def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.)
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
o Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material under Rule 14a-12
ARADIGM CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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Act Rule 0-II(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
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ARADIGM
CORPORATION
3929 Point Eden Way
Hayward, California, 94545
NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS
To Be Held On May 14,
2010
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of
Shareholders of Aradigm Corporation, a California corporation
(Aradigm). The meeting will be held on Friday,
May 14, 2010, at 9:00 a.m. local time at
Aradigms offices for the following purposes:
1. To reelect the four nominees for director named herein
to serve until the next annual meeting of shareholders and until
their successors are duly elected and qualified.
2. To approve an amendment to Aradigms 2005 Equity
Incentive Plan to increase the aggregate number of shares of
Common Stock authorized for issuance under such plan by
4,000,000 shares.
3. To approve an amendment to Aradigms Amended and
Restated Articles of Incorporation to increase the authorized
number of shares of Common Stock from 150,000,000 to 225,000,000.
4. To ratify the selection of Odenberg, Ullakko,
Muranishi & Co. LLP as Aradigms independent
registered public accounting firm for the fiscal year ending
December 31, 2010.
5. To conduct any other business properly brought before
the meeting.
These items of business are more fully described in the Proxy
Statement accompanying this Notice.
The record date for the annual meeting is March 31, 2010.
Only shareholders of record at the close of business on that
date may vote at the meeting or any adjournment thereof.
By Order of the Board of Directors
Igor Gonda, Ph.D.
President and Chief Executive Officer
Hayward, California
April 9, 2010
Important Notice Regarding the Availability of Proxy
Materials for the Shareholders Meeting to Be Held on
May 14, 2010 at 9:00 am at 3929 Point Eden Way, Hayward,
California, 94545
The proxy statement and the Annual Report on
Form 10-K
are available at www.aradigm.com.
You are cordially invited to attend the meeting in person.
Whether or not you expect to attend the meeting, please
complete, date, sign and return the enclosed proxy as promptly
as possible in order to ensure your representation at the
meeting. A return envelope (which is postage prepaid if mailed
in the United States) has been provided for your convenience.
Even if you have voted by proxy, you may still vote in person if
you attend the meeting. Please note, however, that if your
shares are held of record by a broker, bank or other nominee and
you wish to vote at the meeting, you must obtain a proxy issued
in your name from that record holder.
Table of
Contents
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ARADIGM
CORPORATION
3929 Point Eden Way
Hayward, California, 94545
PROXY STATEMENT FOR ANNUAL
MEETING OF SHAREHOLDERS
To Be Held On May 14,
2010
QUESTIONS
AND ANSWERS ABOUT THIS PROXY MATERIAL AND VOTING
Why am I
receiving these materials?
We have sent you these proxy materials because the Board of
Directors of Aradigm Corporation is soliciting your proxy to
vote at the 2010 Annual Meeting of Shareholders. You are invited
to attend the annual meeting to vote on the proposals described
in this proxy statement. However, you do not need to attend the
meeting to vote your shares. Instead, you may simply complete,
sign and return the enclosed proxy card.
We intend to mail these proxy materials on or about
April 9, 2010 to all shareholders of record entitled to
vote at the annual meeting.
Who can
vote at the annual meeting?
Only shareholders of record at the close of business on
March 31, 2010 will be entitled to vote at the annual
meeting. On this record date, there were 102,381,116 shares
of Common Stock outstanding and entitled to vote.
Shareholder
of Record: Shares Registered in Your Name
If on March 31, 2010 your shares were registered directly
in your name with our transfer agent, Computershare
Trust Company, N.A., then you are a shareholder of record.
As a shareholder of record, you may vote in person at the
meeting or vote by proxy. Whether or not you plan to attend the
meeting, we urge you to fill out and return the enclosed proxy
card to ensure your vote is counted.
Beneficial
Owner: Shares Registered in the Name of a Broker or
Bank
If on March 31, 2010 your shares were held in an account at
a brokerage firm, bank, dealer, or other similar organization,
then you are the beneficial owner of shares held in street
name and these proxy materials are being forwarded to you
by that organization. The organization holding your account is
considered the shareholder of record for purposes of voting at
the annual meeting. As a beneficial owner, you have the right to
direct your broker or other agent regarding how to vote the
shares in your account. You are also invited to attend the
annual meeting. However, since you are not the shareholder of
record, you may not vote your shares in person at the meeting
unless you request and obtain a valid proxy from your broker or
other agent.
What am I
voting on?
There are four matters scheduled for a vote:
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Reelection of four directors;
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Approval of an amendment to Aradigms 2005 Equity Incentive
Plan (the Equity Incentive Plan) to increase the
aggregate number of shares of Common Stock authorized for
issuance under such plan by 4,000,000 shares;
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Approval of an amendment to Aradigms Amended and Restated
Articles of Incorporation to increase the authorized number of
shares of Common Stock from 150,000,000 to
225,000,000 shares; and
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Ratification of the selection by the Audit Committee of the
Board of Directors of Odenberg, Ullakko, Muranishi &
Co. LLP as our independent registered public accounting firm for
the fiscal year ending December 31, 2010.
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1
How do I
vote?
You may either vote For all the nominees for
director or you may Withhold your vote for any
nominee you specify. For each of the other matters to be voted
on, you may vote For or Against or
abstain from voting. The procedures for voting are fairly simple:
Shareholder
of Record: Shares Registered in Your Name
If you are a shareholder of record, you may vote in person at
the annual meeting or vote by proxy using the enclosed proxy
card. Whether or not you plan to attend the meeting, we urge you
to vote by proxy to ensure your vote is counted. You may still
attend the meeting and vote in person even if you have already
voted by proxy.
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To vote in person, come to the annual meeting and we will give
you a ballot when you arrive.
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To vote using the proxy card, simply complete, sign and date the
enclosed proxy card and return it promptly in the envelope
provided. If you return your signed proxy card to us before the
annual meeting, we will vote your shares as you direct.
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Beneficial
Owner: Shares Registered in the Name of Broker or
Bank
If you are a beneficial owner of shares registered in the name
of your broker, bank, or other agent, you should have received a
proxy card and voting instructions with these proxy materials
from that organization rather than from Aradigm. Simply complete
and mail the proxy card to ensure that your vote is counted. To
vote in person at the annual meeting, you must obtain a valid
proxy from your broker, bank, or other agent. Follow the
instructions from your broker or bank included with these proxy
materials, or contact your broker or bank to request a proxy
form.
How many
votes do I have?
On each matter to be voted upon, you have one vote for each
share of Common Stock you own as of March 31, 2010.
However, you may be able to cumulate your votes for
Proposal 1, the reelection of directors, if at least one
shareholder gives notice at the meeting, before the voting, that
he or she intends to cumulate votes. Under cumulative voting,
you have four votes for each share of Common Stock you own. You
may cast all of your votes for one candidate, or you may
distribute your votes among different candidates as you choose.
However, you may cumulate votes (cast more than one vote per
share) for a candidate only if the candidate is nominated before
the voting and at least one shareholder gives notice at the
meeting, before the voting, that he or she intends to cumulate
votes. If you do not specify how to distribute your votes, by
giving your proxy you are authorizing the proxyholders (the
individuals named on your proxy card) to cumulate votes in their
discretion.
What if I
return a proxy card or otherwise vote but do not make specific
choices?
If you return a signed and dated proxy card or otherwise vote
without marking any voting selections, your shares will be
voted, as applicable For the reelection of all four
nominees for director, For the amendment to the
Equity Incentive Plan, For the amendment to the
Amended and Restated Articles of Incorporation and
For the ratification of Odenberg, Ullakko,
Muranishi & Co. LLP as our independent registered
public accounting firm for the fiscal year ending
December 31, 2010. If any other matter is properly
presented at the meeting, your proxyholder (one of the
individuals named on your proxy card) will vote your shares
using his or her best judgment.
Who is
paying for this proxy solicitation?
We will pay for the entire cost of soliciting proxies. In
addition to these proxy materials, our directors and employees
and Georgeson, Inc. (Georgeson) may also solicit
proxies in person, by telephone, or by other means of
communication. Directors and employees will not be paid any
additional compensation for soliciting proxies, but Georgeson,
if retained, would be paid its customary fee, estimated to be
$10,000 plus
out-of-pocket
expenses, if it solicits proxies.
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What does
it mean if I receive more than one set of proxy
materials?
If you receive more than one set of proxy materials, your shares
may be registered in more than one name or in different
accounts. Please follow the voting instructions on the proxy
cards and proxy materials to ensure that all of your shares are
voted.
Can I
change my vote after submitting my proxy?
Yes. You can revoke your proxy at any time before the final vote
at the meeting. If you are the record holder of the shares, you
may revoke your proxy in any one of following ways:
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You may submit another properly completed proxy card with a
later date.
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You may send a timely written notice that you are revoking your
proxy to our Secretary at 3929 Point Eden Way, Hayward,
California, 94545.
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You may attend the annual meeting and vote in person. Simply
attending the meeting will not, by itself, revoke your proxy.
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Your most current proxy card is the one that is counted.
If your shares are held by your broker or bank as a nominee or
agent, you should follow the instructions provided by your
broker or bank.
When are
shareholder proposals due for next years annual
meeting?
To be considered for inclusion in next years proxy
materials, your proposal must be submitted in writing by
December 21, 2010, to our Secretary at 3929 Point Eden Way,
Hayward, California, 94545. If you wish to submit a proposal
that is not to be included in next years proxy materials
or nominate a director, you must do so no later than the close
of business on March 16, 2011 and no earlier than the close
of business on February 16, 2011. You are also advised to
review our bylaws, which contain additional requirements about
advance notice of shareholder proposals and director
nominations. A copy of our bylaws is available via written
request to our Secretary at 3929 Point Eden Way, Hayward,
California, 94545, or by accessing EDGAR on the SECs
website at www.sec.gov.
How are
votes counted?
Votes will be counted by the inspector of election appointed for
the meeting, who will separately count For and (with
respect to proposals other than the reelection of directors)
Against votes, abstentions and broker non-votes.
With respect to any proposal submitted to a vote of the
shareholders, the inspector of election will not count
abstentions and broker non-votes as shares towards the vote
total for such proposal.
If your shares are held by your broker as your nominee (that is,
in street name), you will need to obtain a proxy
form from the institution that holds your shares and follow the
instructions included on that form regarding how to instruct
your broker to vote your shares. If you do not give instructions
to your broker, your broker can vote your shares with respect to
discretionary items, but not with respect to
non-discretionary items. On non-discretionary items
for which you do not give your broker instructions, the shares
will be treated as broker non-votes.
What are
broker non-votes?
Broker non-votes occur when a beneficial owner of shares held in
street name does not give instructions to the broker
or nominee holding the shares as to how to vote on matters
deemed non-routine. Generally, if shares are held in
street name, the beneficial owner of the shares is entitled to
give voting instructions to the broker or nominee holding the
shares. If the beneficial owner does not provide voting
instructions, the broker or nominee can still vote the shares
with respect to matters that are considered to be
routine, but not with respect to
non-routine matters. Under the rules and
interpretations of the New York Stock Exchange
(NYSE), non-routine matters are
generally those involving a contest or a matter that may
substantially affect the rights or privileges of shareholders,
3
such as mergers or shareholder proposals. Under recent changes
to NYSE Rule 452, the election of directors is now also
considered a non-routine matter.
How many
votes are needed to approve each proposal?
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For the reelection of directors, the four nominees receiving the
highest number of For votes (from the holders of
votes of shares present in person or represented by proxy and
entitled to vote at the meeting on the reelection of directors)
will be elected. Withheld votes and broker non-votes will have
no effect on the outcome of the reelection of directors.
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To be approved, Proposal 2 (approval of an amendment to our
2005 Equity Incentive Plan to increase the aggregate number of
shares of Common Stock authorized for issuance under such plan
by 4,000,000 shares), must receive For votes
from a majority of shares present either in person or by proxy
and voting at the meeting. The inspector of election will not
count abstentions and broker non-votes as shares towards the
vote total for this proposal, in which case abstentions and
broker non-votes will have no effect on the outcome of this
proposal.
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To be approved, Proposal 3 (approval of an amendment to our
Amended and Restatement Articles of Incorporation to increase
the total authorized shares of Common Stock from 150,000,000 to
225,000,000), must receive For votes from the
holders of a majority of shares present either in person or by
proxy and entitled to vote. The inspector of election will not
count abstentions and broker non-votes as shares towards the
vote total for this proposal, in which case abstentions and
broker non-votes will have no effect on the outcome of this
proposal.
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To be approved, Proposal 4 (ratifying the selection of
Odenberg, Ullakko, Muranishi & Co. LLP as our
independent registered public accounting firm for the fiscal
year ending December 31, 2010) must receive
For votes from the holders of a majority of shares
present either in person or by proxy and entitled to vote. The
inspector of election will not count abstentions and broker
non-votes as shares towards the vote total for this proposal, in
which case abstentions and broker non-votes will have no effect
on the outcome of this proposal.
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What is
the quorum requirement?
A quorum of shareholders is necessary to hold a valid meeting. A
quorum will be present if shareholders holding a majority of the
outstanding shares entitled to vote are present at the meeting
in person or represented by proxy. On the record date, there
were 102,381,116 shares of Common Stock outstanding and
entitled to vote. Thus, the holders of 51,190,559 shares
must be present in person or represented by proxy at the meeting
or by proxy to have a quorum.
Your shares will be counted towards the quorum only if you
submit a valid proxy (or one is submitted on your behalf by your
broker, bank or other nominee) or vote at the meeting. The
inspector of election will treat abstentions and broker
non-votes as shares counted towards the quorum requirement. If
there is no quorum, the holders of a majority of the shares
present in person or represented by proxy at the meeting may
adjourn the meeting to another date.
How can I
find out the results of the voting at the annual
meeting?
Preliminary voting results will be announced at the annual
meeting. Final voting results will be published on our
Form 8-K
filed with the SEC within four business days after the annual
meeting.
What
proxy materials are available on the internet?
The proxy statement and Annual Report on
Form 10-K
are available at www.aradigm.com.
4
PROPOSAL 1
REELECTION
OF DIRECTORS
Our Board of Directors (the Board) currently
consists of four directors. There are four nominees for director
this year. Each director to be reelected will hold office until
the next annual meeting and until his successor is elected, or
until the directors death, resignation or removal. Each of
the nominees listed below is currently a member of our Board who
was previously elected by the shareholders. It is our policy to
invite nominees to attend the annual meeting and to encourage
attendance at meetings at which substantial shareholder
attendance is expected. All of the nominees for reelection as a
director at the 2009 Annual Meeting of Shareholders attended the
2009 Annual Meeting of Shareholders.
The four candidates receiving the highest number of affirmative
votes by the holders of shares entitled to be voted will be
elected. Shares represented by executed proxies will be voted,
if authority to do so is not withheld, for the reelection of the
four nominees named below. If any nominee becomes unavailable
for reelection as a result of an unexpected occurrence, your
shares will be voted for the election of a substitute nominee
proposed by us. Each person nominated for reelection has agreed
to serve if elected. Our management has no reason to believe
that any nominee will be unable to serve.
Nominees
The following is a brief biography of each nominee for director
and their ages as of March 31, 2010. Each nominee is
currently serving as a director of Aradigm.
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Name
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Age
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Principal Occupation/Position Held With Us
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Frank H. Barker
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Director
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Igor Gonda
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President, Chief Executive Officer and Director
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John M. Siebert
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Director
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Virgil D. Thompson
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Chairman and Director
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Frank H. Barker has been a director since May 1999. From
January 1980 to January 1994, Mr. Barker served as a
company group chairman of Johnson & Johnson, Inc., a
diversified health care company, and was Corporate Vice
President from January 1989 to January 1996. Mr. Barker
retired from Johnson & Johnson, Inc. in January 1996.
Mr. Barker holds a B.A. in Business Administration from
Rollins College, Winter Park, Florida.
Igor Gonda, Ph.D. has served as our President and
Chief Executive Officer since August 2006 and as a director
since September 2001. From December 2001 to August 2006,
Dr. Gonda was the Chief Executive Officer and Managing
Director of Acrux Limited, a publicly traded specialty
pharmaceutical company located in Melbourne, Australia. From
July 2001 to December 2001, Dr. Gonda was our Chief
Scientific Officer and, from October 1995 to July 2001, was our
Vice President, Research and Development. From February 1992 to
September 1995, Dr. Gonda was a Senior Scientist and Group
Leader at Genentech, Inc. His key responsibilities at Genentech
were the development of the inhalation delivery of rhDNase
(Pulmozyme) for the treatment of cystic fibrosis and
non-parenteral methods of delivery of biologics. Prior to that,
Dr. Gonda held academic positions at the University of
Aston in Birmingham, United Kingdom, and the University of
Sydney, Australia. Dr. Gonda holds a B.Sc. in Chemistry and
a Ph.D. in Physical Chemistry from Leeds University, United
Kingdom. Dr. Gonda was the Chairman of our Scientific
Advisory Board until August 2006.
John M. Siebert, Ph.D. has been a director since
November 2006. From May 2003 to October 2008, Dr. Siebert
was the Chairman and Chief Executive Officer of CyDex
Pharmaceuticals, Inc., a privately held specialty pharmaceutical
company. From September 1995 to April 2003, he was President and
Chief Executive Officer of CIMA Labs Inc., a publicly traded
drug delivery company, and from July 1995 to September 1995 he
was President and Chief Operating Officer of CIMA Labs. From
1992 to 1995, Dr. Siebert was Vice President, Technical
Affairs at Dey Laboratories, Inc., a privately held
pharmaceutical company. From 1988 to 1992, he worked at Bayer
Corporation. Prior to that, Dr. Siebert was employed by
E.R. Squibb & Sons, Inc., G.D. Searle & Co.
and The Procter & Gamble Company. Dr Siebert holds a
B.S. in Chemistry from Illinois Benedictine University, an M.S.
in
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Organic Chemistry from Wichita State University and a Ph.D. in
Organic Chemistry from the University of Missouri.
Virgil D. Thompson has been a director since June 1995
and has been Chairman of the Board since January 2005. Since
July 2009, Mr. Thompson has been Chief Executive Officer
and a director of Spinnaker Biosciences, Inc., a privately held
ophthalmic drug delivery company. From November 2002 until July
2007, Mr. Thompson was President and Chief Executive
Officer of Angstrom Pharmaceuticals, Inc., a privately held
pharmaceutical company. From September 2000 to November 2002,
Mr. Thompson was President, Chief Executive Officer and a
director of Chimeric Therapies, Inc., a privately held
biotechnology company. From May 1999 until September 2000,
Mr. Thompson was the President, Chief Operating Officer and
a director of Savient Pharmaceuticals, a publicly traded
specialty pharmaceutical company. From January 1996 to April
1999, Mr. Thompson was the President and Chief Executive
Officer and a director of Cytel Corporation, a publicly traded
biopharmaceutical company that was subsequently acquired by IDM
Pharma, Inc. From 1994 to 1996, Mr. Thompson was President
and Chief Executive Officer of Cibus Pharmaceuticals, Inc., a
privately held drug delivery device company. From 1991 to 1993,
Mr. Thompson was President of Syntex Laboratories, Inc., a
U.S. subsidiary of Syntex Corporation, a publicly traded
pharmaceutical company. Mr. Thompson holds a B.S. in
Pharmacy from Kansas University and a J.D. from The George
Washington University Law School. Mr. Thompson is chairman
of the board of directors of Questcor Pharmaceuticals, Inc., a
publicly traded pharmaceutical company, and is a director of
Savient Pharmaceuticals.
THE BOARD
OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
Qualifications
of Directors and Nominees
The following is a brief discussion of the specific experience,
qualifications, attributes or skills that led to the conclusion
that our directors and nominees should serve as one of our
directors at this time:
We believe that our directors and nominees have an appropriate
balance of knowledge, experience, attributes, skills and
expertise required for our Board as a whole and that we have
sufficient independent directors to comply with applicable laws
and regulations. We believe that our directors have a broad
range of personal characteristics including leadership,
management, scientific, technological, business, marketing and
financial experience and abilities to act with integrity, with
sound judgment and collegiality, to consider strategic
proposals, to assist with the development of our strategic plan
and oversee its implementation, to oversee our risk management
efforts and executive compensation, to provide leadership, to
provide required expertise on Board committees and to commit the
requisite time for preparation and attendance at Board and
committee meetings.
In addition, three of our four directors are independent under
the listing standards of the Nasdaq Global Market
(Nasdaq) (Dr. Gonda, our Chief Executive
Officer, being the only exception as he is an employee) and our
Nominating and Corporate Governance Committee believes that all
four directors are independent of the influence of any
particular shareholder or group of shareholders whose interests
may diverge from the interests of our shareholders as a whole.
We believe that each director brings a strong background and set
of skills to the Board, giving the Board as a whole competence
and experience from a wide variety of areas.
Dr. Gonda has served as our Chief Executive Officer since
2006 and as one of our directors since 2001. In addition to his
leadership, strategic planning and extensive knowledge of the
day to day operations of our business, he has a commercial,
scientific and academic background in the delivery of
pharmaceuticals using inhalation. His education includes degrees
in chemistry and physical chemistry.
Mr. Thompson, our Chairman of the Board, is our longest
serving director giving him substantial knowledge of our company
and its business. Mr. Thompson has extensive experience in
the life sciences industry and has served as an executive with
numerous pharmaceutical and drug delivery companies, both public
and private. He also brings experience as a director of other
public and private life sciences companies. His education
includes degrees in pharmacy and law.
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Mr. Barkers career at Johnson & Johnson,
Inc., a diversified health care company, has given him broad
experience in leadership, executive management, global
operations and consensus building. Mr. Barkers
service on our Board since 1999 has given him a substantial
knowledge of our company and its business. His education
includes a degree in business administration.
Dr. Siebert has extensive experience in the life sciences
industry, including as President and Chief Executive Officer of
a privately held specialty pharmaceutical company, President and
Chief Executive Officer of a publicly traded drug delivery
company and additional management and executive management roles
at drug delivery and pharmaceutical companies. Our Board has
determined that Dr. Sieberts background, especially
his executive management roles, qualifies him as our Audit
Committee financial expert. His education includes degrees in
chemistry and organic chemistry.
Independence
of the Board of Directors
We have chosen to apply the listing standards of the Nasdaq in
determining the independence of our directors. The Board
consults with counsel to ensure that the Boards
determinations are consistent with all relevant securities and
other laws and regulations regarding the definition of
independent, including those set forth in pertinent
listing standards of the Nasdaq, as in effect from time to time.
Consistent with these considerations, after review of all
relevant transactions or relationships between each director and
nominee for director, or any of his family members, and us, our
senior management and our independent registered public
accounting firm, the Board affirmatively has determined that the
following three directors and nominees for directors are
independent within the meaning of the applicable Nasdaq listing
standards: Mr. Barker, Dr. Siebert, and
Mr. Thompson. In making this determination, the Board found
that none of these directors or nominees for director had a
material or disqualifying relationship with the Company.
Dr. Gonda, our President and Chief Executive Officer, is
not an independent director within the meaning of the applicable
Nasdaq standards by virtue of his employment with Aradigm. In
addition, each person who served as a director for any portion
of 2009 was independent within the meaning of the applicable
Nasdaq listing standards, except for Dr. Gonda.
Board
Leadership Structure and Role in Risk Oversight
Mr. Thompson is our Chairman of the Board and he presides
at all Board of Directors and shareholders meetings.
Our independent directors meet regularly in executive session
(i.e., without management present) with no agenda set by
management.
Our Board of Directors oversees our risk management. This
oversight is administered primarily through the following:
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The Boards review and approval of our annual business plan
(prepared and presented to the Board by our Chief Executive
Officer and other management), including the projected
opportunities and challenges facing our business each year;
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At least quarterly review of our business developments, business
plan implementation and financial results;
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Our Audit Committees oversight of our internal controls
over financial reporting and its discussion with management and
the independent accountants regarding the quality and adequacy
of our internal controls and financial reporting (and related
reports to the full Board); and
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Our Compensation Committees reviews and recommendations to
the Board regarding our executive officer compensation and its
relationship to our business plans.
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Meetings
of the Board of Directors
The Board held 13 meetings during the last fiscal year. Each of
our current Board members attended 75% or more of the aggregate
of the meetings of the Board and of the committees on which he
served during the year.
7
In fiscal 2009, our independent directors met or held telephonic
Board meetings 8 times in regularly scheduled executive sessions
at which only independent directors were present. These meetings
were chaired by Mr. Thompson, the Chairman of the Board.
Persons interested in communicating with the independent
directors with their concerns or issues may address
correspondence to a particular director or to the independent
directors generally, in care of Aradigm at 3929 Point Eden Way,
Hayward, California, 94545.
Shareholder
Communications with the Board of Directors
We have implemented a process by which shareholders may
communicate with the Board or any of its directors. Shareholders
who wish to communicate with the Board may do so by sending
written communications addressed to the Secretary of Aradigm at
3929 Point Eden Way, Hayward, California 94545. All
communications will be compiled by our Secretary and submitted
to the Board or the individual directors on a periodic basis.
All communications directed to the Audit Committee in accordance
with our whistleblower policy that relate to questionable
accounting or auditing matters involving us will be forwarded
directly to the Audit Committee.
Code of
Ethics
We have adopted the Aradigm Corporation Code of Business Conduct
and Ethics that applies to all of our officers, directors and
employees. The Code of Business Conduct and Ethics is available
on our website at www.aradigm.com. If we make any substantive
amendments to the Code of Business Conduct and Ethics or grant
any waiver from a provision of the Code to any executive officer
or director, we will promptly disclose the nature of the
amendment or waiver on our website.
Information
Regarding the Committees of our Board of Directors
The Board has three committees: an Audit Committee, a
Compensation Committee and a Nominating and Corporate Governance
Committee. The following table provides membership information
and meeting information for each of the Board committees during
2009:
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Nominating and
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Corporate
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Name
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Audit
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Compensation
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Governance
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Frank H. Barker
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X
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X
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X
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*
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Igor Gonda
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John M. Siebert
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X
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*
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X
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X
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Virgil D. Thompson
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X
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X
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*
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X
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Total meetings in fiscal year 2009
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6
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6
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3
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Below is a description of each committee of the Board. The Board
has determined that each member of each committee meets the
applicable Nasdaq rules and regulations regarding
independence and that each member is free of any
relationship that would impair his individual exercise of
independent judgment with regard to Aradigm.
Audit
Committee
The Audit Committee of the Board was established by the Board in
accordance with Section 3(a)(58)(A) of the Securities
Exchange Act of 1934, as amended, to oversee our corporate
accounting and financial reporting processes and audits of our
financial statements. For this purpose, the Audit Committee
performs several functions. The Audit Committee evaluates the
performance of and assesses the qualifications of our
independent registered public accounting firm; determines and
approves the engagement of our independent registered public
accounting firm; determines whether to retain or terminate the
existing independent registered public accounting firm or to
appoint and engage a new independent registered public
accounting firm; reviews and approves the retention of the
independent registered public accounting firm to perform any
proposed permissible non-audit services; monitors the rotation
of partners of the independent registered public accounting firm
on our audit engagement team as required by law; confers with
management and our independent registered public accounting firm
regarding the
8
effectiveness of internal controls over financial reporting;
establishes procedures, as required under applicable law, for
the receipt, retention and treatment of complaints received by
us regarding accounting, internal accounting controls or
auditing matters and the confidential and anonymous submission
by employees of concerns regarding questionable accounting or
auditing matters; reviews the financial statements to be
included in our Annual Report on
Form 10-K
and our quarterly financial statements on
Form 10-Q;
and discusses with management and our independent registered
public accounting firm the results of the annual audit.
Currently, three directors comprise the Audit Committee:
Messrs. Barker and Thompson and Dr. Siebert (chair).
The Audit Committee is governed by a written charter that is
available to shareholders on our website at www.aradigm.com.
The Board annually reviews the Nasdaq listing standards
definition of independence for Audit Committee members and has
determined that all members of our Audit Committee are
independent (as independence is currently defined in
Rule 4350(d)(2)(A)(i) and (ii) of the Nasdaq listing
standards). The Board has determined that Dr. Siebert
qualifies as an audit committee financial expert, as
defined in applicable rules of the Securities and Exchange
Commission (the SEC). The Board made a qualitative
assessment of Dr. Sieberts level of knowledge and
experience based on a number of factors, including formal
education and executive experience.
Compensation
Committee
The Compensation Committee of the Board reviews and recommends
to the Board the overall compensation strategy and policies for
us. The Compensation Committee reviews and recommends to the
Board corporate performance goals and objectives relevant to the
compensation of our executive officers and other senior
management; reviews and recommends to the Board the compensation
and other terms of employment of our Chief Executive Officer;
reviews and recommends to the Board for approval the
compensation and other terms of employment of the other
officers; and oversees the administration of our stock option
and stock purchase plans, health benefit plans, stock bonus
plans, deferred compensation plans and other similar programs.
Three directors currently comprise the Compensation Committee:
Messrs. Barker and Thompson (chair) and Dr. Siebert.
All members of our Compensation Committee are independent (as
independence is currently defined in Rule 4200(a)(15) of
the Nasdaq listing standards). The Compensation Committee is
governed by a written charter that is available to shareholders
on our website at www.aradigm.com.
Nominating
and Corporate Governance Committee
The Nominating and Corporate Governance Committee of the Board
is responsible for identifying, reviewing and evaluating
candidates to serve as directors (consistent with criteria
approved by the Board), recommending to the Board candidates for
election and reelection to the Board, making recommendations to
the Board regarding the membership of the committees of the
Board, assessing the performance of the Board and its committees
and monitoring compliance with our Code of Business Conduct and
Ethics. Currently, the Nominating and Corporate Governance
Committee consists of three directors: Dr. Siebert and
Messrs. Barker (chair) and Thompson. All current members of
the Nominating and Corporate Governance Committee are
independent (as independence is currently defined in
Rule 4200(a)(15) of the Nasdaq listing standards). The
Nominating and Corporate Governance Committee is governed by a
written charter that is available to shareholders on our website
at www.aradigm.com.
Any potential candidates for director nominees, including
candidates recommended by shareholders, are reviewed in the
context of the current composition of the Board, our operating
requirements and the long-term interests of shareholders. In
conducting this assessment, the Committee considers such factors
as it deems appropriate given our current needs and those of our
Board, to maintain a balance of knowledge, experience and
capability. The Nominating and Corporate Governance Committee
reviews directors overall service during their term,
including the number of meetings attended level of participation
and quality of performance. The Committee also determines
whether the nominee would be independent, which determination is
based upon applicable Nasdaq listing standards, applicable SEC
rules and regulations and the advice of counsel, if necessary.
The Committee then compiles a list of potential candidates from
suggestions it may receive, but may also engage, if it deems
appropriate, a professional search firm to generate additional
suggestions. The Committee conducts any appropriate and
necessary inquiries into the backgrounds and qualifications of
possible candidates as it deems appropriate. The Committee meets
to discuss and consider such candidates qualifications and
then selects a nominee for recommendation to the Board by
majority vote. While the Committee and the Board have from time
to
9
time received and considered suggestions from shareholders for
nominations to the Board, the Committee has received no
suggestions for which disclosure is required in this proxy
statement.
The Nominating and Corporate Governance Committee will consider
director candidates recommended by shareholders. The Committee
will consider candidates recommended by shareholders in the same
manner as it considers recommendations from other sources.
Shareholders who wish to recommend individuals for consideration
by the Nominating and Corporate Governance Committee to become
nominees for election to the Board may do so by delivering a
written recommendation to the Nominating and Corporate
Governance Committee at the following address: 3929 Point Eden
Way, Hayward, California 94545 at least 60 days prior, but
no more than 90 days prior, to the anniversary date of the
last annual meeting of shareholders. Submissions should include
the full name of the proposed nominee, a description of the
proposed nominees business experience for at least the
previous five years, complete biographical information, a
description of the proposed nominees qualifications as a
director and a representation that the nominating shareholder is
a beneficial or record owner of our stock.
The Nominating and Corporate Governance Committee has not
established specific, minimum qualifications for recommended
nominees or specific qualities or skills for one or more of our
directors to possess. The Nominating and Corporate Governance
Committee uses a subjective process for identifying and
evaluating nominees for director, based on the information
available to, and the subjective judgments of, the members of
the Nominating and Corporate Governance Committee and our then
current needs for the Board as a whole, although the Committee
does not believe there would be any difference in the manner in
which it evaluates nominees based on whether the nominee is
recommended by a shareholder. The Nominating and Corporate
Governance Committee considers the needs for the Board as a
whole when identifying and evaluating nominees and, among other
things, considers diversity in background, age, experience,
qualifications, attributes and skills in identifying nominees,
although it does not have a formal policy regarding the
consideration of diversity. In 2009, the Nominating and
Corporate Governance Committee did not recommend any new
directors for election to the Board. See Qualifications of
Directors and Nominees for a description of the diversity
of our current directors.
REPORT OF
THE AUDIT COMMITTEE OF THE BOARD OF
DIRECTORS(*)
The Audit Committee has reviewed and discussed the audited
financial statements for the fiscal year ended December 31,
2009 with our management. The Audit Committee has discussed with
the independent registered public accounting firm the matters
required to be discussed by Statement on Auditing Standards
No. 114, The Auditors Communication with Those
Charged with Governance, as adopted by the Public Company
Accounting Oversight Board (PCAOB) in
Rule 3200T. The Audit Committee has also received the
written disclosures and the letter from the independent
registered public accounting firm required by applicable
requirements of the PCAOB regarding the independent registered
public accounting firms communications with the audit
committee concerning independence, and has discussed with the
independent registered public accounting firm the independent
registered public accounting firms independence. Based on
the foregoing, the Audit Committee has recommended to the Board
of Directors that the audited financial statements be included
in the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009.
From the members of the Audit Committee of Aradigm Corporation:
Frank H. Barker
John M. Siebert, Chairman
Virgil D. Thompson
(*) The
material in this report is not soliciting material,
is not deemed filed with the SEC, and is not to be
incorporated by reference into any filing of the Company under
the Securities Act of 1933, as amended, or the Securities Act of
1934, as amended, whether made before or after the date hereof
and irrespective of any general incorporation language contained
in such filing.
10
PROPOSAL 2
APPROVAL OF EQUITY INCENTIVE PLAN, AS AMENDED
In March 2005, the Board of Directors adopted, and the
shareholders subsequently approved, the 2005 Equity Incentive
Plan (the 2005 Plan), an amended, restated and
retitled version of the 1996 Equity Incentive Plan. As of
February 28, 2010 a total of 9,218,638 shares of our
common stock have been authorized for issuance under the 2005
Plan.
During the 2009 fiscal year, under the 2005 Plan, we granted to
all current executive officers as a group options to purchase
750,000 shares at exercise prices of $0.25 per share.
Additionally, we issued to our current executive officers as a
group restricted stock awards under the terms of which they may
receive up to 1,550,000 shares. During the same period we
granted to all employees and directors (excluding current
executive officers) as a group options to purchase
1,328,000 shares at exercise prices of $0.15 to $0.25 per
share and restricted stock awards to receive up to
868,250 shares.
In March 2010, the Board of Directors of the Company adopted an
amendment to the 2005 Plan, subject to shareholder approval, to
increase the number of shares authorized for issuance under the
2005 Plan by 4,000,000 to 13,218,638 shares. This amendment
is intended to afford the Company greater flexibility in
providing employees with stock incentives and ensures that the
Company can continue to provide such incentives at levels
determined appropriate by the Board. Given the limited number of
shares that currently remain available under the 2005 Plan,
coupled with the fact that all outstanding options are
underwater and of little or no retention value, the Board of
Directors and Management believe it is important that the share
proposal be approved in order to maintain the Companys
ability to attract and retain key personnel and continue to
provide them with strong incentives to contribute to the
Companys future success.
The following summary description of the 2005 Plan, as amended,
is qualified in its entirety by reference to the full text of
the 2005 Plan that is attached as Appendix A to the proxy
statement filed via EDGAR with the SEC, including all changes
that this proposal would effect if approved by our shareholders
at the annual meeting.
Shareholders are requested in this Proposal 2 to approve
the 2005 Plan, as amended. The affirmative vote from a majority
of shares present either in person or by proxy and voting at the
meeting will be required to approve the 2005 Plan, as amended.
The inspector of election will not count abstentions and broker
non-votes as shares towards the vote total for this proposal, in
which case abstentions and broker non-votes will have no effect
on the outcome of this proposal.
THE BOARD
OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the 2005 Plan are outlined below:
General
The 2005 Plan provides for the grant of incentive stock options,
nonstatutory stock options, stock purchase awards, stock bonus
awards, stock unit awards, stock appreciation rights and other
forms of equity compensation (collectively, the stock
awards). Incentive stock options granted under the 2005
Plan are intended to qualify as incentive stock
options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, or the
Code. Nonstatutory stock options granted under the
2005 Plan are not intended to qualify as incentive stock options
under the Code. See Federal Income Tax Information
for a discussion of the tax treatment of stock awards. To date,
the Company has granted stock options and restricted stock
awards under the 2005 Plan.
11
Purpose
We adopted the 2005 Plan to provide a means by which selected
officers, directors, employees of and consultants to us and our
affiliates could be given an opportunity to acquire an equity
interest in Aradigm Corporation, to assist in retaining the
services of employees holding key positions, to secure and
retain the services of persons capable of filling such positions
and to provide incentives for such persons to exert maximum
efforts for our success. All employees and directors are
eligible to participate in the 2005 Plan. As of March 31,
2010, approximately 34 employees, directors and consultants
are eligible to participate in the 2005 Plan.
Administration
The Board administers the 2005 Plan. Subject to the provisions
of the 2005 Plan, the Board has the authority to construe and
interpret the plan, to determine the persons to whom and the
dates on which stock awards will be granted, the type of stock
award to grant to such person, the number of shares of Common
Stock to be subject to each stock award, the time or times
during the term of each stock award within which all or a
portion of the award may be exercised, the exercise, purchase,
or strike price of each stock award, the type of consideration
permitted to exercise or purchase each stock award, and other
terms of the stock awards.
The Board is authorized to delegate administration of the 2005
Plan to a committee composed of not fewer than two members of
the Board. The Board has delegated administration of the 2005
Plan to the Compensation Committee of the Board. As used herein
with respect to the 2005 Plan, the Board refers to
the Compensation Committee as well as to the Board itself. In
the Boards discretion, directors serving on the
Compensation Committee will be outside directors
within the meaning of Section 162(m) of the Code
(Section 162(m)). See Federal Income Tax
Information for a discussion of the application of
Section 162(m).
The Board may also delegate to one or more of our officers the
authority to designate officers and employees to be recipients
of stock awards and the terms thereof
and/or
determine the number of shares of our Common Stock to be subject
to the stock awards granted to such officers and employees, so
long as the Board resolution delegating such authority specifies
the total number of shares of Common Stock underlying stock
awards that the officer may grant, the officer does not grant
any stock awards to himself or herself and the Board does not
delegate the authority to determine the fair market value on the
date of grant of the Common Stock underlying the stock awards.
Eligibility
Incentive stock options may be granted under the 2005 Plan only
to our employees (including officers) and employees of our
affiliates. Employees, non-employee Board members and
consultants of us and our affiliates are eligible to receive all
other types of stock awards under the 2005 Plan.
No incentive stock option may be granted under the 2005 Plan to
any person who, at the time of the grant, owns (or is deemed to
own) stock possessing more than 10% of our total combined voting
power or its affiliates, unless the exercise price of such
option is at least 110% of the fair market value of the stock
subject to the option on the date of grant and the term of the
option does not exceed five years from the date of grant. In
addition, the aggregate fair market value, determined on the
date of grant, of the shares of Common Stock with respect to
which incentive stock options are exercisable for the first time
by a participant during any calendar year (under the 2005 Plan
and any of our other plans and those of our affiliates) may not
exceed $100,000.
No employee may be granted stock awards under the 2005 Plan
exercisable for more than 1,500,000 shares of Common Stock
during any calendar year.
Stock
Subject to the 2005 Plan
Subject to the approval of this Proposal, an aggregate of
13,218,638 shares of Common Stock will be reserved for
issuance under the 2005 Plan. If stock awards granted under the
2005 Plan expire or otherwise terminate without being exercised
or if we reacquire shares of Common Stock pursuant to the terms
of unvested stock options, the shares of Common Stock not
acquired pursuant to such stock awards again become available
for issuance under the 2005 Plan. If any shares of Common Stock
subject to a stock award are not delivered because such shares
are withheld for payment of taxes or because such shares are
tendered as consideration for the exercise price of a stock
12
award, the shares of Common Stock not delivered pursuant to such
stock awards again become available for issuance under the 2005
Plan.
Terms of
Options
The following is a description of the permissible terms of
options under the 2005 Plan. Individual stock option agreements
may be more restrictive as to any or all of the permissible
terms described below.
Exercise Price. The exercise price of
incentive stock options under the 2005 Plan may not be less than
the fair market value of our Common Stock subject to the option
on the date of the option grant, and in some cases (see
Eligibility above), may not be less than 110% of
such fair market value. The exercise price of nonstatutory
options under the 2005 Plan may not be less than 100% of the
fair market value of our Common Stock subject to the option on
the date of the option grant. At March 31, 2010, the
closing price of our Common Stock as quoted on the OTC
Bulletin Board, an electronic quotation service for
securities traded over-the-counter, was $0.15 per share.
Consideration. The exercise price of options
granted under the 2005 Plan must be paid either in cash at the
time the option is exercised or, at the discretion of the Board,
(i) pursuant to a broker-assisted
same-day
sale, (ii) by delivery of other shares of our Common
Stock, (iii) pursuant to a deferred payment arrangement or
(iv) in any other form of legal consideration acceptable to
the Board.
Restrictions on Repricing. Under the terms of
the 2005 Plan, the Board does not have the authority to reprice
any outstanding stock awards under the 2005 Plan or cancel and
re-grant any outstanding stock awards under the 2005 Plan,
unless our shareholders have approved such an action within
12 months prior to such an event.
Vesting. Options granted under the 2005 Plan
may become exercisable in cumulative increments, or
vest, as determined by the Board. The Board has the
authority to accelerate the time during which an option may
vest. In addition, options granted under the 2005 Plan may
permit exercise prior to vesting. However, any unvested shares
acquired under such an early exercise arrangement may be subject
to repurchase by us or to any other restriction the Board
determines to be appropriate. To the extent provided by the
terms of an option, a participant may satisfy any federal, state
or local tax withholding obligation relating to the exercise of
such option by a cash payment upon exercise, by authorizing us
to withhold a portion of the stock otherwise issuable to the
participant or by such other method as the Board determines to
include in the stock award agreement.
Term. The Board has the discretion to
determine the term of an option. However, the maximum term of an
incentive stock option granted under the 2005 Plan is
10 years, except that in certain cases (see
Eligibility above) the maximum permitted term of
such award is 5 years. Options under the 2005 Plan
terminate three months after termination of the
participants service unless (i) such termination is
due to the participants permanent and total disability (as
defined in the Code), in which case the option may be exercised
(to the extent the option was exercisable at the time of the
termination of service) at any time within 12 months of
such termination, unless the option agreement provides
otherwise; (ii) the participant dies before the
participants service has terminated, or within a certain
period after termination of service, in which case the option
may be exercised (to the extent the option was exercisable at
the time of the participants death) within 18 months
of the participants death by the person or persons to whom
the rights to such option pass by will or by the laws of descent
and distribution, unless the option agreement provides
otherwise; or (iii) the option by its terms specifically
provides otherwise. In no event, however, may an option be
exercised beyond the expiration of its term.
A participants option agreement may provide that if the
exercise of the option following the termination of the
participants service would be prohibited because the
issuance of stock would violate the registration requirements
under the Securities Act, then the option will terminate on the
earlier of (i) the expiration of the term of the option or
(ii) three months after the termination of the
participants service during which the exercise of the
option would not be in violation of such registration
requirements.
Restrictions on Transfer. Unless specified
otherwise by the Board or required by law, a participant in the
2005 Plan may not transfer a stock option other than by will or
by the laws of descent and distribution or pursuant to a
domestic relations order. During the lifetime of the
participant, only the participant may exercise a stock option. A
participant may designate a beneficiary who may exercise an
option following the participants death. Shares
13
subject to repurchase by us pursuant to an early exercise
arrangement may be subject to restrictions on transfer that the
Board deems appropriate.
Terms of
Stock Purchase Awards and Stock Bonus Awards
Stock purchase awards and stock bonus awards may be granted
under the 2005 Plan pursuant to stock purchase award agreements
and stock bonus award agreements, respectively.
Consideration. The purchase price for stock
purchase awards may be paid in cash, or, at the discretion of
the Board, under a deferred payment or similar arrangement, by
past services rendered to us or in any other form of legal
consideration acceptable to the Board and permissible under
applicable law. The Board may grant stock bonus awards in
consideration for past services rendered to us or any other form
of legal consideration acceptable to the Board and permissible
under applicable law.
Vesting. Shares of stock acquired under a
stock purchase may, but need not, be subject to a repurchase
right or option in our favor; and shares of stock acquired under
a stock bonus award may, but need not, be subject to forfeiture
to us in accordance with a vesting schedule as determined by the
Board. The Board has the authority to accelerate the vesting of
stock acquired pursuant to a stock purchase or stock bonus award.
Termination of Service. Upon termination of a
participants service, we may repurchase or otherwise
reacquire any forfeited shares of stock that have not vested as
of such termination under the terms of the applicable stock
purchase award or stock bonus award agreement.
Restrictions on Transfer. Rights to acquire
shares under a stock purchase or stock bonus award may be
transferred only upon such terms and conditions as may be
approved by the Board.
Terms of
Stock Unit Awards
Stock unit awards may be granted under the 2005 Plan pursuant to
stock unit award agreements.
Consideration. The purchase price for stock
unit awards may be paid in any form of legal consideration
acceptable to the Board.
Settlement of Awards. A stock unit award may
be settled by the delivery of shares of our Common Stock, cash,
in any combination of the two or in any other form of
consideration, as determined by the Board.
Vesting. At the time of the grant of a stock
unit, the Board may impose such restrictions or conditions to
the vesting of the stock unit as it, in its sole discretion,
deems appropriate. Also, at the time of grant, the Board may
impose additional restrictions or conditions that delay the
delivery of stock or cash subject to the stock unit award after
vesting. The Board has the authority to accelerate the vesting
of stock unit awards as it deems appropriate.
Dividend Equivalents. Dividend equivalent
rights may be credited with respect to shares covered by a stock
unit award, as determined by the Board. We do not anticipate
paying cash dividends on our Common Stock for the foreseeable
future.
Termination of Service. Except as otherwise
provided in the applicable award agreement, stock units that
have not vested will be forfeited upon the participants
termination of service.
Terms of
Stock Appreciation Rights
Stock appreciation rights may be granted under the 2005 Plan
pursuant to stock appreciation rights agreements.
Exercise. Each stock appreciation right is
denominated in shares of Common Stock equivalents. Upon exercise
of a stock appreciation right, we will pay the participant an
amount equal to the excess of (i) the aggregate fair market
value on the date of exercise of a number of Common Stock
equivalents with respect to which the participant is exercising
the stock appreciation right over (ii) the strike price on
the date of grant, as determined by the Board.
14
Settlement of Awards. The appreciation
distribution upon exercise of a stock appreciation right may be
paid in cash, in shares of our Common Stock, in any combination
of the two or in any other form of consideration determined by
the Board.
Vesting. The Board may impose such conditions
and restrictions as to the vesting of stock appreciation rights
as it deems appropriate. The Board has the authority to
accelerate the vesting of stock appreciation rights as it deems
appropriate.
Termination of Service. Upon termination of a
participants service, the participant generally may
exercise any vested stock appreciation right for three months
(or such longer or shorter period specified in the stock
appreciation right agreement) after the date such service
relationship ends. In no event may a stock appreciation right be
exercised beyond the expiration of its term.
Terms of
Other Equity Awards
The Board may grant other equity awards based in whole or in
part by reference to the value of our Common Stock. See the full
text of the 2005 Plan, set forth in Appendix A to the Proxy
Statement filed via EDGAR with the SEC, for more details.
Subject to the provisions of the 2005 Plan, the Board has the
authority to determine the persons to whom and the dates on
which such other equity awards will be granted, the number of
shares of Common Stock (or cash equivalents) to be subject to
each award, and other terms and conditions of such awards.
Performance-Based
Stock Awards
Under the 2005 Plan, a stock award may be granted, vest or be
exercised based upon the attainment during a certain period of
time of certain performance goals. All employees, consultants
and directors are eligible to receive performance-based stock
awards under the 2005 Plan. The length of any performance
period, the performance goals to be achieved during the
performance period, and the measure of whether and to what
degree such performance goals have been attained shall be
determined by the Board.
In granting a performance-based stock award, the Board will set
a period of time (a performance period) over which
the attainment of one or more goals (performance
goals) will be measured for the purpose of determining
whether the award recipient has a vested right in or to such
award. Within the time period prescribed by Section 162(m)
of the Code (typically before the 90th day of a performance
period), the Board will establish the performance goals, based
upon one or more pre-established criteria (performance
criteria) enumerated in the 2005 Plan and described below.
As soon as administratively practicable following the end of the
performance period, the Board will certify (in writing) whether
the performance goals have been satisfied.
Performance goals under the 2005 Plan shall be determined by the
Board, based on one or more of the following performance
criteria: (i) earnings per share; (ii) earnings before
interest, taxes and depreciation; (iii) earnings before
interest, taxes, depreciation and amortization (EBITDA);
(iv) net earnings; (v) total shareholder return;
(vi) return on equity; (vii) return on assets,
investment or capital employed; (viii) operating margin;
(ix) gross margin; (x) operating income; (xi) net
income (before or after taxes); (xii) net operating income;
(xiii) net operating income after tax; (xiv) pre- and
after-tax income; (xv) pre-tax profit; (xvi) operating
cash flow; (xvii) sales or revenue targets;
(xviii) increases in revenue or product revenue;
(xix) expenses and cost reduction goals;
(xx) improvement in or attainment of expense levels;
(xxi) improvement in or attainment of working capital
levels; (xxii) economic value added (or an equivalent
metric); (xxiii) market share; (xxiv) cash flow;
(xxv) cash flow per share; (xxvi) share price
performance; (xxvii) debt reduction;
(xxviii) implementation or completion of projects or
processes; (xxix) customer satisfaction; (xxx) total
shareholder return; (xxxi) shareholders equity; and
(xxxii) to the extent that an award is not intended to
comply with Section 162(m) of the Code, other measures of
performance selected by the Board.
The Board is authorized to adjust or modify the calculation of a
performance goal for a performance period in order to prevent
the dilution or enlargement of the rights of participants,
(a) in the event of, or in anticipation of, any unusual or
extraordinary corporate item, transaction, event or development;
(b) in recognition of, or in anticipation of, any other
unusual or nonrecurring events affecting us, or our financial
statements, or in response to, or in anticipation of, changes in
applicable laws, regulations, accounting principles, or business
conditions; or (c) in view
15
of the Boards assessment of our business strategy,
performance of comparable organizations, economic and business
conditions, and any other circumstances deemed relevant.
Specifically, the Board is authorized to make adjustments in the
method of calculating attainment of performance goals and
objectives for a performance period as follows: (i) to
exclude the dilutive effects of acquisitions or joint ventures;
(ii) to assume that any business we divested achieved
performance objectives at targeted levels during the balance of
a performance period following such divestiture; and
(iii) to exclude the effect of any change in the
outstanding shares of our Common Stock by reason of any stock
dividend or split, stock repurchase, reorganization,
recapitalization, merger, consolidation, spin-off, combination
or exchange of shares or other similar corporate change, or any
distributions to common shareholders other than regular cash
dividends. In addition, the Board is authorized to make
adjustment in the method of calculating attainment of
performance goals and objectives for a performance period as
follows: (i) to exclude restructuring
and/or other
nonrecurring charges; (ii) to exclude exchange rate
effects, as applicable, for
non-U.S. dollar
denominated net sales and operating earnings; (iii) to
exclude the effects of changes to generally accepted accounting
standards required by the Financial Accounting Standards Board;
(iv) to exclude the effects to any statutory adjustments to
corporate tax rates; (v) to exclude the impact of any
extraordinary items as determined under generally
accepted accounting principles; and (vi) to exclude any
other unusual, non-recurring gain or loss or other extraordinary
item.
Changes
to Capital Structure
In the event any change is made to the outstanding shares of our
Common Stock without our receipt of consideration (whether
through a stock split or other specified change in our capital
structure), appropriate adjustments will be made to:
(i) the maximum number
and/or class
of securities issuable under the 2005 Plan; (ii) the
maximum number
and/or class
of securities issuable as incentive stock options under the 2005
Plan; (iii) the maximum number
and/or class
of securities for which any one person may be granted options
and/or stock
appreciation rights or performance-based awards per calendar
year pursuant to the limitation under Section 162(m); and
(iv) the number
and/or class
of securities and the price per share in effect under each
outstanding stock award under the 2005 Plan.
Effect of
Certain Corporate Events
In the event of our dissolution or liquidation, any stock award
which remains unvested or subject to a right or repurchase shall
terminate immediately prior to such liquidation or dissolution
and the shares of Common Stock subject to such repurchase right
may be repurchased by us notwithstanding that the holder of such
award is providing service to us. The Board may, in its
discretion, cause some or all stock awards to become fully
vested, exercisable
and/or no
longer subject to repurchase or forfeiture before the
liquidation or dissolution is completed, but contingent on its
completion.
In the event of certain significant corporate transactions, all
outstanding stock awards under the 2005 Plan may be assumed,
continued or substituted for by any surviving or acquiring
entity (or its parent company). If the surviving or acquiring
entity (or its parent company) elects not to assume, continue or
substitute such stock awards, then (i) with respect to any
such stock awards that are held by individuals then performing
services for us or our affiliates, the vesting and
exercisability provisions of such stock awards will be
accelerated in full and such awards will be terminated if not
exercised prior to the effective date of the corporate
transaction; and (ii) all other outstanding stock awards
will be terminated if not exercised prior to the effective date
of the corporate transaction.
A significant corporate transaction will be deemed to occur in
the event of (i) a sale or all or substantially all of our
consolidated assets and those of our subsidiaries, (ii) the
sale of at least 90% of our outstanding securities, (iii) a
merger or consolidation in which we are not the surviving
corporation or (iv) a merger, consolidation or similar
transaction in which we are the surviving corporation, but
shares of our outstanding Common Stock are converted into other
property by virtue of the transaction.
Following certain specified change in control transactions, the
vesting and exercisability of specified stock awards will be
accelerated only if specifically provided by a
participants award agreement. The acceleration of a stock
award in the event of certain significant corporate transactions
or a change in control may be viewed as an
16
anti-takeover provision, which may have the effect of
discouraging a proposal to acquire or otherwise obtain control
of us.
Duration,
Termination and Amendment
The Board may suspend or terminate the 2005 Plan without
shareholder approval or ratification at any time. Unless sooner
terminated, the 2005 Plan will terminate on March 20, 2015.
The Board may amend the 2005 Plan at any time or from time to
time. However, no amendment will be effective unless approved by
our shareholders if the amendment would (i) modify the
requirements as to eligibility for participation (to the extent
such modification requires shareholder approval in order for the
2005 Plan to satisfy Section 422 of the Code, if
applicable, or
Rule 16b-3
of the Securities Exchange Act of 1934, as amended (the
Exchange Act)); (ii) increase the number of
shares reserved for issuance upon exercise of awards; or
(iii) change any other provision of the 2005 Plan in any
other way if such modification requires shareholder approval in
order to comply with
Rule 16b-3
of the Exchange Act or satisfy the requirements of
Section 422 of the Code or any securities exchange listing
requirements. The Board may submit any other amendment to the
2005 Plan for shareholder approval, including, but not limited
to, amendments intended to satisfy the requirements of
Section 162(m) regarding the exclusion of performance-based
compensation from the limitation on the deductibility of
compensation paid to certain employees.
Federal
Income Tax Information
The following is a summary of the principal United States
federal income taxation consequences to employees and us with
respect to participation in the 2005 Plan. This summary is not
intended to be exhaustive, and does not discuss the income tax
laws of any city, state or foreign jurisdiction in which a
participant may reside.
Incentive Stock Options. Incentive stock
options granted under the 2005 Plan are intended to be eligible
for the favorable federal income tax treatment accorded
incentive stock options under the Code. There
generally are no federal income tax consequences to the
participant or us by reason of the grant or exercise of an
incentive stock option. However, the exercise of an incentive
stock option may give rise to or increase alternative minimum
tax liability for the participant.
If a participant holds stock acquired through exercise of an
incentive stock option for more than two years from the date on
which the option was granted and more than one year after the
date the option was exercised for those shares, any gain or loss
on a disposition of those shares (a qualifying
disposition) will be a long-term capital gain or loss.
Upon such a qualifying disposition, we will not be entitled to
any income tax deduction.
Generally, if the participant disposes of the stock before the
expiration of either of these holding periods (a
disqualifying disposition), then at the time of
disposition the participant will realize taxable ordinary income
equal to the lesser of (i) the excess of the stocks
fair market value on the date of exercise over the exercise
price or (ii) the participants actual gain, if any,
on the purchase and sale. The participants additional gain
or any loss upon the disqualifying disposition will be a capital
gain or loss, which will be long-term or short-term depending on
whether the stock was held for more than one year.
To the extent the participant recognizes ordinary income by
reason of a disqualifying disposition, generally we will be
entitled (subject to the requirement of reasonableness, the
provisions of Section 162(m), and the satisfaction of a tax
reporting obligation) to a corresponding income tax deduction in
the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options, Restricted Stock Purchase Awards
and Stock Bonuses. There generally are no tax
consequences to the participant or us by reason of the grant of
these awards. Upon acquisition of the stock under any of these
awards, the participant normally will recognize taxable ordinary
income equal to the excess, if any, of the stocks fair
market value on the acquisition date over the purchase price.
However, to the extent the stock is subject to certain types of
vesting restrictions, the taxable event will be delayed until
the vesting restrictions lapse unless the participant elects to
be taxed on receipt of the stock under Section 83(b) of the
Code. With respect to employees, we are generally required to
withhold from regular wages or supplemental wage payments an
amount based on the ordinary income recognized. Subject to the
requirement of reasonableness, the provisions of
17
Section 162(m) and the satisfaction of a tax reporting
obligation, we will generally be entitled to a business expense
deduction equal to the taxable ordinary income realized by the
participant.
Upon disposition of the stock, the participant will recognize a
capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock plus any
amount recognized as ordinary income upon acquisition (or
vesting) of the stock. Such gain or loss will be long-term or
short-term depending on whether the stock was held for more than
one year. Slightly different rules may apply to participants who
acquire stock subject to certain repurchase options or who are
subject to Section 16(b) of the Exchange Act.
Stock Unit Awards. No taxable income is
generally recognized upon receipt of a stock unit award. The
participant will recognize ordinary income in the year in which
the shares subject to that unit are actually issued to the
participant in an amount equal to the fair market value of the
shares on the date of issuance. We and the participant will be
required to satisfy certain tax withholding requirements
applicable to such income. We will be entitled to an income tax
deduction equal to the amount of ordinary income recognized by
the participant at the time the shares are issued. In general,
the deduction will be allowed for the taxable year in which such
ordinary income is recognized by the participant.
Section 409A of the Code may apply to the grant of a stock
unit award if the award permits the participant to defer receipt
of the stock after vesting, unless a deferral election and
certain other requirements are met.
Stock Appreciation Rights. No taxable income
is realized upon the receipt of a stock appreciation right. Upon
exercise of the stock appreciation right, the fair market value
of the shares (or cash in lieu of shares) received is recognized
as ordinary income to the participant in the year of such
exercise. Generally, with respect to employees, we are required
to withhold from the payment made on exercise of the stock
appreciation right or from regular wages or supplemental wage
payments an amount based on the ordinary income recognized.
Subject to the requirement of reasonableness,
Section 162(m) and the satisfaction of a reporting
obligation, we will be entitled to an income tax deduction equal
to the amount of ordinary income recognized by the participant.
Section 409A. Certain awards, including
stock options and stock appreciation rights granted with an
exercise price that is less than fair market value, certain
restricted stock units, and certain awards that are considered
modified, can be considered non-qualified deferred
compensation and subject to Section 409A of the Code.
Awards that are subject to but do not meet the requirements of
Code Section 409A will result in an additional 20% tax
obligation, plus penalties and interest to the recipient, and
may result in accelerated imposition of income tax and the
related withholding.
Potential Limitation on Company
Deductions. Section 162(m) denies a
deduction to any publicly held corporation for compensation paid
to certain covered employees in a taxable year to
the extent that compensation to such covered employee exceeds
$1 million. It is possible that compensation attributable
to awards, when combined with all other types of compensation
received by a covered employee from us, may cause this
limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified
performance-based compensation, are disregarded for
purposes of the deduction limitation. In accordance with
Treasury Regulations issued under Section 162(m),
compensation attributable to stock options and stock
appreciation rights will qualify as performance-based
compensation if the award is granted by a compensation committee
comprised solely of outside directors and either
(i) the plan contains a per-employee limitation on the
number of shares for which such awards may be granted during a
specified period, the per-employee limitation is approved by the
shareholders, and the exercise price of the award is no less
than the fair market value of the stock on the date of grant or
(ii) the award is granted (or exercisable) only upon the
achievement (as certified in writing by the compensation
committee) of an objective performance goal established in
writing by the compensation committee while the outcome is
substantially uncertain, and the award is approved by
shareholders.
Stock purchase awards, stock units and stock bonus awards will
qualify as performance-based compensation under the Treasury
Regulations only if (i) the award is granted by a
compensation committee comprised solely of outside
directors, (ii) the award is granted (or exercisable)
only upon the achievement of an objective performance goal
established in writing by the compensation committee while the
outcome is substantially uncertain, (iii) the compensation
committee certifies in writing prior to the granting (or
exercisability) of the award that the
18
performance goal has been satisfied and (iv) prior to the
granting (or exercisability) of the award, shareholders have
approved the material terms of the award (including the class of
employees eligible for such award, the business criteria on
which the performance goal is based, and the maximum
amount or formula used to calculate the
amount payable upon attainment of the performance
goal). The Company intends to comply with these regulations with
respect to performance-based compensation that it may award.
New Plan
Benefits
Since benefits under the 2005 Plan will depend on the
individuals selected at the discretion of the Board
and/or the
Compensation Committee to receive awards, the number of shares
to be awarded and the fair market value of our common stock at
various future dates, it is not possible at this time to
determine the benefits that will be received under the 2005 Plan
by all eligible employees, officers, directors or consultants.
Equity
Compensation Plan Information
Equity
Compensation Plan Information
The following table summarizes our equity compensation plan
information as of December 31, 2009. Information is
included for the equity compensation plans approved by our
shareholders. There are no equity compensation plans not
approved by our shareholders.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
Available for
|
|
|
|
|
|
|
|
|
|
Future Issuance
|
|
|
|
Common Stock to
|
|
|
|
|
|
Under Equity
|
|
|
|
be Issued Upon
|
|
|
Weighted-Average
|
|
|
Compensation
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
Plans (Excluding
|
|
|
|
Outstanding Options
|
|
|
Outstanding Options
|
|
|
Securities Reflected
|
|
|
|
and Rights
|
|
|
and Rights
|
|
|
in Column (a))
|
|
Plan Category
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity compensation plans approved by Aradigm shareholders
|
|
|
5,088,443
|
(1)
|
|
$
|
2.49
|
|
|
|
3,832,065
|
(2)
|
Equity compensation plans not approved by Aradigm shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Issuable pursuant to our 1996 Equity Incentive Plan, the 1996
Non-Employee Directors Plan and the 2005 Equity Incentive
Plan. |
|
(2) |
|
Includes 3,068,880 shares reserved under our Employee Stock
Purchase Plan (See Note 10 to the financial statements
included in the Annual Report on
Form 10-K). |
PROPOSAL 3
APPROVAL OF CERTIFICATE OF AMENDMENT TO AMENDED AND RESTATED
ARTICLES OF
INCORPORATION TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF
COMMON STOCK.
The Board is requesting shareholder approval of an amendment to
our Amended and Restated Articles of Incorporation to increase
the authorized number of shares of common stock from
150,000,000 shares to 225,000,000 shares.
The additional common stock to be authorized by adoption of the
amendment would have rights identical to the currently
outstanding common stock of Aradigm. Adoption of the proposed
amendment and issuance of the common stock would not affect the
rights of the holders of currently outstanding common stock of
Aradigm, except for effects incidental to increasing the number
of shares of common stock outstanding, such as dilution of the
earnings (loss) per share and voting rights of current holders
of common stock. If the amendment is adopted, it will become
effective upon filing of a Certificate of Amendment of our
Amended and Restated Articles of Incorporation with the
Secretary of State of the State of California.
19
In addition to the 102,381,116 shares of common stock
outstanding on December 31, 2009, the Board has reserved
5,851,628 shares for issuance upon exercise of options and
rights granted under our equity incentive plans and
3,068,880 shares granted under our Employee Stock Purchase
Plan.
The Company desires to have the shares available to provide
additional flexibility to use the Companys capital stock
for business and financial purposes in the future, such as for
an equity participation component in a partnering agreement.
However, these additional shares may be used for various
purposes without further shareholder approval. These purposes
may include: raising capital, establishing strategic
relationships with other companies, expanding the Companys
business or product lines through the acquisition of other
businesses or products, and other purposes.
We could also use the additional shares of common stock that
would become available for issuance if the proposal were adopted
to oppose a hostile takeover attempt or to delay or prevent
changes in control or management of Aradigm. For example,
without further shareholder approval, the Board could
strategically sell shares of common stock in a private
transaction to purchasers who would oppose a takeover or favor
the current Board. Although this proposal to increase the
authorized common stock has been prompted by business and
financial considerations and not by the threat of any hostile
takeover attempt (nor is the Board currently aware of any such
attempts directed at Aradigm), nevertheless, shareholders should
be aware that approval of the proposal could facilitate future
efforts by us to deter or prevent changes in control of Aradigm,
including transactions in which Aradigm might otherwise receive
a premium for their shares over then current market prices. For
more information relating to opposition of a hostile takeover
attempt or delay and prevention of changes in control or
management, please see the paragraph entitled We have
implemented certain anti-takeover provisions in the Risk
Factors section of our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009.
The affirmative vote of the holders of a majority of shares
present either in person or by proxy and entitled to vote will
be required to approve this amendment to our Amended and
Restated Articles of Incorporation. The inspector of election
will not count abstentions and broker non-votes as shares
towards the vote total for this proposal, in which case
abstentions and broker non-votes will have no effect on the
outcome of this proposal.
THE BOARD
OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board of Directors has selected
Odenberg, Ullakko, Muranishi & Co. LLP as our
independent registered public accounting firm for the fiscal
year ending December 31, 2010 and has further directed that
management submit the selection of an independent registered
public accounting firm for ratification by our shareholders at
the annual meeting. Prior to the selection of Odenberg, Ullakko,
Muranishi & Co. LLP as our independent registered
public accounting firm in April 2007, Ernst & Young
LLP had audited our financial statements, since 1995.
Representatives of Odenberg, Ullakko, Muranishi & Co.
LLP are expected to be present at the annual meeting. They will
have an opportunity to make a statement if they so desire and
will be available to respond to appropriate questions.
Neither our bylaws nor other governing documents or law require
shareholder ratification of the selection of Odenberg, Ullakko,
Muranishi & Co. LLP as our independent registered
public accounting firm. However, the Audit Committee is
submitting the selection of Odenberg, Ullakko,
Muranishi & Co. LLP to the shareholders for
ratification as a matter of good corporate practice. If the
shareholders fail to ratify the selection, the Audit Committee
will reconsider whether or not to retain that firm. Even if the
selection is ratified, the Audit Committee in its discretion may
direct the appointment of a different independent registered
public accounting firm at any time during the year if they
determine that such a change would be in the best interests of
Aradigm and its shareholders.
The affirmative votes of the holders of a majority of the shares
present in person or represented by proxy and voting at the
annual meeting (which shares voting affirmatively also
constitute a majority of the required quorum)
20
will be required to ratify the selection of Odenberg, Ullakko,
Muranishi & Co. LLP. For purposes of this vote,
abstentions and broker non-votes will not be counted for any
purpose in determining whether this matter has been approved.
Principal
Accountant Fees and Services
The following table represents aggregate fees billed to us for
fiscal years ended December 31, 2009 and 2008, by Odenberg,
Ullakko, Muranishi & Co. LLP, our independent
registered public accounting firm since April 2007. All services
described below were pre-approved by the Audit Committee.
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|
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|
|
|
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Fiscal Year Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Audit Fees(1)
|
|
$
|
230
|
|
|
$
|
271
|
|
Audit-related Fees
|
|
|
|
|
|
|
|
|
Tax Fees
|
|
|
18
|
|
|
|
46
|
|
All Other Fees
|
|
|
|
|
|
|
|
|
Total Fees
|
|
$
|
248
|
|
|
$
|
317
|
|
|
|
|
(1) |
|
Audit fees represent fees for professional services related to
the performance of the audit of our annual financial statements,
review of our quarterly financial statements and consents on SEC
filings. |
Pre-Approval
Policies and Procedures
The Audit Committee pre-approves audit services, audit-related
services and non-audit services provided by our independent
registered public accounting firm, Odenberg, Ullakko,
Muranishi & Co. LLP, and will not approve services
that the Audit Committee determines are outside the bounds of
applicable laws and regulations. Pre-approval may also be given
as part of the Audit Committees approval of the scope of
the engagement of the independent registered public accounting
firm or on an individual explicit
case-by-case
basis before the independent registered public accounting firm
is engaged to provide each service. The pre-approval of services
may be delegated to one or more of the Audit Committees
members, but the decision must be reported to the full Audit
Committee at its next scheduled meeting.
The Audit Committee has determined that the rendering of the
services, other than audit services, by Odenberg, Ullakko,
Muranishi & Co. LLP is compatible with maintaining the
principal accountants independence.
The affirmative vote from the holders of a majority of shares
present either in person or by proxy and entitled to vote will
be required to ratify the selection of Odenberg, Ullakko,
Muranishi & Co. LLP as our independent registered
public accounting firm. The inspector of election will not count
abstentions and broker non-votes as shares towards the vote
total for this proposal, in which case abstentions and broker
non-votes will have no effect on the outcome of this proposal.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
21
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of our common stock as of February 28, 2010 by:
(i) each director and nominee for director; (ii) each
of the executive officers named in the Summary Compensation
Table (provided below); (iii) all of our executive officers
and directors as a group; and (iv) all those known by us to
be beneficial owners of more than five percent of our common
stock.
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|
|
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Beneficial Ownership Common(1)
|
|
|
Number of Shares
|
|
Percent of Total (%)
|
|
First Eagle Investment Management, LLC.(2)
|
|
|
38,064,005
|
|
|
|
37.18
|
|
1345 Avenue of the Americas
New York, NY 10105
|
|
|
|
|
|
|
|
|
Igor Gonda, Ph.D.(3)
|
|
|
1,742,412
|
|
|
|
1.70
|
|
Nancy Pecota(4)
|
|
|
381,875
|
|
|
|
*
|
|
D. Jeffery Grimes(5)
|
|
|
526,224
|
|
|
|
*
|
|
Virgil D. Thompson(6)
|
|
|
463,250
|
|
|
|
*
|
|
Frank H. Barker(7)
|
|
|
373,250
|
|
|
|
*
|
|
John M. Siebert, Ph.D.(8)
|
|
|
317,750
|
|
|
|
*
|
|
All executive officers and directors as a group
(6 persons)(9)
|
|
|
3,742,645
|
|
|
|
3.72
|
|
|
|
|
* |
|
Less than one percent |
|
(1) |
|
This table is based upon information supplied by officers,
directors and principal shareholders and Forms 4 and
Schedules 13D and 13G filed with the Securities and Exchange
Commission (SEC). Unless otherwise indicated in the
footnotes to this table and subject to community property laws
where applicable, we believe that each of the shareholders named
in this table has sole voting and investment power with respect
to the shares indicated as beneficially owned. Applicable
percentages are based on 102,381,116 shares of common stock
outstanding on February 28, 2010. Unless otherwise
indicated, the address of each person on this table is
c/o Aradigm
Corporation, 3929 Point Eden Way, Hayward, California, 94545. |
|
(2) |
|
Based upon information contained in a Schedule 13G
Amendment No. 5, filed with the SEC on February 10,
2010, First Eagle Management (FEIM) (formerly
Arnhold and S. Bleichroeder Advisors, LLC), an investment
adviser registered under Section 203 of the Investment
Advisers Act of 1940, is deemed to be the beneficial owner of
38,064,005 shares or 37.18% of the Common Stock believed to
be outstanding as a result of acting as investment advisor to
various clients. Clients of FEIM have the right to receive and
the ultimate power to direct the receipt of dividends from, or
the proceeds of the sale of, such securities. First Eagle Value
in Biotechnology Master Fund, Ltd., a Cayman Islands company for
which FEIM acts as investment adviser, may be deemed to
beneficially own 19,452,141 of these 38,064,005 shares,
which equates to 19.00% of the Common Stock. In addition,
21 April Fund, Ltd., a Cayman islands company for which
FEIM acts as investment adviser, may be deemed to beneficially
own 9,870,442 of the 38,064,005 shares, which equates to
9.64% of the Common Stock. Finally, DEF Associates N.V., a
Netherlands Antilles company for which FEIM acts as investment
adviser, may be deemed to beneficially own 5,000,000 of the
38,064,005 shares, or 4.88% of the Common Stock. |
|
(3) |
|
Includes 883,644 stock options which are exercisable within
60 days of February 28, 2010. The number of shares
also includes 640,000 shares pursuant to restricted stock
awards that have not vested. Additionally, the number of shares
does not include a total of 700,000 shares that vest only
upon the occurrence of certain future events pursuant to a
restricted stock bonus agreement between Dr. Gonda and
Aradigm. |
|
(4) |
|
Includes 146,875 stock options which are exercisable within
60 days of February 28, 2010. The number of shares
also includes 217,500 shares pursuant to restricted stock
awards that have not vested. |
|
(5) |
|
Includes 181,562 stock options which are exercisable within
60 days of February 28, 2010. The number of shares
also includes 217,500 shares pursuant to restricted stock
awards that have not vested. |
|
(6) |
|
Includes 303,100 stock options which are exercisable within
60 days of February 28, 2010. The number of shares
also includes 39,063 shares pursuant to restricted stock
awards that have not vested. |
22
|
|
|
(7) |
|
Includes 239,500 stock options which are exercisable within
60 days of February 28, 2010. The number of shares
also includes 23,438 shares pursuant to restricted stock
awards that have not vested. |
|
(8) |
|
Includes 220,000 stock options which are exercisable within
60 days of February 28, 2010. The number of shares
also includes 23,438 shares pursuant to restricted stock
awards that have not vested. |
|
(9) |
|
See footnotes (3) through (8) above. |
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the 1934 Act requires our directors
and executive officers, and persons who own more than ten
percent of a registered class of our equity securities, to file
with the SEC initial reports of ownership and reports of changes
in ownership of our common stock and other equity securities.
Officers, directors and greater than ten percent shareholders
are required by SEC regulation to furnish us with copies of all
Section 16(a) forms they file.
To our knowledge, based solely on a review of the copies of such
reports furnished to us and written representations that no
other reports were required, during the fiscal year ended
December 31, 2009, all Section 16(a) filing
requirements applicable to our officers, directors and greater
than ten percent beneficial owners were complied with, other
than two Forms 4, covering two transactions, that were
filed late for Mr. Grimes.
COMPENSATION
The policies of the Compensation Committee, or the Committee,
with respect to the compensation of executive officers,
including the Chief Executive Officer, or CEO, are designed to
provide compensation sufficient to attract, motivate and retain
executives of outstanding ability and potential and to establish
an appropriate relationship between executive compensation and
the creation of shareholder value. To meet these goals, the
Committee recommends executive compensation packages to our
Board of Directors that are based on a mix of salary, bonus and
equity awards.
Overall, the Board and the Committee seek to provide total
compensation packages that are competitive in terms of total
potential value to our executives, and that are tailored to the
unique characteristics of our Company in order to create an
executive compensation program that will adequately reward our
executives for their roles in creating value for our
shareholders. The Board and the Committee intend to provide
executive compensation packages that are competitive with other
similarly situated companies in our industry. Historically, the
Board and the Committee generally weighted executives
compensation packages more heavily in favor of equity-based
compensation versus salary, as they believe performance and
equity-based compensation is important to maintain a strong link
between executive incentives and the creation of shareholder
value. The Board and the Committee believe that performance and
equity-based compensation are the most important component of
the total executive compensation package for maximizing
shareholder value while, at the same time, attracting,
motivating and retaining high-quality executives. For 2009, the
Board and the Committee continued their emphasis on equity-based
compensation. Given the Companys current financial
situation and market capitalization, the state of the equity
markets and the Companys proposed business plan, the Board
and the Committee viewed the Company as somewhat analogous to a
start-up
company and believed that a focus on equity-based compensation
was even more important as a tool to motivate the Companys
executive officers.
The Board and the Committee have reviewed this Compensation
Discussion and Analysis with the Companys management.
Benchmarking
of Compensation Practices
The Board and the Committee believe it is important when making
compensation-related decisions to be informed as to current
practices of similarly situated publicly held companies in the
life sciences industry. In late 2008, given the Board and
Committees focus on equity-based compensation, the Board
and the Committee retained a consultant to review equity-based
compensation of executives in the biotechnology industry. The
consultant prepared a study reviewing the equity-based
compensation practices of 120 publicly held small-to-medium size
biotechnology companies. In addition to this benchmarking study,
the Board and the Committee take into account
23
input from other sources, including past benchmarking studies,
and publicly available data relating to the compensation
practices and policies of other companies within and outside of
our industry.
Benchmarking studies were used primarily in making compensation
decisions for Dr. Igor Gonda, our President and Chief
Executive Officer, Ms. Nancy Pecota, our Vice President,
Finance and Chief Financial Officer, and Mr. D. Jeffery
Grimes, our Vice President, Legal Affairs, General
Counsel & Corporate Secretary. Given the
Companys operating performance and continued need for
capital, in 2010 the Board and the Committee retained total cash
compensation for these three executive officers at the same
level as paid in 2009. Based on the Board and Committees
last annual review of total cash compensation, the Board and
Committee believe these salaries are substantially equivalent to
the median cash compensation paid by comparable companies in the
life sciences industry. Consistent with the Boards and the
Committees greater emphasis on equity-based compensation,
in 2009 they sought to establish equity compensation for these
three executive officers at a level approximately equal to the
equity-based compensation paid at the
75th percentile
of comparable companies in the life sciences industry, based on
the survey conducted in late 2008.
While benchmarking may not always be appropriate as a
stand-alone tool for setting compensation due to the aspects of
our business and objectives that may be unique to us, the Board
and the Committee generally believe that gathering this
information is an important part of their compensation-related
decision-making process.
The Committee has in the past retained and may in the future
retain the services of third-party executive compensation
specialists, as the Committee sees fit, in connection with the
establishment of compensation and related policies. The
Committee did not retain the services of third-party executive
compensation specialists for establishing 2010 compensation and
related policies as these services are costly and the Company is
focused on conserving cash.
Compensation
Components
Base Salary. Generally, the Board and the
Committee believe that executive base salaries should be set
near the median of the range of salaries for executives in
similar positions and with similar responsibilities at
comparable companies. The Board and the Committee believe that
maintaining base salary amounts at or near the industry median
minimizes competitive disadvantage while conserving the
Companys cash resources and avoiding paying amounts in
excess of what they believe to be necessary to motivate
executives to meet corporate goals. Base salaries are typically
reviewed annually. In the past, management has presented the
Committee with its initial recommendations for executive salary
levels and the Committee and Board have determined whether to
adjust these base salary recommendations to realign such
salaries with median market levels after taking into account
individual responsibilities, performance, experience as well as
the benchmarking data reviewed by the Committee.
For 2009, the Board, upon recommendation of the Committee,
established base salaries for Dr. Gonda, Ms. Pecota
and Mr. Grimes of $380,000, $238,000 and $230,000,
respectively. For 2010, management recommended to the Board and
Committee that base salaries for Dr. Gonda, Ms. Pecota
and Mr. Grimes be retained at their 2009 levels. Given the
Companys financial position, management felt, and the
Board agreed, that an increase in base salary for 2010 was not
appropriate.
Annual Executive Bonus Plan.
In addition to base salaries, the Board and the Committee
believe that performance-based cash bonuses can play an
important role in providing incentives to our executives to
achieve defined annual corporate goals. Prior to or near the
beginning of each year, the Board, upon the recommendation of
the Committee, reviews the target bonus amount (defined as a set
percentage of base salary) for each executive. The target bonus
amount is set at a level that, upon achievement of 100% of the
target goals, will result in bonus payments that the Board and
the Committee believe to be at or near the median level for
target bonus amounts for comparable companies included in the
benchmark studies and that, upon achievement beyond the target
goals, can result in bonuses of up to 150% of the target bonus
amount.
The Committee also reviews a detailed set of overall corporate
performance goals (target goals) prepared by management that are
intended to apply to the executives bonus awards and, with
some distinctions, to the bonus awards for all of our other
employees. The Committee then works with management to develop
final corporate
24
performance goals that are set at a level the Committee believes
management can achieve over the next year. For each individual
corporate goal, the Committee establishes relative weights and
then sets target performance for Level 1 satisfaction (50%
of target payout for that goal), Level 2 satisfaction (100%
of target payout for that goal) and Level 3 satisfaction
(150% of target payout for that goal) of the corporate goal,
with the attainment of each specified level of performance tied
to a specific percentage payout of the target bonus amount for
that goal. The relative weights for each individual corporate
goal may be changed by the Board during the year as a result of
external and internal events and their impact upon the Company.
The goals are designed to lead to results that will maximize
shareholder value. For example, at the start of 2008, the Board
and Committee determined that the ARD-3100/3150 program (i.e.,
the Companys liposomal ciprofloxacin programs for the
treatment of infections in patients with cystic fibrosis and
bronchiectasis) and would likely drive the Companys value
in 2008 and 2009, and so in those years they weighted the goal
related to development of the ARD-3100/3150 program higher than
the other operational performance goals.
At the end of each year, the Board, upon the recommendation of
the Committee, determines the level of achievement for each
corporate goal, on a goal by goal basis, and awards credit for
the achievement of goals as a percentage of the target bonus.
Final determinations as to bonus levels are then based on the
achievement of these corporate goals, which are the same for all
executives, as well as the Boards and the Committees
assessment as to the overall success of the Company and the
development of the business.
Actual bonuses are targeted to be paid to the executives at the
end of each fiscal year and may be above or below target bonus
levels, at the discretion of the Board. While the Board and
Committee retain full discretion as to the amount, if any, of
bonus compensation paid to executives, the Committee strives to
develop corporate goals that are objective and reliably
measurable to deemphasize the need for subjective discretion.
The Board and Committee strive to limit their discretionary
authority to unusual circumstances.
Bonus payments under the annual bonus plan are contingent on
continued employment with the Company at the end of the year.
In January 2009, the Board and Committee determined the
executive team had satisfied corporate goals to a level that
would have entitled them to a payout of 60% of their target
bonus amounts. Management recommended to the Board and Committee
not to pay the executives a bonus for 2008. Management felt, and
the Board agreed, that given the Companys cash position,
the recent reduction in force and the current economic climate,
a bonus was not appropriate.
In January 2009, the Board, upon recommendation of the
Committee, established 2009 target bonus awards (as a percentage
of base salary) of 50% for Dr. Gonda and 40% for
Ms. Pecota and Mr. Grimes. For 2009, the Committee
determined the specific corporate performance goals to be
achieved for the executives bonus awards to be earned,
with a continued emphasis on the development of the
ARD-3100/3150 program.
In January 2010, the Board and Committee determined the
executive team had satisfied corporate goals to a level that
would have entitled them to a payout of 30% of their target
bonus amounts. Management recommended to the Board and Committee
not to pay the executives a bonus for 2009. Management felt, and
the Board agreed, that given the Companys cash position
and the current economic climate, a bonus was not appropriate.
In January 2010, the Board, upon recommendation of the
Committee, revised the Executive Bonus Plan to convert it from
an annual performance evaluation period to a multi-year
performance evaluation period. The Board established, upon
recommendation of the Committee, performance objectives that are
not dependent upon the objective being achieved within a fixed
time period, in order to incentivize the executives to focus on
the achievement of longer term goals that could be significant
value creation events for our shareholders. The objectives focus
on raising non-dilutive capital for the Company, partnering the
Companys programs and advancing the ARD-3100/3150 program.
The bonus will be paid upon achievement of the objective and
will be in the form of cash
and/or
restricted stock. In general, if the achievement of the
objective results in the receipt of cash by the Company then the
bonus will be paid in cash; if the achievement of the objective
is of strategic importance to the Company but does not generate
cash then the bonus will be paid in the form of restricted stock.
25
Actual bonus awards for 2010 will be determined as the
objectives are achieved and may be above or below the target
bonus levels, at the discretion of the Board and the Committee.
Equity Awards. The Board and the Committee
believe that providing a significant portion of our
executives total compensation package in stock options and
restricted stock awards aligns the incentives of our executives
with the interests of our shareholders and with our long-term
success. The Board and the Committee develop their equity award
determinations based on their judgments as to whether the
complete compensation packages provided to our executives,
including prior equity awards, are sufficient to retain,
motivate and adequately award the executives. As discussed
above, the primary component of this judgment is based on
information provided by benchmarking studies. The Board and the
Committee seek to establish equity compensation for our three
executive officers at a level approximately equal to the
equity-based compensation paid at the 75th percentile of
the companies in the surveys. Initial equity award grants are
proposed to the Committee by management and the Board and the
Committee then work with management to ensure the award grants
are at a level the Board and the Committee feel are appropriate.
We grant equity awards through our 2005 Equity Incentive Plan,
which was adopted by our Board and shareholders to permit the
grant of stock options, stock appreciation rights, restricted
shares, restricted stock units, performance shares and other
stock-based awards to our officers, directors, scientific
advisory board members, employees and consultants. All of our
employees, directors, scientific advisory board members and
consultants are eligible to participate in the 2005 Equity
Incentive Plan. The material terms of the 2005 Equity Incentive
Plan are further described in Proposal 2 of these proxy
materials. All options we grant have an exercise price equal to
the fair market value of our common stock on the date of grant.
For 2009, the Board and Committee decided to grant equity awards
as a combination of stock options and restricted stock awards.
The stock options vest quarterly over four years and the
restricted stock awards vest annually over two years. The awards
were allocated with roughly two-thirds of the target grant
amount as stock options and one-third of the target grant amount
as restricted stock. However, the Board and Committee determined
that the restricted stock awards have a higher value to the
executives, and as a rough approximation of the difference in
value the Board and Committee valued a restricted stock award
for one share as three times the value of a stock option for one
share. Accordingly, if the Board and Committee had determined to
grant an executive an award with a value equivalent to an option
of 100,000 shares of our stock, the actual allocation of
the award between stock options and restricted stock would have
resulted in the grant of a stock option of about
67,000 shares and a restricted stock award of about
11,000 shares.
In July 2009, the Committee granted Dr. Gonda,
Ms. Pecota and Mr. Grimes restricted stock awards for
600,000, 200,000 and 200,000 shares of our common stock,
respectively. These grants vest 100% on August 1, 2010. In
addition, Dr. Gonda was granted two awards of
200,000 shares each, which will vest upon achievement of
certain objectives related to the ARD-3100 program. The
Committee felt that the 2009 equity awards were necessary to
bring our executives equity compensation levels to a level
the Committee believes is necessary to retain a talented and
capable management team during a critical time period for the
ARD-3100 program.
The Committee anticipates making future equity award grants to
executives annually, subject to its discretion. The Committee
believes this award structure is consistent with our executive
compensation policies.
Severance Benefits. The Board, upon
recommendation of the Committee, previously adopted an Amended
and Restated Executive Officer Severance Plan, dated as of
December 31, 2008, and approved change of control
agreements with each of our executive officers, the terms of
which are more fully described below in the section entitled
Potential Payments Upon Termination or Change in
Control. The Board and the Committee believe these
severance and change in control benefits are an essential
element of our executive compensation package and assist us in
recruiting and retaining talented individuals. Our business is
inherently risky and the Board and the Committee believe the
severance benefits encourage our executives to take necessary
but reasonable business risks to increase shareholder value. The
Board and the Committee believe the change of control benefits
align our executives interests more greatly in favor of
corporate liquidity events that can be potentially valuable to
our shareholders. They have established these severance and
change of control benefits at levels that they feel are
comparable to benefits offered to executives in similar
positions and with similar responsibilities at comparable
companies.
26
Other Compensation. All of our executives are
eligible to participate in our employee benefit plans, including
medical, dental, life insurance and 401(k) plans. These plans
are available to all employees and do not discriminate in favor
of executive officers. It is generally our policy to not extend
significant perquisites to our executives that are not available
to our employees generally. We have no current plans to make
changes to levels of benefits and perquisites provided to
executives.
Summary
Compensation Table
The following table sets forth information regarding
compensation earned in 2009 and 2008 by the individual serving
as our principal executive officer during 2009 and our two most
highly compensated executive officers (other than our principal
executive officer) who were serving as executive officers at the
end of 2009 (these individuals are collectively referred to as
our named executive officers):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
Incentive Plan
|
|
All Other
|
|
|
|
|
|
|
Salary
|
|
Bonus
|
|
Awards(1)
|
|
Awards(1)
|
|
Compensation
|
|
Compensation
|
|
Total
|
|
|
Year
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Igor Gonda, PhD
|
|
|
2009
|
|
|
|
380,000
|
|
|
|
|
|
|
|
172,000
|
|
|
|
52,675
|
|
|
|
|
|
|
|
30,578
|
|
|
|
635,253
|
|
President and Chief
|
|
|
2008
|
|
|
|
380,000
|
|
|
|
|
|
|
|
53,002
|
|
|
|
266,197
|
|
|
|
|
|
|
|
25,101
|
|
|
|
724,300
|
|
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nancy Pecota(2)
|
|
|
2009
|
|
|
|
238,000
|
|
|
|
|
|
|
|
46,750
|
|
|
|
30,100
|
|
|
|
|
|
|
|
4,750
|
|
|
|
319,600
|
|
Vice President, Finance
|
|
|
2008
|
|
|
|
66,823
|
|
|
|
|
|
|
|
|
|
|
|
2,472
|
|
|
|
|
|
|
|
1,760
|
|
|
|
71,055
|
|
and Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D. Jeffery Grimes(3)
|
|
|
2009
|
|
|
|
230,000
|
|
|
|
|
|
|
|
46,750
|
|
|
|
30,100
|
|
|
|
|
|
|
|
14,741
|
|
|
|
321,591
|
|
Vice President, Legal
|
|
|
2008
|
|
|
|
226,716
|
|
|
|
|
|
|
|
15,464
|
|
|
|
18,358
|
|
|
|
|
|
|
|
15,233
|
|
|
|
275,771
|
|
Affairs, General Counsel and Corporate Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For 2009, amounts represent the grant date fair value of awards
and options that were issued in 2009. For 2008, the amounts
represent the expense recorded for financial reporting purposes.
See Note 7 of the financial statements included in the 2008
Annual Report on
Form 10-K
for methods and assumptions that were used to calculate expense
amounts. |
|
(2) |
|
Ms. Pecota was appointed as an officer on
September 22, 2008. |
|
(3) |
|
Mr. Grimes was appointed as an officer on July 1, 2008. |
All Other Compensation in the summary compensation table above
includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
|
|
|
|
|
|
|
|
Life
|
|
401(k)
|
|
Stock
|
|
|
|
|
|
|
|
|
Health Care
|
|
Insurance
|
|
Matching
|
|
Equity
|
|
|
|
|
|
|
|
|
Contribution
|
|
Premiums
|
|
Contributions
|
|
Incentive
|
|
All Other
|
|
Total
|
Name
|
|
Year
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Igor Gonda, Ph.D.
|
|
|
2009
|
|
|
|
18,428
|
|
|
|
2,100
|
|
|
|
8,250
|
|
|
|
1,250
|
|
|
|
|
|
|
|
30,578
|
|
|
|
|
2008
|
|
|
|
11,933
|
|
|
|
2,100
|
|
|
|
7,750
|
|
|
|
2,968
|
|
|
|
350
|
|
|
|
25,101
|
|
Nancy Pecota
|
|
|
2009
|
|
|
|
573
|
|
|
|
1,499
|
|
|
|
2,678
|
|
|
|
|
|
|
|
|
|
|
|
4,750
|
|
|
|
|
2008
|
|
|
|
287
|
|
|
|
375
|
|
|
|
1,098
|
|
|
|
|
|
|
|
|
|
|
|
1,760
|
|
D. Jeffery Grimes
|
|
|
2009
|
|
|
|
5,433
|
|
|
|
1,449
|
|
|
|
6,209
|
|
|
|
1,250
|
|
|
|
|
|
|
|
14,741
|
|
|
|
|
2008
|
|
|
|
3,048
|
|
|
|
1,281
|
|
|
|
6,567
|
|
|
|
3,987
|
|
|
|
350
|
|
|
|
15,233
|
|
27
2009
Grants of Plan-Based Award
The following table sets forth information regarding plan-based
awards to our named executive officers in 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
|
|
|
Grant
|
|
|
|
|
|
|
|
|
|
Estimated Future
|
|
|
Estimated Future
|
|
|
Awards:
|
|
|
Exercise
|
|
|
Date Fair
|
|
|
|
|
|
|
|
|
|
Payouts Under Non-
|
|
|
Payouts Under
|
|
|
Number of
|
|
|
or Base
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
Equity Incentive
|
|
|
Equity Incentive
|
|
|
Securities
|
|
|
Price of
|
|
|
Stock and
|
|
|
|
|
|
|
|
|
|
Plan Awards(1)
|
|
|
Plan Awards
|
|
|
Underlying
|
|
|
Option
|
|
|
Option
|
|
|
|
Grant
|
|
|
Approval
|
|
|
Target
|
|
|
Maximum
|
|
|
Target
|
|
|
Maximum
|
|
|
Options
|
|
|
Awards
|
|
|
Awards(2)
|
|
Name
|
|
Date
|
|
|
Date
|
|
|
($)
|
|
|
($)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
($/sh)
|
|
|
($)
|
|
|
Igor Gonda, Ph.D.
|
|
|
7/30/2009
|
|
|
|
7/30/2009
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400,000
|
|
|
|
0.00
|
|
|
|
38,000
|
|
|
|
|
7/30/2009
|
|
|
|
7/30/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600,000
|
|
|
|
0.00
|
|
|
|
114,000
|
|
|
|
|
1/21/2009
|
|
|
|
1/21/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000
|
|
|
|
0.00
|
|
|
|
20,000
|
|
|
|
|
1/21/2009
|
|
|
|
1/21/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350,000
|
|
|
|
0.25
|
|
|
|
52,675
|
|
|
|
|
1/1/2009
|
|
|
|
1/1/2009
|
|
|
|
190,000
|
|
|
|
285,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nancy Pecota
|
|
|
7/30/2009
|
|
|
|
7/30/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
0.00
|
|
|
|
38,000
|
|
|
|
|
1/21/2009
|
|
|
|
1/21/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,000
|
|
|
|
0.00
|
|
|
|
8,750
|
|
|
|
|
1/21/2009
|
|
|
|
1/21/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
0.25
|
|
|
|
30,100
|
|
|
|
|
1/1/2009
|
|
|
|
1/1/2009
|
|
|
|
95,200
|
|
|
|
142,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D. Jeffery Grimes
|
|
|
7/30/2009
|
|
|
|
7/30/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
0.00
|
|
|
|
38,000
|
|
|
|
|
1/21/2009
|
|
|
|
1/21/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,000
|
|
|
|
0.00
|
|
|
|
8,750
|
|
|
|
|
1/21/2009
|
|
|
|
1/21/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
0.25
|
|
|
|
30,100
|
|
|
|
|
1/1/2009
|
|
|
|
1/1/2009
|
|
|
|
92,000
|
|
|
|
138,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reflects each executive officers participation in our 2009
Executive Bonus Plan. The amount of bonus actually earned by
each executive officer was zero, as indicated in the summary
compensation table above. |
|
(2) |
|
The method of and assumptions used to calculate the value of
stock and option awards granted to our named executive officers
is discussed in Note 10 of the notes to our financial
statements included in our 2009 Annual Report on
Form 10-K. |
|
(3) |
|
Represents performance based stock awards that vest only if
certain milestones are achieved by a specified date. |
28
Outstanding
Equity Awards at December 31, 2009
The following table provides information regarding each
unexercised stock equity award held by each of our named
executive officers as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned
|
|
|
Market or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares, Units
|
|
|
Payout Value of
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
or Other
|
|
|
Unearned Shares,
|
|
|
|
|
|
|
Underlying Unexercised
|
|
|
Option
|
|
|
|
|
|
Rights That
|
|
|
Units or Other
|
|
|
|
|
|
|
Options
|
|
|
Exercise
|
|
|
Option
|
|
|
Have Not
|
|
|
Rights That
|
|
|
|
|
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Price(1)
|
|
|
Expiration
|
|
|
Vested
|
|
|
Have Not Vested
|
|
Name
|
|
|
|
|
(#)
|
|
|
(#)
|
|
|
($)
|
|
|
Date
|
|
|
(#)
|
|
|
($)
|
|
|
Igor Gonda, Ph.D.
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400,000
|
|
|
|
56,000
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600,000
|
|
|
|
84,000
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000
|
|
|
|
11,200
|
|
|
|
|
(2
|
)
|
|
|
65,625
|
|
|
|
284,375
|
|
|
|
0.25
|
|
|
|
1/21/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
1.60
|
|
|
|
12/04/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
|
|
42,000
|
|
|
|
|
(4
|
)
|
|
|
416,666
|
|
|
|
83,334
|
|
|
|
1.87
|
|
|
|
08/10/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
|
|
|
|
1.52
|
|
|
|
05/18/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
|
|
|
|
5.30
|
|
|
|
05/19/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
|
|
|
|
5.30
|
|
|
|
05/20/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
5.30
|
|
|
|
05/13/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
|
|
|
|
6.50
|
|
|
|
05/15/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
|
|
|
|
4.75
|
|
|
|
02/19/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
17.25
|
|
|
|
05/21/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
|
|
|
|
17.15
|
|
|
|
05/17/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
|
|
|
|
|
|
24.10
|
|
|
|
02/11/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500
|
|
|
|
|
|
|
|
17.20
|
|
|
|
09/20/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,312
|
|
|
|
|
|
|
|
30.00
|
|
|
|
03/15/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,875
|
|
|
|
|
|
|
|
107.81
|
|
|
|
09/22/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,624
|
|
|
|
|
|
|
|
112.50
|
|
|
|
02/15/2010
|
|
|
|
|
|
|
|
|
|
Nancy Pecota
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
28,000
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,000
|
|
|
|
4,900
|
|
|
|
|
(2
|
)
|
|
|
37,500
|
|
|
|
162,500
|
|
|
|
0.25
|
|
|
|
1/21/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
70,312
|
|
|
|
154,688
|
|
|
|
0.39
|
|
|
|
09/30/2018
|
|
|
|
|
|
|
|
|
|
D. Jeffery Grimes
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
28,000
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,000
|
|
|
|
4,900
|
|
|
|
|
(2
|
)
|
|
|
37,500
|
|
|
|
162,500
|
|
|
|
0.25
|
|
|
|
1/21/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
70,312
|
|
|
|
154,688
|
|
|
|
0.80
|
|
|
|
07/01/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
18,750
|
|
|
|
11,250
|
|
|
|
1.37
|
|
|
|
06/20/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the fair market value of a share of our common stock
on the grant date of the option. |
|
(2) |
|
The option vests over four years with 1/16 of the shares of
underlying common stock vesting every three months from the
grant date. |
|
(3) |
|
The restricted stock award vests in full if within four years
following the grant of the award the company achieves certain
product and product-pipeline development milestones. |
|
(4) |
|
The option vests over four years with 1/4 of the shares of
underlying common stock vesting on the first anniversary of the
grant date and 1/48 of the shares of underlying common stock
vesting each month thereafter. |
29
|
|
|
(5) |
|
The option vests over four years with 1/4 of the shares of
underlying common stock vesting on the first anniversary of the
grant date and 1/16 of the shares of underlying common stock
vesting every three months thereafter. |
|
(6) |
|
Each restricted stock award will vest 1/2 of the shares on the
first anniversary of the grant date and 1/2 of the shares on the
second anniversary of the grant date. |
|
(7) |
|
Each restricted stock award will vest on August 1, 2010. |
|
(8) |
|
These restricted stock awards vest in full if within one year
following the grant of the award the company achieves certain
product development milestones. |
2009
Option Exercises and Stock Vested
None of our named executive officers exercised options.
Mr. Grimes had 30,000 shares of restricted stock
awards vest in 2009.
Pension
Benefits
None of our named executive officers participate in or have
account balances in qualified or non-qualified defined benefit
plans sponsored by us. The Committee may elect to adopt
qualified or non-qualified defined benefit plans in the future
if the Committee determines that doing so is in our best
interests.
Nonqualified
Deferred Compensation
None of our named executive officers participate in or have
account balances in nonqualified defined contribution plans or
other nonqualified deferred compensation plans maintained by us.
The Committee may elect to provide our officers and other
employees with non-qualified defined contribution or other
nonqualified deferred compensation benefits in the future if the
Committee determines that doing so is in our best interests.
30
Potential
Payments Upon Termination or Change in Control
The following table sets forth potential payments payable to our
current executive officers upon termination of employment or a
change in control. The Committee may in its discretion revise,
amend or add to the benefits if it deems advisable. The table
below reflects amounts payable to our executive officers
assuming their employment was terminated on December 31,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
Without
|
|
|
|
|
|
|
|
|
|
|
|
Cause or
|
|
|
|
|
|
|
|
|
|
|
|
Constructive
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
Termination Without
|
|
|
|
|
|
Following a
|
|
|
|
|
|
Cause Prior to a
|
|
|
Change in
|
|
|
Change
|
|
|
|
|
|
Change in Control
|
|
|
Control
|
|
|
in Control
|
|
Name
|
|
Benefit
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Igor Gonda, Ph.D.
|
|
Salary
|
|
|
380,000
|
|
|
|
|
|
|
|
760,000
|
|
|
|
Bonus
|
|
|
125,020
|
|
|
|
|
|
|
|
250,040
|
|
|
|
Option acceleration(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock award acceleration(1)
|
|
|
|
|
|
|
42,000
|
|
|
|
193,200
|
|
|
|
Benefits continuation
|
|
|
20,563
|
|
|
|
|
|
|
|
41,126
|
|
|
|
Career transition assistance
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total value:
|
|
|
525,583
|
|
|
|
42,000
|
|
|
|
1,264,366
|
|
Nancy Pecota
|
|
Salary
|
|
|
238,000
|
|
|
|
|
|
|
|
238,000
|
|
|
|
Bonus
|
|
|
62,642
|
|
|
|
|
|
|
|
62,642
|
|
|
|
Option acceleration(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock award acceleration(1)
|
|
|
|
|
|
|
|
|
|
|
32,900
|
|
|
|
Benefits continuation
|
|
|
716
|
|
|
|
|
|
|
|
716
|
|
|
|
Career transition assistance
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total value:
|
|
|
301,358
|
|
|
|
|
|
|
|
344,258
|
|
D. Jeffery Grimes
|
|
Salary
|
|
|
230,000
|
|
|
|
|
|
|
|
230,000
|
|
|
|
Bonus
|
|
|
60,536
|
|
|
|
|
|
|
|
60,536
|
|
|
|
Option acceleration(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock award acceleration(1)
|
|
|
|
|
|
|
|
|
|
|
32,900
|
|
|
|
Benefits continuation
|
|
|
6,416
|
|
|
|
|
|
|
|
6,416
|
|
|
|
Career transition assistance
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total value:
|
|
|
296,952
|
|
|
|
|
|
|
|
339,852
|
|
|
|
|
(1) |
|
The value of the stock and option award acceleration was
calculated using a value of $0.14 per share of common stock,
which was the last reported closing sale price of our common
stock on December 31, 2009. |
Termination without cause prior to a change in
control. If any of our executives is terminated
by us without cause prior to a change in control, upon executing
a general release and waiver, such executive is entitled to
receive (less applicable withholding taxes) in a lump sum
payment or in installments, at our discretion:
|
|
|
|
|
an amount equal to such executives annual base salary;
|
|
|
|
an amount equal to such executives current target bonus
multiplied by the average annual percentage achievement of
corporate goals for the three complete fiscal years preceding
the termination date; and
|
|
|
|
continuation of such executives health insurance benefits
for 12 months.
|
Acceleration upon a change in control. If we
undergo a change in control on or prior to December 4,
2010, the 300,000 share restricted stock award granted to
Dr. Gonda will vest in full.
31
Termination without cause or constructive termination
following a change in control. If any of our
executives is terminated by us without cause or constructively
terminated (which includes a material reduction in title or
duties, a material reduction in salary or benefits or a
relocation of 50 miles or more) during the
18-month
period following a change in control, upon executing a general
release and waiver, such executive is entitled to receive (less
applicable withholding taxes):
|
|
|
|
|
a lump sum payment equal to twice such executives annual
base salary, in the case of Dr. Gonda, and such
executives annual base salary, in the case of
Ms. Pecota and Mr. Grimes;
|
|
|
|
a lump sum payment equal to such executives current target
bonus multiplied by (i) twice the average annual percentage
achievement of corporate goals for the three complete fiscal
years preceding the termination date, in the case of
Dr. Gonda, and (ii) the average annual percentage
achievement of corporate goals for the three complete fiscal
years preceding the termination date, in the case of
Ms. Pecota and Mr. Grimes;
|
|
|
|
continuation of such executives health insurance benefits
for 24 months, in the case of Dr. Gonda, and
12 months, in the case of Ms. Pecota and
Mr. Grimes;
|
|
|
|
reimbursement of actual career transition assistance
(outplacement services) incurred by such executive within six
months of termination in an amount up to $20,000, in the case of
Dr. Gonda, and $10,000, in the case of Ms. Pecota and
Mr. Grimes; and
|
|
|
|
acceleration of vesting of any stock options or restricted stock
awards that remain unvested as of the date of such
executives termination.
|
Compensation
Committee Interlocks and Insider Participation
No interlocking relationship exists between our Board or the
Committee and the board of directors or the compensation
committee of any other company, nor has any such interlocking
relationship existed in the past.
Report of
the Compensation Committee
The Committee reviewed and discussed with management the
Compensation Discussion and Analysis required by
Item 402(b) of
Regulation S-K,
which is contained in this Proxy Statement. Based on this review
and discussion, the Committee recommended to the Board that the
Compensation Discussion and Analysis be included in this Proxy
Statement.
From the members of the Compensation Committee of Aradigm
Corporation:
Frank H. Barker
John M. Siebert
Virgil D. Thompson, Chairman
Non-Employee
Director Compensation
The following table sets forth a summary of the compensation we
paid to our non-employee directors in 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
|
Option
|
|
|
Restricted Stock
|
|
|
|
|
|
|
Paid in Cash
|
|
|
Awards(1)
|
|
|
Awards(1)
|
|
|
Total
|
|
Name
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Frank H. Barker(2)
|
|
|
49,941
|
|
|
|
19,940
|
|
|
|
15,000
|
|
|
|
84,881
|
|
Timothy P. Lynch(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John M. Siebert(4)
|
|
|
54,072
|
|
|
|
19,940
|
|
|
|
15,000
|
|
|
|
89,012
|
|
Virgil D. Thompson(5)
|
|
|
68,875
|
|
|
|
19,940
|
|
|
|
25,000
|
|
|
|
113,815
|
|
|
|
|
(1) |
|
Amount represents the grant date fair value of options and
restricted stock awards granted in 2009. |
32
|
|
|
(2) |
|
Mr. Barker owns stock options for 292,136 shares of
our common stock as of December 31, 2009, of which
192,136 shares are vested as of December 31, 2009. In
addition, Mr. Barker owns 46,876 restricted stock awards at
December 31, 2009, none of which has vested. |
|
(3) |
|
Mr. Lynch resigned from the Board on February 17,
2009. He did not receive any compensation from Aradigm in 2009. |
|
(4) |
|
Dr. Siebert owns stock options for 270,000 shares of
our common stock as of December 31, 2009, of which
170,000 shares are vested as of December 31, 2009. In
addition, Dr. Siebert owns 46,876 restricted stock awards
at December 31, 2009, none of which has vested. |
|
(5) |
|
Mr. Thompson owns stock options for 354,600 shares of
our common stock as of December 31, 2009, of which
254,600 shares are vested as of December 31, 2009. In
addition, Mr. Thompson owns 78,126 restricted stock awards
at December 31, 2009, none of which has vested. |
In 2010, the Chairman of the Board will receive an annual
retainer in the value of $50,000 and all other non-employee
directors will receive an annual retainer in the value of
$30,000. The retainers may be paid in cash or an equivalent
value of restricted stock at the option of the director. Board
members also receive additional annual retainers for serving on
Board committees. The additional annual retainer for the
Chairman of the Audit Committee will be $15,000 and the
additional annual retainer for all other members of the Audit
Committee will be $5,000. The additional annual retainer for the
Chairman of the Compensation Committee and the Chairman of the
Nominating and Corporate Governance Committee will be $10,000
and the additional annual retainer for all other members will be
$5,000. The Board retainer covers six meetings in a year and, if
exceeded, the Chairman of the Board will receive $1,500 for each
additional meeting and the other Board members will receive
$1,000 for each additional meeting. If the number of meetings in
a year for any given committee exceeds four, the chairman of the
committee will receive $1,500 for each additional meeting and
the other committee members will receive $1,000 for each
additional meeting. Our directors are also entitled to receive
reimbursement of reasonable
out-of-pocket
expenses incurred by them to attend Board meetings.
In addition to the cash and restricted stock compensation, each
non-employee director will be granted an annual stock option
grant.
Limitation
of Liability of Officers and Directors and
Indemnification
Our articles of incorporation and bylaws include provisions to
(i) eliminate the personal liability of our directors for
monetary damages resulting from breaches of their fiduciary
duty, to the extent permitted by California law and
(ii) permit us to indemnify our directors and officers,
employees and other agents to the fullest extent permitted by
the California Corporations Code. Pursuant to Section 317
of the California Corporations Code, a corporation generally has
the power to indemnify its present and former directors,
officers, employees and agents against any expenses incurred by
them in connection with any suit to which they are, or are
threatened to be made, a party by reason of their serving in
such positions so long as they acted in good faith and in a
manner they reasonably believed to be in, or not opposed to, the
best interests of a corporation and, with respect to any
criminal action, they had no reasonable cause to believe their
conduct was unlawful. We believe that these provisions are
necessary to attract and retain qualified persons as directors
and officers. These provisions do not eliminate liability for
breach of the directors duty of loyalty to us or our
shareholders, for acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law,
for any transaction from which the director derived an improper
personal benefit or for any willful or negligent payment of any
unlawful dividend.
We entered into indemnification agreements with certain
officers, including each of our named executive officers, and
each of our directors that provide, among other things, that we
will indemnify such officer or director, under the circumstances
and to the extent provided for therein, for expenses, damages,
judgments, fines and settlements such officer or director may be
required to pay in actions or proceedings to which such officer
or director is or may be made a party by reason of such
officers or directors position as an officer,
director or other agent of us, and otherwise to the full extent
permitted under California law and our bylaws.
33
CERTAIN
TRANSACTIONS
Review,
Approval or Ratification of Transactions with Related
Persons
The Board has adopted, in writing, a policy and procedures for
the review of related person transactions. Any related person
transaction we propose to enter into must be reported to our
Chief Financial Officer or our Vice President of Legal Affairs
and, unless otherwise reviewed and approved by the Board, shall
be reviewed and approved by the Audit Committee in accordance
with the terms of the policy, prior to effectiveness or
consummation of any related person transaction, whenever
practicable. The policy defines a related person
transaction as any financial transaction, arrangement or
relationship (including any indebtedness or guarantee of
indebtedness), or any series of similar transactions,
arrangements or relationships in which Aradigm (i) was or
is to be a participant, (ii) the amount involved exceeds
$120,000 and (iii) a Related Person (as defined therein)
had or will have a direct or indirect material interest. In
addition, any related person transaction previously approved by
the Audit Committee or otherwise already existing that is
ongoing in nature shall be reviewed by the Audit Committee
annually to ensure that such related person transaction has been
conducted in accordance with the previous approval granted by
the Audit Committee, if any, and that all required disclosures
regarding the related person transaction are made. Transactions
involving compensation of executive officers shall be reviewed
and approved by the Compensation Committee in the manner
specified in the charter of the Compensation Committee. As
appropriate for the circumstances, the Audit Committee shall
review and consider the Related Persons interest in the
related person transaction, the approximate dollar value of the
amount involved in the related person transaction, the
approximate dollar value of the amount of the Related
Persons interest in the transaction without regard to the
amount of any profit or loss, whether the transaction was
undertaken in the ordinary course of business, whether the
transaction with the Related Person is proposed to be, or was,
entered into on terms no less favorable to the Company than
terms that could have been reached with an unrelated third
party, the purpose of, and the potential benefits to us of the
transaction and any other information regarding the related
person transaction or the Related Person in the context of the
proposed transaction that would be material to investors in
light of the circumstances of the particular transaction.
HOUSEHOLDING
OF PROXY MATERIALS
The SEC has adopted rules that permit companies and
intermediaries (e.g., brokers) to satisfy the delivery
requirements for proxy statements and annual reports with
respect to two or more shareholders sharing the same address by
delivering a single proxy statement and annual report addressed
to those shareholders. This process, which is commonly referred
to as householding, potentially means extra
convenience for shareholders and cost savings for companies.
This year, a number of brokers with account holders who are our
shareholders will be householding our proxy
materials. A single proxy statement will be delivered to
multiple shareholders sharing an address unless contrary
instructions have been received from the affected shareholders.
Once you have received notice from your broker that they will be
householding communications to your address,
householding will continue until you are notified
otherwise or until you revoke your consent. If, at any time, you
no longer wish to participate in householding and
would prefer to receive a separate proxy statement and annual
report, please notify your broker, direct your written request
to Aradigm Corporation, Secretary, 3929 Point Eden Way, Hayward,
CA 94545 or contact our Secretary at
(510) 265-9000.
Shareholders who currently receive multiple copies of the proxy
statement at their address and would like to request
householding of their communications should contact
their broker.
34
OTHER
MATTERS
The Board of Directors knows of no other matters that will be
presented for consideration at the annual meeting. If any other
matters are properly brought before the meeting, it is the
intention of the persons named in the accompanying proxy to vote
on such matters in accordance with their best judgment.
By Order of the Board of Directors
Igor Gonda, Ph.D.
President and Chief Executive Officer
April 9, 2010
A copy of our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009 is available
without charge upon written request to: Secretary, Aradigm
Corporation, 3929 Point Eden Way, Hayward, CA 94545. Copies
may also be obtained without charge through the SECs
website at
http://www.sec.gov.
35
Appendix A
ARADIGM
CORPORATION
2005 Equity Incentive Plan
Adopted: March 21, 2005
Approved By Shareholders: May 19, 2005
Termination Date: March 20, 2015
Amended by Board (including to reflect January 2006
1-for-5
reverse stock split): March 30, 2006
Approved By Shareholders: May 18, 2006
Approved by Shareholders: June 20, 2007
Approved by Shareholders: May 15, 2008
Amended by Board: March 17, 2010
(a) Amendment and Restatement. The Plan
is a complete amendment and restatement of the Companys
1996 Equity Incentive Plan that was previously adopted in April
1996 (as thereafter amended, the Prior Plan). All
outstanding awards granted under the Prior Plan shall remain
subject to the terms of the Prior Plan. All Stock Awards granted
on or after the effective date of this Plan shall be subject to
the terms of this Plan.
(b) Eligible Stock Award Recipients. The
persons eligible to receive Stock Awards are Employees,
Directors and Consultants.
(c) Available Stock Awards. The Plan
provides for the grant of the following Stock Awards:
(i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) Stock Purchase Awards, (iv) Stock Bonus
Awards, (v) Stock Appreciation Rights, (vi) Stock Unit
Awards and (vii) Other Stock Awards.
(d) General Purpose. The Company, by
means of the Plan, seeks to secure and retain the services of
the group of persons eligible to receive Stock Awards as set
forth in Section 1(a), to provide incentives for such
persons to exert maximum efforts for the success of the Company
and any Affiliate and to provide a means by which such eligible
recipients may be given an opportunity to benefit from increases
in value of the Common Stock through the granting of Stock
Awards.
As used in the Plan, the following definitions shall apply to
the capitalized terms indicated below:
(a) Affiliate means (i) any
corporation (other than the Company) in an unbroken chain of
corporations ending with the Company, provided each corporation
in the unbroken chain (other than the Company) owns, at the time
of the determination, stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock
in one of the other corporations in such chain, and
(ii) any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company,
provided each corporation (other than the last corporation) in
the unbroken chain owns, at the time of the determination, stock
possessing fifty percent (50%) or more of the total combined
voting power of all classes of stock in one of the other
corporations in such chain. The Board shall have the authority
to determine (i) the time or times at which the ownership
tests are applied, and (ii) whether Affiliate
includes entities other than corporations within the foregoing
definition.
(b) Board means the Board of Directors
of the Company.
(c) Capitalization Adjustment has the
meaning ascribed to that term in Section 11(a).
(d) Cause means, with respect to a
Participant, the occurrence of any of the following:
(i) such Participants commission of any felony or any
crime involving fraud, dishonesty or moral turpitude under the
laws of the United States or any state thereof; (ii) such
Participants attempted commission of, or participation in,
a fraud or act of dishonesty against the Company;
(iii) such Participants intentional, material
violation of
A-1
any material contract or agreement between the Participant and
the Company or any statutory duty owed to the Company;
(iv) such Participants unauthorized use or disclosure
of the Companys confidential information or trade secrets;
or (v) such Participants gross misconduct. The
determination that a termination is for Cause shall be made by
the Company in its sole discretion. Any determination by the
Company that the Continuous Service of a Participant was
terminated by reason of dismissal without Cause for the purposes
of outstanding Stock Awards held by such Participant shall have
no effect upon any determination of the rights or obligations of
the Company or such Participant for any other purpose.
(e) Change in Control means the
occurrence, in a single transaction or in a series of related
transactions, of any one or more of the following events:
(i) any Exchange Act Person becomes the Owner, directly or
indirectly, of securities of the Company representing more than
fifty percent (50%) of the combined voting power of the
Companys then outstanding securities other than by virtue
of a merger, consolidation or similar transaction.
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur (A) on account of the acquisition of
securities of the Company by an investor, any affiliate thereof
or any other Exchange Act Person from the Company in a
transaction or series of related transactions the primary
purpose of which is to obtain financing for the Company through
the issuance of equity securities or (B) solely because the
level of Ownership held by any Exchange Act Person (the
Subject Person) exceeds the designated
percentage threshold of the outstanding voting securities as a
result of a repurchase or other acquisition of voting securities
by the Company reducing the number of shares outstanding,
provided that if a Change in Control would occur (but for the
operation of this sentence) as a result of the acquisition of
voting securities by the Company, and after such share
acquisition, the Subject Person becomes the Owner of any
additional voting securities that, assuming the repurchase or
other acquisition had not occurred, increases the percentage of
the then outstanding voting securities Owned by the Subject
Person over the designated percentage threshold, then a Change
in Control shall be deemed to occur;
(ii) there is consummated a merger, consolidation or
similar transaction involving (directly or indirectly) the
Company and, immediately after the consummation of such merger,
consolidation or similar transaction, the shareholders of the
Company immediately prior thereto do not Own, directly or
indirectly, either (A) outstanding voting securities
representing more than fifty percent (50%) of the combined
outstanding voting power of the surviving Entity in such merger,
consolidation or similar transaction or (B) more than fifty
percent (50%) of the combined outstanding voting power of the
parent of the surviving Entity in such merger, consolidation or
similar transaction, in each case in substantially the same
proportions as their Ownership of the outstanding voting
securities of the Company immediately prior to such transaction;
(iii) the shareholders of the Company approve or the Board
approves a plan of complete dissolution or liquidation of the
Company, or a complete dissolution or liquidation of the Company
shall otherwise occur;
(iv) there is consummated a sale, lease, exclusive license
or other disposition of all or substantially all of the
consolidated assets of the Company and its Subsidiaries, other
than a sale, lease, license or other disposition of all or
substantially all of the consolidated assets of the Company and
its Subsidiaries to an Entity, more than fifty percent (50%) of
the combined voting power of the voting securities of which are
Owned by shareholders of the Company in substantially the same
proportions as their Ownership of the outstanding voting
securities of the Company immediately prior to such sale, lease,
license or other disposition; or
(v) individuals who, on the date this Plan is adopted by
the Board, are members of the Board (the Incumbent
Board) cease for any reason to constitute at least
a majority of the members of the Board; provided, however, that
if the appointment or election (or nomination for election) of
any new Board member was approved or recommended by a majority
vote of the members of the Incumbent Board then still in office,
such new member shall, for purposes of this Plan, be considered
as a member of the Incumbent Board.
A-2
The term Change in Control shall not include a sale of assets,
merger or other transaction effected exclusively for the purpose
of changing the domicile of the Company.
Notwithstanding the foregoing or any other provision of this
Plan, the definition of Change in Control (or any analogous
term) in an individual written agreement between the Company or
any Affiliate and the Participant shall supersede the foregoing
definition with respect to Stock Awards subject to such
agreement; provided, however, that if no definition of Change in
Control or any analogous term is set forth in such an individual
written agreement, the foregoing definition shall apply.
(f) Code means the Internal Revenue Code
of 1986, as amended.
(g) Committee means a committee of one
(1) or more members of the Board to whom authority has been
delegated by the Board in accordance with Section 3(c).
(h) Common Stock means the common stock
of the Company.
(i) Company means Aradigm Corporation, a
California corporation.
(j) Consultant means any person,
including an advisor, who is (i) engaged by the Company or
an Affiliate to render consulting or advisory services and is
compensated for such services or (ii) serving as a member
of the Board of Directors of an Affiliate and is compensated for
such services. However, service solely as a Director, or payment
of a fee for such service, shall not cause a Director to be
considered a Consultant for purposes of the Plan.
(k) Continuous Service means that the
Participants service with the Company or an Affiliate,
whether as an Employee, Director or Consultant, is not
interrupted or terminated. A change in the capacity in which the
Participant renders service to the Company or an Affiliate as an
Employee, Consultant or Director or a change in the entity for
which the Participant renders such service, provided that there
is no interruption or termination of the Participants
service with the Company or an Affiliate, shall not terminate a
Participants Continuous Service. For example, a change in
status from an employee of the Company to a consultant to an
Affiliate or to a Director shall not constitute an interruption
of Continuous Service. To the extent permitted by law, the Board
or the chief executive officer of the Company, in that
partys sole discretion, may determine whether Continuous
Service shall be considered interrupted in the case of any leave
of absence approved by that party, including sick leave,
military leave or any other personal leave. Notwithstanding the
foregoing, a leave of absence shall be treated as Continuous
Service for purposes of vesting in a Stock Award only to such
extent as may be provided in the Companys leave of absence
policy or in the written terms of the Participants leave
of absence.
(l) Corporate Transaction means the
occurrence, in a single transaction or in a series of related
transactions, of any one or more of the following events:
(i) a sale or other disposition of all or substantially
all, as determined by the Board in its sole discretion, of the
consolidated assets of the Company and its Subsidiaries;
(ii) a sale or other disposition of at least ninety percent
(90%) of the outstanding securities of the Company;
(iii) the consummation of a merger, consolidation or
similar transaction following which the Company is not the
surviving corporation; or
(iv) the consummation of a merger, consolidation or similar
transaction following which the Company is the surviving
corporation but the shares of Common Stock outstanding
immediately preceding the merger, consolidation or similar
transaction are converted or exchanged by virtue of the merger,
consolidation or similar transaction into other property,
whether in the form of securities, cash or otherwise.
(m) Covered Employee means the chief
executive officer and the four (4) other highest
compensated officers of the Company for whom total compensation
is required to be reported to shareholders under the Exchange
Act, as determined for purposes of Section 162(m) of the
Code.
A-3
(n) Director means a member of the Board.
(o) Disability means the permanent and
total disability of a person within the meaning of
Section 22(e)(3) of the Code.
(p) Employee means any person employed
by the Company or an Affiliate. However, service solely as a
Director, or payment of a fee for such services, shall not cause
a Director to be considered an Employee for purposes
of the Plan.
(q) Entity means a corporation,
partnership or other entity.
(r) Exchange Act means the Securities
Exchange Act of 1934, as amended.
(s) Exchange Act Person means any
natural person, Entity or group (within the meaning
of Section 13(d) or 14(d) of the Exchange Act), except that
Exchange Act Person shall not include (i) the
Company or any Subsidiary of the Company, (ii) any employee
benefit plan of the Company or any Subsidiary of the Company or
any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any Subsidiary of the
Company, (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities,
(iv) an Entity Owned, directly or indirectly, by the
shareholders of the Company in substantially the same
proportions as their Ownership of stock of the Company; or
(v) any natural person, Entity or group (within
the meaning of Section 13(d) or 14(d) of the Exchange Act)
that, as of the effective date of the Plan as set forth in
Section 14, is the Owner, directly or indirectly, of
securities of the Company representing more than fifty percent
(50%) of the combined voting power of the Companys then
outstanding securities.
(t) Fair Market Value means, as of any
date, the value of the Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq
SmallCap Market, the Fair Market Value of a share of Common
Stock shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest
volume of trading in the Common Stock) on the date in question,
as reported in The Wall Street Journal or such other source as
the Board deems reliable. Unless otherwise provided by the
Board, if there is no closing sales price (or closing bid if no
sales were reported) for the Common Stock on the date in
question, then the Fair Market Value shall be the closing
selling price (or closing bid if no sales were reported) on the
last preceding date for which such quotation exists.
(ii) In the absence of such markets for the Common Stock,
the Fair Market Value shall be determined by the Board in good
faith.
(u) Incentive Stock Option means an
Option intended to qualify as an incentive stock option within
the meaning of Section 422 of the Code and the regulations
promulgated thereunder.
(v) Non-Employee Director means a
Director who either (i) is not a current employee or
officer of the Company or an Affiliate, does not receive
compensation, either directly or indirectly, from the Company or
an Affiliate for services rendered as a consultant or in any
capacity other than as a Director (except for an amount as to
which disclosure would not be required under Item 404(a) of
Regulation S-K
promulgated pursuant to the Securities Act
(Regulation S-K)),
does not possess an interest in any other transaction for which
disclosure would be required under Item 404(a) of
Regulation S-K,
and is not engaged in a business relationship for which
disclosure would be required pursuant to Item 404(b) of
Regulation S-K;
or (ii) is otherwise considered a non-employee
director for purposes of
Rule 16b-3.
(w) Nonstatutory Stock Option means an
Option not intended to qualify as an Incentive Stock Option.
(x) Officer means a person who is an
officer of the Company within the meaning of Section 16 of
the Exchange Act and the rules and regulations promulgated
thereunder.
(y) Option means an Incentive Stock
Option or a Nonstatutory Stock Option to purchase shares of
Common Stock granted pursuant to the Plan.
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(z) Option Agreement means a written
agreement between the Company and an Optionholder evidencing the
terms and conditions of an Option grant. Each Option Agreement
shall be subject to the terms and conditions of the Plan.
(aa) Optionholder means a person to whom
an Option is granted pursuant to the Plan or, if applicable,
such other person who holds an outstanding Option.
(bb) Other Stock Award means an award
based in whole or in part by reference to the Common Stock which
is granted pursuant to the terms and conditions of
Section 7(e).
(cc) Other Stock Award Agreement means a
written agreement between the Company and a holder of an Other
Stock Award evidencing the terms and conditions of an Other
Stock Award grant. Each Other Stock Award Agreement shall be
subject to the terms and conditions of the Plan.
(dd) Outside Director means a Director
who either (i) is not a current employee of the Company or
an affiliated corporation (within the meaning of
Treasury Regulations promulgated under Section 162(m) of
the Code), is not a former employee of the Company or an
affiliated corporation who receives compensation for
prior services (other than benefits under a tax-qualified
retirement plan) during the taxable year, has not been an
officer of the Company or an affiliated corporation,
and does not receive remuneration from the Company or an
affiliated corporation, either directly or
indirectly, in any capacity other than as a Director, or
(ii) is otherwise considered an outside
director for purposes of Section 162(m) of the Code.
(ee) Own, Owned,
Owner, Ownership A person or Entity
shall be deemed to Own, to have Owned,
to be the Owner of, or to have acquired
Ownership of securities if such person or Entity,
directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares voting
power, which includes the power to vote or to direct the voting,
with respect to such securities.
(ff) Participant means a person to whom
a Stock Award is granted pursuant to the Plan or, if applicable,
such other person who holds an outstanding Stock Award.
(gg) Performance Criteria means the one
or more criteria that the Board shall select for purposes of
establishing the Performance Goals for a Performance Period. The
Performance Criteria that shall be used to establish such
Performance Goals may be based on any one of, or combination of,
the following: (i) earnings per share; (ii) earnings
before interest, taxes and depreciation; (iii) earnings
before interest, taxes, depreciation and amortization (EBITDA);
(iv) net earnings; (v) total shareholder return;
(vi) return on equity; (vii) return on assets,
investment or capital employed; (viii) operating margin;
(ix) gross margin; (x) operating income; (xi) net
income (before or after taxes); (xii) net operating income;
(xiii) net operating income after tax; (xiv) pre- and
after-tax income; (xv) pre-tax profit; (xvi) operating
cash flow; (xvii) sales or revenue targets;
(xviii) increases in revenue or product revenue;
(xix) expenses and cost reduction goals;
(xx) improvement in or attainment of expense levels;
(xxi) improvement in or attainment of working capital
levels; (xxii) economic value added (or an equivalent
metric); (xxiii) market share; (xxiv) cash flow;
(xxv) cash flow per share; (xxvi) share price
performance; (xxvii) debt reduction;
(xxviii) implementation or completion of projects or
processes; (xxix) customer satisfaction; (xxx) total
shareholder return; (xxxi) shareholders equity; and
(xxxii) other measures of performance selected by the
Board. Partial achievement of the specified criteria may result
in the payment or vesting corresponding to the degree of
achievement as specified in the Stock Award Agreement. The Board
shall, in its sole discretion, define the manner of calculating
the Performance Criteria it selects to use for such Performance
Period.
(hh) Performance Goals means, for a
Performance Period, the one or more goals established by the
Board for the Performance Period based upon the Performance
Criteria. The Board is authorized at any time in its sole
discretion, to adjust or modify the calculation of a Performance
Goal for such Performance Period in order to prevent the
dilution or enlargement of the rights of Participants,
(a) in the event of, or in anticipation of, any unusual or
extraordinary corporate item, transaction, event or development;
(b) in recognition of, or in anticipation of, any other
unusual or nonrecurring events affecting the Company, or the
financial statements of the Company, or in response to, or in
anticipation of, changes in applicable laws, regulations,
accounting principles, or business conditions; or (c) in
view of the Boards assessment of the business strategy of
the Company, performance of comparable organizations, economic
and business conditions, and any other
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circumstances deemed relevant. Specifically, the Board is
authorized to make adjustment in the method of calculating
attainment of Performance Goals and objectives for a Performance
Period as follows: (i) to exclude the dilutive effects of
acquisitions or joint ventures; (ii) to assume that any
business divested by the Company achieved performance objectives
at targeted levels during the balance of a Performance Period
following such divestiture; and (iii) to exclude the effect
of any change in the outstanding shares of common stock of the
Company by reason of any stock dividend or split, stock
repurchase, reorganization, recapitalization, merger,
consolidation, spin-off, combination or exchange of shares or
other similar corporate change, or any distributions to common
shareholders other than regular cash dividends. In addition, the
Board is authorized to make adjustment in the method of
calculating attainment of Performance Goals and objectives for a
Performance Period as follows: (i) to exclude restructuring
and/or other
nonrecurring charges; (ii) to exclude exchange rate
effects, as applicable, for
non-U.S. dollar
denominated net sales and operating earnings; (iii) to
exclude the effects of changes to generally accepted accounting
standards required by the Financial Accounting Standards Board;
(iv) to exclude the effects to any statutory adjustments to
corporate tax rates; (v) to exclude the impact of any
extraordinary items as determined under generally
accepted accounting principles; and (vi) to exclude any
other unusual, non-recurring gain or loss or other extraordinary
item.
(ii) Performance Period means the one or
more periods of time, which may be of varying and overlapping
durations, as the Board may select, over which the attainment of
one or more Performance Goals will be measured for the purpose
of determining a Participants right to and the payment of
a Stock Award.
(jj) Plan means this Aradigm Corporation
2005 Equity Incentive Plan.
(kk) Rule 16b-3
means
Rule 16b-3
promulgated under the Exchange Act or any successor to
Rule 16b-3,
as in effect from time to time.
(ll) Securities Act means the Securities
Act of 1933, as amended.
(mm) Stock Appreciation Right means a
right to receive the appreciation on Common Stock that is
granted pursuant to the terms and conditions of
Section 7(d).
(nn) Stock Appreciation Right Agreement
means a written agreement between the Company and a holder of a
Stock Appreciation Right evidencing the terms and conditions of
a Stock Appreciation Right grant. Each Stock Appreciation Right
Agreement shall be subject to the terms and conditions of the
Plan.
(oo) Stock Award means any right granted
under the Plan, including an Option, a Stock Purchase Award,
Stock Bonus Award, a Stock Appreciation Right, a Stock Unit
Award or any Other Stock Award.
(pp) Stock Award Agreement means a
written agreement between the Company and a Participant
evidencing the terms and conditions of a Stock Award grant. Each
Stock Award Agreement shall be subject to the terms and
conditions of the Plan.
(qq) Stock Bonus Award means an award of
shares of Common Stock which is granted pursuant to the terms
and conditions of Section 7(b).
(rr) Stock Bonus Award Agreement means a
written agreement between the Company and a holder of a Stock
Bonus Award evidencing the terms and conditions of a Stock Bonus
Award grant. Each Stock Bonus Award Agreement shall be subject
to the terms and conditions of the Plan.
(ss) Stock Purchase Award means an award
of shares of Common Stock which is granted pursuant to the terms
and conditions of Section 7(a).
(tt) Stock Purchase Award Agreement
means a written agreement between the Company and a holder of a
Stock Purchase Award evidencing the terms and conditions of a
Stock Purchase Award grant. Each Stock Purchase Award Agreement
shall be subject to the terms and conditions of the Plan.
(uu) Stock Unit Award means a right to
receive shares of Common Stock which is granted pursuant to the
terms and conditions of Section 7(c).
A-6
(vv) Stock Unit Award Agreement means a
written agreement between the Company and a holder of a Stock
Unit Award evidencing the terms and conditions of a Stock Unit
Award grant. Each Stock Unit Award Agreement shall be subject to
the terms and conditions of the Plan.
(ww) Subsidiary means, with respect to
the Company, (i) any corporation of which more than fifty
percent (50%) of the outstanding capital 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 by
the Company, and (ii) any partnership in which the Company
has a direct or indirect interest (whether in the form of voting
or participation in profits or capital contribution) of more
than fifty percent (50%).
(xx) Ten Percent Shareholder means a
person who Owns (or is deemed to Own pursuant to
Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes
of stock of the Company or any Affiliate.
(a) Administration by Board. The Board
shall administer the Plan unless and until the Board delegates
administration of the Plan to a Committee, as provided in
Section 3(c).
(b) Powers of Board. The Board shall have
the power, subject to, and within the limitations of, the
express provisions of the Plan:
(i) To determine from time to time (1) which of the
persons eligible under the Plan shall be granted Stock Awards;
(2) when and how each Stock Award shall be granted;
(3) what type or combination of types of Stock Award shall
be granted; (4) the provisions of each Stock Award granted
(which need not be identical), including the time or times when
a person shall be permitted to receive Common Stock pursuant to
a Stock Award; and (5) the number of shares of Common Stock
with respect to which a Stock Award shall be granted to each
such person.
(ii) To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and
regulations for its administration. The Board, in the exercise
of this power, may correct any defect, omission or inconsistency
in the Plan or in any Stock Award Agreement, in a manner and to
the extent it shall deem necessary or expedient to make the Plan
fully effective.
(iii) To amend the Plan or a Stock Award as provided in
Section 12.
(iv) To terminate or suspend the Plan as provided in
Section 13.
(v) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the
best interests of the Company and that are not in conflict with
the provisions of the Plan.
(vi) To adopt such procedures and
sub-plans as
are necessary or appropriate to permit participation in the Plan
by Employees who are foreign nationals or employed outside the
United States.
(c) Delegation to Committee.
(i) General. The Board may delegate some
or all of the administration of the Plan to a Committee or
Committees. If administration is delegated to a Committee, the
Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board that
have been delegated to the Committee, including the power to
delegate to a subcommittee any of the administrative powers the
Committee is authorized to exercise (and references in this Plan
to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted
from time to time by the Board. The Board may retain the
authority to concurrently administer the Plan with the Committee
and may, at any time, revest in the Board some or all of the
powers previously delegated.
A-7
(ii) Section 162(m) and
Rule 16b-3
Compliance. In the sole discretion of the Board, the
Committee may consist solely of two or more Outside Directors,
in accordance with Section 162(m) of the Code,
and/or
solely of two or more Non-Employee Directors, in accordance with
Rule 16b-3.
In addition, the Board or the Committee, in its sole discretion,
may (1) delegate to a committee of one or more members of
the Board who need not be Outside Directors the authority to
grant Stock Awards to eligible persons who are either
(a) not then Covered Employees and are not expected to be
Covered Employees at the time of recognition of income resulting
from such Stock Award or (b) not persons with respect to
whom the Company wishes to comply with Section 162(m) of
the Code,
and/or
(2) delegate to a committee of one or more members of the
Board who need not be Non-Employee Directors the authority to
grant Stock Awards to eligible persons who are not then subject
to Section 16 of the Exchange Act.
(d) Delegation to an Officer. The Board
may delegate to one or more Officers of the Company the
authority to do one or both of the following (i) designate
Officers and Employees of the Company or any of its Subsidiaries
to be recipients of Stock Awards and the terms thereof, and
(ii) determine the number of shares of Common Stock to be
subject to such Stock Awards granted to such Officers and
Employees of the Company; provided, however, that the
Board resolutions regarding such delegation shall specify the
total number of shares of Common Stock that may be subject to
the Stock Awards granted by such Officer and that such Officer
may not grant a Stock Award to himself or herself.
Notwithstanding anything to the contrary in this
Section 3(d), the Board may not delegate to an Officer
authority to determine the Fair Market Value of the Common Stock
pursuant to Section 2(t)(ii) above.
(e) Effect of Boards Decision. All
determinations, interpretations and constructions made by the
Board in good faith shall not be subject to review by any person
and shall be final, binding and conclusive on all persons.
(f) Cancellation and Re-Grant of Stock
Awards. Neither the Board nor any Committee shall
have the authority to: (i) reprice any outstanding Stock
Awards under the Plan, or (ii) cancel and re-grant any
outstanding Stock Awards under the Plan, unless the shareholders
of the Company have approved such an action within twelve
(12) months prior to such an event.
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4.
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Shares Subject
to the Plan.
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(a) Share Reserve. Subject to the
provisions of Section 11(a) relating to Capitalization
Adjustments, the number of shares of Common Stock that may be
issued pursuant to Stock Awards shall not exceed, in the
aggregate, thirteen million two hundred eighteen thousand six
hundred thirty-eight (13,218,638) shares of Common Stock
(including shares underlying Stock Awards issued pursuant to the
Prior Plan).
(b) Reversion of Shares to the Share
Reserve. Any shares of Common Stock subject to
outstanding awards granted under the Prior Plan that would
otherwise have reverted to the share reserve of the Prior Plan
shall revert to and again become available for issuance under
this Plan. If any Stock Award shall for any reason expire or
otherwise terminate, in whole or in part, without having been
exercised in full, or if any shares of Common Stock issued to a
Participant pursuant to a Stock Award are forfeited to or
repurchased by the Company, including, but not limited to, any
repurchase or forfeiture caused by the failure to meet a
contingency or condition required for the vesting of such
shares, then the shares of Common Stock not issued under such
Stock Award, or forfeited to or repurchased by the Company,
shall revert to and again become available for issuance under
the Plan. If any shares subject to a Stock Award are not
delivered to a Participant because such shares are withheld for
the payment of taxes, the number of shares that are not
delivered to the Participant shall remain available for issuance
under the Plan. If the exercise price of any Stock Award is
satisfied by tendering shares of Common Stock held by the
Participant (either by actual delivery or attestation), then the
number of shares so tendered shall remain available for issuance
under the Plan. Notwithstanding anything to the contrary in this
Section 4(b), subject to the provisions of
Section 11(a) relating to Capitalization Adjustments the
aggregate maximum number of shares of Common Stock that may be
issued pursuant to the exercise of Incentive Stock Options shall
be thirteen million two hundred eighteen thousand six hundred
thirty-eight (13,218,638) shares of Common Stock plus the amount
of any increase in the number of shares that may be available
for issuance pursuant to Stock Awards pursuant to
Section 4(a).
(c) Source of Shares. The stock issuable
under the Plan shall be shares of authorized but unissued or
reacquired Common Stock, including shares repurchased by the
Company on the open market.
A-8
(a) Eligibility for Specific Stock
Awards. Incentive Stock Options may be granted
only to Employees. Stock Awards other than Incentive Stock
Options may be granted to Employees, Directors and Consultants.
(b) Ten Percent Shareholders. A Ten
Percent Shareholder shall not be granted an Incentive Stock
Option unless the exercise price of such Option is at least one
hundred ten percent (110%) of the Fair Market Value of the
Common Stock on the date of grant and the Option is not
exercisable after the expiration of five (5) years from the
date of grant.
(c) Section 162(m) Limitation on Annual
Grants. Subject to the provisions of
Section 11(a) relating to Capitalization Adjustments, at
such time as the Company may be subject to the applicable
provisions of Section 162(m) of the Code, no Employee shall
be eligible to be granted Stock Awards whose value is determined
by reference to an increase over an exercise or strike price of
at least one hundred percent (100%) of the Fair Market Value of
the Common Stock on the date the Stock Award is granted covering
more than five hundred thousand (500,000) shares of Common Stock
during any calendar year.
(d) Consultants. A Consultant shall not
be eligible for the grant of a Stock Award if, at the time of
grant, a
Form S-8
Registration Statement under the Securities Act
(Form S-8)
is not available to register either the offer or the sale of the
Companys securities to such Consultant because of the
nature of the services that the Consultant is providing to the
Company, because the Consultant is not a natural person, or
because of any other rule governing the use of
Form S-8.
Each Option shall be in such form and shall contain such terms
and conditions as the Board shall deem appropriate. All Options
shall be separately designated Incentive Stock Options or
Nonstatutory Stock Options at the time of grant, and, if
certificates are issued, a separate certificate or certificates
shall be issued for shares of Common Stock purchased on exercise
of each type of Option. The provisions of separate Options need
not be identical; provided, however, that each Option Agreement
shall include (through incorporation of provisions hereof by
reference in the Option or otherwise) the substance of each of
the following provisions:
(a) Term. The Board shall determine the
term of an Option; provided, however, that subject to the
provisions of Section 5(b) regarding Ten Percent
Shareholders, no Incentive Stock Option shall be exercisable
after the expiration of ten (10) years from the date of
grant.
(b) Exercise Price of an Incentive Stock
Option. Subject to the provisions of
Section 5(b) regarding Ten Percent Shareholders, the
exercise price of each Incentive Stock Option shall be not less
than one hundred percent (100%) of the Fair Market Value of the
Common Stock subject to the Option on the date the Option is
granted. Notwithstanding the foregoing, an Incentive Stock
Option may be granted with an exercise price lower than that set
forth in the preceding sentence if such Option is granted
pursuant to an assumption or substitution for another option in
a manner consistent with the provisions of Section 424(a)
of the Code.
(c) Exercise Price of a Nonstatutory Stock
Option. The exercise price of each Nonstatutory
Stock Option shall be not less than one hundred percent (100%)
of the Fair Market Value of the Common Stock subject to the
Option on the date the Option is granted. Notwithstanding the
foregoing, a Nonstatutory Stock Option may be granted with an
exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner consistent with the
provisions of Section 424(a) of the Code.
(d) Consideration. The purchase price of
Common Stock acquired pursuant to the exercise of an Option
shall be paid, to the extent permitted by applicable law and as
determined by the Board in its sole discretion, by any
combination of the methods of payment set forth below. The Board
shall have the authority to grant Options that do not permit all
of the following methods of payment (or otherwise restrict the
ability to use certain methods) and to grant Options that
require the consent of the Company to utilize a particular
method of payment. The methods of payment permitted by this
Section 6(d) are:
(i) by cash or check;
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(ii) pursuant to a program developed under
Regulation T as promulgated by the Federal Reserve Board
that, prior to the issuance of Common Stock, results in either
the receipt of cash (or check) by the Company or the receipt of
irrevocable instructions to pay the aggregate exercise price to
the Company from the sales proceeds;
(iii) by delivery to the Company (either by actual delivery
or attestation) of shares of Common Stock;
(iv) according to a deferred payment or similar arrangement
with the Optionholder; provided, however, that interest
shall compound at least annually and shall be charged at the
minimum rate of interest necessary to avoid (i) the
imputation of interest income to the Company and compensation
income to the Optionholder under any applicable provisions of
the Code and (ii) the treatment of the Option as a variable
award for financial accounting purposes; or
(v) in any other form of legal consideration that may be
acceptable to the Board.
(e) Transferability of Options. The Board
may, in its sole discretion, impose such limitations on the
transferability of Options as the Board shall determine. In the
absence of such a determination by the Board to the contrary,
the following restrictions on the transferability of Options
shall apply:
(i) Restrictions on Transfer. An Option
shall not be transferable except by will or by the laws of
descent and distribution and shall be exercisable during the
lifetime of the Optionholder only by the Optionholder.
(ii) Domestic Relations
Orders. Notwithstanding the foregoing, an Option
may be transferred pursuant to a domestic relations order.
(iii) Beneficiary
Designation. Notwithstanding the foregoing, the
Optionholder may, by delivering written notice to the Company,
in a form provided by or otherwise satisfactory to the Company,
designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the
Option.
(f) Vesting Generally. The total number
of shares of Common Stock subject to an Option may vest and
therefore become exercisable in periodic installments that may
or may not be equal. The Option may be subject to such other
terms and conditions on the time or times when it may or may not
be exercised (which may be based on performance or other
criteria) as the Board may deem appropriate. The vesting
provisions of individual Options may vary. The provisions of
this Section 6(f) are subject to any Option provisions
governing the minimum number of shares of Common Stock as to
which an Option may be exercised.
(g) Termination of Continuous Service. In
the event that an Optionholders Continuous Service
terminates (other than upon the Optionholders death or
Disability), the Optionholder may exercise his or her Option (to
the extent that the Optionholder was entitled to exercise such
Option as of the date of termination of Continuous Service) but
only within such period of time ending on the earlier of
(i) the date three (3) months following the
termination of the Optionholders Continuous Service (or
such longer or shorter period specified in the Option Agreement)
or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination of
Continuous Service, the Optionholder does not exercise his or
her Option within the time specified herein or in the Option
Agreement (as applicable), the Option shall terminate.
(h) Extension of Termination Date. An
Optionholders Option Agreement may provide that if the
exercise of the Option following the termination of the
Optionholders Continuous Service (other than upon the
Optionholders death or Disability or upon a Change in
Control) would be prohibited at any time solely because the
issuance of shares of Common Stock would violate the
registration requirements under the Securities Act, then the
Option shall terminate on the earlier of (i) the expiration
of a period of three (3) months after the termination of
the Optionholders Continuous Service during which the
exercise of the Option would
A-10
not be in violation of such registration requirements or
(ii) the expiration of the term of the Option as set forth
in the Option Agreement.
(i) Disability of Optionholder. In the
event that an Optionholders Continuous Service terminates
as a result of the Optionholders Disability, the
Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the
date of termination of Continuous Service), but only within such
period of time ending on the earlier of (i) the date twelve
(12) months following such termination of Continuous
Service (or such longer or shorter period specified in the
Option Agreement) or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, after
termination of Continuous Service, the Optionholder does not
exercise his or her Option within the time specified herein or
in the Option Agreement (as applicable), the Option shall
terminate.
(j) Death of Optionholder. In the event
that (i) an Optionholders Continuous Service
terminates as a result of the Optionholders death or
(ii) the Optionholder dies within the period (if any)
specified in the Option Agreement after the termination of the
Optionholders Continuous Service for a reason other than
death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date
of death) by the Optionholders estate, by a person who
acquired the right to exercise the Option by bequest or
inheritance or by a person designated to exercise the option
upon the Optionholders death, but only within the period
ending on the earlier of (i) the date eighteen
(18) months following the date of death (or such longer or
shorter period specified in the Option Agreement) or
(ii) the expiration of the term of such Option as set forth
in the Option Agreement. If, after the Optionholders
death, the Option is not exercised within the time specified
herein or in the Option Agreement (as applicable), the Option
shall terminate.
(k) Early Exercise. The Option may
include a provision whereby the Optionholder may elect at any
time before the Optionholders Continuous Service
terminates to exercise the Option as to any part or all of the
shares of Common Stock subject to the Option prior to the full
vesting of the Option. Any unvested shares of Common Stock so
purchased may be subject to a repurchase option in favor of the
Company or to any other restriction the Board determines to be
appropriate. The Company shall not be required to exercise its
repurchase option until at least six (6) months (or such
longer or shorter period of time necessary to avoid a charge to
earnings for financial accounting purposes) have elapsed
following exercise of the Option unless the Board otherwise
specifically provides in the Option.
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7.
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Provisions
of Stock Awards other than Options.
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(a) Stock Purchase Awards. Each Stock
Purchase Award Agreement shall be in such form and shall contain
such terms and conditions as the Board shall deem appropriate.
At the Boards election, shares of Common Stock may be
(i) held in book entry form subject to the Companys
instructions until any restrictions relating to the Stock
Purchase Award lapse or (ii) evidenced by a certificate,
which certificate shall be held in such form and manner as
determined by the Board. The terms and conditions of Stock
Purchase Award Agreements may change from time to time, and the
terms and conditions of separate Stock Purchase Award Agreements
need not be identical, provided, however, that each Stock
Purchase Award Agreement shall include (through incorporation of
the provisions hereof by reference in the agreement or
otherwise) the substance of each of the following provisions:
(i) Purchase Price. At the time of the
grant of a Stock Purchase Award, the Board will determine the
price to be paid by the Participant for each share subject to
the Stock Purchase Award. To the extent required by applicable
law, the price to be paid by the Participant for each share of
the Stock Purchase Award will not be less than the par value of
a share of Common Stock.
(ii) Consideration. At the time of the
grant of a Stock Purchase Award, the Board will determine the
consideration permissible for the payment of the purchase price
of the Stock Purchase Award. The purchase price of Common Stock
acquired pursuant to the Stock Purchase Award shall be paid
either: (A) in cash or by check at the time of purchase,
(B) at the discretion of the Board, according to a deferred
payment or other similar arrangement with the Participant,
(C) by past services rendered to the Company or (D) in
any other form of legal consideration that may be acceptable to
the Board in its sole discretion and permissible under
applicable law.
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(iii) Vesting. Shares of Common Stock
acquired under a Stock Purchase Award may be subject to a share
repurchase right or option in favor of the Company in accordance
with a vesting schedule to be determined by the Board.
(iv) Termination of Participants Continuous
Service. In the event that a Participants
Continuous Service terminates, the Company shall have the right,
but not the obligation, to repurchase or otherwise reacquire,
any or all of the shares of Common Stock held by the Participant
that have not vested as of the date of termination under the
terms of the Stock Purchase Award Agreement. At the Boards
election, the price paid for all shares of Common Stock so
repurchased or reacquired by the Company may be at the lesser
of: (A) the Fair Market Value on the relevant date, or
(B) the Participants original cost for such shares.
The Company shall not be required to exercise its repurchase or
reacquisition option until at least six (6) months (or such
longer or shorter period of time necessary to avoid a charge to
earnings for financial accounting purposes) have elapsed
following the Participants purchase of the shares of stock
acquired pursuant to the Stock Purchase Award unless otherwise
determined by the Board or provided in the Stock Purchase Award
Agreement.
(v) Transferability. Rights to purchase
or receive shares of Common Stock granted under a Stock Purchase
Award shall be transferable by the Participant only upon such
terms and conditions as are set forth in the Stock Purchase
Award Agreement, as the Board shall determine in its sole
discretion, and so long as Common Stock awarded under the Stock
Purchase Award remains subject to the terms of the Stock
Purchase Award Agreement.
(b) Stock Bonus Awards. Each Stock Bonus
Award Agreement shall be in such form and shall contain such
terms and conditions as the Board shall deem appropriate. At the
Boards election, shares of Common Stock may be
(i) held in book entry form subject to the Companys
instructions until any restrictions relating to the Stock Bonus
Award lapse or (ii) evidenced by a certificate, which
certificate shall be held in such form and manner as determined
by the Board. The terms and conditions of Stock Bonus Award
Agreements may change from time to time, and the terms and
conditions of separate Stock Bonus Award Agreements need not be
identical, provided, however, that each Stock Bonus Award
Agreement shall include (through incorporation of provisions
hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:
(i) Consideration. A Stock Bonus Award
may be awarded in consideration for (A) past services
actually rendered to the Company or an Affiliate, or
(B) any other form of legal consideration that may be
acceptable to the Board in its sole discretion and permissible
under applicable law.
(ii) Vesting. Shares of Common Stock
awarded under the Stock Bonus Award Agreement may be subject to
forfeiture to the Company in accordance with a vesting schedule
to be determined by the Board.
(iii) Termination of Participants Continuous
Service. In the event a Participants
Continuous Service terminates, the Company may receive via a
forfeiture condition, any or all of the shares of Common Stock
held by the Participant which have not vested as of the date of
termination of Continuous Service under the terms of the Stock
Bonus Award Agreement.
(iv) Transferability. Rights to acquire
shares of Common Stock under the Stock Bonus Award Agreement
shall be transferable by the Participant only upon such terms
and conditions as are set forth in the Stock Bonus Award
Agreement, as the Board shall determine in its sole discretion,
so long as Common Stock awarded under the Stock Bonus Award
Agreement remains subject to the terms of the Stock Bonus Award
Agreement.
(c) Stock Unit Awards. Each Stock Unit
Award Agreement shall be in such form and shall contain such
terms and conditions as the Board shall deem appropriate. The
terms and conditions of Stock Unit Award Agreements may change
from time to time, and the terms and conditions of separate
Stock Unit Award Agreements need not be identical, provided,
however, that each Stock Unit Award Agreement shall include
(through incorporation of the provisions hereof by reference in
the agreement or otherwise) the substance of each of the
following provisions:
(i) Consideration. At the time of grant
of a Stock Unit Award, the Board will determine the
consideration, if any, to be paid by the Participant upon
delivery of each share of Common Stock subject to the Stock
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Unit Award. The consideration to be paid (if any) by the
Participant for each share of Common Stock subject to a Stock
Unit Award may be paid in any form of legal consideration that
may be acceptable to the Board in its sole discretion and
permissible under applicable law.
(ii) Vesting. At the time of the grant of
a Stock Unit Award, the Board may impose such restrictions or
conditions to the vesting of the Stock Unit Award as it, in its
sole discretion, deems appropriate.
(iii) Payment. A Stock Unit Award may be
settled by the delivery of shares of Common Stock, their cash
equivalent, any combination thereof or in any other form of
consideration, as determined by the Board and contained in the
Stock Unit Award Agreement.
(iv) Additional Restrictions. At the time
of the grant of a Stock Unit Award, the Board, as it deems
appropriate, may impose such restrictions or conditions that
delay the delivery of the shares of Common Stock (or their cash
equivalent) subject to a Stock Unit Award after the vesting of
such Stock Unit Award.
(v) Dividend Equivalents. Dividend
equivalents may be credited in respect of shares of Common Stock
covered by a Stock Unit Award, as determined by the Board and
contained in the Stock Unit Award Agreement. At the sole
discretion of the Board, such dividend equivalents may be
converted into additional shares of Common Stock covered by the
Stock Unit Award in such manner as determined by the Board. Any
additional shares covered by the Stock Unit Award credited by
reason of such dividend equivalents will be subject to all the
terms and conditions of the underlying Stock Unit Award
Agreement to which they relate.
(vi) Termination of Participants Continuous
Service. Except as otherwise provided in the
applicable Stock Unit Award Agreement, such portion of the Stock
Unit Award that has not vested will be forfeited upon the
Participants termination of Continuous Service.
(d) Stock Appreciation Rights. Each Stock
Appreciation Right Agreement shall be in such form and shall
contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of Stock Appreciation
Right Agreements may change from time to time, and the terms and
conditions of separate Stock Appreciation Right Agreements need
not be identical; provided, however, that each Stock
Appreciation Right Agreement shall include (through
incorporation of the provisions hereof by reference in the
agreement or otherwise) the substance of each of the following
provisions:
(i) Strike Price and Calculation of
Appreciation. Each Stock Appreciation Right will
be denominated in shares of Common Stock equivalents. The
appreciation distribution payable on the exercise of a Stock
Appreciation Right will be not greater than an amount equal to
the excess of (A) the aggregate Fair Market Value (on the
date of the exercise of the Stock Appreciation Right) of a
number of shares of Common Stock equal to the number of share of
Common Stock equivalents in which the Participant is vested
under such Stock Appreciation Right, and with respect to which
the Participant is exercising the Stock Appreciation Right on
such date, over (B) an amount (the strike price) that will
be determined by the Board at the time of grant of the Stock
Appreciation Right.
(ii) Vesting. At the time of the grant of
a Stock Appreciation Right, the Board may impose such
restrictions or conditions to the vesting of such Stock
Appreciation Right as it, in its sole discretion, deems
appropriate.
(iii) Exercise. To exercise any
outstanding Stock Appreciation Right, the Participant must
provide written notice of exercise to the Company in compliance
with the provisions of the Stock Appreciation Right Agreement
evidencing such Stock Appreciation Right.
(iv) Payment. The appreciation
distribution in respect to a Stock Appreciation Right may be
paid in Common Stock, in cash, in any combination of the two or
in any other form of consideration, as determined by the Board
and contained in the Stock Appreciation Right Agreement
evidencing such Stock Appreciation Right.
(v) Termination of Continuous Service. In
the event that a Participants Continuous Service
terminates, the Participant may exercise his or her Stock
Appreciation Right (to the extent that the Participant was
entitled to exercise such Stock Appreciation Right as of the
date of termination) but only within such period of time
A-13
ending on the earlier of (i) the date three (3) months
following the termination of the Participants Continuous
Service (or such longer or shorter period specified in the Stock
Appreciation Right Agreement) or (ii) the expiration of the
term of the Stock Appreciation Right as set forth in the Stock
Appreciation Right Agreement. If, after termination, the
Participant does not exercise his or her Stock Appreciation
Right within the time specified herein or in the Stock
Appreciation Right Agreement (as applicable), the Stock
Appreciation Right shall terminate.
(e) Other Stock Awards. Other forms of
Stock Awards valued in whole or in part by reference to, or
otherwise based on, Common Stock may be granted either alone or
in addition to Stock Awards provided for under Section 6
and the preceding provisions of this Section 7. Subject to
the provisions of the Plan, the Board shall have sole and
complete authority to determine the persons to whom and the time
or times at which such Other Stock Awards will be granted, the
number of shares of Common Stock (or the cash equivalent
thereof) to be granted pursuant to such Other Stock Awards and
all other terms and conditions of such Other Stock Awards.
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8.
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Covenants
of the Company.
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(a) Availability of Shares. During the
terms of the Stock Awards, the Company shall keep available at
all times the number of shares of Common Stock required to
satisfy such Stock Awards.
(b) Securities Law Compliance. The
Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may
be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of the Stock Awards; provided,
however, that this undertaking shall not require the Company to
register under the Securities Act the Plan, any Stock Award or
any Common Stock issued or issuable pursuant to any such Stock
Award. If, after reasonable efforts, the Company is unable to
obtain from any such regulatory commission or agency the
authority that counsel for the Company deems necessary for the
lawful issuance and sale of Common Stock under the Plan, the
Company shall be relieved from any liability for failure to
issue and sell Common Stock upon exercise of such Stock Awards
unless and until such authority is obtained.
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9.
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Use of
Proceeds from Sales of Common Stock.
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Proceeds from the sale of shares of Common Stock pursuant to
Stock Awards shall constitute general funds of the Company.
(a) Acceleration of Exercisability and
Vesting. The Board shall have the power to
accelerate the time at which a Stock Award may first be
exercised or the time during which a Stock Award or any part
thereof will vest in accordance with the Plan, notwithstanding
the provisions in the Stock Award stating the time at which it
may first be exercised or the time during which it will vest.
(b) Shareholder Rights. No Participant
shall be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares of Common Stock
subject to such Stock Award unless and until such Participant
has satisfied all requirements for exercise of the Stock Award
pursuant to its terms.
(c) No Employment or Other Service
Rights. Nothing in the Plan, any Stock Award
Agreement or other instrument executed thereunder or any Stock
Award granted pursuant thereto shall confer upon any Participant
any right to continue to serve the Company or an Affiliate in
the capacity in effect at the time the Stock Award was granted
or shall affect the right of the Company or an Affiliate to
terminate (i) the employment of an Employee with or without
notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultants
agreement with the Company or an Affiliate or (iii) the
service of a Director pursuant to the Bylaws of the Company or
an Affiliate, and any applicable provisions of the corporate law
of the state in which the Company or the Affiliate is
incorporated, as the case may be.
(d) Incentive Stock Option $100,000
Limitation. To the extent that the aggregate Fair
Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable
for the first time by any Optionholder during any calendar year
(under all plans of the Company and any Affiliates) exceeds one
hundred thousand dollars ($100,000), the Options or portions
thereof that exceed such limit (according
A-14
to the order in which they were granted) shall be treated as
Nonstatutory Stock Options, notwithstanding any contrary
provision of the applicable Option Agreement(s).
(e) Investment Assurances. The Company
may require a Participant, as a condition of exercising or
acquiring Common Stock under any Stock Award, (i) to give
written assurances satisfactory to the Company as to the
Participants knowledge and experience in financial and
business matters
and/or to
employ a purchaser representative reasonably satisfactory to the
Company who is knowledgeable and experienced in financial and
business matters and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits
and risks of exercising the Stock Award and (ii) to give
written assurances satisfactory to the Company stating that the
Participant is acquiring Common Stock subject to the Stock Award
for the Participants own account and not with any present
intention of selling or otherwise distributing the Common Stock.
The foregoing requirements, and any assurances given pursuant to
such requirements, shall be inoperative if (i) the issuance
of the shares upon the exercise or acquisition of Common Stock
under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act or
(ii) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities
laws. The Company may, upon advice of counsel to the Company,
place legends on stock certificates issued under the Plan as
such counsel deems necessary or appropriate in order to comply
with applicable securities laws, including, but not limited to,
legends restricting the transfer of the Common Stock.
(f) Withholding Obligations. To the
extent provided by the terms of a Stock Award Agreement, the
Company may, in its sole discretion, satisfy any federal, state
or local tax withholding obligation relating to a Stock Award by
any of the following means (in addition to the Companys
right to withhold from any compensation paid to the Participant
by the Company) or by a combination of such means:
(i) causing the Participant to tender a cash payment;
(ii) withholding shares of Common Stock from the shares of
Common Stock issued or otherwise issuable to the Participant in
connection with the Stock Award; or (iii) by such other
method as may be set forth in the Stock Award Agreement.
(g) Electronic Delivery. Any reference
herein to a written agreement or document shall
include any agreement or document delivered electronically or
posted on the Companys intranet.
(h) Performance Stock Awards. A Stock
Award may be granted, may vest, or may be exercised based upon
service conditions, upon the attainment during a Performance
Period of certain Performance Goals, or both. The length of any
Performance Period, the Performance Goals to be achieved during
the Performance Period, and the measure of whether and to what
degree such Performance Goals have been attained shall be
conclusively determined by the Board in its sole discretion. The
maximum benefit to be received by any individual in any calendar
year attributable to Stock Awards described in this
Section 10(h) shall not exceed the value of one hundred
thousand (100,000) shares of Common Stock.
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11.
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Adjustments
upon Changes in Common Stock; Corporate Transactions.
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(a) Capitalization Adjustments. If any
change is made in, or other events occur with respect to, the
Common Stock subject to the Plan or subject to any Stock Award
after the effective date of the Plan set forth in
Section 14 without the receipt of consideration by the
Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in
property other than cash, stock split, liquidating dividend,
combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of
consideration by the Company (each a Capitalization
Adjustment)), the Plan shall be appropriately
adjusted in: (i) the class(es) and maximum number of
securities subject to the Plan pursuant to Sections 4(a)
and 4(b), (ii) the class(es) and maximum number of
securities that may be issued pursuant to the exercise of
Incentive Stock Options pursuant to Section 4(b),
(iii) the maximum number of securities that may be awarded
to any person pursuant to Sections 5(c) and 10(h) and
(iv) the class(es) and number of securities and price per
share of stock subject to outstanding Stock Awards. The Board
shall make such adjustments, and its determination shall be
final, binding and conclusive. (Notwithstanding the foregoing,
the conversion of any convertible securities of the Company
shall not be treated as a transaction without receipt of
consideration by the Company.)
(b) Dissolution or Liquidation. In the
event of a dissolution or liquidation of the Company, all
outstanding Stock Awards (other than Stock Awards consisting of
vested and outstanding shares of Common Stock not subject
A-15
to the Companys right of repurchase) shall terminate
immediately prior to the completion of such dissolution or
liquidation, and the shares of Common Stock subject to the
Companys repurchase option may be repurchased by the
Company notwithstanding the fact that the holder of such Stock
Award is providing Continuous Service, provided, however, that
the Board may, in its sole discretion, cause some or all Stock
Awards to become fully vested, exercisable
and/or no
longer subject to repurchase or forfeiture (to the extent such
Stock Awards have not previously expired or terminated) before
the dissolution or liquidation is completed but contingent on
its completion.
(c) Corporate Transaction. The following
provisions shall apply to Stock Awards in the event of a
Corporate Transaction unless otherwise provided in a written
agreement between the Company or any Affiliate and the holder of
the Stock Award:
(i) Stock Awards May Be Assumed. In the
event of a Corporate Transaction, any surviving corporation or
acquiring corporation (or the surviving or acquiring
corporations parent company) may assume or continue any or
all Stock Awards outstanding under the Plan or may substitute
similar stock awards for Stock Awards outstanding under the Plan
(including but not limited to, awards to acquire the same
consideration paid to the shareholders of the Company pursuant
to the Corporate Transaction), and any reacquisition or
repurchase rights held by the Company in respect of Common Stock
issued pursuant to Stock Awards may be assigned by the Company
to the successor of the Company (or the successors parent
company, if any), in connection with such Corporate Transaction.
A surviving corporation or acquiring corporation may choose to
assume or continue only a portion of a Stock Award or substitute
a similar stock award for only a portion of a Stock Award. The
terms of any assumption, continuation or substitution shall be
set by the Board in accordance with the provisions of
Section 3.
(ii) Stock Awards Held by Current
Participants. In the event of a Corporate
Transaction in which the surviving corporation or acquiring
corporation (or its parent company) does not assume or continue
such outstanding Stock Awards or substitute similar stock awards
for such outstanding Stock Awards, then with respect to Stock
Awards that have not been assumed, continued or substituted and
that are held by Participants whose Continuous Service has not
terminated prior to the effective time of the Corporate
Transaction (referred to as the Current
Participants), the vesting of such Stock Awards
(and, if applicable, the time at which such Stock Awards may be
exercised) shall (contingent upon the effectiveness of the
Corporate Transaction) be accelerated in full to a date prior to
the effective time of such Corporate Transaction as the Board
shall determine (or, if the Board shall not determine such a
date, to the date that is five (5) days prior to the
effective time of the Corporate Transaction), and such Stock
Awards shall terminate if not exercised (if applicable) at or
prior to the effective time of the Corporate Transaction, and
any reacquisition or repurchase rights held by the Company with
respect to such Stock Awards shall lapse (contingent upon the
effectiveness of the Corporate Transaction).
(iii) Stock Awards Held by Persons other than Current
Participants. In the event of a Corporate
Transaction in which the surviving corporation or acquiring
corporation (or its parent company) does not assume or continue
such outstanding Stock Awards or substitute similar stock awards
for such outstanding Stock Awards, then with respect to Stock
Awards that have not been assumed, continued or substituted and
that are held by persons other than Current Participants, the
vesting of such Stock Awards (and, if applicable, the time at
which such Stock Award may be exercised) shall not be
accelerated and such Stock Awards (other than a Stock Award
consisting of vested and outstanding shares of Common Stock not
subject to the Companys right of repurchase) shall
terminate if not exercised (if applicable) prior to the
effective time of the Corporate Transaction; provided, however,
that any reacquisition or repurchase rights held by the Company
with respect to such Stock Awards shall not terminate and may
continue to be exercised notwithstanding the Corporate
Transaction.
(iv) Payment for Stock Awards in Lieu of
Exercise. Notwithstanding the foregoing, in the
event a Stock Award will terminate if not exercised prior to the
effective time of a Corporate Transaction, the Board may
provide, in its sole discretion, that the holder of such Stock
Award may not exercise such Stock Award but will receive a
payment, in such form as may be determined by the Board, equal
in value to the excess, if any, of (A) the value of the
property the holder of the Stock Award would have received upon
the exercise of the Stock Award, over (B) any exercise
price payable by such holder in connection with such exercise.
A-16
(d) Change in Control. A Stock Award may
be subject to additional acceleration of vesting and
exercisability upon or after a Change in Control as may be
provided in the Stock Award Agreement for such Stock Award or as
may be provided in any other written agreement between the
Company or any Affiliate and the Participant, but in the absence
of such provision, no such acceleration shall occur.
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12.
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Amendment
of the Plan and Stock Awards.
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(a) Amendment of Plan. Subject to the
limitations, if any, of applicable law, the Board at any time,
and from time to time, may amend the Plan. However, except as
provided in Section 11(a) relating to Capitalization
Adjustments, no amendment shall be effective unless approved by
the shareholders of the Company to the extent shareholder
approval is necessary to satisfy applicable law.
(b) Shareholder Approval. The Board, in
its sole discretion, may submit any other amendment to the Plan
for shareholder approval, including, but not limited to,
amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder
regarding the exclusion of performance-based compensation from
the limit on corporate deductibility of compensation paid to
Covered Employees.
(c) Contemplated Amendments. It is
expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide
eligible Employees with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations
promulgated thereunder relating to Incentive Stock Options
and/or to
bring the Plan
and/or
Incentive Stock Options granted under it into compliance
therewith.
(d) No Impairment of Rights. Rights under
any Stock Award granted before amendment of the Plan shall not
be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the affected Participant and
(ii) such Participant consents in writing.
(e) Amendment of Stock Awards. The Board,
at any time and from time to time, may amend the terms of any
one or more Stock Awards, including, but not limited to,
amendments to provide terms more favorable than previously
provided in the Stock Award Agreement, subject to any specified
limits in the Plan that are not subject to Board discretion;
provided, however, that the rights under any Stock Award shall
not be impaired by any such amendment unless (i) the
Company requests the consent of the affected Participant and
(ii) such Participant consents in writing.
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13.
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Termination
or Suspension of the Plan.
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(a) Plan Term. The Board may suspend or
terminate the Plan at any time. Unless sooner terminated, the
Plan shall terminate on the day before the tenth (10th)
anniversary of the date the Plan is adopted by the Board or
approved by the shareholders of the Company, whichever is
earlier. No Stock Awards may be granted under the Plan while the
Plan is suspended or after it is terminated.
(b) No Impairment of Rights. Suspension
or termination of the Plan shall not impair rights and
obligations under any Stock Award granted while the Plan is in
effect except with the written consent of the affected
Participant.
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14.
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Effective
Date of Plan.
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This Plan (as an amendment and restatement of the Prior Plan)
shall become effective on the date that the Plan is adopted by
the Board, but no Stock Award shall be exercised (or, in the
case of a Stock Purchase Award, Stock Bonus Award, Stock Unit
Award, or Other Stock Award shall be granted) unless and until
the Plan has been approved by the shareholders of the Company,
which approval shall be within twelve (12) months before or
after the date the Plan is adopted by the Board.
The law of the State of California shall govern all questions
concerning the construction, validity and interpretation of this
Plan, without regard to such states conflict of laws rules.
A-17
PROXY
ARADIGM CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 14, 2010
The undersigned hereby appoints IGOR GONDA and D. JEFFERY GRIMES, and each of them,
as attorneys and proxies of the undersigned, with full power of substitution, to vote all shares of stock of Aradigm Corporation that the undersigned may be
entitled to vote at the 2010 Annual Meeting of Shareholders of Aradigm Corporation to be held at Aradigm Corporations offices located at 3929 Point Eden
Way, Hayward, California on Friday, May 14, 2010 at 9:00 a.m. local time, and at any and all postponements, continuations and adjournments thereof, with
all powers that the undersigned would possess if personally present, upon and in respect of the following matters and in accordance with the following
instructions, with discretionary authority as to any and all other matters that may properly come before the meeting.
þ Please mark votes as in this example.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW AND A VOTE FOR PROPOSALS 2, 3 AND 4
UNLESS A CONTRARY DIRECTION IS INDICATED,
THIS PROXY WILL BE VOTED FOR ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4, AS MORE SPECIFICALLY DESCRIBED
IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
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1.
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To reelect (01) Frank H. Barker, (02) Igor Gonda, (03) John M. Siebert and (04) Virgil D. Thompson as directors to hold office until the next annual meeting of shareholders and until their successors are elected.
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FOR ALL NOMINEES
WITHHELD FROM ALL NOMINEES
FOR ALL NOMINEES EXCEPT:
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o
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2.
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To approve an amendment to Aradigms 2005 Equity Incentive Plan to increase the aggregate number of shares of Common Stock authorized for issuance under such plan by 4,000,000 shares.
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FOR
o
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AGAINST
o
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ABSTAIN
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3.
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To approve an amendment to Aradigms Amended and Restated Articles of Incorporation to increase
the authorized number of shares of Common Stock from 150,000,000 to 225,000,000.
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FOR
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AGAINST
o
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ABSTAIN
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4.
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To ratify the selection of Odenberg, Ullakko, Muranishi & Co. LLP as Aradigms
independent registered public accounting firm for the fiscal year ending December 31, 2010.
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FOR
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AGAINST
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ABSTAIN
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Please vote, date and promptly return this proxy in the enclosed return envelope which is postage prepaid if mailed in the United States.
Please sign exactly as your name appears hereon. If stock is registered in the names of two or more persons, each
should sign. Executors, administrators, trustees, guardians and attorneys-in-fact should add their titles. If signer is a corporation, please give full corporate name and have a duly authorized officer sign.
If signer is a partnership, please sign in partnership name and by authorized person.
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