Permitted Acquisition, which investigation was conducted in a manner
            similar to that which would have been conducted by a prudent
            purchaser of a comparable business and the results of which
            investigation were delivered to Agent and Lenders;

            (xi) in the case of any Permitted Intellectual Property Acquisition,
the average daily Borrowing Availability for the 90-day period preceding the
consummation of such Permitted Intellectual Property Acquisition would have
exceeded $22,500,000 on a pro forma basis (after giving effect to such Permitted
Intellectual Property Acquisition and all Loans funded in connection therewith
as if made on the first day of such period and calculated as if there has been
no deteriorations from the date hereof in the working capital position of
Borrower);

            (xii) in the case of a Permitted Acquisition, on or prior to the
date of such Permitted Acquisition, Agent shall have received, in form and
substance reasonably satisfactory to Agent, copies of the acquisition agreement
and related agreements and instruments, and all opinions, certificates, lien
search results and other documents reasonably requested by Agent, including
those specified in the last sentence of Section 5.9; and

            (xiii) at the time of such transaction and after giving effect
thereto, no Default or Event of Default has occurred and is continuing.

Notwithstanding the foregoing, the Accounts and Inventory of a Target shall not
be included in Eligible Accounts and Eligible Inventory without the prior
written consent of Agent and Requisite Lenders.

            6.2 Investments; Loans and Advances. No Credit Party shall make or
permit to exist any investment in, or make, accrue or permit to exist loans or
advances of money to, any Person, through the direct or indirect lending of
money, holding of securities or otherwise, except that: (a) Borrower, Encore
Software and BCI Eclipse may hold investments comprised of notes payable, or
stock or other securities issued by Account Debtors to Borrower, Encore Software
or BCI Eclipse, as applicable pursuant to negotiated agreements with respect to
settlement of such Account Debtor's Accounts in the ordinary course of business,
so long as the aggregate amount of such Accounts so settled by Borrower, Encore
Software and BCI Eclipse does not exceed $500,000 (in the aggregate for
Borrower, Encore Software and BCI Eclipse combined); (b) each Credit Party may
maintain its existing investments in its Subsidiaries as of the Closing Date;
(c) Borrower may maintain Eligible Certificate of Deposits; (d) so long as no
Default or Event of Default has occurred and is continuing and there is no
outstanding Revolving Loan or Acquisition Loan balance, Borrower may make
investments, subject to Control Letters in favor of Agent for the benefit of
Lenders or otherwise subject to a perfected security interest in favor of Agent
for the benefit of Lenders, in (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency thereof
maturing within one year from the date of acquisition thereof, (ii) commercial
paper maturing no more

                                       38
<PAGE>

than one year from the date of creation thereof and currently having the highest
rating obtainable from either Standard & Poor's Ratings Group or Moody's
Investors Service, Inc., (iii) certificates of deposit maturing no more than one
year from the date of creation thereof issued by (A) the Business Bank, a
Minnesota corporation, or (B) commercial banks incorporated under the laws of
the United States of America, each having combined capital, surplus and
undivided profits of not less than $300,000,000 and having a senior unsecured
rating of "A" or better by a nationally recognized rating agency (an "A Rated
Bank"), (iv) time deposits maturing no more than 30 days from the date of
creation thereof with A Rated Banks and (v) mutual funds that invest solely in
one or more of the investments described in clauses (i) through (iv) above; (e)
Borrower, Encore Software and BCI Eclipse may provide advances to Vendors
described in Part A of Disclosure Schedule 6.2; (f) Borrower, Encore Software
and BCI Eclipse may provide advances to Vendors so long as (i) at the time of
each such advance the Borrowing Availability immediately after giving effect to
such advance is at least $20,000,000, (ii) the aggregate outstanding amount of
advances to Vendors permitted solely pursuant to Section 6.2(e) and this Section
6.2(f) does not exceed $15,000,000 at any time and (iii) with respect to each
advance to a Vendor to be made by Encore Software or BCI Eclipse, immediately
after giving effect thereto the Borrower would be permitted to make at least
$500,000 of additional advances to Encore Software or BCI Eclipse, as applicable
pursuant to Section 6.2(i) hereof (provided, however, that the amount set forth
in this Section 6.2(f) shall be reduced from time to time by the amount of
advances to Vendors otherwise permitted by Section 6.2(e) and/or Section 6.2(f)
which have been written off as uncollectible in accordance with Borrower's
policies and as determined in accordance with GAAP to the extent that the amount
of such write off has not caused a reduction in the EBITDA of Borrower in the
fiscal period such write off is taken; (g) Borrower may provide advances to
Vendors described in Part B of Disclosure Schedule 6.2; (h) Borrower may provide
advances by a Credit Party to its employees expressly permitted by Section
6.4(b) hereof; (i) Borrower may make loans to Encore Software in an aggregate
outstanding principal amount not to exceed, at any time, $10,000,000; (j) the
Borrower may make loans to BCI Eclipse in an aggregate outstanding principal
amount not to exceed, at any time, $5,000,000; (k) the Borrower may (i) make a
loan (the "Mix & Burn Loan") to Mix & Burn, Inc., a Minnesota corporation ("Mix
& Burn") in an aggregate principal amount not to exceed $500,000 pursuant to
that certain Discretionary Revolving Loan Agreement dated as of January 26, 2004
between the Borrower and Mix & Burn and that certain Promissory Note dated as of
January 26, 2004 by Mix & Burn in favor of Borrower (the "Mix & Burn Promissory
Note"), as long as (a) the Mix & Burn Loan is fully secured by fully perfected
first priority Liens in and to all or substantially all of the assets of Mix &
Burn pursuant to that certain Security Agreement dated as of January 26, 2004
between the Borrower and Mix & Burn (the "Mix & Burn Security Agreement"), and
(b) Borrower has granted to Agent, for itself and the benefit of Lenders, fully
perfected first priority Liens, pursuant to documentation in form and substance
satisfactory to Agent, in and to the Mix & Burn Promissory Note, the Liens
granted to Borrower under the Mix & Burn Security Agreement, all of the Stock
owned by Borrower from time to time in Mix & Burn whether (1) as a result of the
conversion of the Mix & Burn Promissory Note into equity, (2) consisting of
warrants issued by Mix & Burn in favor of the Borrower in connection with the
Mix & Burn Loan or (3) otherwise, (ii) own Stock in Mix & Burn issued to
Borrower for no additional consideration in connection with the Mix & Burn Loan,
and (iii) convert the obligations relating to the Mix & Burn Loan into Stock of
Mix & Burn and own such Stock]; and (l) other investments not exceeding $100,000
in the aggregate at any time outstanding.

                                       39
<PAGE>

            6.3 Indebtedness.

            (a) No Credit Party shall create, incur, assume or permit to exist
any Indebtedness, except (without duplication) (i) Indebtedness secured by
purchase money security interests and Capital Leases permitted in Section
6.7(c), (ii) the Loans and the other Obligations, (iii) unfunded pension fund
and other employee benefit plan obligations and liabilities to the extent they
are permitted to remain unfunded under applicable law, (iv) existing
Indebtedness described in Disclosure Schedule (6.3) and refinancings thereof or
amendments or modifications thereof that do not have the effect of increasing
the principal amount thereof or changing the amortization thereof (other than to
extend the same) and that are otherwise on terms and conditions no less
favorable to any Credit Party, Agent or any Lender, as determined by Agent, than
the terms of the Indebtedness being refinanced, amended or modified, (v)
Indebtedness permitted pursuant to Section 6.2(i) hereof, (vi) Indebtedness of
Encore Software to the Borrower in an aggregate amount not to exceed $7,200,000,
so long as such Indebtedness is evidenced by an intercompany note, in form and
substance satisfactory to Agent, and such intercompany note has been delivered
and endorsed to Agent, and Indebtedness of Borrower to Encore Software, Inc., a
California corporation pursuant to Section 5 of the Amendment No. 1 to Encore
Purchase Agreement in an aggregate principal amount not to exceed $1,150,000;
provided that, no Credit Party (other than Encore Software) shall guarantee,
grant liens on its assets (including, without limitation, the equity interests
in Encore Software) to secure, or otherwise be directly or indirectly liable for
any such Indebtedness or related obligations, and (vii) Indebtedness of BCI
Eclipse to the Borrower, so long as (a) the related loans to BCI Eclipse from
the Borrower are permitted pursuant to Section 6.2(i), and (b) such Indebtedness
is evidenced by an intercompany note, in form and substance satisfactory to
Agent, and such intercompany note has been delivered and endorsed to Agent.

            (b) No Credit Party shall, directly or indirectly, voluntarily
purchase, redeem, defease or prepay any principal of, premium, if any, interest
or other amount payable in respect of any Indebtedness, other than (i) the
Obligations; (ii) Indebtedness secured by a Permitted Encumbrance if the asset
securing such Indebtedness has been sold or otherwise disposed of in accordance
with Sections 6.8(b) or (c); (iii) Indebtedness permitted by Section 6.3(a)(iv)
upon any refinancing thereof in accordance with Section 6.3(a)(iv); (iv) other
Indebtedness not in excess of $250,000; and (v) as otherwise permitted in
Section 6.14.

            6.4 Employee Loans and Affiliate Transactions.

            (a) No Credit Party shall enter into or be a party to any
transaction with any other Credit Party or any Affiliate thereof except in the
ordinary course of and pursuant to the reasonable requirements of such Credit
Party's business and upon fair and reasonable terms that are no less favorable
to such Credit Party than would be obtained in a comparable arm's length
transaction with a Person not an Affiliate of such Credit Party. In addition, if
any such transaction or series of related transactions involves payments in
excess of $100,000 in the aggregate, the terms of these transactions must be
disclosed in advance to Agent and Lenders. All such transactions existing as of
the date hereof are described in Disclosure Schedule (6.4(a)).

            (b) No Credit Party shall enter into any lending or borrowing
transaction with any employees of any Credit Party, except loans to its
respective employees on an arm's-length

                                       40
<PAGE>

basis in the ordinary course of business consistent with past practices for
travel and entertainment expenses, relocation costs and similar purposes and
stock option financing up to a maximum of $100,000 to any employee and up to a
maximum of $500,000 in the aggregate at any one time outstanding.

            6.5 Capital Structure and Business. No Credit Party shall (a) make
any changes in any of its business objectives, purposes or operations that could
in any way adversely affect the repayment of the Loans or any of the other
Obligations or could reasonably be expected to have or result in a Material
Adverse Effect, (b) make any change in its capital structure as described in
Disclosure Schedule (3.8), including the issuance or sale of any shares of
Stock, warrants or other securities convertible into Stock or any revision of
the terms of its outstanding Stock; provided, that the Borrower may issue or
sell its Stock for cash so long as (i) the proceeds thereof are applied in
prepayment of the Obligations as required by Section 1.3(b)(iii), and (ii) no
Change of Control occurs after giving effect thereto, or (c) amend its charter
or bylaws in a manner that would adversely affect Agent or Lenders or such
Credit Party's duty or ability to repay the Obligations. No Credit Party shall
engage in any business other than the businesses currently engaged in by it or
businesses reasonably related thereto.

            6.6 Guaranteed Indebtedness. No Credit Party shall create, incur,
assume or permit to exist any Guaranteed Indebtedness except (a) by endorsement
of instruments or items of payment for deposit to the general account of any
Credit Party, and (b) for Guaranteed Indebtedness incurred for the benefit of
any other Credit Party if the primary obligation is expressly permitted by this
Agreement.

            6.7 Liens. No Credit Party shall create, incur, assume or permit to
exist any Lien on or with respect to its Accounts or any of its other properties
or assets (whether now owned or hereafter acquired) except for (a) Permitted
Encumbrances; (b) Liens in existence on the date hereof and summarized on
Disclosure Schedule (6.7) securing Indebtedness described on Disclosure Schedule
(6.3) and permitted refinancings, extensions and renewals thereof, including
extensions or renewals of any such Liens; provided that the principal amount so
secured is not increased and the Lien does not attach to any other property; and
(c) Liens created after the date hereof by conditional sale or other title
retention agreements (including Capital Leases) or in connection with purchase
money Indebtedness with respect to Equipment and Fixtures acquired by any Credit
Party in the ordinary course of business, involving the incurrence of an
aggregate amount of purchase money Indebtedness and Capital Lease Obligations of
not more than $250,000 outstanding at any one time for all such Liens (provided
that such Liens attach only to the assets subject to such purchase money debt
and such Indebtedness is incurred within 20 days following such purchase and
does not exceed 100% of the purchase price of the subject assets). In addition,
no Credit Party shall become a party to any agreement, note, indenture or
instrument, or take any other action, that would prohibit the creation of a Lien
on any of its properties or other assets in favor of Agent, on behalf of itself
and Lenders, as additional collateral for the Obligations, except operating
leases, Capital Leases or Licenses which prohibit Liens upon the assets that are
subject thereto.

            6.8 Sale of Stock and Assets. No Credit Party shall sell, transfer,
convey, assign or otherwise dispose of any of its properties or other assets,
including the Stock of any of its Subsidiaries (whether in a public or a private
offering or otherwise) or any of its

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<PAGE>

Accounts, other than (a) the sale of Inventory in the ordinary course of
business, and (b) the sale, transfer, conveyance or other disposition by a
Credit Party of Equipment, Fixtures or Real Estate that are obsolete or no
longer used or useful in such Credit Party's business and having an appraised
value not exceeding $100,000 in any single transaction or $500,000 in the
aggregate in any Fiscal Year. With respect to any disposition of assets or other
properties permitted pursuant to clause (b) above, subject to Section 1.3(b),
Agent agrees on reasonable prior written notice to release its Lien on such
assets or other properties in order to permit the applicable Credit Party to
effect such disposition and shall execute and deliver to Borrower, at Borrower's
expense, appropriate UCC-3 termination statements and other releases as
reasonably requested by Borrower.

            6.9 ERISA. No Credit Party shall, or shall cause or permit any ERISA
Affiliate to, cause or permit to occur an event that could result in the
imposition of a Lien under Section 412 of the IRC or Section 302 or 4068 of
ERISA or cause or permit to occur an ERISA Event to the extent such ERISA Event
could reasonably be expected to have a Material Adverse Effect.

            6.10 Financial Covenants. Borrower shall not breach or fail to
comply with any of the Financial Covenants.

            6.11 Hazardous Materials. No Credit Party shall cause or permit a
Release of any Hazardous Material on, at, in, under, above, to, from or about
any of the Real Estate where such Release would (a) violate in any respect, or
form the basis for any Environmental Liabilities under, any Environmental Laws
or Environmental Permits or (b) otherwise adversely impact the value or
marketability of any of the Real Estate or any of the Collateral, other than
such violations or Environmental Liabilities that could not reasonably be
expected to have a Material Adverse Effect.

            6.12 Sale-Leasebacks. No Credit Party shall engage in any
sale-leaseback, synthetic lease or similar transaction involving any of its
assets; provided that Borrower may engage in a sale-leaseback transaction with
respect to the Minnesota Facility pursuant to the Minnesota Sale-Leaseback
Documents, as long as Agent shall have received certified copies of all
documents governing or evidencing such transaction, including, without
limitation, a landlord waiver, in form and substance reasonably satisfactory to
Agent, prior to consummation of such transaction.

            6.13 Cancellation of Indebtedness. No Credit Party shall cancel any
claim or debt owing to it, except for reasonable consideration negotiated on an
arm's-length basis and in the ordinary course of its business consistent with
past practices.

            6.14 Restricted Payments. No Credit Party shall make any Restricted
Payment, except (a) dividends and distributions by Subsidiaries of Borrower paid
to Borrower, (b) employee loans permitted under Section 6.4(b),(c) on any day,
the Borrower may repurchase the Borrower's own shares of common stock, as long
as (i) at the time of such repurchase and after giving effect thereto, no
Default or Event of Default has occurred and is continuing, (ii) after giving
effect to such repurchase, the Borrowing Availability shall be at least
$20,000,000 and (iii) the aggregate consideration paid for all such repurchases
during any consecutive twelve

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<PAGE>

month period does not exceed $250,000, and (d) payment of Earnout Amounts (under
and as defined in the BCI Eclipse Purchase Agreement as in effect on November 5,
2003) as long as (i) at the time of such payment and after giving effect
thereto, no Default or Event of Default has occurred and is continuing, (ii)
after giving effect to such payment, the Borrowing Availability shall be at
least $20,000,000, (iii) the Borrower has demonstrated to the Agent's reasonable
satisfaction that the average daily Borrowing Availability for the 30-day period
preceding such payment was at least $20,000,000 and (iv) prior to such payment
the Borrower has delivered evidence satisfactory to the Agent demonstrating
that, had such payment been made on the last day of the then most recently
completed Fiscal Quarter, Borrower would have been in compliance with the
financial covenants set forth on Annex G to the Credit Agreement as of the end
of such Fiscal Quarter.

            6.15 Change of Corporate Name or Location; Change of Fiscal Year. No
Credit Party shall (a) change its name as it appears in official filings in the
state of its incorporation or other organization, (b) change its chief executive
office, principal place of business, corporate offices or warehouses or
locations at which Collateral is held or stored, or the location of its records
concerning the Collateral, (c) change the type of entity that it is, (d) change
its organization identification number, if any, issued by its state of
incorporation or other organization, or (e) change its state of incorporation or
organization, in each case without at least 30 days prior written notice to
Agent and after Agent's written acknowledgment that any reasonable action
requested by Agent in connection therewith, including to continue the perfection
of any Liens in favor of Agent, on behalf of Lenders, in any Collateral, has
been completed or taken, and provided that any such new location shall be in the
continental United States. Without limiting the foregoing, no Credit Party shall
change its name, identity or corporate structure in any manner that might make
any financing or continuation statement filed in connection herewith seriously
misleading as such term is defined in and/or used in the Code or any other then
applicable provision of the Code except upon prior written notice to Agent and
Lenders and after Agent's written acknowledgment that any reasonable action
requested by Agent in connection therewith, including to continue the perfection
of any Liens in favor of Agent, on behalf of Lenders, in any Collateral, has
been completed or taken. No Credit Party shall change its Fiscal Year.

            6.16 No Impairment of Intercompany Transfers. No Credit Party shall
directly or indirectly enter into or become bound by any agreement, instrument,
indenture or other obligation (other than this Agreement and the other Loan
Documents) that could directly or indirectly restrict, prohibit or require the
consent of any Person with respect to the payment of dividends or distributions
or the making or repayment of intercompany loans by a Subsidiary of Borrower to
Borrower.

            6.17 No Speculative Transactions. No Credit Party shall engage in
any transaction involving commodity options, futures contracts or similar
transactions, except solely to hedge against fluctuations in the prices of
commodities owned or purchased by it and the values of foreign currencies
receivable or payable by it and interest swaps, caps or collars.

            6.18 Leases; Real Estate Purchases. Except as otherwise permitted in
Section 6.1 in connection with a Permitted Acquisition and except for the lease
of the Minnesota Facility pursuant to the Minnesota Sale-Leaseback Documents, no
Credit Party shall enter into

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<PAGE>

any operating lease for Equipment or Real Estate, if the aggregate of all such
operating lease payments payable in any year for Borrowers on a consolidated
basis would exceed $250,000. Except as otherwise permitted in Section 6.1 in
connection with a Permitted Acquisition, no Credit Party shall purchase a fee
simple ownership interest in Real Estate.

            6.19 Amendments. The Borrower shall not enter into any amendment,
supplement, restatement, other modification or waiver with respect to any of the
Minnesota Sale-Leaseback Documents without the prior written consent of Agent.

            6.20 Trade Debt. The Credit Parties shall not cause or permit BCI
Eclipse or Encore Software to incur third party obligations to trade creditors
(excluding intercompany indebtedness among the Credit Parties) in an amount not
to exceed (i) $5,000,000 in the aggregate for BCI Eclipse or (ii) $12,000,000 in
the aggregate for Encore Software.

7. TERM

            7.1 Termination. The financing arrangements contemplated hereby
shall be in effect until the Commitment Termination Date, and the Loans and all
other Obligations shall be automatically due and payable in full on such date.

            7.2 Survival of Obligations Upon Termination of Financing
Arrangements. Except as otherwise expressly provided for in the Loan Documents,
no termination or cancellation (regardless of cause or procedure) of any
financing arrangement under this Agreement shall in any way affect or impair the
obligations, duties and liabilities of the Credit Parties or the rights of Agent
and Lenders relating to any unpaid portion of the Loans or any other
Obligations, due or not due, liquidated, contingent or unliquidated or any
transaction or event occurring prior to such termination, or any transaction or
event, the performance of which is required after the Commitment Termination
Date. Except as otherwise expressly provided herein or in any other Loan
Document, all undertakings, agreements, covenants, warranties and
representations of or binding upon the Credit Parties, and all rights of Agent
and each Lender, all as contained in the Loan Documents, shall not terminate or
expire, but rather shall survive any such termination or cancellation and shall
continue in full force and effect until the Termination Date; provided, that the
provisions of Section 11, the payment obligations under Sections 1.15 and 1.16,
and the indemnities contained in the Loan Documents shall survive the
Termination Date.

8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES

            8.1 Events of Default. The occurrence of any one or more of the
following events (regardless of the reason therefor) shall constitute an "Event
of Default" hereunder:

            (a) Borrower (i) fails to make any payment of principal of, or
interest on, or Fees owing in respect of, the Loans or any of the other
Obligations when due and payable, or (ii) fails to pay or reimburse Agent or
Lenders for any expense reimbursable hereunder or under any other Loan Document
within 10 days following Agent's demand for such reimbursement or payment of
expenses.

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<PAGE>

            (b) Any Credit Party fails or neglects to perform, keep or observe
any of the provisions of Sections 1.4, 1.8, 5.4(a) or 6, or any of the
provisions set forth in Annexes C or G, respectively.

            (c) Borrower fails or neglects to perform, keep or observe any of
the provisions of Section 4 or any provisions set forth in Annexes E or F,
respectively, and the same shall remain unremedied for 5 days or more.

            (d) Any Credit Party fails or neglects to perform, keep or observe
any other provision of this Agreement or of any of the other Loan Documents
(other than any provision embodied in or covered by any other clause of this
Section 8.1) and the same shall remain unremedied for 45 days or more.

            (e) A default or breach occurs under any other agreement, document
or instrument to which any Credit Party is a party that is not cured within any
applicable grace period therefor, and such default or breach (i) involves the
failure to make any payment when due in respect of any Indebtedness or
Guaranteed Indebtedness (other than the Obligations) of any Credit Party in
excess of $250,000 in the aggregate (including (x) undrawn committed or
available amounts and (y) amounts owing to all creditors under any combined or
syndicated credit arrangements), or (ii) causes, or permits any holder of such
Indebtedness or Guaranteed Indebtedness or a trustee to cause, Indebtedness or
Guaranteed Indebtedness or a portion thereof in excess of $250,000 in the
aggregate to become due prior to its stated maturity or prior to its regularly
scheduled dates of payment, or cash collateral to be demanded in respect
thereof, in each case, regardless of whether such default is waived, or such
right is exercised, by such holder or trustee.

            (f) Any information contained in any Borrowing Base Certificate is
untrue or incorrect in any respect, or any representation or warranty herein or
in any Loan Document or in any written statement, report, financial statement or
certificate (other than a Borrowing Base Certificate) made or delivered to Agent
or any Lender by any Credit Party is untrue or incorrect in any material respect
as of the date when made or deemed made.

            (g) Assets of any Credit Party with a fair market value of $100,000
or more are attached, seized, levied upon or subjected to a writ or distress
warrant, or come within the possession of any receiver, trustee, custodian or
assignee for the benefit of creditors of any Credit Party and such condition
continues for 30 days or more.

            (h) A case or proceeding is commenced against any Credit Party
seeking a decree or order in respect of such Credit Party (i) under the
Bankruptcy Code or any other applicable federal, state or foreign bankruptcy or
other similar law, (ii) appointing a custodian, receiver, liquidator, assignee,
trustee or sequestrator (or similar official) for such Credit Party or for any
substantial part of any such Credit Party's assets, or (iii) ordering the
winding-up or liquidation of the affairs of such Credit Party, and such case or
proceeding shall remain undismissed or unstayed for 60 days or more or a decree
or order granting the relief sought in such case or proceeding by a court of
competent jurisdiction.

                                       45
<PAGE>

            (i) Any Credit Party (i) files a petition seeking relief under the
Bankruptcy Code or any other applicable federal, state or foreign bankruptcy or
other similar law, (ii) consents to or fails to contest in a timely and
appropriate manner to the institution of proceedings thereunder or to the filing
of any such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar
official) for such Credit Party or for any substantial part of any such Credit
Party's assets, (iii) makes an assignment for the benefit of creditors, or (iv)
takes any action in furtherance of any of the foregoing, or (v) admits in
writing its inability to, or is generally unable to, pay its debts as such debts
become due.

            (j) A final judgment or judgments for the payment of money in excess
of $100,000 in the aggregate at any time are outstanding against one or more of
the Credit Parties and the same are not, within 30 days after the entry thereof,
discharged or execution thereof stayed or bonded pending appeal, or such
judgments are not discharged prior to the expiration of any such stay.

            (k) Any material provision of any Loan Document for any reason
ceases to be valid, binding and enforceable in accordance with its terms (or any
Credit Party shall challenge the enforceability of any Loan Document or shall
assert in writing, or engage in any action or inaction based on any such
assertion, that any provision of any of the Loan Documents has ceased to be or
otherwise is not valid, binding and enforceable in accordance with its terms),
or any Lien created under any Loan Document ceases to be a valid and perfected
first priority Lien (except as otherwise permitted herein or therein) in any of
the Collateral purported to be covered thereby.

            (l) Any Change of Control occurs.

            (m) Any event occurs, whether or not insured or insurable, as a
result of which revenue-producing activities cease or are substantially
curtailed at any facility of Borrower generating more than 10% of Borrower's
revenues for the Fiscal Year preceding such event and such cessation or
curtailment continues for more than 30 days.

            8.2 Remedies.

            (a) If any Default or Event of Default has occurred and is
continuing, Agent may (and at the written request of the Requisite Lenders
shall), without notice, suspend the Revolving Loan facility with respect to
additional Advances, the Acquisition Loan facility with respect to additional
Acquisition Loan Advances and/or the incurrence of additional Letter of Credit
Obligations, whereupon any additional Advances, Acquisition Loan Advances and
additional Letter of Credit Obligations shall be made or incurred in Agent's
sole discretion (or in the sole discretion of the Requisite Lenders, if such
suspension occurred at their direction) so long as such Default or Event of
Default is continuing. If any Default or Event of Default has occurred and is
continuing, Agent may (and at the written request of Requisite Lenders shall),
without notice except as otherwise expressly provided herein, increase the rate
of interest applicable to the Loans and the Letter of Credit Fees to the Default
Rate.

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<PAGE>

            (b) If any Event of Default has occurred and is continuing, Agent
may (and at the written request of the Requisite Lenders shall), without notice:
(i) terminate the Revolving Loan facility with respect to further Advances, the
Acquisition Loan facility with respect to additional Acquisition Loan Advances
or the incurrence of further Letter of Credit Obligations; (ii) declare all or
any portion of the Obligations, including all or any portion of any Loan to be
forthwith due and payable, and require that the Letter of Credit Obligations be
cash collateralized as provided in Annex B, all without presentment, demand,
protest or further notice of any kind, all of which are expressly waived by
Borrower and each other Credit Party; or (iii) exercise any rights and remedies
provided to Agent under the Loan Documents or at law or equity, including all
remedies provided under the Code; provided, that upon the occurrence of an Event
of Default specified in Sections 8.1(h) or (i), the Commitments shall be
immediately terminated and all of the Obligations, including the Revolving Loan,
shall become immediately due and payable without declaration, notice or demand
by any Person.

            8.3 Waivers by Credit Parties. Except as otherwise provided for in
this Agreement or by applicable law, each Credit Party waives: (a) presentment,
demand and protest and notice of presentment, dishonor, notice of intent to
accelerate, notice of acceleration, protest, default, nonpayment, maturity,
release, compromise, settlement, extension or renewal of any or all commercial
paper, accounts, contract rights, documents, instruments, chattel paper and
guaranties at any time held by Agent on which any Credit Party may in any way be
liable, and hereby ratifies and confirms whatever Agent may do in this regard,
(b) all rights to notice and a hearing prior to Agent's taking possession or
control of, or to Agent's replevy, attachment or levy upon, the Collateral or
any bond or security that might be required by any court prior to allowing Agent
to exercise any of its remedies, and (c) the benefit of all valuation,
appraisal, marshaling and exemption laws.

9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT

            9.1 Assignment and Participations.

            (a) Subject to the terms of this Section 9.1, any Lender may make an
assignment to a Qualified Assignee of, or sale of participations in, at any time
or times, the Loan Documents, Loans, Letter of Credit Obligations and any
Commitment or any portion thereof or interest therein, including any Lender's
rights, title, interests, remedies, powers or duties thereunder. Any assignment
by a Lender shall: (i) require the consent of Agent (which consent shall not be
unreasonably withheld or delayed with respect to a Qualified Assignee) and the
execution of an assignment agreement (an "Assignment Agreement" substantially in
the form attached hereto as Exhibit 9.1(a) and otherwise in form and substance
reasonably satisfactory to, and acknowledged by, Agent; (ii) be conditioned on
such assignee Lender representing to the assigning Lender and Agent that it is
purchasing the applicable Loans to be assigned to it for its own account, for
investment purposes and not with a view to the distribution thereof; (iii) after
giving effect to any such partial assignment, the assignee Lender shall have
Commitments in an amount at least equal to $5,000,000 and the assigning Lender
shall have retained Commitments in an amount at least equal to $5,000,000; (iv)
include a payment to Agent of an assignment fee of $3,500. In the case of an
assignment by a Lender under this Section 9.1, the assignee shall have, to the
extent of such assignment, the same rights, benefits and obligations as all
other Lenders hereunder. The assigning Lender shall be relieved of its
obligations hereunder with

                                       47
<PAGE>

respect to its Commitments or assigned portion thereof from and after the date
of such assignment. Borrower hereby acknowledges and agrees that any assignment
shall give rise to a direct obligation of Borrower to the assignee and that the
assignee shall be considered to be a "Lender". In all instances, each Lender's
liability to make Loans hereunder shall be several and not joint and shall be
limited to such Lender's Pro Rata Share of the applicable Commitment. In the
event Agent or any Lender assigns or otherwise transfers all or any part of the
Obligations, Agent or any such Lender shall so notify Borrower and Borrower
shall, upon the request of Agent or such Lender, execute new Notes in exchange
for the Notes, if any, being assigned. Notwithstanding the foregoing provisions
of this Section 9.1(a), any Lender may at any time pledge the Obligations held
by it and such Lender's rights under this Agreement and the other Loan Documents
to a Federal Reserve Bank, and any lender that is an investment fund may assign
the Obligations held by it and such Lender's rights under this Agreement and the
other Loan Documents to another investment fund managed by the same investment
advisor; provided, that no such pledge to a Federal Reserve Bank shall release
such Lender from such Lender's obligations hereunder or under any other Loan
Document.

            (b) Any participation by a Lender of all or any part of its
Commitments shall be made with the understanding that all amounts payable by
Borrower hereunder shall be determined as if that Lender had not sold such
participation, and that the holder of any such participation shall not be
entitled to require such Lender to take or omit to take any action hereunder
except actions directly affecting (i) any reduction in the principal amount of,
or interest rate or Fees payable with respect to, any Loan in which such holder
participates, (ii) any extension of the scheduled amortization of the principal
amount of any Loan in which such holder participates or the final maturity date
thereof, and (iii) any release of all or substantially all of the Collateral
(other than in accordance with the terms of this Agreement, the Collateral
Documents or the other Loan Documents). Solely for purposes of Sections 1.13,
1.15, 1.16 and 9.8, Borrower acknowledges and agrees that a participation shall
give rise to a direct obligation of Borrower to the participant and the
participant shall be considered to be a "Lender". Except as set forth in the
preceding sentence neither Borrower nor any other Credit Party shall have any
obligation or duty to any participant. Neither Agent nor any Lender (other than
the Lender selling a participation) shall have any duty to any participant and
may continue to deal solely with the Lender selling a participation as if no
such sale had occurred.

            (c) Except as expressly provided in this Section 9.1, no Lender
shall, as between Borrower and that Lender, or Agent and that Lender, be
relieved of any of its obligations hereunder as a result of any sale,
assignment, transfer or negotiation of, or granting of participation in, all or
any part of the Loans, the Notes or other Obligations owed to such Lender.

            (d) Each Credit Party executing this Agreement shall assist any
Lender permitted to sell assignments or participations under this Section 9.1 as
reasonably required to enable the assigning or selling Lender to effect any such
assignment or participation, including the execution and delivery of any and all
agreements, notes and other documents and instruments as shall be requested and
the preparation of informational materials for, and the participation of
management in meetings with, potential assignees or participants. Each Credit
Party executing this Agreement shall certify the correctness, completeness and
accuracy of all descriptions of the Credit Parties and their respective affairs
contained in any selling materials provided by it and all other information
provided by it and included in such materials, except that any Projections

                                       48
<PAGE>

delivered by Borrower shall only be certified by Borrower as having been
prepared by Borrower in compliance with the representations contained in Section
3.4(c).

            (e) A Lender may furnish any information concerning Credit Parties
in the possession of such Lender from time to time to assignees and participants
(including prospective assignees and participants); provided that such Lender
shall obtain from assignees or participants confidentiality covenants
substantially equivalent to those contained in Section 11.8.

            (f) So long as no Event of Default has occurred and is continuing,
no Lender shall assign or sell participations in any portion of its Loans or
Commitments to a potential Lender or participant, if, as of the date of the
proposed assignment or sale, the assignee Lender or participant would be subject
to capital adequacy or similar requirements under Section 1.16(a), increased
costs under Section 1.16(b), an inability to fund LIBOR Loans under Section
1.16(c), or withholding taxes in accordance with Section 1.15(a).

            (g) Notwithstanding anything to the contrary contained herein, any
Lender (a "Granting Lender"), may grant to a special purpose funding vehicle (an
"SPC"), identified as such in writing by the Granting Lender to Agent and
Borrower, the option to provide to Borrower all or any part of any Loans that
such Granting Lender would otherwise be obligated to make to Borrower pursuant
to this Agreement; provided that (i) nothing herein shall constitute a
commitment by any SPC to make any Loan; and (ii) if an SPC elects not to
exercise such option or otherwise fails to provide all or any part of such Loan,
the Granting Lender shall be obligated to make such Loan pursuant to the terms
hereof. The making of a Loan by an SPC hereunder shall utilize the Commitment of
the Granting Lender to the same extent, and as if such Loan were made by such
Granting Lender. No SPC shall be liable for any indemnity or similar payment
obligation under this Agreement (all liability for which shall remain with the
Granting Lender). Any SPC may (i) with notice to, but without the prior written
consent of, Borrower and Agent and without paying any processing fee therefor
assign all or a portion of its interests in any Loans to the Granting Lender or
to any financial institutions (consented to by Borrower and Agent) providing
liquidity and/or credit support to or for the account of such SPC to support the
funding or maintenance of Loans and (ii) disclose on a confidential basis any
non-public information relating to its Loans to any rating agency, commercial
paper dealer or provider of any surety, guarantee or credit or liquidity
enhancement to such SPC. This Section 9.1(g) may not be amended without the
prior written consent of each Granting Lender, all or any of whose Loans are
being funded by an SPC at the time of such amendment. For the avoidance of
doubt, the Granting Lender shall for all purposes, including without limitation,
the approval of any amendment or waiver of any provision of any Loan Document or
the obligation to pay any amount otherwise payable by the Granting Lender under
the Loan Documents, continue to be the Lender of record hereunder.

            9.2 Appointment of Agent. GE Capital is hereby appointed to act on
behalf of all Lenders as Agent under this Agreement and the other Loan
Documents. The provisions of this Section 9.2 are solely for the benefit of
Agent and Lenders and no Credit Party nor any other Person shall have any rights
as a third party beneficiary of any of the provisions hereof. In performing its
functions and duties under this Agreement and the other Loan Documents, Agent
shall act solely as an agent of Lenders and does not assume and shall not be
deemed to have assumed any obligation toward or relationship of agency or trust
with or for any

                                       49
<PAGE>

Credit Party or any other Person. Agent shall have no duties or responsibilities
except for those expressly set forth in this Agreement and the other Loan
Documents. The duties of Agent shall be mechanical and administrative in nature
and Agent shall not have, or be deemed to have, by reason of this Agreement, any
other Loan Document or otherwise a fiduciary relationship in respect of any
Lender. Except as expressly set forth in this Agreement and the other Loan
Documents, Agent shall not have any duty to disclose, and shall not be liable
for failure to disclose, any information relating to any Credit Party or any of
their respective Subsidiaries or any Account Debtor that is communicated to or
obtained by GE Capital or any of its Affiliates in any capacity. Neither Agent
nor any of its Affiliates nor any of their respective officers, directors,
employees, agents or representatives shall be liable to any Lender for any
action taken or omitted to be taken by it hereunder or under any other Loan
Document, or in connection herewith or therewith, except for damages caused by
its or their own gross negligence or willful misconduct.

            If Agent shall request instructions from Requisite Lenders,
Supermajority Revolving Lenders or all affected Lenders with respect to any act
or action (including failure to act) in connection with this Agreement or any
other Loan Document, then Agent shall be entitled to refrain from such act or
taking such action unless and until Agent shall have received instructions from
Requisite Lenders, Supermajority Revolving Lenders, or all affected Lenders, as
the case may be, and Agent shall not incur liability to any Person by reason of
so refraining. Agent shall be fully justified in failing or refusing to take any
action hereunder or under any other Loan Document (a) if such action would, in
the opinion of Agent, be contrary to law or the terms of this Agreement or any
other Loan Document, (b) if such action would, in the opinion of Agent, expose
Agent to Environmental Liabilities or (c) if Agent shall not first be
indemnified to its satisfaction against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such action.
Without limiting the foregoing, no Lender shall have any right of action
whatsoever against Agent as a result of Agent acting or refraining from acting
hereunder or under any other Loan Document in accordance with the instructions
of Requisite Lenders, Supermajority Revolving Lenders or all affected Lenders,
as applicable.

            9.3 Agent's Reliance, Etc. Neither Agent nor any of its Affiliates
nor any of their respective directors, officers, agents or employees shall be
liable for any action taken or omitted to be taken by it or them under or in
connection with this Agreement or the other Loan Documents, except for damages
caused by its or their own gross negligence or willful misconduct. Without
limiting the generality of the foregoing, Agent: (a) may treat the payee of any
Note as the holder thereof until Agent receives written notice of the assignment
or transfer thereof signed by such payee and in form reasonably satisfactory to
Agent; (b) may consult with legal counsel, independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken by it in good faith in accordance with the advice of such
counsel, accountants or experts; (c) makes no warranty or representation to any
Lender and shall not be responsible to any Lender for any statements, warranties
or representations made in or in connection with this Agreement or the other
Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement or the other Loan Documents on the part of any Credit Party or to
inspect the Collateral (including the books and records) of any Credit Party;
(e) shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
the other Loan Documents

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<PAGE>

or any other instrument or document furnished pursuant hereto or thereto; and
(f) shall incur no liability under or in respect of this Agreement or the other
Loan Documents by acting upon any notice, consent, certificate or other
instrument or writing (which may be by telecopy, telegram, cable or telex)
believed by it to be genuine and signed or sent by the proper party or parties.

            9.4 GE Capital and Affiliates. With respect to its Commitments
hereunder, GE Capital shall have the same rights and powers under this Agreement
and the other Loan Documents as any other Lender and may exercise the same as
though it were not Agent; and the term "Lender" or "Lenders" shall, unless
otherwise expressly indicated, include GE Capital in its individual capacity. GE
Capital and its Affiliates may lend money to, invest in, and generally engage in
any kind of business with, any Credit Party, any of their Affiliates and any
Person who may do business with or own securities of any Credit Party or any
such Affiliate, all as if GE Capital were not Agent and without any duty to
account therefor to Lenders. GE Capital and its Affiliates may accept fees and
other consideration from any Credit Party for services in connection with this
Agreement or otherwise without having to account for the same to Lenders. Each
Lender acknowledges the potential conflict of interest between GE Capital as a
Lender holding interests in the Loans and GE Capital as Agent.

            9.5 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon Agent or any other Lender and based on
the Financial Statements referred to in Section 3.4(a) and such other documents
and information as it has deemed appropriate, made its own credit and financial
analysis of the Credit Parties and its own decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and without
reliance upon Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement. Each
Lender acknowledges the potential conflict of interest of each other Lender as a
result of Lenders holding disproportionate interests in the Loans, and expressly
consents to, and waives any claim based upon, such conflict of interest.

            9.6 Indemnification. Lenders agree to indemnify Agent (to the extent
not reimbursed by Credit Parties and without limiting the obligations of
Borrower hereunder), ratably according to their respective Aggregate Pro Rata
Shares, from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever that may be imposed on, incurred by, or asserted
against Agent in any way relating to or arising out of this Agreement or any
other Loan Document or any action taken or omitted to be taken by Agent in
connection therewith; provided, that no Lender shall be liable for any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from Agent's gross
negligence or willful misconduct. Without limiting the foregoing, each Lender
agrees to reimburse Agent promptly upon demand for its ratable share of any
out-of-pocket expenses (including reasonable counsel fees) incurred by Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement and each other Loan Document, to the
extent that Agent is not reimbursed for such expenses by Credit Parties.

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<PAGE>

            9.7 Successor Agent. Agent may resign at any time by giving not less
than 30 days' prior written notice thereof to Lenders and Borrower. Upon any
such resignation, the Requisite Lenders shall have the right to appoint a
successor Agent. If no successor Agent shall have been so appointed by the
Requisite Lenders and shall have accepted such appointment within 30 days after
the resigning Agent's giving notice of resignation, then the resigning Agent
may, on behalf of Lenders, appoint a successor Agent, which shall be a Lender,
if a Lender is willing to accept such appointment, or otherwise shall be a
commercial bank or financial institution or a subsidiary of a commercial bank or
financial institution if such commercial bank or financial institution is
organized under the laws of the United States of America or of any State thereof
and has a combined capital and surplus of at least $300,000,000. If no successor
Agent has been appointed pursuant to the foregoing, within 30 days after the
date such notice of resignation was given by the resigning Agent, such
resignation shall become effective and the Requisite Lenders shall thereafter
perform all the duties of Agent hereunder until such time, if any, as the
Requisite Lenders appoint a successor Agent as provided above. Any successor
Agent appointed by Requisite Lenders hereunder shall be subject to the approval
of Borrower, such approval not to be unreasonably withheld or delayed; provided
that such approval shall not be required if a Default or an Event of Default has
occurred and is continuing. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall succeed to and become
vested with all the rights, powers, privileges and duties of the resigning
Agent. Upon the earlier of the acceptance of any appointment as Agent hereunder
by a successor Agent or the effective date of the resigning Agent's resignation,
the resigning Agent shall be discharged from its duties and obligations under
this Agreement and the other Loan Documents, except that any indemnity rights or
other rights in favor of such resigning Agent shall continue. After any
resigning Agent's resignation hereunder, the provisions of this Section 9 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was acting as Agent under this Agreement and the other Loan Documents.

            9.8 Setoff and Sharing of Payments. In addition to any rights now or
hereafter granted under applicable law and not by way of limitation of any such
rights, upon the occurrence and during the continuance of any Event of Default
and subject to Section 9.9(f), each Lender is hereby authorized at any time or
from time to time, without notice to any Credit Party or to any other Person,
any such notice being hereby expressly waived, to offset and to appropriate and
to apply any and all balances held by it at any of its offices for the account
of Borrower or any Guarantor (regardless of whether such balances are then due
to Borrower or any Guarantor) and any other properties or assets at any time
held or owing by that Lender or that holder to or for the credit or for the
account of Borrower or any Guarantor against and on account of any of the
Obligations that are not paid when due. Any Lender exercising a right of setoff
or otherwise receiving any payment on account of the Obligations in excess of
its Aggregate Pro Rata Share thereof shall purchase for cash (and the other
Lenders or holders shall sell) such participations in each such other Lender's
or holder's Aggregate Pro Rata Share of the Obligations as would be necessary to
cause such Lender to share the amount so offset or otherwise received with each
other Lender or holder in accordance with their respective Aggregate Pro Rata
Shares, (other than offset rights exercised by any Lender with respect to
Sections 1.13, 1.15 or 1.16). Each Lender's obligation under this Section 9.8
shall be in addition to and not in limitation of its obligations to purchase a
participation in an amount equal to its Pro Rata Share of the Swing Line Loans
under Section 1.1. Borrower and each Guarantor agrees, to the fullest extent
permitted by law, that (a) any Lender may exercise its right to offset with

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<PAGE>

respect to amounts in excess of its Aggregate Pro Rata Share of the Obligations
and may sell participations in such amounts so offset to other Lenders and
holders and (b) any Lender so purchasing a participation in the Loans made or
other Obligations held by other Lenders or holders may exercise all rights of
offset, bankers' lien, counterclaim or similar rights with respect to such
participation as fully as if such Lender or holder were a direct holder of the
Loans and the other Obligations in the amount of such participation.
Notwithstanding the foregoing, if all or any portion of the offset amount or
payment otherwise received is thereafter recovered from the Lender that has
exercised the right of offset, the purchase of participations by that Lender
shall be rescinded and the purchase price restored without interest.

            9.9 Advances and Acquisition Loan Advances; Payments; Non-Funding
Lenders; Information; Actions in Concert.

            (a) Advances and Acquisition Loan Advances; Payments.

                  (i) Revolving Lenders shall refund or participate in the Swing
Line Loan in accordance with clauses (iii) and (iv) of Section 1.1(b). If the
Swing Line Lender declines to make a Swing Line Loan or if Swing Line
Availability is zero, Agent shall notify Revolving Lenders, promptly after
receipt of a Notice of Revolving Advance and in any event prior to 1:00 p.m.
(Chicago time) on the date such Notice of Revolving Advance is received, by
telecopy, telephone or other similar form of transmission. Each Revolving Lender
shall make the amount of such Lender's Pro Rata Share of such Revolving Credit
Advance available to Agent in same day funds by wire transfer to Agent's account
as set forth in Annex H not later than 3:00 p.m. (Chicago time) on the requested
funding date, in the case of an Index Rate Loan and not later than 11:00 a.m.
(Chicago time) on the requested funding date in the case of a LIBOR Loan. Each
Acquisition Loan Lender shall make the amount of such Acquisition Loan Lender's
Pro Rata Share of such Acquisition Loan Advance available to Agent in same day
funds by wire transfer to Agent's account as set forth in Annex H not later than
11:00 a.m. (Chicago time) on the requested funding date. After receipt of such
wire transfers (or, in the Agent's sole discretion, before receipt of such wire
transfers), subject to the terms hereof, Agent shall make the requested
Revolving Credit Advance or Acquisition Loan Advance to Borrower. All payments
by each Revolving Lender and each Acquisition Loan Lender shall be made without
setoff, counterclaim or deduction of any kind.

                  (ii) On the 2nd Business Day of each calendar week or more
frequently at Agent's election (each, a "Settlement Date"), Agent shall advise
each Lender by telephone, or telecopy of the amount of such Lender's Pro Rata
Share of principal, interest and Fees paid for the benefit of Lenders with
respect to each applicable Loan. Provided that each Lender has funded all
payments and Advances and Acquisition Loan Advances required to be made by it
and purchased all participations required to be purchased by it under this
Agreement and the other Loan Documents as of such Settlement Date, Agent shall
pay to each Lender such Lender's Pro Rata Share of principal, interest and Fees
paid by Borrower since the previous Settlement Date for the benefit of such
Lender on the Loans held by it. To the extent that any Lender (a "Non-Funding
Lender") has failed to fund all such payments and Advances, Acquisition Loan
Advances or failed to fund the purchase of all such participations, Agent shall
be entitled to set off the funding short-fall against that Non-Funding Lender's
Pro Rata Share of all payments received from Borrower. Such payments shall be
made by wire transfer to such

                                       53
<PAGE>

Lender's account (as specified by such Lender in Annex H or the applicable
Assignment Agreement) not later than 1:00 p.m. (Chicago time) on the next
Business Day following each Settlement Date.

            (b) Availability of Lender's Pro Rata Share. Agent may assume that
(i) each Revolving Lender will make its Pro Rata Share of each Revolving Credit
Advance available to Agent on each funding date, and (ii) each Acquisition Loan
Lender will make its Pro Rata Share of each Acquisition Loan Advance available
to Agent on each funding date. If such Pro Rata Share is not, in fact, paid to
Agent by such Revolving Lender or Acquisition Loan Lender when due, Agent will
be entitled to recover such amount on demand from such Revolving Lender or
Acquisition Loan Lender without setoff, counterclaim or deduction of any kind.
If any Revolving Lender or Acquisition Loan Lender fails to pay the amount of
its Pro Rata Share forthwith upon Agent's demand, Agent shall promptly notify
Borrower and Borrower shall immediately repay such amount to Agent. Nothing in
this Section 9.9(b) or elsewhere in this Agreement or the other Loan Documents
shall be deemed to require Agent to advance funds on behalf of any Revolving
Lender or Acquisition Loan Lender or to relieve any Revolving Lender or
Acquisition Loan Lender from its obligation to fulfill its Commitments hereunder
or to prejudice any rights that Borrower may have against any Revolving Lender
or Acquisition Loan Lender as a result of any default by such Revolving Lender
or Acquisition Loan Lender hereunder. To the extent that Agent advances funds to
Borrower on behalf of any Revolving Lender or Acquisition Loan Lender and is not
reimbursed therefor on the same Business Day as such Advance or Acquisition Loan
Advance is made, Agent shall be entitled to retain for its account all interest
accrued on such Advance or Acquisition Loan Advance until reimbursed by the
applicable Revolving Lender or Acquisition Loan Lender.

            (c) Return of Payments.

                  (i) If Agent pays an amount to a Lender under this Agreement
in the belief or expectation that a related payment has been or will be received
by Agent from Borrower and such related payment is not received by Agent, then
Agent will be entitled to recover such amount from such Lender on demand without
setoff, counterclaim or deduction of any kind.

                  (ii) If Agent determines at any time that any amount received
by Agent under this Agreement must be returned to Borrower or paid to any other
Person pursuant to any insolvency law or otherwise, then, notwithstanding any
other term or condition of this Agreement or any other Loan Document, Agent will
not be required to distribute any portion thereof to any Lender. In addition,
each Lender will repay to Agent on demand any portion of such amount that Agent
has distributed to such Lender, together with interest at such rate, if any, as
Agent is required to pay to Borrower or such other Person, without setoff,
counterclaim or deduction of any kind.

            (d) Non-Funding Lenders. The failure of any Non-Funding Lender to
make any Revolving Credit Advance, any Acquisition Loan Advance or any payment
required by it hereunder, or to purchase any participation in any Swing Line
Loan to be made or purchased by it on the date specified therefor shall not
relieve any other Lender (each such other Revolving Lender or Acquisition Loan
Lender, an "Other Lender") of its obligations to make such Advance, such
Acquisition Loan Advance or purchase such participation on such date, but
neither any

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<PAGE>

Other Lender nor Agent shall be responsible for the failure of any Non-Funding
Lender to make an Advance, an Acquisition Loan Advance, purchase a participation
or make any other payment required hereunder. Notwithstanding anything set forth
herein to the contrary, a Non-Funding Lender shall not have any voting or
consent rights under or with respect to any Loan Document or constitute a
"Lender", a "Revolving Lender", or an "Acquisition Loan Lender" (or be included
in the calculation of "Requisite Lenders", " or "Supermajority Revolving
Lenders" hereunder) for any voting or consent rights under or with respect to
any Loan Document. At Borrower's request, Agent or a Person acceptable to Agent
shall have the right with Agent's consent and in Agent's sole discretion (but
shall have no obligation) to purchase from any Non-Funding Lender, and each
Non-Funding Lender agrees that it shall, at Agent's request, sell and assign to
Agent or such Person, all of the Commitments of that Non-Funding Lender for an
amount equal to the principal balance of all Loans held by such Non-Funding
Lender and all accrued interest and fees with respect thereto through the date
of sale, such purchase and sale to be consummated pursuant to an executed
Assignment Agreement.

            (e) Dissemination of Information. Agent shall use reasonable efforts
to provide Lenders with any notice of Default or Event of Default received by
Agent from, or delivered by Agent to, any Credit Party, with notice of any Event
of Default of which Agent has actually become aware and with notice of any
action taken by Agent following any Event of Default; provided, that Agent shall
not be liable to any Lender for any failure to do so, except to the extent that
such failure is attributable to Agent's gross negligence or willful misconduct.
Lenders acknowledge that Borrower is required to provide Financial Statements
and Collateral Reports to Lenders in accordance with Annexes E and F hereto and
agree that Agent shall have no duty to provide the same to Lenders.

            (f) Actions in Concert. Anything in this Agreement to the contrary
notwithstanding, each Lender hereby agrees with each other Lender that no Lender
shall take any action to protect or enforce its rights arising out of this
Agreement or the Notes (including exercising any rights of setoff) without first
obtaining the prior written consent of Agent and Requisite Lenders, it being the
intent of Lenders that any such action to protect or enforce rights under this
Agreement and the Notes shall be taken in concert and at the direction or with
the consent of Agent or Requisite Lenders.

10. SUCCESSORS AND ASSIGNS

            10.1 Successors and Assigns. This Agreement and the other Loan
Documents shall be binding on and shall inure to the benefit of each Credit
Party, Agent, Lenders and their respective successors and assigns (including, in
the case of any Credit Party, a debtor-in-possession on behalf of such Credit
Party), except as otherwise provided herein or therein. No Credit Party may
assign, transfer, hypothecate or otherwise convey its rights, benefits,
obligations or duties hereunder or under any of the other Loan Documents without
the prior express written consent of Agent and Lenders. Any such purported
assignment, transfer, hypothecation or other conveyance by any Credit Party
without the prior express written consent of Agent and Lenders shall be void.
The terms and provisions of this Agreement are for the purpose of defining the
relative rights and obligations of each Credit Party, Agent and Lenders with
respect to the transactions contemplated hereby and no Person shall be a third
party

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<PAGE>

beneficiary of any of the terms and provisions of this Agreement or any of the
other Loan Documents.

11. MISCELLANEOUS

            11.1 Complete Agreement; Modification of Agreement. The Loan
Documents constitute the complete agreement between the parties with respect to
the subject matter thereof and may not be modified, altered or amended except as
set forth in Section 11.2. Any letter of interest, commitment letter or fee
letter (other than the GE Capital Fee Letter) or confidentiality agreement, if
any, between any Credit Party and Agent or any Lender or any of their respective
Affiliates, predating this Agreement and relating to a financing of
substantially similar form, purpose or effect shall be superseded by this
Agreement.

            11.2 Amendments and Waivers.

            (a) Except for actions expressly permitted to be taken by Agent, no
amendment, modification, termination or waiver of any provision of this
Agreement or any other Loan Document, or any consent to any departure by any
Credit Party therefrom, shall in any event be effective unless the same shall be
in writing and signed by Agent and Borrower, and by Requisite Lenders,
Supermajority Revolving Lenders or all affected Lenders, as applicable. Except
as set forth in clauses (b) and (c) below, all such amendments, modifications,
terminations or waivers requiring the consent of any Lenders shall require the
written consent of Requisite Lenders.

            (b) No amendment, modification, termination or waiver of or consent
with respect to any provision of this Agreement that increases the percentage
advance rates set forth in the definition of the Borrowing Base, or that makes
less restrictive the nondiscretionary criteria for exclusion from Eligible
Accounts and Eligible Inventory set forth in Sections 1.6 and 1.7, shall be
effective unless the same shall be in writing and signed by Agent, Supermajority
Revolving Lenders and Borrower. No amendment, modification, termination or
waiver of or consent with respect to any provision of this Agreement that waives
compliance with the conditions precedent set forth in Section 2.2 to the making
of any Loan or the incurrence of any Letter of Credit Obligations shall be
effective unless the same shall be in writing and signed by Agent, Requisite
Lenders and Borrower. Notwithstanding anything contained in this Agreement to
the contrary, no waiver or consent with respect to any Default or any Event of
Default shall be effective for purposes of the conditions precedent to the
making of Loans or the incurrence of Letter of Credit Obligations set forth in
Section 2.2 unless the same shall be in writing and signed by Agent, Requisite
Lenders and Borrower.

            (c) No amendment, modification, termination or waiver shall, unless
in writing and signed by Agent and each Lender directly affected thereby: (i)
increase the principal amount of any Lender's Commitment (which action shall be
deemed to directly affect all Lenders); (ii) reduce the principal of, rate of
interest on or Fees payable with respect to any Loan or Letter of Credit
Obligations of any affected Lender; (iii) extend any scheduled payment date
(other than payment dates of mandatory prepayments under Section
1.3(b)(ii)-(iv)) or final maturity date of the principal amount of any Loan of
any affected Lender; (iv) waive, forgive, defer, extend or postpone any payment
of interest or Fees as to any affected Lender; (v) release

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<PAGE>

any Guaranty or, except as otherwise permitted herein or in the other Loan
Documents, release, or permit any Credit Party to sell or otherwise dispose of,
any Collateral with a value exceeding $1,000,000 in the aggregate (which action
shall be deemed to directly affect all Lenders); (vi) change the percentage of
the Commitments or of the aggregate unpaid principal amount of the Loans that
shall be required for Lenders or any of them to take any action hereunder; and
(vii) amend or waive this Section 11.2 or the definitions of the terms
"Requisite Lenders", or "Supermajority Revolving Lenders" insofar as such
definitions affect the substance of this Section 11.2. Furthermore, no
amendment, modification, termination or waiver affecting the rights or duties of
Agent or L/C Issuer under this Agreement or any other Loan Document shall be
effective unless in writing and signed by Agent or L/C Issuer, as the case may
be, in addition to Lenders required hereinabove to take such action. Each
amendment, modification, termination or waiver shall be effective only in the
specific instance and for the specific purpose for which it was given. No
amendment, modification, termination or waiver shall be required for Agent to
take additional Collateral pursuant to any Loan Document. No amendment,
modification, termination or waiver of any provision of any Note shall be
effective without the written concurrence of the holder of that Note. No notice
to or demand on any Credit Party in any case shall entitle such Credit Party or
any other Credit Party to any other or further notice or demand in similar or
other circumstances. Any amendment, modification, termination, waiver or consent
effected in accordance with this Section 11.2 shall be binding upon each holder
of the Notes at the time outstanding and each future holder of the Notes.

            (d) If, in connection with any proposed amendment, modification,
waiver or termination (a "Proposed Change"):

                  (i) requiring the consent of all affected Lenders, the consent
of Requisite Lenders is obtained, but the consent of other Lenders whose consent
is required is not obtained (any such Lender whose consent is not obtained as
described in this clause (i) and in clauses (ii) and (iii) below being referred
to as a "Non-Consenting Lender"),

                  (ii) requiring the consent of Supermajority Revolving Lenders,
the consent of Requisite Lenders is obtained, but the consent of Supermajority
Revolving Lenders is not obtained,

                  (iii) requiring the consent of Requisite Lenders, the consent
of Revolving Lenders holding 51% or more of the aggregate Revolving Loan
Commitments is obtained, but the consent of Requisite Lenders is not obtained;

then, so long as Agent is not a Non-Consenting Lender, at Borrower's request
Agent, or a Person reasonably acceptable to Agent, shall have the right with
Agent's consent and in Agent's sole discretion (but shall have no obligation) to
purchase from such Non-Consenting Lenders, and such Non-Consenting Lenders agree
that they shall, upon Agent's request, sell and assign to Agent or such Person,
all of the Commitments of such Non-Consenting Lenders for an amount equal to the
principal balance of all Loans held by the Non-Consenting Lenders and all
accrued interest and Fees with respect thereto through the date of sale, such
purchase and sale to be consummated pursuant to an executed Assignment
Agreement.

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<PAGE>

            (e) Upon payment in full in cash and performance of all of the
Obligations (other than indemnification Obligations), termination of the
Commitments and a release of all claims against Agent and Lenders, and so long
as no suits, actions proceedings, or claims are pending or threatened against
any Indemnified Person asserting any damages, losses or liabilities that are
Indemnified Liabilities, Agent shall deliver to Borrower termination statements,
mortgage releases and other documents necessary or appropriate to evidence the
termination of the Liens securing payment of the Obligations.

            11.3 Fees and Expenses. Borrower shall reimburse (i) Agent for all
fees, costs and expenses (including the reasonable fees and expenses of all of
its counsel, advisors, consultants and auditors) and (ii) Agent (and, with
respect to clauses (c) and (d) below, all Lenders) for all fees, costs and
expenses, including the reasonable fees, costs and expenses of counsel or other
advisors (including environmental and management consultants and appraisers)
incurred in connection with the negotiation, preparation and filing and/or
recordation of the Loan Documents and incurred in connection with:

            (a) the forwarding to Borrower or any other Person on behalf of
Borrower by Agent of the proceeds of any Loan (including a wire transfer fee of
$25 per wire transfer);

            (b) any amendment, modification or waiver of, or consent with
respect to, or termination of, any of the Loan Documents or advice in connection
with the syndication and administration of the Loans made pursuant hereto or its
rights hereunder or thereunder;

            (c) any litigation, contest, dispute, suit, proceeding or action
(whether instituted by Agent, any Lender, any Credit Party or any other Person
and whether as a party, witness or otherwise) in any way relating to the
Collateral, any of the Loan Documents or any other agreement to be executed or
delivered in connection herewith or therewith, including any litigation,
contest, dispute, suit, case, proceeding or action, and any appeal or review
thereof, in connection with a case commenced by or against any or all of the
Credit Parties or any other Person that may be obligated to Agent by virtue of
the Loan Documents, including any such litigation, contest, dispute, suit,
proceeding or action arising in connection with any work-out or restructuring of
the Loans during the pendency of one or more Events of Default; provided that in
the case of reimbursement of counsel for Lenders other than Agent, such
reimbursement shall be limited to one counsel for all such Lenders; provided,
further, that no Person shall be entitled to reimbursement under this clause (c)
in respect of any litigation, contest, dispute, suit, proceeding or action to
the extent any of the foregoing results from such Person's gross negligence or
willful misconduct;

            (d) any attempt to enforce any remedies of Agent or any Lender
against any or all of the Credit Parties or any other Person that may be
obligated to Agent or any Lender by virtue of any of the Loan Documents,
including any such attempt to enforce any such remedies in the course of any
work-out or restructuring of the Loans during the pendency of one or more Events
of Default; provided, that in the case of reimbursement of counsel for Lenders
other than Agent, such reimbursement shall be limited to one counsel for all
such Lenders;

            (e) any workout or restructuring of the Loans during the pendency of
one or more Events of Default; and

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<PAGE>

            (f) efforts to (i) monitor the Loans or any of the other
Obligations, (ii) evaluate, observe or assess any of the Credit Parties or their
respective affairs, and (iii) verify, protect, evaluate, assess, appraise,
collect, sell, liquidate or otherwise dispose of any of the Collateral;

including, as to each of clauses (a) through (f) above, all reasonable
attorneys' and other professional and service providers' fees arising from such
services and other advice, assistance or other representation, including those
in connection with any appellate proceedings, and all expenses, costs, charges
and other fees incurred by such counsel and others in connection with or
relating to any of the events or actions described in this Section 11.3, all of
which shall be payable, on demand, by Borrower to Agent. Without limiting the
generality of the foregoing, such expenses, costs, charges and fees may include:
fees, costs and expenses of accountants, environmental advisors, appraisers,
investment bankers, management and other consultants and paralegals; court costs
and expenses; photocopying and duplication expenses; court reporter fees, costs
and expenses; long distance telephone charges; air express charges; telegram or
telecopy charges; secretarial overtime charges; and expenses for travel, lodging
and food paid or incurred in connection with the performance of such legal or
other advisory services.

            11.4 No Waiver. Agent's or any Lender's failure, at any time or
times, to require strict performance by the Credit Parties of any provision of
this Agreement or any other Loan Document shall not waive, affect or diminish
any right of Agent or such Lender thereafter to demand strict compliance and
performance herewith or therewith. Any suspension or waiver of an Event of
Default shall not suspend, waive or affect any other Event of Default whether
the same is prior or subsequent thereto and whether the same or of a different
type. Subject to the provisions of Section 11.2, none of the undertakings,
agreements, warranties, covenants and representations of any Credit Party
contained in this Agreement or any of the other Loan Documents and no Default or
Event of Default by any Credit Party shall be deemed to have been suspended or
waived by Agent or any Lender, unless such waiver or suspension is by an
instrument in writing signed by an officer of or other authorized employee of
Agent and the applicable required Lenders and directed to Borrower specifying
such suspension or waiver.

            11.5 Remedies. Agent's and Lenders' rights and remedies under this
Agreement shall be cumulative and nonexclusive of any other rights and remedies
that Agent or any Lender may have under any other agreement, including the other
Loan Documents, by operation of law or otherwise. Recourse to the Collateral
shall not be required.

            11.6 Severability. Wherever possible, each provision of this
Agreement and the other Loan Documents shall be interpreted in such a manner as
to be effective and valid under applicable law, but if any provision of this
Agreement or any other Loan Document shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement or such other Loan Document.

            11.7 Conflict of Terms. Except as otherwise provided in this
Agreement or any of the other Loan Documents by specific reference to the
applicable provisions of this Agreement, if any provision contained in this
Agreement conflicts with any

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<PAGE>

provision in any of the other Loan Documents, the provision contained in this
Agreement shall govern and control.

            11.8 Confidentiality. Agent and each Lender agree to use
commercially reasonable efforts (equivalent to the efforts Agent or such Lender
applies to maintain the confidentiality of its own confidential information) to
maintain as confidential all confidential information provided to them by the
Credit Parties and designated as confidential following receipt thereof, except
that Agent and each Lender may disclose such information (a) to Persons employed
or engaged by Agent or such Lender; (b) to any bona fide assignee or participant
or potential assignee or participant that has agreed to comply with the covenant
contained in this Section 11.8 (and any such bona fide assignee or participant
or potential assignee or participant may disclose such information to Persons
employed or engaged by them as described in clause (a) above); (c) as required
or requested by any Governmental Authority or reasonably believed by Agent or
such Lender to be compelled by any court decree, subpoena or legal or
administrative order or process; (d) as, on the advise of Agent's or such
Lender's counsel, is required by law; (e) in connection with the exercise of any
right or remedy under the Loan Documents or in connection with any Litigation to
which Agent or such Lender is a party; or (f) that ceases to be confidential
through no fault of Agent or any Lender.

            11.9 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF
THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THE LOAN DOCUMENTS AND THE OBLIGATIONS SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF
THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE
AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. EACH CREDIT PARTY
HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN COOK
COUNTY, CITY OF CHICAGO, ILLINOIS SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE CREDIT PARTIES, AGENT AND LENDERS
PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS;
PROVIDED, THAT AGENT, LENDERS AND THE CREDIT PARTIES ACKNOWLEDGE THAT ANY
APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF
COOK COUNTY AND; PROVIDED, FURTHER THAT NOTHING IN THIS AGREEMENT SHALL BE
DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL
ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER
SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF AGENT. EACH CREDIT PARTY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO
SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH
CREDIT PARTY HEREBY WAIVES ANY OBJECTION THAT SUCH CREDIT PARTY MAY HAVE BASED
UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND
HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE

                                       60
<PAGE>

RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. EACH CREDIT PARTY HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH
ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH CREDIT
PARTY AT THE ADDRESS SET FORTH IN ANNEX I OF THIS AGREEMENT AND THAT SERVICE SO
MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH CREDIT PARTY'S ACTUAL
RECEIPT THEREOF OR 3 DAYS AFTER DEPOSIT IN THE UNITED STATES MAILS, PROPER
POSTAGE PREPAID.

            11.10 Notices. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by any other parties, or whenever any of the parties desires to give or
serve upon any other parties any communication with respect to this Agreement,
each such notice, demand, request, consent, approval, declaration or other
communication shall be in writing and shall be deemed to have been validly
served, given or delivered (a) upon the earlier of actual receipt and 3 Business
Days after deposit in the United States Mail, registered or certified mail,
return receipt requested, with proper postage prepaid, (b) upon transmission,
when sent by telecopy or other similar facsimile transmission (with such
telecopy or facsimile promptly confirmed by delivery of a copy by personal
delivery or United States Mail as otherwise provided in this Section 11.10); (c)
1 Business Day after deposit with a reputable overnight courier with all charges
prepaid or (d) when delivered, if hand-delivered by messenger, all of which
shall be addressed to the party to be notified and sent to the address or
facsimile number indicated in Annex I or to such other address (or facsimile
number) as may be substituted by notice given as herein provided. The giving of
any notice required hereunder may be waived in writing by the party entitled to
receive such notice. Failure or delay in delivering copies of any notice,
demand, request, consent, approval, declaration or other communication to any
Person (other than Borrower or Agent) designated in Annex I to receive copies
shall in no way adversely affect the effectiveness of such notice, demand,
request, consent, approval, declaration or other communication.

            11.11 Section Titles. The Section titles and Table of Contents
contained in this Agreement are and shall be without substantive meaning or
content of any kind whatsoever and are not a part of the agreement between the
parties hereto.

            11.12 Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which shall collectively and separately
constitute one agreement.

            11.13 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED
BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND
FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT
THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE,
TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,

                                       61
<PAGE>

SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE, AMONG AGENT, LENDERS AND ANY CREDIT PARTY ARISING
OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.

            11.14 Press Releases and Related Matters. Each Credit Party
executing this Agreement agrees that neither it nor its Affiliates will in the
future issue any press releases or other public disclosure using the name of GE
Capital or its affiliates or referring to this Agreement or the other Loan
Documents without at least 2 Business Days' prior notice to GE Capital and
without the prior written consent of GE Capital unless (and only to the extent
that) such Credit Party or Affiliate is required to do so under law and then, in
any event, such Credit Party or Affiliate will consult with GE Capital before
issuing such press release or other public disclosure. Each Credit Party
consents to the publication by Agent or any Lender of a tombstone or similar
advertising material relating to the financing transactions contemplated by this
Agreement. Agent or such Lender shall provide a draft of any such tombstone or
similar advertising material to each Credit Party for review and comment prior
to the publication thereof. Agent reserves the right to provide to industry
trade organizations information necessary and customary for inclusion in league
table measurements.

            11.15 Reinstatement. This Agreement shall remain in full force and
effect and continue to be effective should any petition be filed by or against
any Credit Party for liquidation or reorganization, should any Credit Party
become insolvent or make an assignment for the benefit of any creditor or
creditors or should a receiver or trustee be appointed for all or any
significant part of any Credit Party's assets, and shall continue to be
effective or to be reinstated, as the case may be, if at any time payment and
performance of the Obligations, or any part thereof, is, pursuant to applicable
law, rescinded or reduced in amount, or must otherwise be restored or returned
by any obligee of the Obligations, whether as a "voidable preference,"
"fraudulent conveyance," or otherwise, all as though such payment or performance
had not been made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the Obligations shall be reinstated
and deemed reduced only by such amount paid and not so rescinded, reduced,
restored or returned.

            11.16 Advice of Counsel. Each of the parties represents to each
other party hereto that it has discussed this Agreement and, specifically, the
provisions of Sections 11.9 and 11.13, with its counsel.

            11.17 No Strict Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement.

                                       62
<PAGE>

12. AMENDMENT AND RESTATEMENT

            12.1 Interrelationship with the Existing Credit Agreement. As stated
in the preamble hereof, this Agreement is intended to amend and restate the
provisions of the Existing Credit Agreement and, except as expressly modified
herein, (x) all of the terms and provisions of the Existing Credit Agreement
shall continue to apply for the period prior to the Closing Date, including any
determinations of payment dates, interest rates, Events of Default or any amount
that may be payable to Agent or the Lenders, (y) the Obligations under the
Existing Credit Agreement shall continue to be paid or prepaid on or prior to
the Closing Date, and shall from and after the Closing Date continue to be owing
and be subject to the terms of this Agreement and (z) this Agreement shall not
be deemed to evidence or result in a novation or repayment of the Original
Revolving Loans and reborrowing hereunder, but Obligations under the Existing
Credit Agreement and Liens securing payment and performance thereof shall in all
respects be continuing as Obligations under this Agreement and Liens securing
payment and performance thereof. All references in the other Loan Documents and
the Loan Documents executed in connection with the Existing Credit Agreement to
(i) the Existing Credit Agreement or the "Credit Agreement" shall be deemed to
include references to this Agreement and (ii) the "Lenders" or a "Lender" or to
the "Agent" shall mean such terms as defined in this Agreement. All Obligations
of the Borrower under the Existing Credit Agreement shall be governed by this
Agreement from and after the Closing Date. The Loan Documents delivered in
connection with this Agreement shall supersede the corresponding Loan Documents
delivered in connection with the Existing Credit Agreement. The Loan Documents
executed in connection with the Existing Credit Agreement that are not
superseded by corresponding Loan Documents executed and delivered in connection
with this Agreement shall remain in full force and effect. All references to the
Existing Credit Agreement in the Loan Documents executed in connection with the
Existing Credit Agreement that are not expressly superseded by deliveries of
such new Loan Documents shall be deemed to refer to this Agreement.

            12.2 Confirmation of Existing Obligations. Borrower acknowledges and
agrees that as of close of business on June 18, 2004, the outstanding balance of
the Revolving Loans outstanding under the Existing Credit Agreement (including
accrued interest thereon but excluding all of the fees and expenses (including
professional fees and expenses) related thereto) was $0 and that Borrower has no
defense, counterclaim or setoff with respect to the payment thereof.

                            [Signature Pages Follow]

                                       63
<PAGE>

            IN WITNESS WHEREOF, this Agreement has been duly executed as of the
date first written above.

                                                NAVARRE CORPORATION, as Borrower

                                                By:_____________________________
                                                Name:___________________________
                                                Title:__________________________

                                                GENERAL ELECTRIC CAPITAL
                                                CORPORATION, as Agent and Lender

                                                By:_____________________________
                                                     Duly Authorized Signatory

                      [Signature Page to Credit Agreement]

<PAGE>

            IN WITNESS WHEREOF, this Agreement has been duly executed as of the
date first written above by below Persons in their capacity as Credit Parties
not as Borrower.

                                       ENCORE SOFTWARE, INC., as Credit Party

                                       By:______________________________________
                                       Name:____________________________________
                                       Title:___________________________________

                                       BCI ECLIPSE COMPANY, LLC, as Credit Party

                                       By:______________________________________
                                       Name:____________________________________
                                       Title:___________________________________

                      [Signature Page to Credit Agreement]

<PAGE>

                               ANNEX A (RECITALS)
                                       TO
                                CREDIT AGREEMENT

                                   DEFINITIONS

            Capitalized terms used in the Loan Documents shall have (unless
otherwise provided elsewhere in the Loan Documents) the following respective
meanings and all references to Sections, Exhibits, Schedules or Annexes in the
following definitions shall refer to Sections, Exhibits, Schedules or Annexes of
or to the Agreement:

            "Account Debtor" means any Person who may become obligated to any
Credit Party under, with respect to, or on account of, an Account, Chattel Paper
or General Intangibles (including a payment intangible).

            "Accounting Changes" has the meaning ascribed thereto in Annex G.

            "Accounts" means all "accounts," as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party, including (a) all
accounts receivable, other receivables, book debts and other forms of
obligations (other than forms of obligations evidenced by Chattel Paper or
Instruments), (including any such obligations that may be characterized as an
account or contract right under the Code), (b) all of each Credit Party's rights
in, to and under all purchase orders or receipts for goods or services, (c) all
of each Credit Party's rights to any goods represented by any of the foregoing
(including unpaid sellers' rights of rescission, replevin, reclamation and
stoppage in transit and rights to returned, reclaimed or repossessed goods), (d)
all rights to payment due to any Credit Party for property sold, leased,
licensed, assigned or otherwise disposed of, for a policy of insurance issued or
to be issued, for a secondary obligation incurred or to be incurred, for energy
provided or to be provided, for the use or hire of a vessel under a charter or
other contract, arising out of the use of a credit card or charge card, or for
services rendered or to be rendered by such Credit Party or in connection with
any other transaction (whether or not yet earned by performance on the part of
such Credit Party), (e) all healthcare insurance receivables, and (f) all
collateral security of any kind, now or hereafter in existence, given by any
Account Debtor or other Person with respect to any of the foregoing.

            "Accounts Payable" shall mean as of any date of determination the
sum of (i) accounts payable of Borrower and its Subsidiaries on a consolidated
basis, as determined in accordance with GAAP; and (ii) the then outstanding
balance of advances to Vendors to the extent taken into account in the
determination of the amount in clause (i) of this definition.

            "Acquisition Loan" means, at any time, the sum of the aggregate
amount of Acquisition Loan Advances outstanding to Borrower.

            "Acquisition Loan Advance" has the meaning ascribed to it in Section
1.1(c)(i).

            "Acquisition Loan Commitment" means (a) as to any Acquisition Loan
Lender, the aggregate commitment of such Acquisition Loan Lender to make
Acquisition Loan Advances as set forth on Annex J to the Agreement or in the
most recent Assignment Agreement executed

                                      A-1
<PAGE>

by such Acquisition Loan Lender and (b) as to all Acquisition Loan Lenders, the
aggregate commitment of all Acquisition Loan Lenders to make Acquisition Loan
Advances, which aggregate commitment shall be Ten Million Dollars ($10,000,000)
on the Closing Date, as such amount may be adjusted, if at all, from time to
time in accordance with the Agreement.

            "Acquisition Loan Funding Termination Date" means the earlier of (i)
June 18, 2006 or (ii) the Commitment Termination Date.

            "Acquisition Loan Lender" means, as of any date of determination, a
Lender having an Acquisition Loan Commitment.

            "Acquisition Pro Forma" has the meaning ascribed to it in Section
6.1.

            "Acquisition Projections" has the meaning ascribed to it in Section
6.1.

            "Advance" means any Revolving Credit Advance, Swing Line Advance or
Acquisition Loan Advance, as the context may require.

            "Affiliate" means, with respect to any Person, (a) each Person that,
directly or indirectly, owns or controls, whether beneficially, or as a trustee,
guardian or other fiduciary, 5% or more of the Stock having ordinary voting
power in the election of directors of such Person, (b) each Person that
controls, is controlled by or is under common control with such Person, (c) each
of such Person's officers, directors, joint venturers and partners and (d) in
the case of Borrower, the immediate family members, spouses and lineal
descendants of individuals who are Affiliates of Borrower. For the purposes of
this definition, "control" of a Person shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of its management or
policies, whether through the ownership of voting securities, by contract or
otherwise; provided, however, that the term "Affiliate" shall specifically
exclude Agent and each Lender.

            "Agent" means GE Capital in its capacity as Agent for Lenders or its
successor appointed pursuant to Section 9.7.

            "Agreement" means the Amended and Restated Credit Agreement dated as
of the Closing Date by and among Borrower, the other Credit Parties party
thereto, GE Capital, as Agent and Lender and the other Lenders from time to time
party thereto, as the same may be amended, supplemented, restated or otherwise
modified from time to time.

            "Aggregate Pro Rata Share" means, as to any Lender, the percentage
obtained by dividing (i) the aggregate Commitments (or, with respect to any
Commitment which has terminated, the outstanding principal balance of the
applicable Loans) of such Lender by (ii) the aggregate Commitments (or, with
respect to any Commitment which has terminated, the outstanding principal
balance of the applicable Loans) of all Lenders.

            "Amendment No. 1 to Encore Purchase Agreement" means that certain
Amendment No. 1 to Encore Purchase Agreement dated as of July 31, 2002, between
Borrower and Encore Software, Inc., a California corporation (including an
assignment by Borrower to Encore Software).

                                      A-2
<PAGE>

            "Appendices" has the meaning ascribed to it in the recitals to the
Agreement.

            "Applicable Acquisition Loan Index Margin" means the per annum
interest rate margin from time to time in effect and payable in addition to the
Index Rate applicable to the Acquisition Loan, as determined by reference to
Section 1.5(a).

            "Applicable Acquisition Loan LIBOR Margin" means the per annum
interest rate from time to time in effect and payable in addition to the LIBOR
Rate applicable to the Acquisition Loan, as determined by reference to Section
1.5(a).

            "Applicable L/C Margin" means the per annum fee, from time to time
in effect, payable with respect to outstanding Letter of Credit Obligations as
determined by reference to Section 1.5(a).

            "Applicable Margins" means collectively the Applicable L/C Margin,
the Applicable Revolver Index Margin, the Applicable Revolver LIBOR Margin, the
Applicable Acquisition Loan Index Margin and the Applicable Acquisition Loan
LIBOR Margin.

            "Applicable Revolver Index Margin" means the per annum interest rate
margin from time to time in effect and payable in addition to the Index Rate
applicable to the Revolving Loan, as determined by reference to Section 1.5(a).

            "Applicable Revolver LIBOR Margin" means the per annum interest rate
from time to time in effect and payable in addition to the LIBOR Rate applicable
to the Revolving Loan, as determined by reference to Section 1.5(a).

            "Approved Obligor" shall mean each Person which the Agent has
notified the Borrower in writing from time to time constitutes an "Approved
Obligor" for the purposes of this Agreement. As of the Closing Date, each of
Costco Wholesale Corporation, Sam's Club and Best Buy Co., Inc. constitutes an
Approved Obligor.

            "Assignment Agreement" has the meaning ascribed to it in Section
9.1(a).

            "Bankruptcy Code" means the provisions of Title 11 of the United
States Code, 11 U.S.C. Sections 101 et seq.

            "BCI Eclipse" means BCI Eclipse Company, LLC, a Minnesota limited
liability company, a wholly-owned Subsidiary of Borrower.

            "BCI Eclipse Purchase Agreement" means that certain Asset Purchase
Agreement, dated as of November 3, 2003, by and among Borrower, BCI Eclipse as
buyer, BCI Eclipse, LLC, a New York limited liability company as seller and the
Members (as defined therein) named therein (together with any exhibits,
schedules and any other annexes or supplements thereto and as in effect as of
November 3, 2003 and as amended or otherwise modified in a manner not prohibited
by the Credit Agreement.

            "Blocked Accounts" has the meaning ascribed to it in Annex C.

                                      A-3
<PAGE>

            "Borrower" has the meaning ascribed thereto in the preamble to the
Agreement.

            "Borrowing Availability" means as of any date of determination the
lesser of (i) the Maximum Amount and (ii) the Borrowing Base, in each case, less
the sum of the Revolving Loan and Swing Line Loan then outstanding.

            "Borrowing Base" means, as of any date of determination by Agent,
from time to time, an amount equal to the sum at such time of:

            (a) the lesser of (i) 58% of the book value of the Eligible Accounts
of the Eligible Credit Parties or (ii) (a) during the month of January of each
Fiscal Year, $25,000,000, (b) during the months of February, March, April, May,
June, July and August of each Fiscal Year, $20,000,000 and (c) at all other
times, $30,000,000;

            (b) the lesser of (i) 58% of the Eligible Inventory of the Eligible
Credit Parties valued at the lower of cost (FIFO) or market or (ii) 85% of the
Orderly Liquidation Value of the Eligible Inventory of the Eligible Credit
Parties; and

            (c) 100% of the aggregate face value of each Eligible Certificate of
Deposit issued to Borrower;

in each case less any Reserves established by Agent from time to time; provided
however that at no time shall the amount of the Borrowing Base attributable to
the Eligible Accounts and Eligible Inventory, collectively, of (i) Encore
Software exceed the then aggregate outstanding principal balance of all loans
made by Borrower to Encore Software and (ii) BCI Eclipse exceed the then
aggregate outstanding principal balance of all loans made by Borrower to BCI
Eclipse. The value of any Eligible Accounts denominated in Canadian Dollars
shall be included in the Borrowing Base using such Accounts' Dollar Amount.

            "Borrowing Base Certificate" means a certificate to be executed and
delivered from time to time by Borrower in the form attached to the Agreement as
Exhibit 4.1(b).

            "Business Day" means any day that is not a Saturday, a Sunday or a
day on which banks are required or permitted to be closed in the States of
Illinois and/or New York and in reference to LIBOR Loans shall mean any such day
that is also a LIBOR Business Day.

            "Canadian Dollars" means the lawful currency of Canada.

            "Capital Expenditures" means, with respect to any Person, all
expenditures (by the expenditure of cash or the incurrence of Indebtedness) by
such Person during any measuring period for any fixed assets or improvements or
for replacements, substitutions or additions thereto, that have a useful life of
more than one year and that are required to be capitalized under GAAP.

            "Capital Lease" means, with respect to any Person, any lease of any
property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, would be required to be classified and accounted for as a
capital lease on a balance sheet of such Person.

                                      A-4
<PAGE>

            "Capital Lease Obligation" means, with respect to any Capital Lease
of any Person, the amount of the obligation of the lessee thereunder that, in
accordance with GAAP, would appear on a balance sheet of such lessee in respect
of such Capital Lease.

            "Cash Collateral Account" has the meaning ascribed to it Annex B.

            "Cash Equivalents" has the meaning ascribed to it in Annex B.

            "Cash Management Systems" has the meaning ascribed to it in Section
1.8.

            "Change of Control" means any of the following: (a) other than the
holders of the Borrower's capital Stock as of the Closing Date, any person or
group of persons (within the meaning of the Securities Exchange Act of 1934)
shall have acquired beneficial ownership (within the meaning of Rule 13d-3
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934) of 20% or more of the issued and outstanding shares of
capital Stock of the Borrower having the right to vote for the election of
directors of the Borrower under ordinary circumstances; (b) during any period of
twelve consecutive calendar months, individuals who at the beginning of such
period constituted the board of directors of the Borrower (together with any new
directors whose election by the board of directors of the Borrower or whose
nomination for election by the Stockholders of the Borrower was approved by a
vote of at least two-thirds of the directors then still in office who either
were directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason other than death
or disability to constitute a majority of the directors then in office; or (c)
Borrower ceases to own and control all of the economic and voting rights
associated with all of the outstanding capital Stock of any of its Subsidiaries.

            "Charges" means all federal, state, county, city, municipal, local,
foreign or other governmental taxes (including taxes owed to the PBGC at the
time due and payable), levies, assessments, charges, liens, claims or
encumbrances upon or relating to (a) the Collateral, (b) the Obligations, (c)
the employees, payroll, income or gross receipts of any Credit Party, (d) any
Credit Party's ownership or use of any properties or other assets, or (e) any
other aspect of any Credit Party's business.

            "Chattel Paper" means any "chattel paper," as such term is defined
in the Code, including electronic chattel paper, now owned or hereafter acquired
by any Credit Party, wherever located.

            "Closing Checklist" means the schedule, including all appendices,
exhibits or schedules thereto, listing certain documents and information to be
delivered in connection with the Agreement, the other Loan Documents and the
transactions contemplated thereunder, substantially in the form attached hereto
as Annex D.

            "Closing Date" means June 18, 2004.

            "Code" means the Uniform Commercial Code as the same may, from time
to time, be enacted and in effect in the State of Illinois; provided, that to
the extent that the Code is used to define any term herein or in any Loan
Document and such term is defined differently in different Articles or Divisions
of the Code, the definition of such term contained in Article or

                                      A-5
<PAGE>

Division 9 shall govern; provided further, that in the event that, by reason of
mandatory provisions of law, any or all of the attachment, perfection or
priority of, or remedies with respect to, Agent's or any Lender's Lien on any
Collateral is governed by the Uniform Commercial Code as enacted and in effect
in a jurisdiction other than the State of Illinois, the term "Code" shall mean
the Uniform Commercial Code as enacted and in effect in such other jurisdiction
solely for purposes of the provisions thereof relating to such attachment,
perfection, priority or remedies and for purposes of definitions related to such
provisions.

            "Collateral" means the property covered by the Security Agreement,
the Mortgages and the other Collateral Documents and any other property, real or
personal, tangible or intangible, now existing or hereafter acquired, that may
at any time be or become subject to a security interest or Lien in favor of
Agent, on behalf of itself and Lenders, to secure the Obligations.

            "Collateral Documents" means the Security Agreements, the Pledge
Agreements, the Mortgages, the Patent Security Agreements, the Trademark
Security Agreements, the Copyright Security Agreements and all similar
agreements entered into guaranteeing payment of, or granting a Lien upon
property as security for payment of, the Obligations.

            "Collateral Reports" means the reports with respect to the
Collateral referred to in Annex F.

            "Collection Account" means that certain account of Agent, account
number 502-328-54 in the name of Agent at Deutsche Bank Trust Company Americas
in New York, New York ABA No. 021 001 033, or such other account as may be
specified in writing by Agent as the "Collection Account."

            "Commitment Termination Date" means the earliest of (a) December 18,
2007 and (b) the date of termination of Lenders' obligations to make Advances
and to incur Letter of Credit Obligations or permit existing Loans to remain
outstanding pursuant to Section 8.2(b), and (c) the date of indefeasible
prepayment in full by Borrower of the Loans and the cancellation and return (or
stand-by guarantee) of all Letters of Credit or the cash collateralization of
all Letter of Credit Obligations pursuant to Annex B, and the permanent
reduction of the Commitments to zero dollars ($0).

            "Commitments" shall collectively mean the Revolving Loan Commitment
and the Acquisition Loan Commitment.

            "Compliance Certificate" has the meaning ascribed to it in Annex E.

            "Concentration Account" has the meaning ascribed to it in Annex C.

            "Construction Loan Agreement" means that certain Construction Loan
Agreement, dated as of October 23, 2003, between The Business Bank and Borrower
(as amended, restated or otherwise modified from time to time).

            "Contingent Obligation" means, as applied to any Person, any direct
or indirect liability of that Person: (i) with respect to Guaranteed
Indebtedness and with respect to any

                                      A-6
<PAGE>

Indebtedness, lease, dividend or other obligation of another Person if the
purpose or intent of the Person incurring such liability, or the effect thereof,
is to provide assurance to the obligee of such liability that such liability
will be paid or discharged, or that any agreements relating thereto will be
complied with, or that the holders of such liability will be protected (in whole
or in part) against loss with respect thereto; (ii) with respect to any letter
of credit issued for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings; (iii) under any foreign exchange
contract, currency swap agreement, interest rate swap agreement or other similar
agreement or arrangement designed to alter the risks of that Person arising from
fluctuations in currency values or interest rates, (iv) any agreement, contract
or transaction involving commodity options or future contracts, (v) to make
take-or-pay or similar payments if required regardless of nonperformance by any
other party or parties to an agreement, or (vi) pursuant to any agreement to
purchase, repurchase or otherwise acquire any obligation or any property
constituting security therefor, to provide funds for the payment or discharge of
such obligation or to maintain the solvency, financial condition or any balance
sheet item or level of income of another. The amount of any Contingent
Obligation shall be equal to the amount of the obligation so guaranteed or
otherwise supported or, if not a fixed and determined amount, the maximum amount
so guaranteed.

            "Contracts" means all "contracts," as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party, in any event,
including all contracts, undertakings, or agreements (other than rights
evidenced by Chattel Paper, Documents or Instruments) in or under which any
Credit Party may now or hereafter have any right, title or interest, including
any agreement relating to the terms of payment or the terms of performance of
any Account.

            "Control Letter" means a letter agreement between Agent and (i) the
issuer of uncertificated securities with respect to uncertificated securities in
the name of any Credit Party, (ii) a securities intermediary with respect to
securities, whether certificated or uncertificated, securities entitlements and
other financial assets held in a securities account in the name of any Credit
Party, (iii) a futures commission merchant or clearing house, as applicable,
with respect to commodity accounts and commodity contracts held by any Credit
Party, whereby, among other things, the issuer, securities intermediary or
futures commission merchant disclaims any security interest in the applicable
financial assets, acknowledges the Lien of Agent, on behalf of itself and
Lenders, on such financial assets, and agrees to follow the instructions or
entitlement orders of Agent without further consent by the affected Credit
Party.

            "Copyright License" means any and all rights now owned or hereafter
acquired by any Credit Party under any written agreement granting any right to
use any Copyright or Copyright registration.

            "Copyright Security Agreements" means the Copyright Security
Agreements made in favor of Agent, on behalf of itself and Lenders, by each
applicable Credit Party.

            "Copyrights" means all of the following now owned or hereafter
adopted or acquired by any Credit Party: (a) all copyrights and General
Intangibles of like nature (whether registered or unregistered), all
registrations and recordings thereof, and all applications in connection
therewith, including all registrations, recordings and applications in the
United States

                                      A-7
<PAGE>

Copyright Office or in any similar office or agency of the United States, any
state or territory thereof, or any other country or any political subdivision
thereof, and (b) all reissues, extensions or renewals thereof.

            "Credit Parties" means Borrower, and its Subsidiaries.

            "Currency Exchange Convention" shall mean a procedure as specified
from time to time by Agent to value in Dollars the obligations or assets of the
Borrower or its Affiliates that are originally measured in Canadian Dollars by
using the spot price for Canadian Dollars as determined by Agent in its sole
discretion for the preceding business day.

            "Default" means any event that, with the passage of time or notice
or both, would, unless cured or waived, become an Event of Default.

            "Default Rate" has the meaning ascribed to it in Section 1.5(d).

            "Deposit Accounts" means all "deposit accounts" as such term in
defined in the Code, now or hereafter held in the name of any Credit Party.

            "Disbursement Accounts" has the meaning ascribed to it in Annex C.

            "Disclosure Schedules" means the Schedules prepared by Borrower and
denominated as Disclosure Schedules (3.1) through (6.7) in the Index to the
Agreement.

            "Documents" means any "documents," as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party, wherever located.

            "Dollar Amount" means, in respect of any amount, the sum of (a) such
portion, if any, of such amount denominated in Dollars; and (b) to the extent
that a portion of such amount is denominated in Canadian Dollars, the amount in
Dollars calculated by Lender using the Currency Exchange Convention in effect on
the Business Day of determination (and calculated based upon 97% of the
applicable amount of Canadian Dollars).

            "Dollars" or "$" means lawful currency of the United States of
America.

            "EBITDA" means, with respect to any Person for any fiscal period,
without duplication, an amount equal to (a) consolidated net income of such
Person for such period, determined in accordance with GAAP, minus (b) the sum of
(i) income tax credits, (ii) interest income, (iii) gain from extraordinary
items for such period, (iv) any aggregate net gain (but not any aggregate net
loss) during such period arising from the sale, exchange or other disposition of
capital assets by such Person (including any fixed assets, whether tangible or
intangible, all inventory sold in conjunction with the disposition of fixed
assets and all securities), and (v) any other non-cash gains that have been
added in determining consolidated net income, in each case to the extent
included in the calculation of net income of such Person for such period in
accordance with GAAP, but without duplication, plus (c) the sum of (i) any
provision for income taxes, (ii) Interest Expense, (iii) loss from extraordinary
items for such period, (iv) depreciation and amortization for such period, (v)
amortized debt discount for such period, and (vi) the amount of any deduction to
consolidated net income as the result of any grant to any members of

                                      A-8
<PAGE>

the management of such Person of any Stock, in each case to the extent included
in the calculation of consolidated net income of such Person for such period in
accordance with GAAP, but without duplication. For purposes of this definition,
the following items shall be excluded in determining consolidated net income of
a Person: (1) the income (or deficit) of any other Person accrued prior to the
date it became a Subsidiary of, or was merged or consolidated into, such Person
or any of such Person's Subsidiaries; (2) the income (or deficit) of any other
Person (other than a Subsidiary) in which such Person has an ownership interest,
except to the extent any such income has actually been received by such Person
in the form of cash dividends or distributions; (3) the undistributed earnings
of any Subsidiary of such Person to the extent that the declaration or payment
of dividends or similar distributions by such Subsidiary is not at the time
permitted by the terms of any contractual obligation or requirement of law
applicable to such Subsidiary; (4) any restoration to income of any contingency
reserve, except to the extent that provision for such reserve was made out of
income accrued during such period; (5) any write-up of any asset; (6) any net
gain from the collection of the proceeds of life insurance policies; (7) any net
gain arising from the acquisition of any securities, or the extinguishment,
under GAAP, of any Indebtedness, of such Person, (8) in the case of a successor
to such Person by consolidation or merger or as a transferee of its assets, any
earnings of such successor prior to such consolidation, merger or transfer of
assets, and (9) any deferred credit representing the excess of equity in any
Subsidiary of such Person at the date of acquisition of such Subsidiary over the
cost to such Person of the investment in such Subsidiary.

            "Eligible Accounts" has the meaning ascribed to it in Section 1.6 of
the Agreement.

            "Eligible Certificate of Deposit" means a certificate of deposit (i)
in which the Agent has a first priority perfected security interest subject to
no other Liens, (ii) issued by a Person acceptable to the Agent and (iii) held
in an account for which an account control agreement in form and substance
satisfactory to the Agent has been executed and delivered by all parties
thereto.

            "Eligible Credit Parties" means each of the Borrower, Encore
Software and BCI Eclipse.

            "Eligible Inventory" has the meaning ascribed to it in Section 1.7
of the Agreement.

            "Encore Purchase Agreement" means that certain Amended and Restated
Asset Purchase Agreement dated as of July 10, 2002, between Borrower, as buyer
and Encore Software, Inc., a California corporation, as seller for a purchase
price in an amount not to exceed $11,000,000 (together with any exhibits,
schedules and any other annexes or supplements thereto, as amended, pursuant to
the Amendment No. 1 to Encore Purchase Agreement.

            "Encore Software" means Encore Software, Inc. (f/k/a Encore Software
Corporation), a Minnesota corporation.

            "Environmental Laws" means all applicable federal, state, local and
foreign laws, statutes, ordinances, codes, rules, standards and regulations, now
or hereafter in effect, and any

                                      A-9
<PAGE>

applicable judicial or administrative interpretation thereof, including any
applicable judicial or administrative order, consent decree, order or judgment,
imposing liability or standards of conduct for or relating to the regulation and
protection of human health, safety, the environment and natural resources
(including ambient air, surface water, groundwater, wetlands, land surface or
subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws
include the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 (42 U.S.C. Sections 9601 et seq.) ("CERCLA"); the Hazardous
Materials Transportation Authorization Act of 1994 (49 U.S.C. Sections 5101 et
seq.); the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C.
Sections 136 et seq.); the Solid Waste Disposal Act (42 U.S.C. Sections 6901 et
seq.); the Toxic Substance Control Act (15 U.S.C. Sections 2601 et seq.); the
Clean Air Act (42 U.S.C. Sections 7401 et seq.); the Federal Water Pollution
Control Act (33 U.S.C. Sections 1251 et seq.); the Occupational Safety and
Health Act (29 U.S.C. Sections 651 et seq.); and the Safe Drinking Water Act (42
U.S.C. Sections 300(f) et seq.), and any and all regulations promulgated
thereunder, and all analogous state, local and foreign counterparts or
equivalents and any transfer of ownership notification or approval statutes.

            "Environmental Liabilities" means, with respect to any Person, all
liabilities, obligations, responsibilities, response, remedial and removal
costs, investigation and feasibility study costs, capital costs, operation and
maintenance costs, losses, damages, punitive damages, property damages, natural
resource damages, consequential damages, treble damages, costs and expenses
(including all reasonable fees, disbursements and expenses of counsel, experts
and consultants), fines, penalties, sanctions and interest incurred as a result
of or related to any claim, suit, action, investigation, proceeding or demand by
any Person, whether based in contract, tort, implied or express warranty, strict
liability, criminal or civil statute or common law, including any arising under
or related to any Environmental Laws, Environmental Permits, or in connection
with any Release or threatened Release or presence of a Hazardous Material
whether on, at, in, under, from or about or in the vicinity of any real or
personal property.

            "Environmental Permits" means all permits, licenses, authorizations,
certificates, approvals or registrations required by any Governmental Authority
under any Environmental Laws.

            "Equipment" means all "equipment," as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party, wherever located and,
in any event, including all such Credit Party's machinery and equipment,
including processing equipment, conveyors, machine tools, data processing and
computer equipment, including embedded software and peripheral equipment and all
engineering, processing and manufacturing equipment, office machinery,
furniture, materials handling equipment, tools, attachments, accessories,
automotive equipment, trailers, trucks, forklifts, molds, dies, stamps, motor
vehicles, rolling stock and other equipment of every kind and nature, trade
fixtures and fixtures not forming a part of real property, together with all
additions and accessions thereto, replacements therefor, all parts therefor, all
substitutes for any of the foregoing, fuel therefor, and all manuals, drawings,
instructions, warranties and rights with respect thereto, and all products and
proceeds thereof and condemnation awards and insurance proceeds with respect
thereto.

            "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and any regulations promulgated thereunder.

                                      A-10
<PAGE>

            "ERISA Affiliate" means, with respect to any Credit Party, any trade
or business (whether or not incorporated) that, together with such Credit Party,
are treated as a single employer within the meaning of Sections 414(b), (c), (m)
or (o) of the IRC.

            "ERISA Event" means, with respect to any Credit Party or any ERISA
Affiliate, (a) any event described in Section 4043(c) of ERISA with respect to a
Title IV Plan; (b) the withdrawal of any Credit Party or ERISA Affiliate from a
Title IV Plan subject to Section 4063 of ERISA during a plan year in which it
was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (c) the
complete or partial withdrawal of any Credit Party or any ERISA Affiliate from
any Multiemployer Plan; (d) the filing of a notice of intent to terminate a
Title IV Plan or the treatment of a plan amendment as a termination under
Section 4041 of ERISA; (e) the institution of proceedings to terminate a Title
IV Plan or Multiemployer Plan by the PBGC; (f) the failure by any Credit Party
or ERISA Affiliate to make when due required contributions to a Multiemployer
Plan or Title IV Plan unless such failure is cured within 30 days; (g) any other
event or condition that might reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Title IV Plan or Multiemployer Plan or for the imposition of
liability under Section 4069 or 4212(c) of ERISA; (h) the termination of a
Multiemployer Plan under Section 4041A of ERISA or the reorganization or
insolvency of a Multiemployer Plan under Section 4241 or 4245 of ERISA; or (i)
the loss of a Qualified Plan's qualification or tax exempt status; or (j) the
termination of a Plan described in Section 4064 of ERISA.

            "ESOP" means a Plan that is intended to satisfy the requirements of
Section 4975(e)(7) of the IRC.

            "Event of Default" has the meaning ascribed to it in Section 8.1.

            "Excess Cash Flow" means, without duplication, with respect to any
period of Borrower and its Subsidiaries, consolidated net income for such period
plus (a) depreciation, amortization and Interest Expense to the extent deducted
in determining consolidated net income for such period, minus (b) Capital
Expenditures and payments for Permitted Intellectual Property Acquisitions
during such period (excluding, in each case, the financed portion thereof),
minus (c) Interest Expense paid or accrued (excluding any original issue
discount, interest paid in kind or amortized debt discount, to the extent
included in determining Interest Expense) and scheduled principal payments paid
or payable in respect of Funded Debt for such period, plus or minus (as the case
may be), (d) extraordinary gains or losses which are cash items not included in
the calculation of net income for such period, plus (e) taxes deducted in
determining consolidated net income to the extent not paid for in cash for such
period, minus (f) the aggregate amount of Restricted Payments made during such
period to the extent permitted solely pursuant to Section 6.14(c) or Section
6.14(d).

            "Existing Credit Agreement" has the meaning ascribed to it in the
recitals to the Agreement.

            "Fair Labor Standards Act" means the Fair Labor Standards Act, 29
U.S.C. Section 201 et seq.

                                      A-11
<PAGE>

            "Federal Funds Rate" means, for any day, a floating rate equal to
the weighted average of the rates on overnight federal funds transactions among
members of the Federal Reserve System, as determined by Agent in its sole
discretion, which determination shall be final, binding and conclusive (absent
manifest error).

            "Federal Reserve Board" means the Board of Governors of the Federal
Reserve System.

            "Fees" means any and all fees payable to Agent or any Lender
pursuant to the Agreement or any of the other Loan Documents.

            "Financial Covenants" means the financial covenants set forth in
Annex G.

            "Financial Statements" means the consolidated and consolidating
income statements, statements of cash flows and balance sheets of Borrower
delivered in accordance with Section 3.4 and Annex E.

            "Fiscal Month" means any of the monthly accounting periods of
Borrower.

            "Fiscal Quarter" means any of the quarterly accounting periods of
Borrower, ending on March 31, June 30, October 30, and December 31 of each year.

            "Fiscal Year" means any of the annual accounting periods of Borrower
ending on March 31 of each year.

            "Fixtures" means all "fixtures" as such term is defined in the Code,
now owned or hereafter acquired by any Credit Party.

            "Funded Debt" means, with respect to any Person, without
duplication, all Indebtedness for borrowed money evidenced by notes, bonds,
debentures, or similar evidences of Indebtedness and that by its terms matures
more than one year from, or is directly or indirectly renewable or extendible at
such Person's option under a revolving credit or similar agreement obligating
the lender or lenders to extend credit over a period of more than one year from
the date of creation thereof, and specifically including Capital Lease
Obligations, current maturities of long-term debt, revolving credit and
short-term debt extendible beyond one year at the option of the debtor, and also
including, in the case of Borrower, the Obligations and, without duplication,
Guaranteed Indebtedness consisting of guaranties of Funded Debt of other
Persons.

            "GAAP" means generally accepted accounting principles in the United
States of America, consistently applied, as such term is further defined in
Annex G to the Agreement.

            "GE Capital" means General Electric Capital Corporation, a Delaware
corporation.

            "GE Capital Fee Letter" means that certain amended and restated
letter, dated as of the date hereof, between GE Capital and Borrower with
respect to certain Fees to be paid from time to time by Borrower to GE Capital.

                                      A-12
<PAGE>

            "General Intangibles" means "general intangibles," as such term is
defined in the Code, now owned or hereafter acquired by any Credit Party,
including all right, title and interest that such Credit Party may now or
hereafter have in or under any Contract, all payment intangibles, customer
lists, Licenses, Copyrights, Trademarks, Patents, and all applications therefor
and reissues, extensions or renewals thereof, rights in Intellectual Property,
interests in partnerships, joint ventures and other business associations,
licenses, permits, copyrights, trade secrets, proprietary or confidential
information, inventions (whether or not patented or patentable), technical
information, procedures, designs, knowledge, know-how, software, data bases,
data, skill, expertise, experience, processes, models, drawings, materials and
records, goodwill (including the goodwill associated with any Trademark or
Trademark License), all rights and claims in or under insurance policies
(including insurance for fire, damage, loss and casualty, whether covering
personal property, real property, tangible rights or intangible rights, all
liability, life, key man and business interruption insurance, and all unearned
premiums), uncertificated securities, chooses in action, deposit, checking and
other bank accounts, rights to receive tax refunds and other payments, rights to
receive dividends, distributions, cash, Instruments and other property in
respect of or in exchange for pledged Stock and Investment Property, rights of
indemnification, all books and records, correspondence, credit files, invoices
and other papers, including without limitation all tapes, cards, computer runs
and other papers and documents in the possession or under the control of such
Credit Party or any computer bureau or service company from time to time acting
for such Credit Party.

            "Goods" means any "goods" as defined in the Code, now owned or
hereafter acquired by any Credit Party, wherever located, including embedded
software to the extent included in "goods" as defined in the Code, manufactured
homes, standing timber that is cut and removed for sale and unborn young of
animals.

            "Governmental Authority" means any nation or government, any state
or other political subdivision thereof, and any agency, department or other
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.

            "Guaranteed Indebtedness" means, as to any Person, any obligation of
such Person guaranteeing, providing comfort or otherwise supporting any
Indebtedness, lease, dividend, or other obligation ("primary obligation") of any
other Person (the "primary obligor") in any manner, including any obligation or
arrangement of such Person to (a) purchase or repurchase any such primary
obligation, (b) advance or supply funds (i) for the purchase or payment of any
such primary obligation or (ii) to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet condition of the primary obligor, (c) purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation, (d) protect the beneficiary of such arrangement from
loss (other than product warranties given in the ordinary course of business) or
(e) indemnify the owner of such primary obligation against loss in respect
thereof. The amount of any Guaranteed Indebtedness at any time shall be deemed
to be an amount equal to the lesser at such time of (x) the stated or
determinable amount of the primary obligation in respect of which such
Guaranteed Indebtedness is incurred and (y) the maximum amount for which such
Person may be liable pursuant to the terms of the instrument embodying such
Guaranteed

                                      A-13
<PAGE>

Indebtedness, or, if not stated or determinable, the maximum reasonably
anticipated liability (assuming full performance) in respect thereof.

            "Guaranties" means, each guaranty executed by any Guarantor in favor
of Agent and Lenders in respect of the Obligations.

            "Guarantors" means each Subsidiary of Borrower and each other
Person, if any, that executes a guaranty or other similar agreement in favor of
Agent, for itself and the ratable benefit of Lenders, in connection with the
transactions contemplated by the Agreement and the other Loan Documents.

            "Hazardous Material" means any substance, material or waste that is
regulated by, or forms the basis of liability now or hereafter under, any
Environmental Laws, including any material or substance that is (a) defined as a
"solid waste," "hazardous waste," "hazardous material," "hazardous substance,"
"extremely hazardous waste," "restricted hazardous waste," "pollutant,"
"contaminant," "hazardous constituent," "special waste," "toxic substance" or
other similar term or phrase under any Environmental Laws, or (b) petroleum or
any fraction or by-product thereof, asbestos, polychlorinated biphenyls (PCB's),
or any radioactive substance.

            "Indebtedness" means , with respect to any Person, without
duplication (a) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property payment for which is deferred 6 months or
more, but excluding obligations to trade creditors incurred in the ordinary
course of business that are unsecured and not overdue by more than 6 months
unless being contested in good faith, (b) all reimbursement and other
obligations with respect to letters of credit, bankers' acceptances and surety
bonds, whether or not matured, (c) all obligations evidenced by notes, bonds,
debentures or similar instruments, (d) all indebtedness created or arising under
any conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (e) all Capital Lease Obligations and the present
value (discounted at the Index Rate as in effect on the Closing Date) of future
rental payments under all synthetic leases, (f) all obligations of such Person
under commodity purchase or option agreements or other commodity price hedging
arrangements, in each case whether contingent or matured, (g) all obligations of
such Person under any foreign exchange contract, currency swap agreement,
interest rate swap, cap or collar agreement or other similar agreement or
arrangement designed to alter the risks of that Person arising from fluctuations
in currency values or interest rates, in each case whether contingent or
matured, (h) all Indebtedness referred to above secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or in property or other assets (including accounts
and contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness, and (i) the
Obligations.

            "Indemnified Liabilities" has the meaning ascribed to it in Section
1.13.

            "Indemnified Person" has the meaning ascribed to it in Section 1.13.

                                      A-14
<PAGE>

            "Index Rate" means, for any day, a floating rate equal to the higher
of (i) the rate publicly quoted from time to time by The Wall Street Journal as
the "base rate on corporate loans posted by at least 75% of the nation's 30
largest banks" (or, if The Wall Street Journal ceases quoting a base rate of the
type described, the highest per annum rate of interest published by the Federal
Reserve Board in Federal Reserve statistical release H.15 (519) entitled
"Selected Interest Rates" as the Bank prime loan rate or its equivalent), and
(ii) the Federal Funds Rate plus 50 basis points per annum. Each change in any
interest rate provided for in the Agreement based upon the Index Rate shall take
effect at the time of such change in the Index Rate.

            "Index Rate Loan" means a Loan or portion thereof bearing interest
by reference to the Index Rate.

            "Instruments" means all "instruments," as such term is defined in
the Code, now owned or hereafter acquired by any Credit Party, wherever located,
and, in any event, including all certificated securities, all certificates of
deposit, and all promissory notes and other evidences of indebtedness, other
than instruments that constitute, or are a part of a group of writings that
constitute, Chattel Paper.

            "Intellectual Property" means any and all Licenses, Patents,
Copyrights, Trademarks, and the goodwill associated with such Trademarks.

            "Interest Expense" means, with respect to any Person for any fiscal
period, interest expense (whether cash or non-cash) of such Person determined in
accordance with GAAP for the relevant period ended on such date, including
interest expense with respect to any Funded Debt of such Person and interest
expense for the relevant period that has been capitalized on the balance sheet
of such Person.

            "Interest Payment Date" means (a) as to any Index Rate Loan, the
first Business Day of each month to occur while such Loan is outstanding, and
(b) as to any LIBOR Loan, the last day of the applicable LIBOR Period; provided,
that in the case of any LIBOR Period greater than three months in duration,
interest shall be payable at three month intervals and on the last day of such
LIBOR Period; and provided further that, in addition to the foregoing, each of
(x) the date upon which all of the Commitments have been terminated and the
Loans have been paid in full and (y) the Commitment Termination Date shall be
deemed to be an "Interest Payment Date" with respect to any interest that has
then accrued under the Agreement.

            "Inventory" means any "inventory," as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party, wherever located, and
in any event including inventory, merchandise, goods and other personal property
that are held by or on behalf of any Credit Party for sale or lease or are
furnished or are to be furnished under a contract of service, or that constitute
raw materials, work in process, finished goods, returned goods, supplies or
materials of any kind, nature or description used or consumed or to be used or
consumed in such Credit Party's business or in the processing, production,
packaging, promotion, delivery or shipping of the same, including all supplies
and embedded software.

                                      A-15
<PAGE>

            "Inventory Value" shall mean as of any date of determination the
book value of the Inventory of Borrower and its Subsidiaries on a consolidated
basis, as determined in accordance with GAAP.

            "Investment Property" means all "investment property" as such term
is defined in the Code now owned or hereafter acquired by any Credit Party,
wherever located, including (i) all securities, whether certificated or
uncertificated, including stocks, bonds, interests in limited liability
companies, partnership interests, treasuries, certificates of deposit, and
mutual fund shares; (ii) all securities entitlements of any Credit Party,
including the rights of such Credit Party to any securities account and the
financial assets held by a securities intermediary in such securities account
and any free credit balance or other money owing by any securities intermediary
with respect to that account; (iii) all securities accounts of any Credit Party;
(iv) all commodity contracts of any Credit Party; and (v) all commodity accounts
held by any Credit Party.

            "IRC" means the Internal Revenue Code of 1986, as amended, and all
regulations promulgated thereunder.

            "IRS" means the Internal Revenue Service.

            "L/C Issuer" has the meaning ascribed to it in Annex B.

            "L/C Sublimit" has the meaning ascribed to in it Annex B.

            "Lenders" means GE Capital, the other Lenders named on the signature
pages of the Agreement, and, if any such Lender shall decide to assign all or
any portion of the Obligations, such term shall include any assignee of such
Lender.

            "Letter of Credit Fee" has the meaning ascribed to it in Annex B.

            "Letter of Credit Obligations" means all outstanding obligations
incurred by Agent and Lenders at the request of Borrower, whether direct or
indirect, contingent or otherwise, due or not due, in connection with the
issuance of Letters of Credit by Agent or another L/C Issuer or the purchase of
a participation as set forth in Annex B with respect to any Letter of Credit.
The amount of such Letter of Credit Obligations shall equal the maximum amount
that may be payable by Agent or Lenders thereupon or pursuant thereto.

            "Letter of Credit Rights" means "letter-of-credit rights" as such
term is defined in the Code, now owned or hereafter acquired by any Credit
Party, including rights to payment or performance under a letter of credit,
whether or not such Credit Party, as beneficiary, has demanded or is entitled to
demand payment or performance.

            "Letters of Credit" means documentary or standby letters of credit
issued for the account of Borrower by any L/C Issuer, and bankers' acceptances
issued by Borrower, for which Agent and Lenders have incurred Letter of Credit
Obligations.

            "LIBOR Business Day" means a Business Day on which banks in the City
of London are generally open for interbank or foreign exchange transactions.

                                      A-16
<PAGE>

            "LIBOR Loan" means a Loan or any portion thereof bearing interest by
reference to the LIBOR Rate.

            "LIBOR Period" means, with respect to any LIBOR Loan, each period
commencing on a LIBOR Business Day selected by Borrower pursuant to the
Agreement and ending one, two or three months thereafter, as selected by
Borrower's irrevocable notice to Agent as set forth in Section 1.5(e); provided,
that the foregoing provision relating to LIBOR Periods is subject to the
following:

            (a) if any LIBOR Period would otherwise end on a day that is not a
      LIBOR Business Day, such LIBOR Period shall be extended to the next
      succeeding LIBOR Business Day unless the result of such extension would be
      to carry such LIBOR Period into another calendar month in which event such
      LIBOR Period shall end on the immediately preceding LIBOR Business Day;

            (b) any LIBOR Period that would otherwise extend beyond the
      Commitment Termination Date shall end 2 LIBOR Business Days prior to such
      date;

            (c) any LIBOR Period that begins on the last LIBOR Business Day of a
      calendar month (or on a day for which there is no numerically
      corresponding day in the calendar month at the end of such LIBOR Period)
      shall end on the last LIBOR Business Day of a calendar month;

            (d) Borrower shall select LIBOR Periods so as not to require a
      payment or prepayment of any LIBOR Loan during a LIBOR Period for such
      Loan; and

            (e) Borrower shall select LIBOR Periods so that there shall be no
      more than 5 separate LIBOR Loans in existence at any one time.

            "LIBOR Rate" means for each LIBOR Period, a rate of interest
determined by Agent equal to:

            (a) the offered rate for deposits in United States Dollars for the
      applicable LIBOR Period that appears on Telerate Page 3750 as of 11:00
      a.m. (London time), on the second full LIBOR Business Day next preceding
      the first day of such LIBOR Period (unless such date is not a Business
      Day, in which event the next succeeding Business Day will be used);
      divided by

            (b) a number equal to 1.0 minus the aggregate (but without
      duplication) of the rates (expressed as a decimal fraction) of reserve
      requirements in effect on the day that is 2 LIBOR Business Days prior to
      the beginning of such LIBOR Period (including basic, supplemental,
      marginal and emergency reserves under any regulations of the Federal
      Reserve Board or other Governmental Authority having jurisdiction with
      respect thereto, as now and from time to time in effect) for Eurocurrency
      funding (currently referred to as "Eurocurrency Liabilities" in Regulation
      D of the Federal Reserve Board that are required to be maintained by a
      member bank of the Federal Reserve System.

                                      A-17
<PAGE>

            If such interest rates shall cease to be available from Telerate
      News Service, the LIBOR Rate shall be determined from such financial
      reporting service or other information as shall be mutually acceptable to
      Agent and Borrower.

            "License" means any Copyright License, Patent License, Trademark
License or other license of rights or interests now held or hereafter acquired
by any Credit Party.

            "Lien" means any mortgage or deed of trust, pledge, hypothecation,
assignment, deposit arrangement, lien, charge, claim, security interest,
easement or encumbrance, or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including any lease
or title retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement perfecting a security interest under the Code or
comparable law of any jurisdiction).

            "Litigation" has the meaning ascribed to it in Section 3.13.

            "Loan Account" has the meaning ascribed to it in Section 1.12.

            "Loan Documents" means the Agreement, the Notes, the Collateral
Documents, the Master Standby Agreement and all other agreements, instruments,
documents and certificates identified in the Closing Checklist executed and
delivered to, or in favor of, Agent or any Lenders and including all other
pledges, powers of attorney, consents, assignments, contracts, notices, and all
other written matter whether heretofore, now or hereafter executed by or on
behalf of any Credit Party, or any employee of any Credit Party, and delivered
to Agent or any Lender in connection with the Agreement or the transactions
contemplated thereby. Any reference in the Agreement or any other Loan Document
to a Loan Document shall include all appendices, exhibits or schedules thereto,
and all amendments, restatements, supplements or other modifications thereto,
and shall refer to the Agreement or such Loan Document as the same may be in
effect at any and all times such reference becomes operative.

            "Loans" means the Revolving Loan, the Acquisition Loan and the Swing
Line Loan.

            "Lock Boxes" has the meaning ascribed to it in Annex C.

            "Major Labels" means Sony Music Entertainment, Inc., EMI Music
Distribution, a division of Capitol Records, Inc., BMG Music, Universal Music
and Video Distribution, Inc. and AOL-Time Warner, Inc.

            "Margin Stock" has the meaning ascribed to it in Section 3.10.

            "Master Standby Agreement" means the Master Agreement for Standby
Letters of Credit dated as of October 3, 2001 between Borrower, as Applicant,
and GE Capital, as Issuer.

            "Material Adverse Effect" means a material adverse effect on (a) the
business, assets, operations, prospects or financial or other condition of any
Credit Party, (b) Borrower's ability to pay any of the Loans or any of the other
Obligations in accordance with the terms of

                                      A-18
<PAGE>

the Agreement, (c) the Collateral or Agent's Liens, on behalf of itself and
Lenders, on the Collateral or the priority of such Liens, or (d) Agent's or any
Lender's rights and remedies under the Agreement and the other Loan Documents.
Without limiting the generality of the foregoing, any event or occurrence
adverse to one or more Credit Parties which results or could reasonably be
expected to result in costs and/or liabilities or loss of revenues,
individually, or in the aggregate, to any Credit Party in any 30-day period in
excess of the lesser of $ $1,000,000 and 10% of Borrowing Availability as of any
date of determination or 10% of the lesser of the Maximum Amount or the
Borrowing Base at any date of determination shall constitute a Material Adverse
Effect.

            "Maximum Acquisition Loan Amount" means, as of any date of
determination, an amount equal to the aggregate Acquisition Loan Commitment of
all Acquisition Loan Lenders as of that date.

            "Maximum Amount" means, as of any date of determination, an amount
equal to the Revolving Loan Commitment of all Lenders as of that date.

            "Minnesota Facility" means the office/warehouse facility to be
constructed on the Minnesota Real Estate.

            "Minnesota Real Estate" means the Real Estate owned by Borrower
located in the County of Hennepin and the State of Minnesota and as further
described on Exhibit A hereto.

            "Minnesota Sale-Leaseback Documents" means that certain Sale,
Purchase and Build to Suit Agreement, dated effective as of August 14, 2003
between Borrower, as seller and NL Ventures IV, L.P., as buyer, as further
amended by the First Amendment to Sale, Purchase and Build to Suit Agreement
dated as of October 9, 2003 among the parties thereto, and all other agreements,
instruments, documents and certificates executed and delivered in connection
therewith, as in effect as of October 9, 2003 and as amended or otherwise
modified in a manner permitted hereunder.

            "Mix & Burn" has the meaning ascribed to it in Section 6.2 hereof.

            "Mix & Burn Loan" has the meaning ascribed to it in Section 6.2
hereof.

            "Mix & Burn Promissory Note" has the meaning ascribed to it in
Section 6.2 hereof.

            "Mix & Burn Security Agreement" has the meaning ascribed to it in
Section 6.2 hereof.

            "Mortgages" means each of the mortgages, deeds of trust, leasehold
mortgages, leasehold deeds of trust, collateral assignments of leases or other
real estate security documents delivered by any Credit Party to Agent on behalf
of itself and Lenders with respect to the Real Property owned by a Credit Party,
all in form and substance reasonably satisfactory to Agent.

            "Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA, and to which any Credit Party or ERISA Affiliate is
making, is obligated

                                      A-19
<PAGE>

to make or has made or been obligated to make, contributions on behalf of
participants who are or were employed by any of them.

            "Non-Funding Lender" has the meaning ascribed to it in Section
9.9(a)(ii).

            "Notes" means, collectively, the Revolving Notes and the Swing Line
Note.

            "Notice of Acquisition Loan Advance" has the meaning ascribed to it
in Section 1.1(c)(i).

            "Notice of Conversion/Continuation" has the meaning ascribed to it
in Section 1.5(e).

            "Notice of Revolving Credit Advance" has the meaning ascribed to it
in Section 1.1(a).

            "Obligations" means all loans, advances, debts, liabilities and
obligations, for the performance of covenants, tasks or duties or for payment of
monetary amounts (whether or not such performance is then required or
contingent, or such amounts are liquidated or determinable) owing by any Credit
Party to Agent or any Lender, and all covenants and duties regarding such
amounts, of any kind or nature, present or future, whether or not evidenced by
any note, agreement or other instrument, arising under the Agreement or any of
the other Loan Documents. This term includes all principal, interest (including
all interest that accrues after the commencement of any case or proceeding by or
against any Credit Party in bankruptcy, whether or not allowed in such case or
proceeding), Fees, Charges, expenses, attorneys' fees and any other sum
chargeable to any Credit Party under the Agreement or any of the other Loan
Documents.

            "Orderly Liquidation Value" means, with respect to any Eligible
Inventory at any time, the net amount that will be obtained upon an orderly
liquidation sale of such Eligible Inventory, as determined in accordance with
the then most recent appraisal which was acceptable to the Agent.

            "Patent License" means rights under any written agreement now owned
or hereafter acquired by any Credit Party granting any right with respect to any
invention on which a Patent is in existence.

            "Patent Security Agreements" means the Patent Security Agreements
made in favor of Agent, on behalf of itself and Lenders, by each applicable
Credit Party.

            "Patents" means all of the following in which any Credit Party now
holds or hereafter acquires any interest: (a) all letters patent of the United
States or any other country, all registrations and recordings thereof, and all
applications for letters patent of the United States or of any other country,
including registrations, recordings and applications in the United States Patent
and Trademark Office or in any similar office or agency of the United States,
any State or any other country, and (b) all reissues, continuations,
continuations-in-part or extensions thereof.

            "PBGC" means the Pension Benefit Guaranty Corporation.

                                      A-20
<PAGE>

            "Pension Plan" means a Plan described in Section 3(2) of ERISA.

            "Permitted Acquisition" has the meaning ascribed to it in Section
6.1.

            "Permitted Encumbrances" means the following encumbrances: (a) Liens
for taxes or assessments or other governmental Charges not yet due and payable
or which are being contested in accordance with Section 5.2(b); (b) pledges or
deposits of money securing statutory obligations under workmen's compensation,
unemployment insurance, social security or public liability laws or similar
legislation (excluding Liens under ERISA); (c) pledges or deposits of money
securing bids, tenders, contracts (other than contracts for the payment of
money) or leases to which any Credit Party is a party as lessee made in the
ordinary course of business; (d) inchoate and unperfected workers', mechanics'
or similar liens arising in the ordinary course of business, so long as such
Liens attach only to Equipment, Fixtures and/or Real Estate; (e) carriers',
warehousemen's, suppliers' or other similar possessory liens arising in the
ordinary course of business and securing liabilities in an outstanding aggregate
amount not in excess of $ $100,000 at any time, so long as such Liens attach
only to Inventory; (f) deposits securing, or in lieu of, surety, appeal or
customs bonds in proceedings to which any Credit Party is a party; (g) any
attachment or judgment lien not constituting an Event of Default under Section
8.1(j); (h) zoning restrictions, easements, licenses, or other restrictions on
the use of any Real Estate or other minor irregularities in title (including
leasehold title) thereto, so long as the same do not materially impair the use,
value, or marketability of such Real Estate; (i) presently existing or hereafter
created Liens in favor of Agent, on behalf of Lenders; and (j) Liens expressly
permitted under clauses (b) and (c) of Section 6.7 of the Agreement.

            "Permitted Intellectual Property Acquisition" shall mean the
acquisition by Borrower of the assets of any Person to the extent that such
assets consist primarily of copyright protected works and any registrations or
applications for registration of any such copyright protected works.

            "Person" means any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
limited liability company, institution, public benefit corporation, other entity
or government (whether federal, state, county, city, municipal, local, foreign,
or otherwise, including any instrumentality, division, agency, body or
department thereof).

            "PIPE Warrants" means those certain Warrants, dated as of December
15, 2003, issued by the Borrower to the PIPE Purchasers.

            "Plan" means, at any time, an "employee benefit plan," as defined in
Section 3(3) of ERISA, that any Credit Party or ERISA Affiliate maintains,
contributes to or has an obligation to contribute to on behalf of participants
who are or were employed by any Credit Party.

            "Pledge Agreements" means each pledge agreement entered into by any
Credit Party in favor of the Agent and/or the Lenders.

            "Private Issuance" means the issuance and sale of certain Stock
(including, without limitation, the PIPE Warrants) of Borrower pursuant to and
as more fully described in

                                      A-21
<PAGE>

that certain Securities Purchase Agreement, dated as of December 15, 2003, by
and among Borrower and the Purchasers (as defined therein, the "PIPE
Purchasers").

            "Pro Rata Share" means, as to any Lender, (x) with respect to all
matters relating to Revolving Lenders, Revolving Loans or Revolving Loan
Commitments (a) prior to the Commitment Termination Date, the percentage
obtained by dividing (i) the Revolving Loan Commitment of such Revolving Lender
by (ii) the aggregate Revolving Loan Commitments of all Revolving Lenders, and
(b) on and after the Commitment Termination Date, the percentage obtained by
dividing (i) the aggregate outstanding principal balance of the Revolving Loans
held by such Revolving Lender by (ii) the outstanding principal balance of the
Revolving Loans held by all Revolving Lenders; and (y) with respect to all
matters relating to Acquisition Loan Lenders, Acquisition Loans or Acquisition
Loan Commitments (a) prior to the Acquisition Loan Funding Termination Date, the
percentage obtained by dividing (i) the Acquisition Loan Commitment of such
Acquisition Loan Lender by (ii) the aggregate Acquisition Loan Commitments of
all Acquisition Loan Lenders, and (b) on and after the Acquisition Loan Funding
Termination Date, the percentage obtained by dividing (i) the aggregate
outstanding principal balance of the Acquisition Loans held by such Acquisition
Loan Lender by (ii) the outstanding principal balance of the Acquisition Loans
held by all Acquisition Loan Lenders.

            "Proceeds" means "proceeds," as such term is defined in the Code,
including (a) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to any Credit Party from time to time with respect to any of
the Collateral, (b) any and all payments (in any form whatsoever) made or due
and payable to any Credit Party from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any Governmental Authority (or any Person acting under
color of governmental authority), (c) any claim of any Credit Party against
third parties (i) for past, present or future infringement of any Patent or
Patent License, or (ii) for past, present or future infringement or dilution of
any Copyright, Copyright License, Trademark or Trademark License, or for injury
to the goodwill associated with any Trademark or Trademark License, (d) any
recoveries by any Credit Party against third parties with respect to any
litigation or dispute concerning any of the Collateral including claims arising
out of the loss or nonconformity of, interference with the use of, defects in,
or infringement of rights in, or damage to, Collateral, (e) all amounts
collected on, or distributed on account of, other Collateral, including
dividends, interest, distributions and Instruments with respect to Investment
Property and pledged Stock, and (f) any and all other amounts, rights to payment
or other property acquired upon the sale, lease, license, exchange or other
disposition of Collateral and all rights arising out of Collateral.

            "Projections" means Borrower's forecasted consolidated and
consolidating: (a) balance sheets; (b) profit and loss statements; (c) cash flow
statements; and (d) capitalization statements, all prepared on a Subsidiary by
Subsidiary or division-by-division basis, if applicable, and otherwise
consistent with the historical Financial Statements of Borrower, together with
appropriate supporting details and a statement of underlying assumptions.

            "Qualified Assignee" means (a) any Lender, any Affiliate of any
Lender and, with respect to any Lender that is an investment fund that invests
in commercial loans, any other investment fund that invests in commercial loans
and that is managed or advised by the same investment advisor as such Lender or
by an Affiliate of such investment advisor, and (b) any

                                      A-22
<PAGE>

commercial bank, savings and loan association or savings bank or any other
entity which is an "accredited investor" (as defined in Regulation D under the
Securities Act) which extends credit or buys loans as one of its businesses,
including insurance companies, mutual funds, lease financing companies and
commercial finance companies, in each case, which has a rating of BBB or higher
from S&P and a rating of Baa2 or higher from Moody's at the date that it becomes
a Lender and which, through its applicable lending office, is capable of lending
to Borrower without the imposition of any withholding or similar taxes; provided
that no Person determined by Agent to be acting in the capacity of a vulture
fund or distressed debt purchaser shall be a Qualified Assignee and no Person or
Affiliate of such Person (other than a Person that is already a Lender) holding
Subordinated Debt or Stock issued by any Credit Party shall be a Qualified
Assignee.

            "Qualified Plan" means a Pension Plan that is intended to be
tax-qualified under Section 401(a) of the IRC.

            "Real Estate" has the meaning ascribed to it in Section 3.6.

            "Refunded Swing Line Loan" has the meaning ascribed to it in Section
1.1(c)(iii).

            "Related Transactions" means the initial borrowing under the
Revolving Loan, the execution and delivery of the Loan Documents and the payment
of all fees, costs and expenses associated with all of the foregoing.

            "Release" means any release, threatened release, spill, emission,
leaking, pumping, pouring, emitting, emptying, escape, injection, deposit,
disposal, discharge, dispersal, dumping, leaching or migration of Hazardous
Material in the indoor or outdoor environment, including the movement of
Hazardous Material through or in the air, soil, surface water, ground water or
property.

            "Requisite Lenders" means Lenders having more than 66 2/3% of the
Commitments (or, with respect to any facility for which the Commitment has been
terminated the outstanding principal amount of the applicable Loans) of all
Lenders.

            "Reserves" means, with respect to the Borrowing Base of Borrower (a)
reserves established by Agent from time to time against Eligible Inventory
pursuant to Section 5.9, (b) reserves established pursuant to Section 5.4(c),
and (c) such other reserves against Eligible Accounts, Eligible Inventory,
Eligible Certificates of Deposit or Borrowing Availability of Borrower that
Agent may, in its reasonable credit judgment for reasons relating to any Credit
Party, any Credit Party's business or industry and/or the Agent's ability to
collect or realize the full value of any Collateral, establish from time to
time. Without limiting the generality of the foregoing, Reserves established to
ensure the payment of accrued Interest Expenses shall be deemed to be a
reasonable exercise of Agent's credit judgment.

            "Restricted Payment" means, with respect to any Credit Party (a) the
declaration or payment of any dividend or the incurrence of any liability to
make any other payment or distribution of cash or other property or assets in
respect of Stock; (b) any payment on account of the purchase, redemption,
defeasance, sinking fund or other retirement of such Credit Party's

                                      A-23
<PAGE>

Stock or any other payment or distribution made in respect thereof, either
directly or indirectly; (c) any payment or prepayment of principal of, premium,
if any, or interest, fees or other charges on or with respect to, and any
redemption, purchase, retirement, defeasance, sinking fund or similar payment
and any claim for rescission with respect to, any Subordinated Debt; (d) any
payment made to redeem, purchase, repurchase or retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire Stock
of such Credit Party now or hereafter outstanding; (e) any payment of a claim
for the rescission of the purchase or sale of, or for material damages arising
from the purchase or sale of, any shares of such Credit Party's Stock or of a
claim for reimbursement, indemnification or contribution arising out of or
related to any such claim for damages or rescission; (f) any payment, loan,
contribution, or other transfer of funds or other property to any Stockholder of
such Credit Party other than payment of compensation in the ordinary course of
business to Stockholders who are employees of such Credit Party; (g) any payment
of management fees (or other fees of a similar nature) by such Credit Party to
any Stockholder of such Credit Party or its Affiliates, and (h) any payment of
any Earnout Amount (as defined in the BCI Eclipse Purchase Agreement) or similar
payment pursuant to the BCI Eclipse Purchase Agreement.

            "Retiree Welfare Plan" means, at any time, a Welfare Plan that
provides for continuing coverage or benefits for any participant or any
beneficiary of a participant after such participant's termination of employment,
other than continuation coverage provided pursuant to Section 4980B of the IRC
and at the sole expense of the participant or the beneficiary of the
participant.

            "Revolving Acquisition Loan Availability" means, as of any date of
determination, (i) $10,000,000, plus (ii) the aggregate Acquisition Loan
Commitment at such time, minus (iii) the aggregate principal amount of Loans
made on or after the Closing Date to the extent that the proceeds thereof have
been used to fund one or more Permitted Acquisitions, plus (iv) the aggregate
amount of all payments made to repay principal of Acquisition Loan Advances.

            "Revolving Credit Advance" has the meaning ascribed to it in Section
1.1(a)(i).

            "Revolving Lenders" means, as of any date of determination, Lenders
having a Revolving Loan Commitment.

            "Revolving Loan" means, at any time, the sum of (i) the aggregate
amount of Revolving Credit Advances outstanding to Borrower plus (ii) the
aggregate Letter of Credit Obligations incurred on behalf of Borrower. Unless
the context otherwise requires, references to the outstanding principal balance
of the Revolving Loan shall include the outstanding balance of Letter of Credit
Obligations.

            "Revolving Loan Commitment" means (a) as to any Revolving Lender,
the aggregate commitment of such Revolving Lender to make Revolving Credit
Advances or incur Letter of Credit Obligations as set forth on Annex J to the
Agreement or in the most recent Assignment Agreement executed by such Revolving
Lender and (b) as to all Revolving Lenders, the aggregate commitment of all
Revolving Lenders to make Revolving Credit Advances or incur Letter of Credit
Obligations, which aggregate commitment shall be Forty Million Dollars

                                      A-24
<PAGE>

($40,000,000) on the Closing Date, as such amount may be adjusted, if at all,
from time to time in accordance with the Agreement.

            "Revolving Note" has the meaning ascribed to it in Section
1.1(a)(ii).

            "Security Agreements" means each Security Agreement entered into by
and among Agent, on behalf of itself and Lenders, Borrower and each Credit Party
that is a signatory thereto.

            "Seller" has the meaning ascribed to it in Section 6.1.

            "Software" means all "software" as such term is defined in the Code,
now owned or hereafter acquired by any Credit Party, other than software
embedded in any category of Goods, including all computer programs and all
supporting information provided in connection with a transaction related to any
program.

            "Solvent" means, with respect to any Person on a particular date,
that on such date (a) the fair value of the property of such Person is greater
than the total amount of liabilities, including contingent liabilities, of such
Person; (b) the present fair salable value of the assets of such Person is not
less than the amount that will be required to pay the probable liability of such
Person on its debts as they become absolute and matured; (c) such Person does
not intend to, and does not believe that it will, incur debts or liabilities
beyond such Person's ability to pay as such debts and liabilities mature; and
(d) such Person is not engaged in a business or transaction, and is not about to
engage in a business or transaction, for which such Person's property would
constitute an unreasonably small capital. The amount of contingent liabilities
(such as litigation, guaranties and pension plan liabilities) at any time shall
be computed as the amount that, in light of all the facts and circumstances
existing at the time, represents the amount that can be reasonably be expected
to become an actual or matured liability.

            "Stock" means all shares, options, warrants, general or limited
partnership interests, membership interests or other equivalents (regardless of
how designated) of or in a corporation, partnership, limited liability company
or equivalent entity whether voting or nonvoting, including common stock,
preferred stock or any other "equity security" (as such term is defined in Rule
3a11-1 of the General Rules and Regulations promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934).

            "Stockholder" means, with respect to any Person, each holder of
Stock of such Person.

            "Subordinated Debt" means debt which is subordinated to any or all
of the Obligations."

            "Subsidiary" means, with respect to any Person, (a) any corporation
of which an aggregate of more than 50% of the outstanding Stock having ordinary
voting power to elect a majority of the board of directors of such corporation
(irrespective of whether, at the time, Stock of any other class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time, directly or indirectly, owned
legally or beneficially by such Person or one or more Subsidiaries of such
Person, or with respect to which

                                      A-25
<PAGE>

any such Person has the right to vote or designate the vote of 50% or more of
such Stock whether by proxy, agreement, operation of law or otherwise, and (b)
any partnership or limited liability company in which such Person and/or one or
more Subsidiaries of such Person shall have an interest (whether in the form of
voting or participation in profits or capital contribution) of more than 50% or
of which any such Person is a general partner or may exercise the powers of a
general partner. Unless the context otherwise requires, each reference to a
Subsidiary shall be a reference to a Subsidiary of the Borrower.

            "Supermajority Revolving Lenders" means Lenders having (a) 80% or
more of the Revolving Loan Commitments of all Lenders, or (b) if the Revolving
Loan Commitments have been terminated, 80% or more of the aggregate outstanding
amount of the Revolving Loan (with the Swing Line Loan being attributed to the
Lender making such Loan), and Letter of Credit Obligations.

            "Supporting Obligations" means all "supporting obligations" as such
term is defined in the Code, including letters of credit and guaranties issued
in support of Accounts, Chattel Paper, Documents, General Intangibles,
Instruments, or Investment Property.

            "Swing Line Advance" has the meaning ascribed to it in Section
1.1(b)(i).

            "Swing Line Availability" has the meaning ascribed to it in Section
1.1(b)(i).

            "Swing Line Commitment" means, as to the Swing Line Lender, the
commitment of the Swing Line Lender to make Swing Line Advances as set forth on
Annex J to the Agreement, which commitment constitutes a subfacility of the
Revolving Loan Commitment of the Swing Line Lender.

            "Swing Line Lender" means GE Capital.

            "Swing Line Loan" means at any time, the aggregate amount of Swing
Line Advances outstanding to Borrower.

            "Swing Line Note" has the meaning ascribed to it in Section
1.1(b)(ii).

            "Target" has the meaning ascribed to it in Section 6.1.

            "Taxes" means taxes, levies, imposts, deductions, Charges or
withholdings, and all liabilities with respect thereto, excluding taxes imposed
on or measured by the net income of Agent or a Lender by the jurisdictions under
the laws of which Agent and Lenders are organized or conduct business or any
political subdivision thereof.

            "Termination Date" means the date on which (a) the Loans have been
indefeasibly repaid in full, (b) all other Obligations under the Agreement and
the other Loan Documents have been completely discharged, (c) all Letter of
Credit Obligations have been cash collateralized, cancelled or backed by standby
letters of credit in accordance with Annex B, and (d) Borrower shall not have
any further right to borrow any monies under the Agreement.

                                      A-26
<PAGE>

            "Title IV Plan" means a Pension Plan (other than a Multiemployer
Plan), that is covered by Title IV of ERISA, and that any Credit Party or ERISA
Affiliate maintains, contributes to or has an obligation to contribute to on
behalf of participants who are or were employed by any of them.

            "Trademark License" means rights under any written agreement now
owned or hereafter acquired by any Credit Party granting any right to use any
Trademark.

            "Trademark Security Agreements" means the Trademark Security
Agreements made in favor of Agent, on behalf of Lenders, by each applicable
Credit Party.

            "Trademarks" means all of the following now owned or hereafter
adopted or acquired by any Credit Party: (a) all trademarks, trade names,
corporate names, business names, trade styles, service marks, logos, other
source or business identifiers, prints and labels on which any of the foregoing
have appeared or appear, designs and general intangibles of like nature (whether
registered or unregistered), all registrations and recordings thereof, and all
applications in connection therewith, including registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any state or territory thereof, or any
other country or any political subdivision thereof; (b) all reissues, extensions
or renewals thereof; and (c) all goodwill associated with or symbolized by any
of the foregoing.

            "Unfunded Pension Liability" means, at any time, the aggregate
amount, if any, of the sum of (a) the amount by which the present value of all
accrued benefits under each Title IV Plan exceeds the fair market value of all
assets of such Title IV Plan allocable to such benefits in accordance with Title
IV of ERISA, all determined as of the most recent valuation date for each such
Title IV Plan using the actuarial assumptions for funding purposes in effect
under such Title IV Plan, and (b) for a period of 5 years following a
transaction which might reasonably be expected to be covered by Section 4069 of
ERISA, the liabilities (whether or not accrued) that could be avoided by any
Credit Party or any ERISA Affiliate as a result of such transaction.

            "Vendor" means a Person who supplies goods to the Borrower which
become Inventory of the Borrower.

            "Welfare Plan" means a Plan described in Section 3(i) of ERISA.

            Rules of construction with respect to accounting terms used in the
Agreement or the other Loan Documents shall be as set forth in Annex G. All
other undefined terms contained in any of the Loan Documents shall, unless the
context indicates otherwise, have the meanings provided for by the Code to the
extent the same are used or defined therein; in the event that any term is
defined differently in different Articles or Divisions of the Code, the
definition contained in Article or Division 9 shall control. Unless otherwise
specified, references in the Agreement or any of the Appendices to a Section,
subsection or clause refer to such Section, subsection or clause as contained in
the Agreement. The words "herein," "hereof" and "hereunder" and other words of
similar import refer to the Agreement as a whole, including all Annexes,
Exhibits and Schedules, as the same may from time to time be amended, restated,
modified or supplemented,

                                      A-27
<PAGE>

and not to any particular section, subsection or clause contained in the
Agreement or any such Annex, Exhibit or Schedule.

            Wherever from the context it appears appropriate, each term stated
in either the singular or plural shall include the singular and the plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, feminine and neuter genders. The words "including", "includes" and
"include" shall be deemed to be followed by the words "without limitation"; the
word "or" is not exclusive; references to Persons include their respective
successors and assigns (to the extent and only to the extent permitted by the
Loan Documents) or, in the case of governmental Persons, Persons succeeding to
the relevant functions of such Persons; and all references to statutes and
related regulations shall include any amendments of the same and any successor
statutes and regulations. Whenever any provision in any Loan Document refers to
the knowledge (or an analogous phrase) of any Credit Party, such words are
intended to signify that such Credit Party has actual knowledge or awareness of
a particular fact or circumstance or that such Credit Party, if it had exercised
reasonable diligence, would have known or been aware of such fact or
circumstance.

                                      A-28
<PAGE>

                              ANNEX B (SECTION 1.2)
                                       TO
                                CREDIT AGREEMENT

                                LETTERS OF CREDIT

            (a) Issuance. Subject to the terms and conditions of the Agreement,
Agent and Revolving Lenders agree to incur, from time to time prior to the
Commitment Termination Date, upon the request of Borrower and for Borrower's
account, Letter of Credit Obligations by causing Letters of Credit to be issued
by GE Capital or a Subsidiary thereof or a bank or other legally authorized
Person selected by or acceptable to Agent in its sole discretion (each, an "L/C
Issuer") for Borrower's account and guaranteed by Agent; provided, that if the
L/C Issuer is a Revolving Lender, then such Letters of Credit shall not be
guaranteed by Agent but rather each Revolving Lender shall, subject to the terms
and conditions hereinafter set forth, purchase (or be deemed to have purchased)
risk participations in all such Letters of Credit issued with the written
consent of Agent, as more fully described in paragraph (b)(ii) below. The
aggregate amount of all such Letter of Credit Obligations shall not at any time
exceed the least of (i) Fifteen Million Dollars ($ 15,000,000) (the "L/C
Sublimit"), and (ii) the Maximum Amount less the aggregate outstanding principal
balance of the Revolving Credit Advances and the Swing Line Loan, and (iii) the
Borrowing Base less the aggregate outstanding principal balance of the Revolving
Credit Advances and the Swing Line Loan. No such Letter of Credit shall have an
expiry date that is more than one year following the date of issuance thereof,
unless otherwise determined by Agent in its sole discretion, and neither Agent
nor Revolving Lenders shall be under any obligation to incur Letter of Credit
Obligations in respect of, or purchase risk participations in, any Letter of
Credit having an expiry date that is later than the Commitment Termination Date.

            (b)(i) Advances Automatic; Participations. In the event that Agent
or any Revolving Lender shall make any payment on or pursuant to any Letter of
Credit Obligation, such payment shall then be deemed automatically to constitute
a Revolving Credit Advance under Section 1.1(a) of the Agreement regardless of
whether a Default or Event of Default has occurred and is continuing and
notwithstanding Borrower's failure to satisfy the conditions precedent set forth
in Section 2, and each Revolving Lender shall be obligated to pay its Pro Rata
Share thereof in accordance with the Agreement. The failure of any Revolving
Lender to make available to Agent for Agent's own account its Pro Rata Share of
any such Revolving Credit Advance or payment by Agent under or in respect of a
Letter of Credit shall not relieve any other Revolving Lender of its obligation
hereunder to make available to Agent its Pro Rata Share thereof, but no
Revolving Lender shall be responsible for the failure of any other Revolving
Lender to make available such other Revolving Lender's Pro Rata Share of any
such payment.

            (ii) If it shall be illegal or unlawful for Borrower to incur
Revolving Credit Advances as contemplated by paragraph (b)(i) above because of
an Event of Default described in Sections 8.1(h) or (i) or otherwise or if it
shall be illegal or unlawful for any Revolving Lender to be deemed to have
assumed a ratable share of the reimbursement obligations owed to an L/C Issuer,
or if the L/C Issuer is a Revolving Lender, then (i) immediately and without
further action whatsoever, each Revolving Lender shall be deemed to have
irrevocably and unconditionally purchased from Agent (or such L/C Issuer, as the
case may

                                      B-1
<PAGE>

be) an undivided interest and participation equal to such Revolving Lender's Pro
Rata Share (based on the Revolving Loan Commitments) of the Letter of Credit
Obligations in respect of all Letters of Credit then outstanding and (ii)
thereafter, immediately upon issuance of any Letter of Credit, each Revolving
Lender shall be deemed to have irrevocably and unconditionally purchased from
Agent (or such L/C Issuer, as the case may be) an undivided interest and
participation in such Revolving Lender's Pro Rata Share (based on the Revolving
Loan Commitments) of the Letter of Credit Obligations with respect to such
Letter of Credit on the date of such issuance. Each Revolving Lender shall fund
its participation in all payments or disbursements made under the Letters of
Credit in the same manner as provided in the Agreement with respect to Revolving
Credit Advances.

            (c) Cash Collateral. (i) If Borrower is required to provide cash
collateral for any Letter of Credit Obligations pursuant to the Agreement prior
to the Commitment Termination Date, Borrower will pay to Agent for the ratable
benefit of itself and Revolving Lenders cash or cash equivalents acceptable to
Agent ("Cash Equivalents") in an amount equal to 110% of the maximum amount then
available to be drawn under each applicable Letter of Credit outstanding. Such
funds or Cash Equivalents shall be held by Agent in a cash collateral account
(the "Cash Collateral Account") maintained at a bank or financial institution
acceptable to Agent. The Cash Collateral Account shall be in the name of
Borrower and shall be pledged to, and subject to the control of, Agent, for the
benefit of Agent and Lenders, in a manner satisfactory to Agent. Borrower hereby
pledges and grants to Agent, on behalf of itself and Lenders, a security
interest in all such funds and Cash Equivalents held in the Cash Collateral
Account from time to time and all proceeds thereof, as security for the payment
of all amounts due in respect of the Letter of Credit Obligations and other
Obligations, whether or not then due. The Agreement, including this Annex B,
shall constitute a security agreement under applicable law.

            (ii) If any Letter of Credit Obligations, whether or not then due
and payable, shall for any reason be outstanding on the Commitment Termination
Date, Borrower shall either (A) provide cash collateral therefor in the manner
described above, or (B) cause all such Letters of Credit and guaranties thereof,
if any, to be canceled and returned, or (C) deliver a stand-by letter (or
letters) of credit in guarantee of such Letter of Credit Obligations, which
stand-by letter (or letters) of credit shall be of like tenor and duration (plus
30 additional days) as, and in an amount equal to 110% of the aggregate maximum
amount then available to be drawn under, the Letters of Credit to which such
outstanding Letter of Credit Obligations relate and shall be issued by a Person,
and shall be subject to such terms and conditions, as are be satisfactory to
Agent in its sole discretion.

            (iii) From time to time after funds are deposited in the Cash
Collateral Account by Borrower, whether before or after the Commitment
Termination Date, Agent may apply such funds or Cash Equivalents then held in
the Cash Collateral Account to the payment of any amounts, and in such order as
Agent may elect, as shall be or shall become due and payable by Borrower to
Agent and Lenders with respect to such Letter of Credit Obligations of Borrower
and, upon the satisfaction in full of all Letter of Credit Obligations of
Borrower, to any other Obligations then due and payable.

            (iv) Neither Borrower nor any Person claiming on behalf of or
through Borrower shall have any right to withdraw any of the funds or Cash
Equivalents held in the Cash

                                      B-2
<PAGE>

Collateral Account, except that upon the termination of all Letter of Credit
Obligations and the payment of all amounts payable by Borrower to Agent and
Lenders in respect thereof, any funds remaining in the Cash Collateral Account
shall be applied to other Obligations then due and owing and upon payment in
full of such Obligations, any remaining amount shall be paid to Borrower or as
otherwise required by law. Interest earned on deposits in the Cash Collateral
Account shall be for the account of Agent.

            (d) Fees and Expenses. Borrower agrees to pay to Agent for the
benefit of Revolving Lenders, as compensation to such Lenders for Letter of
Credit Obligations incurred hereunder, (i) all costs and expenses incurred by
Agent or any Lender on account of such Letter of Credit Obligations, and (ii)
for each month during which any Letter of Credit Obligation shall remain
outstanding, a fee (the "Letter of Credit Fee") in an amount equal to the
Applicable L/C Margin multiplied by the maximum amount available from time to
time to be drawn under the applicable Letter of Credit. Such fee shall be paid
to Agent for the benefit of the Revolving Lenders in arrears, on the first day
of each month and on the Commitment Termination Date. In addition, Borrower
shall pay to any L/C Issuer, on demand, such fees (including all per annum
fees), charges and expenses of such L/C Issuer in respect of the issuance,
negotiation, acceptance, amendment, transfer and payment of such Letter of
Credit or otherwise payable pursuant to the application and related
documentation under which such Letter of Credit is issued.

            (e) Request for Incurrence of Letter of Credit Obligations. Borrower
shall give Agent at least 2 Business Days' prior written notice requesting the
incurrence of any Letter of Credit Obligation. The notice shall be accompanied
by the form of the Letter of Credit (which shall be acceptable to the L/C
Issuer) and a completed Application for Standby Letter of Credit or Application
for Documentary Letter of Credit as applicable in the form Exhibit B-1 or B-2
attached hereto. Notwithstanding anything contained herein to the contrary,
Letter of Credit applications by Borrower and approvals by Agent and the L/C
Issuer may be made and transmitted pursuant to electronic codes and security
measures mutually agreed upon and established by and among Borrower, Agent and
the L/C Issuer.

            (f) Obligation Absolute. The obligation of Borrower to reimburse
Agent and Revolving Lenders for payments made with respect to any Letter of
Credit Obligation shall be absolute, unconditional and irrevocable, without
necessity of presentment, demand, protest or other formalities, and the
obligations of each Revolving Lender to make payments to Agent with respect to
Letters of Credit shall be unconditional and irrevocable. Such obligations of
Borrower and Revolving Lenders shall be paid strictly in accordance with the
terms hereof under all circumstances including the following:

            (i) any lack of validity or enforceability of any Letter of Credit
      or the Agreement or the other Loan Documents or any other agreement;

            (ii) the existence of any claim, setoff, defense or other right that
      Borrower or any of its Affiliates or any Lender may at any time have
      against a beneficiary or any transferee of any Letter of Credit (or any
      Persons or entities for whom any such transferee may be acting), Agent,
      any Lender, or any other Person, whether in connection with the Agreement,
      the Letter of Credit, the transactions contemplated herein or therein

                                      B-3
<PAGE>

      or any unrelated transaction (including any underlying transaction between
      Borrower or any of its Affiliates and the beneficiary for which the Letter
      of Credit was procured);

            (iii) any draft, demand, certificate or any other document presented
      under any Letter of Credit proving to be forged, fraudulent, invalid or
      insufficient in any respect or any statement therein being untrue or
      inaccurate in any respect;

            (iv) payment by Agent (except as otherwise expressly provided in
      paragraph (g)(ii)(C) below) or any L/C Issuer under any Letter of Credit
      or guaranty thereof against presentation of a demand, draft or certificate
      or other document that does not comply with the terms of such Letter of
      Credit or such guaranty;

            (v) any other circumstance or event whatsoever, that is similar to
      any of the foregoing; or

            (vi) the fact that a Default or an Event of Default has occurred and
      is continuing.

            (g) Indemnification; Nature of Lenders' Duties. (i) In addition to
amounts payable as elsewhere provided in the Agreement, Borrower hereby agrees
to pay and to protect, indemnify, and save harmless Agent and each Lender from
and against any and all claims, demands, liabilities, damages, losses, costs,
charges and expenses (including reasonable attorneys' fees and allocated costs
of internal counsel) that Agent or any Lender may incur or be subject to as a
consequence, direct or indirect, of (A) the issuance of any Letter of Credit or
guaranty thereof, or (B) the failure of Agent or any Lender seeking
indemnification or of any L/C Issuer to honor a demand for payment under any
Letter of Credit or guaranty thereof as a result of any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto government or
Governmental Authority, in each case other than to the extent solely as a result
of the gross negligence or willful misconduct of Agent or such Lender (as
finally determined by a court of competent jurisdiction).

            (ii) As between Agent and any Lender and Borrower, Borrower assumes
all risks of the acts and omissions of, or misuse of any Letter of Credit by
beneficiaries of any Letter of Credit. In furtherance and not in limitation of
the foregoing, to the fullest extent permitted by law neither Agent nor any
Lender shall be responsible for: (A) the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document issued by any party in connection
with the application for and issuance of any Letter of Credit, even if it should
in fact prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged; (B) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in
part, that may prove to be invalid or ineffective for any reason; (C) failure of
the beneficiary of any Letter of Credit to comply fully with conditions required
in order to demand payment under such Letter of Credit; provided, that in the
case of any payment by Agent under any Letter of Credit or guaranty thereof,
Agent shall be liable to the extent such payment was made solely as a result of
its gross negligence or willful misconduct (as finally determined by a court of
competent jurisdiction) in determining that the demand for payment under such
Letter of Credit or guaranty thereof complies on its face with any applicable
requirements for a demand for payment under such

                                      B-4
<PAGE>

Letter of Credit or guaranty thereof; (D) errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable, telegraph,
telex or otherwise, whether or not they may be in cipher; (E) errors in
interpretation of technical terms; (F) any loss or delay in the transmission or
otherwise of any document required in order to make a payment under any Letter
of Credit or guaranty thereof or of the proceeds thereof; (G) the credit of the
proceeds of any drawing under any Letter of Credit or guaranty thereof; and (H)
any consequences arising from causes beyond the control of Agent or any Lender.
None of the above shall affect, impair, or prevent the vesting of any of Agent's
or any Lender's rights or powers hereunder or under the Agreement.

            (iii) Nothing contained herein shall be deemed to limit or to expand
any waivers, covenants or indemnities made by Borrower in favor of any L/C
Issuer in any letter of credit application, reimbursement agreement or similar
document, instrument or agreement between Borrower and such L/C Issuer,
including an Application and Agreement for Documentary Letter of Credit or a
Master Documentary Agreement and a Master Standby Agreement entered into with
Agent.

                                      B-5
<PAGE>

                              ANNEX C (SECTION 1.8)
                                       TO
                                CREDIT AGREEMENT

                             CASH MANAGEMENT SYSTEM

            Borrower shall, and shall cause its Subsidiaries to, establish and
maintain the Cash Management Systems described below:

            (a) On or before the Closing Date and until the Termination Date,
Borrower shall (i) establish lock boxes ("Lock Boxes") or, at Agent's
discretion, blocked accounts ("Blocked Accounts") at one or more of the banks
set forth in Disclosure Schedule (3.19), and shall request in writing and
otherwise take such reasonable steps to ensure that all Account Debtors forward
payment directly to such Lock Boxes, and (ii) deposit and cause its Subsidiaries
to deposit or cause to be deposited promptly, and in any event no later than the
first Business Day after the date of receipt thereof, all cash, checks, drafts
or other similar items of payment relating to or constituting payments made in
respect of any and all Collateral (whether or not otherwise delivered to a Lock
Box) into one or more Blocked Accounts in Borrower's name or any such
Subsidiary's name and at a bank identified in Disclosure Schedule (3.19) (each,
a "Relationship Bank"). On or before the Closing Date, Borrower shall have
established a concentration account in its name (the "Concentration Account")
(which account may be the same as one of the Blocked Accounts) at the bank that
shall be designated as the Concentration Account bank for Borrower in Disclosure
Schedule (3.19) (the "Concentration Account Bank") (which bank may be one of the
Relationship Banks) which bank shall be reasonably satisfactory to Agent.

            (b) Borrower may maintain, in its name, an account (each a
"Disbursement Account" and collectively, the "Disbursement Accounts") at a bank
acceptable to Agent into which Agent shall, from time to time, deposit proceeds
of Revolving Credit Advances, the Acquisition Loan Advances and Swing Line
Advances made to Borrower pursuant to Section 1.1 for use by Borrower in
accordance with the provisions of Section 1.4.

            (c) On or before the Closing Date (or such later date as Agent shall
consent to in writing), the Concentration Account Bank, each bank where a
Disbursement Account is maintained and all other Relationship Banks, shall have
entered into tri-party blocked account agreements with Agent, for the benefit of
itself and Lenders, and Borrower and Subsidiaries thereof, as applicable, in
form and substance reasonably acceptable to Agent, which shall become operative
on or prior to the Closing Date. Each such blocked account agreement shall
provide, among other things, that (i) all items of payment deposited in such
account and proceeds thereof deposited in the Concentration Account are held by
such bank as agent or bailee-in-possession for Agent, on behalf of itself and
Lenders, (ii) the bank executing such agreement has no rights of setoff or
recoupment or any other claim against such account, as the case may be, other
than for payment of its service fees and other charges directly related to the
administration of such account and for returned checks or other items of
payment, and (iii) from and after the Closing Date (A) with respect to banks at
which a Blocked Account is maintained, if such Blocked Account is not also the
Concentration Account, such bank agrees to forward

                                      C-1
<PAGE>

immediately all amounts in each Blocked Account to the Concentration Account
Bank and to commence the process of daily sweeps from such Blocked Account into
the Concentration Account and (B) with respect to the Concentration Account
Bank, such bank agrees to immediately forward all amounts received in the
Concentration Account to the Collection Account through daily sweeps from such
Concentration Account into the Collection Account. Borrower shall not, and shall
not cause or permit any Subsidiary thereof to, accumulate or maintain cash in
Disbursement Accounts or payroll accounts as of any date of determination in
excess of checks outstanding against such accounts as of that date and amounts
necessary to meet minimum balance requirements.

            (d) So long as no Default or Event of Default has occurred and is
continuing, Borrower may amend Disclosure Schedule (3.19) to add or replace a
Relationship Bank, Lock Box or Blocked Account or to replace any Concentration
Account or any Disbursement Account; provided, that (i) Agent shall have
consented in writing in advance to the opening of such account or Lock Box with
the relevant bank and (ii) prior to the time of the opening of such account or
Lock Box, Borrower or its Subsidiaries, as applicable, and such bank shall have
executed and delivered to Agent a tri-party blocked account agreement, in form
and substance reasonably satisfactory to Agent. Borrower shall close any of its
accounts (and establish replacement accounts in accordance with the foregoing
sentence) promptly and in any event within 30 days following notice from Agent
that the creditworthiness of any bank holding an account is no longer acceptable
in Agent's reasonable judgment, or as promptly as practicable and in any event
within 60 days following notice from Agent that the operating performance, funds
transfer or availability procedures or performance with respect to accounts or
Lock Boxes of the bank holding such accounts or Agent's liability under any
tri-party blocked account agreement with such bank is no longer acceptable in
Agent's reasonable judgment.

            (e) The Lock Boxes, Blocked Accounts, Disbursement Accounts and the
Concentration Account shall be cash collateral accounts, with all cash, checks
and other similar items of payment in such accounts securing payment of the
Loans and all other Obligations, and in which Borrower and each Subsidiary
thereof shall have granted a Lien to Agent, on behalf of itself and Lenders,
pursuant to the Security Agreement.

            (f) All amounts deposited in the Collection Account shall be deemed
received by Agent in accordance with Section 1.10 and shall be applied (and
allocated) by Agent in accordance with Section 1.11. In no event shall any
amount be so applied unless and until such amount shall have been credited in
immediately available funds to the Collection Account.

            (g) Borrower shall and shall cause its Affiliates, officers,
employees, agents, directors or other Persons acting for or in concert with
Borrower (each a "Related Person") to (i) hold in trust for Agent, for the
benefit of itself and Lenders, all checks, cash and other items of payment
received by Borrower or any such Related Person, and (ii) within 1 Business Day
after receipt by Borrower or any such Related Person of any checks, cash or
other items of payment, deposit the same into a Blocked Account. Borrower and
each Related Person thereof acknowledges and agrees that all cash, checks or
other items of payment constituting proceeds of Collateral are part of the
Collateral. All proceeds of the sale or other disposition of any Collateral,
shall be deposited directly into Blocked Accounts.

                                      C-2
<PAGE>

                            ANNEX D (SECTION 2.1(a))
                                       TO
                                CREDIT AGREEMENT

                                CLOSING CHECKLIST

                                [TO BE ATTACHED]

                                      D-1
<PAGE>

                            ANNEX E (SECTION 4.1(a))
                                       TO
                                CREDIT AGREEMENT

                FINANCIAL STATEMENTS AND PROJECTIONS -- REPORTING

            Borrower shall deliver or cause to be delivered to Agent or to Agent
and Lenders, as indicated, the following:

            (a) Monthly Financials. To Agent and Lenders, within 30 days after
the end of each Fiscal Month (45 days after the end of each Fiscal Month ending
on or about March 31, June 30, October 30 or December 31; provided, however,
that with respect to such Fiscal Months, the Borrower shall deliver to the Agent
and the Lenders drafts of the financial statements otherwise required by this
sentence within 30 days after the end of each such Fiscal Month), financial
information regarding Borrower and its Subsidiaries, certified by the Chief
Financial Officer of Borrower, consisting of consolidated and consolidating (i)
unaudited balance sheets as of the close of such Fiscal Month and the related
statements of income and cash flows for that portion of the Fiscal Year ending
as of the close of such Fiscal Month and (ii) unaudited statements of income and
cash flows for such Fiscal Month, setting forth in comparative form the figures
for the corresponding period in the prior year and the figures contained in the
Projections for such Fiscal Year, all prepared in accordance with GAAP (subject
to normal year-end adjustments). Such financial information shall be accompanied
by (A) a statement in reasonable detail (each, a "Compliance Certificate")
showing the calculations used in determining compliance with each Financial
Covenant that is tested for a period ending on the last day of such Fiscal Month
and (B) the certification of the Chief Financial Officer of Borrower that (i)
such financial information presents fairly in accordance with GAAP (subject to
normal year-end adjustments) the financial position and results of operations of
Borrower and its Subsidiaries, on a consolidated and consolidating basis, in
each case as at the end of such Fiscal Month and for that portion of the Fiscal
Year then ended and (ii) any other information presented is true, correct and
complete in all material respects and that there was no Default or Event of
Default in existence as of such time or, if a Default or Event of Default shall
have occurred and be continuing, describing the nature thereof and all efforts
undertaken to cure such Default or Event of Default.

            (b) Operating Plan. To Agent and Lenders, as soon as available, but
not later than 30 days after the end of each Fiscal Year, an annual operating
plan for Borrower, approved by the Board of Directors of Borrower, for the
following Fiscal Year, which (i) includes a statement of all of the material
assumptions on which such plan is based, (ii) includes monthly balance sheets
and a monthly budget for the following year and (iii) integrates sales, gross
profits, operating expenses, operating profit, cash flow projections and
Borrowing Availability projections, all prepared on the same basis and in
similar detail as that on which operating results are reported (and in the case
of cash flow projections, representing management's good faith estimates of
future financial performance based on historical performance), and including
plans for personnel, Capital Expenditures and facilities.

            (c) Annual Audited Financials. To Agent and Lenders, within 90 days
after the end of each Fiscal Year, audited Financial Statements for Borrower and
its Subsidiaries on a

                                      E-1
<PAGE>

consolidated and (unaudited) consolidating basis, consisting of balance sheets
and statements of income and retained earnings and cash flows, setting forth in
comparative form in each case the figures for the previous Fiscal Year, which
Financial Statements shall be prepared in accordance with GAAP and certified
without qualification, by an independent certified public accounting firm of
national standing or otherwise acceptable to Agent. Such Financial Statements
shall be accompanied by (i) a statement prepared in reasonable detail showing
the calculations used in determining compliance with each of the Financial
Covenants, (ii) a report from such accounting firm to the effect that, in
connection with their audit examination, nothing has come to their attention to
cause them to believe that a Default or Event of Default has occurred with
respect to the Financial Covenants (or specifying those Defaults and Events of
Default that they became aware of), it being understood that such audit
examination extended only to accounting matters and that no special
investigation was made with respect to the existence of Defaults or Events of
Default, (iii) a letter addressed to Agent, on behalf of itself and Lenders, in
form and substance reasonably satisfactory to Agent and subject to standard
qualifications required by nationally recognized accounting firms, signed by
such accounting firm acknowledging that Agent and Lenders are entitled to rely
upon such accounting firm's certification of such audited Financial Statements,
(iv) the annual letters to such accountants in connection with their audit
examination detailing contingent liabilities and material litigation matters,
and (v) the certification of the Chief Executive Officer or Chief Financial
Officer of Borrower that all such Financial Statements present fairly in
accordance with GAAP the financial position, results of operations and
statements of cash flows of Borrower and its Subsidiaries on a consolidated and
consolidating basis, as at the end of such Fiscal Year and for the period then
ended, and that there was no Default or Event of Default in existence as of such
time or, if a Default or Event of Default has occurred and is continuing,
describing the nature thereof and all efforts undertaken to cure such Default or
Event of Default.

            (d) Management Letters. To Agent and Lenders, within 5 Business Days
after receipt thereof by any Credit Party, copies of all management letters,
exception reports or similar letters or reports received by such Credit Party
from its independent certified public accountants.

            (e) Default Notices. To Agent and Lenders, as soon as practicable,
and in any event within 5 Business Days after an executive officer of Borrower
has actual knowledge of the existence of any Default, Event of Default or other
event that has had a Material Adverse Effect, telephonic or telecopied notice
specifying the nature of such Default or Event of Default or other event,
including the anticipated effect thereof, which notice, if given telephonically,
shall be promptly confirmed in writing on the next Business Day.

            (f) SEC Filings and Press Releases. To Agent and Lenders, promptly
upon their becoming available, copies of: (i) all Financial Statements, reports,
notices and proxy statements made publicly available by any Credit Party to its
security holders; (ii) all regular and periodic reports and all registration
statements and prospectuses, if any, filed by any Credit Party with any
securities exchange or with the Securities and Exchange Commission or any
governmental or private regulatory authority; and (iii) all press releases and
other statements made available by any Credit Party to the public concerning
material changes or developments in the business of any such Person.

                                      E-2
<PAGE>

            (g) Equity Notices. To Agent, as soon as practicable, copies of all
material written notices given or received by any Credit Party with respect to
any Stock of such Person.

            (h) Supplemental Schedules. To Agent, supplemental disclosures, if
any, required by Section 5.6.

            (i) Litigation. To Agent in writing, promptly upon learning thereof,
notice of any Litigation commenced or threatened against any Credit Party that
(i) seeks damages in excess of $100,000, (ii) seeks injunctive relief, (iii) is
asserted or instituted against any Plan, its fiduciaries or its assets or
against any Credit Party or ERISA Affiliate in connection with any Plan, (iv)
alleges criminal misconduct by any Credit Party, (v) alleges the violation of
any law regarding, or seeks remedies in connection with, any Environmental
Liabilities; or (vi) involves any product recall. In addition, within 15 days
after the end of each Fiscal Quarter, the Borrower shall provide the Agent with
a summary of all litigation set forth on Disclosure Schedule 3.13 or for which
the Agent is otherwise to be notified pursuant to this clause (i).

            (j) Insurance Notices. To Agent, disclosure of losses or casualties
required by Section 5.4.

            (k) Lease Default Notices. To Agent, within 2 Business Days after
receipt thereof, copies of (i) any and all default notices received under or
with respect to any leased location or public warehouse where Collateral is
located, and (ii) such other notices or documents as Agent may reasonably
request.

            (l) Lease Amendments. To Agent, within 2 Business Days after receipt
thereof, copies of all material amendments to real estate leases.

            (m) Other Documents. To Agent and Lenders, such other financial and
other information respecting any Credit Party's business or financial condition
as Agent or any Lender shall, from time to time, reasonably request.

                                      E-3
<PAGE>

                            ANNEX F (SECTION 4.1(b))
                                       TO
                                CREDIT AGREEMENT

                               COLLATERAL REPORTS

            Borrower shall deliver or cause to be delivered the following:

            (a) To Agent, on a each Business Day or at such more frequent
intervals as Agent may request from time to time (together with a copy of all or
any part of such delivery requested by any Lender in writing after the Closing
Date), collateral reports with respect to Borrower, including all additions and
reductions (cash and non-cash) with respect to Accounts of Borrower, prepared by
the Borrower as of the then immediately preceding Business Day;

            (b) To Agent, upon its request, and in any event no less frequently
than noon Chicago time on Wednesday of each week, (together with a copy of all
or any part of the following reports requested by any Lender in writing after
the Closing Date), each of the following reports, each of which shall be
prepared by the Borrower as of the last day of the immediately preceding week or
the date 2 days prior to the date of any such request:

            (i) a Borrowing Base Certificate with respect to Borrower,
      accompanied by such supporting detail and documentation as shall be
      requested by Agent in its reasonable discretion; and

            (ii) with respect to Borrower, a summary of Inventory by location
      and type in each case accompanied by such supporting detail and
      documentation as shall be requested by Agent in its reasonable discretion.

            (c) To Agent, within five (5) business days after the end of each
month each of the following reports:

            (i) with respect to Borrower, a monthly trial balance showing
      Accounts outstanding aged from invoice date as follows: 1 to 30 days, 31
      to 60 days, 61 to 90 days and 91 days or more, accompanied by such
      supporting detail and documentation as shall be requested by Agent in its
      reasonable discretion;

            (ii) a summary of Inventory by location and type with a supporting
      perpetual inventory report, in each case accompanied by supporting Agent;

            (iii) an aging of accounts payable;

            (d) To Agent, at the time of delivery of each of the monthly
Financial Statements delivered pursuant to Annex E:

            (i) a reconciliation of the most recent Borrowing Base, general
      ledger and month-end Accounts and Inventory reports of Borrower to
      Borrower's general ledger and

                                      F-1
<PAGE>

      monthly Financial Statements delivered pursuant to such Annex E, in each
      case accompanied by such supporting detail and documentation as shall be
      requested by Agent in its reasonable discretion;

            (ii) a reconciliation of the perpetual inventory by location to
      Borrower's most recent Borrowing Base Certificate, general ledger and
      monthly Financial Statements delivered pursuant to Annex E, in each case
      accompanied by such supporting detail and documentation as shall be
      requested by Agent in its reasonable discretion;

            (iii) an aging of accounts payable and a reconciliation of that
      accounts payable aging to Borrower's general ledger and monthly Financial
      Statements delivered pursuant to Annex E, in each case accompanied by such
      supporting detail and documentation as shall be requested by Agent in its
      reasonable discretion;

            (iv) a reconciliation of the outstanding Loans as set forth in the
      monthly Loan Account statement provided by Agent to Borrower's general
      ledger and monthly Financial Statements delivered pursuant to Annex E, in
      each case accompanied by such supporting detail and documentation as shall
      be requested by Agent in its reasonable discretion;

            (e) To Agent, at the time of delivery of each of the annual
Financial Statements delivered pursuant to Annex E, (i) a listing of government
contracts of Borrower subject to the Federal Assignment of Claims Act of 1940;
and (ii) a list of any applications for the registration of any Patent,
Trademark or Copyright filed by any Credit Party with the United States Patent
and Trademark Office, the United States Copyright Office or any similar office
or agency in the prior Fiscal Quarter;

            (f) Borrower, at its own expense, shall deliver to Agent the results
of each physical verification, if any, that Borrower or any of its Subsidiaries
may in their discretion have made, or caused any other Person to have made on
their behalf, of all or any portion of their Inventory (and, if a Default or an
Event of Default has occurred and be continuing, Borrower shall, upon the
request of Agent, conduct, and deliver the results of, such physical
verifications as Agent may require);

            (g) Borrower, at its own expense, shall deliver to Agent such
appraisals of its assets as Agent may request at any time, such appraisals to be
conducted by an appraiser, and in form and substance reasonably satisfactory to
Agent; and

            (h) Such other reports, statements and reconciliations with respect
to the Borrowing Base or Collateral or Obligations of any or all Credit Parties
as Agent shall from time to time request in its reasonable discretion.

                                      F-2
<PAGE>

                             ANNEX G (SECTION 6.10)
                                       TO
                                CREDIT AGREEMENT

                               FINANCIAL COVENANTS

            Borrower shall not breach or fail to comply with any of the
following financial covenants, each of which shall be calculated in accordance
with GAAP consistently applied:

            (a) Maximum Capital Expenditures. Borrower and its Subsidiaries on a
consolidated basis shall not make Capital Expenditures during the following
periods that exceed in the aggregate the amounts set forth opposite each of such
periods:

<TABLE>
<CAPTION>
                 Period                               Maximum Capital Expenditures per Period
---------------------------------------------         ---------------------------------------
<S>                                                   <C>
Fiscal Year ending on or about March 31, 2005                        $2,600,000

Fiscal Year ending on or about March 31, 2006                        $3,000,000
and each Fiscal Year ending thereafter
</TABLE>

provided, however, that the amount of permitted Capital Expenditures during any
measuring period set forth above shall be increased by the amount of the cash
proceeds received during such measuring period from a sale-leaseback of the
Minnesota Facility (as long as such sale-leaseback is consented to by Agent) to
the extent that the construction of the assets subject to such sale-leaseback
were funded with the proceeds of loans under the Construction Loan Agreement or
proceeds of the Revolving Loans on or after April 1, 2003.

            (b) [Intentionally Deleted]

            (c) [Intentionally Deleted]

            (d) Minimum Fixed Charge Coverage Ratio. Borrowers and their
Subsidiaries shall have on a consolidated basis, as of the last day of the
Fiscal Month ending on December 31, 2003 and as of the last day of each Fiscal
Month thereafter, for the 12 month period then ended, a ratio of (A) EBITDA plus
a one-time non-cash loss in an amount not to exceed $5,500,000 related to the
write-off of capitalized software development expenses incurred by Encore
Software during the period commencing on June 1, 2001 and ending on March 1,
2004, to the extent included in the calculation of consolidated net income of
Encore Software for such period in accordance with GAAP, but without duplication
plus interest income received during such period to (B) the sum of, without
duplication, (i) the aggregate of all Interest Expense paid or accrued during
such period, plus (ii) scheduled payments of principal with respect to
Indebtedness during such period, plus (iii) Capital Expenditures during such
period (other than Capital Expenditures financed other than with the proceeds of
Loans), plus (iv) income taxes paid in cash during such period, plus (v) the
aggregate amount of all consideration paid for Permitted Intellectual Property
Acquisitions during such period, plus (vi) all Restricted Payments made by a
Credit Party during such period (other than Restricted Payments (a) made to
another Credit Party or (b) which have caused EBITDA to be reduced for

                                      G-1
<PAGE>

such period), of not less than 1.35:1.00; provided, however, that solely for the
purposes of the calculation of the Fixed Charge Coverage Ratio set forth herein,
the amount of Capital Expenditures during any measuring period set forth above
shall be decreased by the amount of the cash proceeds received during such
measuring period from a sale-leaseback of the Minnesota Facility (as long as
such sale-leaseback is consented to by Agent) to the extent that the
construction of the assets subject to such sale-leaseback were funded with
proceeds of the Revolving Loans.

            (e) Indebtedness to EBITDA. Borrowers and their Subsidiaries shall
have on a consolidated basis, as of the last day of each Fiscal Quarter a ratio
of (i) the sum of (x) the daily average amount of Revolving Loans for the 30-day
period preceding the last day of such Fiscal Quarter and (y) the amount of other
Indebtedness as of the last day of such Fiscal Quarter to (ii) EBITDA plus
interest income for the four Fiscal Quarters then ending of not greater than
3.0:1.

      Unless otherwise specifically provided herein, any accounting term used in
the Agreement shall have the meaning customarily given such term in accordance
with GAAP, and all financial computations hereunder shall be computed in
accordance with GAAP consistently applied. That certain items or computations
are explicitly modified by the phrase "in accordance with GAAP" shall in no way
be construed to limit the foregoing. If any "Accounting Changes" (as defined
below) occur and such changes result in a change in the calculation of the
financial covenants, standards or terms used in the Agreement or any other Loan
Document, then Borrower, Agent and Lenders agree to enter into negotiations in
order to amend such provisions of the Agreement so as to equitably reflect such
Accounting Changes with the desired result that the criteria for evaluating
Borrower's and its Subsidiaries' financial condition shall be the same after
such Accounting Changes as if such Accounting Changes had not been made;
provided, however, that the agreement of Requisite Lenders to any required
amendments of such provisions shall be sufficient to bind all Lenders.
"Accounting Changes" means (i) changes in accounting principles required by the
promulgation of any rule, regulation, pronouncement or opinion by the Financial
Accounting Standards Board of the American Institute of Certified Public
Accountants (or successor thereto or any agency with similar functions), (ii)
changes in accounting principles concurred in by Borrower's certified public
accountants; (iii) purchase accounting adjustments under A.P.B. 16 or 17 and
EITF 88-16, and the application of the accounting principles set forth in FASB
109, including the establishment of reserves pursuant thereto and any subsequent
reversal (in whole or in part) of such reserves; and (iv) the reversal of any
reserves established as a result of purchase accounting adjustments. All such
adjustments resulting from expenditures made subsequent to the Closing Date
(including capitalization of costs and expenses or payment of pre-Closing Date
liabilities) shall be treated as expenses in the period the expenditures are
made and deducted as part of the calculation of EBITDA in such period. If Agent,
Borrower and Requisite Lenders agree upon the required amendments, then after
appropriate amendments have been executed and the underlying Accounting Change
with respect thereto has been implemented, any reference to GAAP contained in
the Agreement or in any other Loan Document shall, only to the extent of such
Accounting Change, refer to GAAP, consistently applied after giving effect to
the implementation of such Accounting Change. If Agent, Borrower and Requisite
Lenders cannot agree upon the required amendments within 30 days following the
date of implementation of any Accounting Change, then all Financial Statements
delivered and all calculations of financial covenants and other standards and
terms in accordance with the Agreement and the other Loan Documents shall be
prepared, delivered and

                                      G-2
<PAGE>

made without regard to the underlying Accounting Change. For purposes of Section
8.1, a breach of a Financial Covenant contained in this Annex G shall be deemed
to have occurred as of any date of determination by Agent or as of the last day
of any specified measurement period, regardless of when the Financial Statements
reflecting such breach are delivered to Agent.

                                      G-3
<PAGE>

                            ANNEX H (SECTION 1.1(c))
                                       TO
                                CREDIT AGREEMENT

                       LENDERS' WIRE TRANSFER INFORMATION

      Name:             General Electric Capital Corporation
      Bank:             Deutsche Bank Trust Company Americas
                        New York, New York
      ABA #:            021001033
      Account #:        50232854
      Account Name:     GECC/CAF Depository
      Reference:        CFC4301

                                      H-1
<PAGE>

                             ANNEX I (SECTION 11.10)
                                       TO
                                CREDIT AGREEMENT

                                NOTICE ADDRESSES

            (A)   If to Agent or GE Capital, at
                  General Electric Capital Corporation
                  500 West Monroe Street
                  17th Floor
                  Chicago, Illinois 60661
                  Attention: Navarre Account Manager
                  Telecopier No.: (312) 463-3855
                  Telephone No.: (312) 463-2262

                  with copies to:

                  Latham & Watkins
                  5800 Sears Tower
                  Chicago, Illinois 60606
                  Attention: Jeffrey G. Moran
                  Telecopier No.: 312-993-9767
                  Telephone No.: 312-876-7700

                  and

                  General Electric Capital Corporation
                  201 High Ridge Road
                  Stamford, Connecticut 06927-5100
                  Attention: Corporate Counsel-Commercial Finance
                  Telecopier No.: (203) 316-7889
                  Telephone No.: (203) 316-7552

            (B)   If to Borrower or any Credit Party, at
                  Navarre Corporation
                  7400 49th Avenue North
                  New Hope, MN 55428
                  Attention: CFO
                  Telecopier No.: 763-504-1107
                  Telephone No.: 763-971-2770

                                      I-1
<PAGE>

                 ANNEX J (FROM ANNEX A - COMMITMENTS DEFINITION)
                                       TO
                                CREDIT AGREEMENT

Lender(s):

General Electric Capital Corporation

Revolving Loan Commitment (including a
Swing Line Commitment of $5,000,000):                   $40,000,000

Acquisition Loan Commitment                             $10,000,000

                                       J-1

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