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  x                             Filed by a Party other than the Registrant  ¨

Check the appropriate box:

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):

ARADIGM CORPORATION

3929 Point Eden Way

Hayward, California, 94545

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To Be Held On April 18, 2014May 14, 2015

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, April 18, 2014,Thursday, May 14, 2015, at 9:00 a.m. local time, at the offices of Grifols, Inc., 2410 LillyvaleKing & Spalding LLP located at 1185 Avenue Los Angeles, CA 90032of the Americas, New York, NY 10036 for the following purposes:

1. To elect the six 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 our Amended and Restated ArticlesAradigm’s Employee Stock Purchase Plan to increase the aggregate number of Incorporation to effect a reverseshares of Aradigm’s common stock split of our issued and outstanding common stock.authorized for issuance under such plan by 110,000 shares.

3. To approve Aradigm’s 2015 Equity Incentive Plan.

4. To ratify the selection of OUM & Co. LLP as Aradigm’s independent registered public accounting firm for the fiscal year ending December 31, 2014.

4. To hold a non-binding, advisory vote to approve the executive compensation of the Company’s named executive officers.2015.

5. To hold a non-binding, advisory vote on the frequency of future advisory votes on the executive compensation of the Company’s named executive officers.

6. 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 14, 2014.18, 2015. Only shareholders of record at the close of business on thatthe record date may vote at the annual meeting or any adjournment thereof.

By Order of the Board of Directors

Igor Gonda, Ph.D.

President and Chief Executive Officer

Hayward, California

March 28, 201419, 2015

You are cordially invitedYour vote is very important to attend the meeting in person.us. Whether or not you expect to attend the annual meeting, please complete, date, sign and returnwe encourage you to vote your shares in advance. Shareholders can submit their votes over the enclosed proxy as promptly as possible in order to ensure your representationInternet at the meeting. A return envelope (which is postage prepaid if mailedweb address noted in the United States) has beenNotice of Internet Availability of Proxy Materials or proxy card (if you received a proxy card), by telephone through the number noted in the proxy card (if you received a proxy card), or by signing and dating your proxy card (if you received a proxy card) and mailing it in the prepaid, addressed envelope 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

ARADIGM CORPORATION

3929 Point Eden Way

Hayward, California, 94545

PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS

To Be Held On April 18, 2014May 14, 2015

QUESTIONS AND ANSWERS ABOUT THIS PROXY MATERIAL AND VOTING

Why am I receiving these materials?

We have sent you thesethis proxy materialsstatement and proxy card because the Board of Directors (the “Board”) of Aradigm Corporation is soliciting your proxy to vote at the 20142015 Annual Meeting of Shareholders.Shareholders (the “annual meeting”). 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 annual 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 March 31, 20142015 to all shareholders of record entitled to vote at the annual meeting.

Why did I receive a Notice of Internet Availability of Proxy Materials in the mail instead of a printed set of proxy materials?

Pursuant to rules adopted by the Securities and Exchange Commission (the “SEC”), we are permitted to furnish our proxy materials over the Internet to our shareholders by delivering a Notice of Internet Availability of Proxy Materials. The Notice of Internet Availability of Proxy Materials instructs you on how to access and review this proxy statement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 over the Internet. The Notice of Internet Availability of Proxy Materials also instructs you on how you may submit your proxy over the Internet. We believe that this e-proxy process expedites shareholders’ receipt of proxy materials, while also lowering our costs and reducing the environmental impact of our annual meeting. We have used this e-proxy process to furnish proxy materials to certain of our shareholders over the Internet.

If you received a Notice of Internet Availability of Proxy Materials in the mail and would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting these materials provided in the Notice of Internet Availability of Proxy Materials.

Who can vote at the annual meeting?

Only shareholders of record atas of the close of business on March 14, 201418, 2015 (the “record date”) will be entitled to vote at the annual meeting. On thisthe record date, there were 587,252,90414,726,960 shares of our Common Stock outstanding and entitled to vote.

What am I voting on?

There are four matters scheduled for a vote:

How do I vote?

Shareholder of Record: Shares Registered in Your NameRecord.

If on March 14, 2014the record date 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 have four voting options. You may vote:

If you have Internet access, we encourage you to vote in person atover the Internet. It is convenient and it saves us significant postage and processing costs. In addition, when you vote by proxy over the Internet or by telephone prior to the meeting ordate, your proxy vote is recorded immediately and there is no risk that postal delays will cause your proxy vote to arrive late and, therefore, not be counted.

Internet and telephone voting facilities for shareholders of record are available 24 hours a day and will close at 11:59 p.m. Eastern Daylight Time on Wednesday, May 13, 2015. The Internet and telephone voting procedures are designed to verify that you are a shareholder of record by use of a control number and to enable you to confirm that your voting instructions have been properly recorded. If you vote by proxy. Internet or telephone, you do not need to return your proxy card (if you received a proxy card).

Whether or not you plan to attend the meeting and vote in person, we urge you to fill outhave your proxy vote recorded in advance of the meeting. If you attend the annual meeting and returnvote at the enclosedannual meeting, any previous proxy cardvotes that you submitted, whether by Internet, phone or mail, will be superseded by the vote that you cast at the annual meeting. The Board recommends that you vote using one of the other voting methods, since it is not practical for most shareholders to ensureattend the annual meeting. In any event, the method by which you vote your proxy will not limit your right to vote is counted.at the annual meeting if you decide to attend in person.

Beneficial Owner:Owner of Shares RegisteredHeld in the Name of a Broker or BankStreet Name.

If on March 14, 2014the record date your shares were held in an account at a brokerage firm, bank dealer, or other similar organization,nominee, then you are the beneficial owner of shares held in “street name”name.” If your shares are held in street name, please refer to the instructions provided by your brokerage firm, bank or other nominee provide regarding how to vote your shares or to revoke your voting instructions. The availability of telephone and theseInternet voting depends on the voting processes of the broker, bank or other nominee. If you are a street name shareholder, you must obtain a proxy, materials are being forwarded to you by that organization. The organization holdingexecuted in your account is consideredfavor, from the shareholderbank, broker or other holder of record for purposes of votingthrough which you hold your shares to vote in person at the annual meeting. As a beneficial owner,The Board recommends that you havevote using one of the right to direct your broker or other agent regarding how to vote the shares in your account. You are also invitedvoting methods, since it is not practical for most shareholders to attend the annual meeting. However, sinceIn any event, the method by which you are not the shareholder of record, you may not vote your shares in personproxy will not limit your right to vote at the annual meeting unlessif you request and obtain a valid proxy from your broker or other agent.decide to attend in person.

What amHow can I voting on?

There are five matters scheduled for a vote:

How do I vote?

Youdirectors, you may either vote “For” all the nominees for director or you may “Withhold” your vote for any nominee you specify. For the other matters to be voted on, you may vote “For” or “Against” or abstain from voting. For the frequency of future advisory votes on executive compensation

The Board recommends that you vote “For” all nominees for director and “For” each of the Company’s named executive officers, you may vote “every one year”, “every two years”, “every three years” or abstain from voting. The procedures for voting are fairly simple:other proposals being presented to our shareholders as discussed in this proxy statement.

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.

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 14, 2014. However, you may be able to cumulate your votes for Proposal 1, the election 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 six 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.record date.

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 election of all six nominees for director, “For” the amendment to the ArticlesEmployee Stock Purchase Plan, “For” the approval of Incorporation to effect the reverse stock split,2015 Equity Incentive Plan, and “For” the ratification of OUM & Co. LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2014, “For” the approval of the executive compensation and for an advisory vote on executive compensation every three years.2015. 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 coordinates proxy materials distribution and solicits proxies.

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 each of 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 canIf you are a shareholder of record and you vote by proxy using any method, you may later revoke your proxy and change your vote at any time before the final votepolls close at the annual meeting. If you are the record holder of the shares, youYou may revoke your proxy in any one of following ways:do this by:

YourOnly the most currentrecent proxy card isvote will be counted, and all others will be discarded regardless of the one that is counted.method of voting.

If your sharesyou are a beneficial owner of share held by your broker or bank as a nominee or agent,in street name, you should follow the instructions provided by your brokerbrokerage firm, bank or bank.other nominee to change your vote or revoke your proxy.

When are shareholder proposals due for next year’s annual meeting?

To be considered for inclusion in next year’s proxy materials, your proposal must be submitted in writing by November 21, 2014,December 14, 2015, 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 year’s proxy materials or nominate a director, you must do so no later than the close of business on February 18, 2015March 14, 2016 and no earlier than the close of business on January 19, 2015.February 12, 2016. 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 SEC’s 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 election 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 counting towards the vote total for such proposal, thus abstentions and broker non-votes may count as “Against” voteswill not affect the outcome of the vote for certain proposals.each proposal.

If your shares are held by your broker as your nominee (that is, in “street name”),street name, you will need to obtain a proxy form from the institution that holdsyour brokerage firm, bank or other nominee holding your shares and follow the instructions included on that form regarding how to instruct your brokerbrokerage firm, bank or other nominee to vote your shares. If you do not give instructions to your broker, your brokerYour brokerage firm, bank or other nominee can vote your shares with respect to “discretionary” items but not with respectif you fail to “non-discretionary” items.give instructions to your brokerage firm, bank or other nominee regarding how to vote your shares. On non-

discretionarynon-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”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,” which includes Proposal 4 (ratifying the selection of OUM & Co. LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2015), but not with respect to “non-routine” matters. UnderThe remaining proposals listed in this proxy statement are considered “non-routine” 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, 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?

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 587,252,90414,726,960 shares of Common Stock outstanding and entitled to vote. Thus, the holders of 293,626,4537,363,481 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?

This proxy statement and Annual Report on Form 10-K are available at www.aradigm.com.

PROPOSAL 1

ELECTION OF DIRECTORS

Our Board of Directors (the “Board”) currently consists of six directors. There are six nominees for director this year, including a new nominee — Frederick M. Hudson. Mr. Hudson was recommended to our Nominating and Corporate Governance Committee as a potential Board nominee by one of our current directors.year. Each director to be electedreelected will hold office until the next annual meeting2016 Annual Meeting of Shareholders and until his successor is elected, or until the director’s death, resignation or removal. Each of the nominees listed below is currently a member of our Board, withBoard. It is our policy to invite nominees to attend the exceptionannual meeting and to encourage attendance at meetings at which substantial shareholder attendance is expected. All of Mr. Hudson. Dr. Siebert, Mr. Thompson and Dr. Gondathe nominees for reelection as a director at the annual meeting attended the 20132014 Annual Meeting of Shareholders. Mr. Bell, Mr. Morgan and Mr. Hudson did not attend the 2013 Annual Meeting of Shareholders, as they were not directors at the time of the meeting.

The six candidates receiving the highest number of affirmative votes by the holders of shares entitled to be voted will be elected.elected as directors. Shares represented by executed proxies will be voted, if authority to do so is not withheld, for the election of the six nominees named below. If any nominee becomes unavailable for election 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 election 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 February 28, 2014. Each nominee is currently serving as a director of Aradigm, with the exception of Mr. Hudson.2015.

David Bell has been a director since August 2013. He currently serves as General Counsel and Vice President of Corporate Operations and Development of Grifols and Corporate Vice President of Grifols. He joined Grifols when it entered the U.S. market in 2003. Prior to joining Grifols, Mr. Bell was general counsel to Alpha Therapeutic Corporation following a 23-year career as a corporate litigator. Mr. Bell has been proposed for nomination by Grifols pursuant to its rights under the Governance Agreement entered into with us in August 2013 (the “Governance Agreement”). We believe that Mr. Bell is qualified to serve as a member of our board of directors because of his legal experience, experience in the pharmaceutical industry and the perspective he brings as an affiliate of one of our major shareholders.

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. We believe that Dr. Gonda possesses specific attributes that qualify him to serve as a member of our board of directors, including his experience in leading publicly traded pharmaceutical companies, his tenure with our Company and his knowledge of the pharmaceutical industry. Under the terms of the Governance Agreement, Dr. Gonda’s service on the Board is required for as long as he remains our President and Chief Executive Officer.

Frederick M. Hudson is standing for election ashas been a director at our Annual Meeting of Shareholders onsince April 18, 2014. Mr. Hudson retired as a partner in charge of the health care audit practice for the Washington—Washington — Baltimore business unit of the accounting firm of KPMG, LLP on January 1, 2006 after a 37-year career with the firm. Mr. Hudson is currently a Director of Supernus Pharmaceuticals, Inc. He also serves in a board capacity with the Board of Financial Administration of the Catholic Archdiocese of Baltimore and the Board of Trustees of the Maryland Historical Society.Baltimore. He chairs the audit committees of each of the Boards of Directors of Supernus Pharmaceuticals, Inc., Educate, Inc. and chairs the finance committee of GBMC Healthcare, Inc. and its affiliate, Greater Baltimore Medical Center. He is also a director of Maxim Health Care Services, Inc. Mr. Hudson received a B.S. in Accounting from Loyola University Maryland and is a Certified Public Accountant. Mr. Hudson is Chairman of our Audit Committee and the designated “audit committee financial expert”. We believe that Mr. Hudson’s extensive accounting and health care audit experience qualify him to serve as a member of our board of directors.

Lafmin Morgan has been a director since August 2013. He currently serves as President of Global MarketingBioscience and Hospital Divisions of Grifols and Corporate Vice President of Grifols. Previously, he served as Vice President of U.S. Product Management of Talecris Biotherapeutics Holdings Corp, a wholly owned indirect subsidiary of Grifols (“Talecris”). Mr. Morgan joined Talecris from GlaxoSmithKline, where he served for more than twenty years in finance, sales, commercial strategy and marketing roles across multiple therapeutic areas. Mr. Morgan has been proposed for nomination by Grifols pursuant to its rights under the Governance Agreement. We believe that Mr. Morgan is qualified to serve as a member of our board of directors because of his experience in the pharmaceutical industry and the perspective he brings as an affiliate of one of our major shareholders.

John M. Siebert, Ph.D.has been a director since November 2006. From May 2014 to present, Dr. Siebert ishas been CEO of Chase Pharmaceuticals Corporation. Dr. Siebert served as a Partner and Chief Operating Officer of New Rhein Healthcare Investors, LLC.LLC from 2009 to 2014. 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. 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 headed a division R&D and Quality group at Bayer Corporation. Prior to that, Dr. Siebert was employed by E.R. Squibb & Sons, Inc., G.D. Searle & Co., Gillette and The Procter & Gamble Company. Dr. Siebert holds a B.S. in Chemistry from Illinois Benedictine University, an M.S. in Organic Chemistry from Wichita State University and a Ph.D. in Organic Chemistry from the University of Missouri. Dr. Siebert is a Director of Supernus Pharmaceuticals, Inc., a publicly traded pharmaceutical company. Dr. Siebert serves on the Audit Committee and Compensation Committees at Supernus. He is also a member of the Board of Directors ofAccu-Break Pharmaceuticals. Dr. Siebert is the Chairman of our Audit Committee and the designated “audit committee financial expert”. We believe that Dr. Siebert is qualified to serve as a member of our board of directors because of his experience as an executive officer with both publicly traded and private corporations in the pharmaceutical industry.

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 June 2007, Mr. Thompson served as 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 a director and chairman of the board of QuestcorMallinckrodt Pharmaceuticals, Inc., a publicly traded pharmaceutical company.

Mr. Thompson is also a director of GenZ Corp., a private agribusiness company. We believe that Mr. Thompson possesses specific attributes that qualify him to serve as a member of our board of directors, including his experience as both an executive officer and director of publicly traded and private corporations in the pharmaceutical industry.

THE BOARD OF DIRECTORS RECOMMENDS

A VOTE IN FAVOR OF“FOR” EACH NAMED NOMINEE.

Qualifications of Directors and Nominees

As part of the biographies for each director, we have disclosed the specific experience, qualifications, attributes or skills that led to the conclusion that our directors should continue to serve as one of our directors at this time.

We believe that our directors 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, legal 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 six director nominees are independent under the listing standards of the Nasdaq Capital Market (“Nasdaq”) and our Nominating and Corporate Governance Committee believes that all three 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.

Independence of the Board of Directors

We have chosenare subject to apply the listing standards of NasdaqThe NASDAQ Capital Market (“NASDAQ”) in determining the independence of our directors. The Board consults with counsel to ensure that the Board’s 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 Nasdaq,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 threefour directors and director nominee are independent within the meaning of the applicable NasdaqNASDAQ listing standards: Mr. Hudson, Mr. Morgan, Dr. Siebert, and Mr. Thompson. In making this determination, the Board found that none of these directors or director nominees had a material or disqualifying relationship with the Company. Mr. Bell is not an independent director within the meaning of the applicable NASDAQ standards by virtue of the position he holds with Grifols. Dr. Gonda, our President and Chief Executive Officer, is not an independent director within the meaning of the applicable NasdaqNASDAQ standards by virtue of his employment with Aradigm. In addition, Frank H. Barker, Tamar Howson and Helen E. Short, who each served as a director for a portion of 2013, were2014 and did not seek re-election at the 2014 Annual Meeting of Shareholders, was independent within the meaning of the applicable NasdaqNASDAQ listing standards.

Board Leadership Structure and Role in Risk Oversight

Mr. Thompson is our Chairman of the Board and he presides at all Board of Directors 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 administeredmanagement primarily through the following:

Meetings of the Board of Directors

The Board held 127 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 they served during the year throughout their tenure as a director, other than Mr. Bell who was unable to attend one of the two Board and committee meetings held during his tenure as a director.

In fiscal 2013,2014, our independent directors met or held telephonic Board meetings 54 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 Company and the Board of Directors

We have implemented a process by which shareholders may communicate with the Company. Shareholders who wish to communicate with the Company may send an email toinvestor@aradigm.com or may telephone the investor relations line at the Company at 510-265-8800. We have also implemented a process by which shareholders may communicate with the Board or any of its directors. Shareholders who wish to communicate with the Board or the independent directors 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.investor.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 current membership information as well as membership and meeting information for each of the Board committees at December 31, 2013:during 2014:

Below is a description of each committee of the Board. The Board has determined that each member of each committee meets the applicable NasdaqNASDAQ rules and regulations regarding “independence” and that each member is free of any relationship that would impair his or her individual exercise of independent judgment with regard to Aradigm.our business and operations.

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 overseeoversees 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. In this role, it determines and approves the engagement of our independent registered public accounting firm and 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. The Committee 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 effectiveness of internal controls over financial reporting, and 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. The Committee 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: Ms. Short, Mr. Thompson andHudson (chair), Dr. Siebert (chair).and Mr. Thompson. The Audit Committee is governed by a written charter that is available to shareholders on our website at www.aradigm.com.investor.aradigm.com.

The Board annually reviews the NasdaqNASDAQ 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 5605(c)(2) of the Nasdaqaccordance with NASDAQ listing standards).standards. The Board has determined that Dr. SiebertMr. Hudson 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. Siebert’s level of knowledge and experience based on a number of factors, including formal education and executive experience.SEC.

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. TwoThree directors currently comprise the Compensation Committee: Messrs. Morgan and Thompson and Dr. Siebert (chair) and Mr. Thompson.. All members of our Compensation Committee are independent (as independence is currently defined in Rule 5605(a)(2) of the Nasdaqaccordance with NASDAQ listing standards).standards. The Compensation Committee is governed by a written charter that is available to shareholders on our website at www.aradigm.com.investor.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 threetwo directors: Dr. Siebert and Messrs. Bell andMr. Thompson (chair). All current members of the Nominating and Corporate Governance Committee are independent (as independence is currently defined in Rule 5605(a)(2) of the Nasdaqaccordance with NASDAQ listing standards).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.investor.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 performs periodic Board and Committee self-assessments to provide directors an opportunity to critique Board and Committee performance. The Committee also determines whether the nominee would be independent, which determination is based upon applicable NasdaqNASDAQ 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 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 nominee’s business

experience for at least the previous five years, complete biographical information, a description of the proposed nominee’s 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. 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 or by the current Committee process. 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. See “Qualifications of Directors and Nominees” for a description of the diversity of our current directors and nominees.

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, 20132014 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 Auditor’s 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 firm’s communications with the Audit Committee concerning independence, and has discussed with the independent registered public accounting firm the independent registered public accounting firm’s independence. Based on the foregoing, the Audit Committee has recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013.2014.

From the members of the Audit Committee of Aradigm Corporation:

Helen E. Short(**)Frederick M. Hudson, Chairman

John M. Siebert Chairman

Virgil D. Thompson

PROPOSAL 2

APPROVAL OF AMENDMENT TO ARTICLES OF INCORPORATION TO EFFECT AEMPLOYEE STOCK PURCHASE PLAN, AS AMENDED

REVERSE STOCK SPLIT

To approve an amendment to the Company’s Amended and Restated Articles of Incorporation to authorizeIn April 1996, the Board adopted, and the shareholders subsequently approved, the Employee Stock Purchase Plan (“Purchase Plan”). A total of Directors of the Company to effect a reverse stock split176,250 shares (split adjusted) of the Company’s common stockCommon Stock have previously been authorized for issuance under the Purchase Plan. The most recent addition of shares to the plan was approved by shareholders at the 2013 Annual Meeting of Shareholders. At March 3, 2015, an aggregate of 141,066 shares had been issued under the Purchase Plan and 35,184 shares remained for the grant of future rights under the Purchase Plan.

During the last fiscal year, shares were purchased by employees and officers at prices ranging from $4.40 to $8.15 in the following amounts under the Purchase Plan: all current executive officers as a ratio of not less than 1-for-10group (7,570 shares), and not more than 1-for-40, withall employees (excluding current executive officers) as a group (25,595 shares).

In March 2015, the Board of the Company having the discretion as to whether or not the reverse split is to be effected at any time prioradopted an amendment to the six month anniversary datePurchase Plan, subject to shareholder approval, to increase the number of this meeting of shareholders,shares authorized for issuance under the Purchase Plan by 110,000 to 286,250 shares. This amendment is intended to afford the Company greater flexibility in providing employees with stock incentives and withensures that the exact ratio of any reverse splitCompany can continue to be setprovide such incentives at a whole number within the above range aslevels determined appropriate by the Company’s BoardBoard.

The following summary description of the Purchase Plan, as amended, is qualified in its discretion (the “Reverse Split Proposal”).entirety by reference to the full text of the Purchase Plan that is attached as Appendix A to this proxy statement, 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 amendment. Approval of Proposal Two requires the affirmative vote of at a majority of the total shares outstanding on the Record Date. As a result, abstentions and broker non-votes will have the same effectPurchase Plan, as “Against” votes.amended.

THE BOARD OF DIRECTORS RECOMMENDS

A VOTE IN FAVOR OF“FOR” PROPOSAL 2.

The essential features of the Purchase Plan, as amended, are outlined below:

GeneralPurpose

Our BoardThe purpose of the Purchase Plan is proposing that our shareholders approveto provide a proposal to authorize ourmeans by which employees of the Company (and any parent or subsidiary of the Company designated by the Board to effectparticipate in the Purchase Plan) may be given an opportunity to purchase Common Stock of the Company through payroll deductions, to assist the Company in retaining the services of its employees, to secure and retain the services of new employees, and to provide incentives for such persons to exert maximum efforts for the success of the Company. At March 16, 2015, all of the Company’s approximately 20 employees were eligible to participate in the Purchase Plan.

The rights to purchase Common Stock granted under the Purchase Plan are intended to qualify as options issued under an “employee stock purchase plan” as that term is defined in Section 423(b) of the Code.

Administration

The Purchase Plan is administered by the Board, which has the final power to construe and interpret the Purchase Plan and the rights granted under it. The Board has the power, subject to the provisions of the Purchase Plan, to determine when and how rights to purchase Common Stock of the Company will be granted, the provisions of each offering of such rights (which need not be identical), and whether any parent or subsidiary of the Company shall be eligible to participate in such plan. The Board has the power, which it has not exercised, to delegate administration of such plan to a reversecommittee of not less than two Board members. The Board may abolish any such committee at any time and revest in itself the administration of the Purchase Plan.

Offerings

The Purchase Plan is implemented by offerings of rights to all eligible employees from time to time by the Board. Generally, each such offering is two years in duration. The Board may set the duration of an offering for a period of time not to exceed 27 months.

Eligibility

Any person who is customarily employed at least 20 hours per week and five months per calendar year by the Company (or by any parent or subsidiary of the Company designated from time to time by the Board) on the first day of an offering period is eligible to participate in that offering under the Purchase Plan, provided such employee has been in the continuous employ of the Company for at least 10 days preceding the first day of the offering period.

Notwithstanding the foregoing, no employee is eligible for the grant of any rights under the Purchase Plan if, immediately after such grant, the employee would own, directly or indirectly, stock splitpossessing 5% or more of the total combined voting power or value of all classes of stock of the Company or of any parent or subsidiary of the Company (including any stock which such employee may purchase under all outstanding rights and options), nor will any employee be granted rights that would permit him or her to buy more than $25,000 worth of stock (determined at the fair market value of the shares at the time such rights are granted) under all employee stock purchase plans of ourthe Company in any calendar year.

Participation in the Plan

Eligible employees become participants in the Purchase Plan by delivering to the Company, prior to the date selected by the Board as the offering date for the offering, an agreement authorizing payroll deductions of up to 15% of such employee’s total compensation during the purchase period.

Purchase Price

The purchase price per share at which shares are sold in an offering under the Purchase Plan is the lower of (i) 85% of the fair market value of a share of Common Stock at any ratio at its discretion, within a range of 1-for-10 to 1-for-40, and to grant the Board discretionary authority, within six months fromon the date of commencement of the Annual Meeting,offering, or (ii) 85% of the fair market value of a share of Common Stock on any purchase date.

Payment of Purchase Price; Payroll Deductions

The purchase price of the shares is accumulated by payroll deductions over the offering period. At any time during the purchase period, a participant may reduce or terminate his or her payroll deductions. A participant may not increase or begin such payroll deductions after the beginning of any purchase period, except, if the Board provides, in the case of an employee who first becomes eligible to determine whetherparticipate as of a date specified during the purchase period. All payroll deductions made for a participant are credited to effecthis or her account under the splitPurchase Plan and deposited with the general funds of the Company. A participant may not make any additional payments into such account.

Purchase of Stock

By executing an agreement to participate in the Purchase Plan, the employee is entitled to purchase shares under such plan. In connection with offerings made under the Purchase Plan, the Board specifies a maximum number of shares any employee may be granted the right to purchase and the exact wholemaximum aggregate number ratio withinof shares which may be purchased pursuant to such offering by all participants. If the rangeaggregate number of shares to be purchased upon exercise of rights granted in the offering would exceed the maximum aggregate number, the Board would make a pro rata allocation of shares available in a uniform and equitable manner. Unless the employee’s participation is discontinued, his or her right to purchase shares is exercised automatically at which the splitend of the purchase period at the applicable price. See “Withdrawal” below.

Withdrawal

While each participant in the Purchase Plan is required to sign an agreement authorizing payroll deductions, the participant may withdraw from a given offering by terminating his or her payroll deductions and by delivering to the Company a notice of withdrawal from the Purchase Plan. Such withdrawal may be elected at any time prior to the end of the applicable offering period.

Upon any withdrawal from an offering by the employee, the Company will distribute to the employee his or her accumulated payroll deductions without interest, less any accumulated deductions previously applied to the purchase of stock on the employee’s behalf during such offering, and such employee’s interest in the offering will be effected. Further,automatically terminated. The employee is not entitled to again participate in such offering. An employee’s withdrawal from an offering will not have any effect upon such employee’s eligibility to participate in subsequent offerings under the Purchase Plan.

Termination of Employment

Rights granted pursuant to any offering under the Purchase Plan terminate immediately upon cessation of an employee’s employment for any reason, and the Company will distribute to such employee all of his or her accumulated payroll deductions, without interest.

Restrictions on Transfer

Rights granted under the Purchase Plan are not transferable and may be exercised only by the person to whom such rights are granted.

Duration, Amendment and Termination

The Board may, in its discretion, suspend or terminate the Purchase Plan at any time.

The Board may amend the Purchase Plan at any time. Any amendment of the Purchase Plan must be approved by the shareholders within 12 months of its adoption by the Board if the amendment would (i) increase the number of shares of Common Stock that are authorized for issuance under our amended and restated articles of incorporation would be reduced proportionately based on the exchange ratio of the reverse stock split. Our Board believes that approval of a proposal providing the Board with this generalized grant of authority with respect to setting the split ratio, rather than mere approval of a pre-defined reverse stock split, will give the Board flexibility to set the ratio in accordance with current market conditions and therefore allow the Board to act in the best interests of the Company and our shareholders.

If our shareholders grant the Board the authority to effect a reverse stock split, we would have the ability to file a certificate of amendment to the Company’s articles of incorporation with the California Secretary of State to effect the proposed reverse stock split. The form of certificate of amendment is attached to this proxy statement asAppendix A, with the text of the reverse split amendment reflected therein in paragraph “FIRST”, which text may be altered for any changes required by the California Secretary of State and changes deemed necessary or advisable by the Board to give effect to this proposal. Our Board has approved and declared advisable the proposed certificate of amendment. If the proposed reverse stock split is implemented, then the number of issued and outstanding shares of our Common Stock would be reduced in accordance with the ratio selected by the Board.

Purpose of Proposed Reverse Stock Split

The Board’s primary objective in asking for the authority to effect a reverse split is to increase the per share trading price of our Common Stock. The Board believes that a reverse stock split would put the Company in a better position to have its shares listed on The NASDAQ Capital Market (“Nasdaq”), facilitate higher levels of institutional stock ownership (as investment policies generally prohibit investments in lower-priced securities) and better enable the Company to raise funds to finance development and operations.

Our Common Stock is currently quoted on OTCQB Marketplace, operated by the OTC Markets Group, Inc. (“OTCQB”). Although the OTCQB does not have any listing standards with respect to trading price of our Common Stock, we are seeking to have our shares of Common Stock listed on Nasdaq and Nasdaq has minimum listing standards. Nasdaq requires, among other items, an initial bid price of least $4.00 (or, in some

circumstances, closing prices of $3.00 or $2.00) per share and following initial listing, maintenance of a continued price of at least $1.00 per share.

The Board also believes that a higher per share trading price of our Common Stock would improve the perception of our Common Stock as an investment security – especially for funds that set specific trading requirements for any stock they buy as outlined below, reset our stock price to more normalized trading levels in the face of potentially extended market dislocation and reduce shareholder transaction costs because investors would pay lower commissions to trade a fixed dollar amount of our stock if our stock price were higher than they would if our stock price were lower. Additionally, the Board believes that a higher per share trading price of our Common Stock may encourage investor interest and improve the marketability of our Common Stock to a broader range of investors, and thus improve liquidity. Because of the trading volatility often associated with low-priced stocks, many brokerage firms and institutional investors have internal policies and practices that either prohibit them from investing in low-priced stocks or tend to discourage individual brokers from recommending low-priced stocks to their customers. The Board believes that the anticipated higher trading price resulting from a reverse stock split may enable institutional investors and brokerage firms with policies and practices such as those described above to invest in our Common Stock.

The purpose of seeking shareholder approval of a range of whole number exchange ratios from 1-for-10 to 1-for-40 (rather than a fixed exchange ratio) is to provide the Company with the flexibility to achieve the desired results of the reverse stock split. If the shareholders approve this proposal, the Company would effect a reverse stock split only upon the Board determination that a reverse stock split would be in the best interests of the Company at that time. If the Company were to effect a reverse stock split, the Board would set the timing for such a split and select the specific ratio within the permitted range. No further action on the part of shareholders would be required to either implement or abandon the reverse stock split. The Board reserves its right to elect not to proceed with the reverse stock split if it determines, in its sole discretion, that this proposal is no longer in the best interests of the Company.

You should consider that, although our Board believes that a reverse stock split will in fact increase the price of our Common Stock, in many cases, because of variables outside of a Company’s control (such as market volatility, investor response to the news of a proposed reverse stock split and the general economic environment), the market price of a Company’s shares of Common Stock may in fact decline in value after a reverse stock split. You should also keep in mind that the implementation of a reverse stock split does not have an effect on the actual or intrinsic value of our business or a shareholder’s proportional ownership in our Company. However, should the overall value of our Common Stock decline after the proposed reverse stock split, then the actual or intrinsic value of the shares of our Common Stock held by you will also proportionately decrease as a result of the overall decline in value.

Potential Effects of the Proposed Reverse Stock Split

The immediate effect of a reverse stock split would be to reduce the number of shares of our Common Stock outstanding and to increase the trading price of our Common Stock. Notwithstanding the decrease in the number of outstanding shares following the proposed reverse stock split, our Board does not intend for this transaction to be the first step in a “going private transaction” within the meaning of Rule 13e-3 of the Exchange Act.

However, we cannot predict the effect of the reverse stock split upon the trading price of our Common Stock over an extended period, and in many cases, the trading price of a Company’s Common Stock following a reverse stock split declines. We cannot assure you that the trading price of our Common Stock after the reverse stock split will rise in an inverse proportion to the reduction in the number of shares of our Common Stock outstanding as a result of such reverse stock split. Also, we cannot assure you that a reverse stock split would lead to a sustained increase in the trading price of our Common Stock. The trading price of our Common Stock may change due to a variety of other factors, including our operating results and other factors related to our business and general market conditions.

Effects on Ownership by Individual Shareholders. If we implement a reverse stock split, the number of shares of our Common Stock held by each shareholder would be reduced by multiplying the number of shares held immediately before the reverse stock split by the appropriate ratio and then rounding down to the nearest whole share. We will pay cash to each shareholder in lieu of any fractional interest in a share to which each shareholder would otherwise be entitled as a result of the reverse stock split, as described in further detail below. The reverse stock split would not affect any shareholder’s percentage ownership interest in our Company or proportionate voting power, except to the extent that interests in fractional shares would be paid in cash.

Effect on Options, Warrants and Convertible Notes. In addition to adjusting the number of shares of our Common Stock, we would adjust all shares underlying any of our outstanding options, warrants and convertible notes as a result of the reverse stock split, as required by the terms of these securities. In particular, we would reduce the conversion ratio for each instrument, and would increase the applicable exercise price or conversion price in accordance with the terms of each instrument and based on the 1-for-10 to 1-for-40 exchange ratio of the reverse stock split. Also, we would reduce the number of shares reserved for issuance under our existing stock option plans proportionately based on the exchange ratioPurchase Plan, (ii) modify the requirements relating to eligibility for participation in the Purchase Plan, or (iii) modify any other provision of the reverse stock split. A reverse stock splitPurchase Plan in a manner that would not otherwise affect any ofmaterially increase the rights currentlybenefits accruing to holders of our Common Stock, options or warrants exercisable for, or convertible notes convertible into, our Common Stock.

Other Effects on Outstanding Shares. If we implement a reverse stock split, the rights pertaining to the outstanding shares of our Common Stock would be unchanged after the reverse stock split. Each share of our Common Stock issued following a reverse stock split would be fully paid and non-assessable.

Any reverse stock split would result in some shareholders owning “odd-lots” of less than 100 shares of our Common Stock. Brokerage commissions and other costs of transactions in odd-lots are generally higher than the costs of transactions in “round-lots” of even multiples of 100 shares.

Our Common Stock is currently registeredparticipants under the Exchange Act. As a result, we are subjectPurchase Plan, if such approval is required in order to comply with the periodic reporting and other requirements of the Exchange Act. The proposed reverse stock split would not affect the registration of our Common StockRule 16b-3 under the Exchange Act.

Authorized SharesRights granted before amendment or termination of Stockthe Purchase Plan will not be altered or impaired by any amendment or termination of such plan without consent of the person to whom such rights were granted.

Effect of Certain Corporate Events

The proposed reverse stock split would affect all issued andIn the event of a dissolution, liquidation or specified type of merger of the Company, the surviving corporation either will assume the rights under the Purchase Plan or substitute similar rights, or the exercise date of any ongoing offering will be accelerated such that the outstanding shares of ourrights may be exercised immediately prior to, or concurrent with, any such event.

Stock Subject to Purchase Plan

If rights granted under the Purchase Plan expire, lapse or otherwise terminate without being exercised, the Common Stock and outstandingnot purchased under such rights to acquire Common Stock. In addition, we would reduce the number of shares of Common Stock authorizedagain becomes available for issuance under our amended and restated articles of incorporation at the same proportion as the exchange ratio of the reverse stock split. As of March 14, 2014, we had: (i) 1,001,830,627 shares of authorized Common Stock, of which 587,252,904 shares of Common Stock were issued and outstanding and (ii) 5,000,000 shares of authorized Preferred Stock, of which none were issued and outstanding. Furthermore, if we issue additional shares, the ownership interest of holders of Common Stock will be diluted.

Procedure for Effecting the Proposed Reverse Stock Split

If the shareholders approve the proposal, and our Board determines to effect a reverse stock split, we will file with the California Secretary of State a certificate of amendment to our articles of incorporation. The reverse stock split will become effective at the time and on the date of filing of, or at such later time as is specified in, the certificate of amendment, which we refer to as the “effective time” and “effective date,” respectively. Beginning at the effective time, each book entry representing shares of Common Stock will be deemed for all corporate purposes to evidence ownership of the number of whole shares into which the shares previously represented by the book entry were combined pursuant to the reverse stock split.

Shareholders holding shares of our Common Stock in certificated form will be sent a transmittal letter by Computershare, our transfer agent, after the effective time. The letter of transmittal will contain instructions onplan.

how a shareholder should surrender his, her or its certificate(s) representing shares of our Common Stock (the “Old Certificates”) to the transfer agent in exchange for certificates representing the appropriate number of whole shares of post-reverse stock split Common Stock (the “New Certificates”). No New Certificates will be issued to a shareholder until such shareholder has surrendered all Old Certificates, together with a properly completed and executed letter of transmittal, to the transfer agent. No shareholder will be required to pay a transfer or other fee to exchange his, her or its Old Certificates. Shareholders will then receive a New Certificate(s) representing the number of whole shares of Common Stock that they are entitled as a result of the reverse stock split, subject to the treatment of fractional shares described above. Until surrendered, we will deem outstanding Old Certificates held by shareholders to be cancelled and only to represent the number of whole shares of post-reverse stock split Common Stock to which these shareholders are entitled, subject to the treatment of fractional shares. Any Old Certificates submitted for exchange, whether because of a sale, transfer or other disposition of stock, will automatically be exchanged for New Certificates. If an Old Certificate has a restrictive legend on the back of the Old Certificate(s), the New Certificate will be issued with the same restrictive legends that are on the back of the Old Certificate(s).SHAREHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATES AND SHOULD NOT SUBMIT ANY STOCK CERTIFICATES UNTIL REQUESTED TO DO SO.

Upon the reverse stock split, we intend to treat shareholders holding our Common Stock in “street name,” through a bank, broker or other nominee, in the same manner as registered shareholders whose shares are registered in their names. Banks, brokers or other nominees will be instructed to effect the reverse stock split for their beneficial holders holding our Common Stock in “street name.” However, these banks, brokers or other nominees may have different procedures than registered shareholders for processing the reverse stock split. If you hold your shares with a bank, broker or other nominee and if you have any questions in this regard, we encourage you to contact your nominee.

Fractional Shares

We will not issue fractional shares in connection with the reverse stock split. Instead, any fractional share resulting from the reverse stock split because the shareholder owns a number of shares not evenly divisible by the exchange ratio will be cancelled, with the holder to receive cash in lieu of the fractional share. The cash amount to be paid to each shareholder will be equal to the resulting fractional interest in one share of our Common Stock to which the shareholder would otherwise be entitled, multiplied by the closing trading price of our Common Stock on the trading day immediately preceding the effective date of the reverse stock split. We do not anticipate that the aggregate cash amount paid by the Company for fractional interests will be material to the Company.

No Appraisal Rights

No appraisal rights are available under the California Corporations Code or under our articles of incorporation or our bylaws with respect to the reverse stock split. There may exist other rights or actions under state law for shareholders who are aggrieved by reverse stock splits generally.

Accounting Consequences

Our capital account would remain unchanged. Net income or loss per share for all periods would increase proportionately as a result of the reverse stock split since there would be a lower number of shares outstanding. We do not anticipate that any other material accounting consequences would arise as a result of the reverse stock split. If we effect the reverse stock split, in future financial statements we will restate net income or loss per share and other per share amounts for periods ending before the reverse stock split to give retroactive effect to the reverse stock split.

Certain Material U.S. Federal Income Tax ConsiderationsInformation

The following is a summary ofRights granted under the material U.S.Purchase Plan are intended to qualify for favorable federal income tax considerationstreatment associated with respectrights granted under an employee stock purchase plan which qualifies under provisions of Section 423 of the Code.

A participant will be taxed on amounts withheld for the purchase of shares as if such amounts were actually received. Other than this, no income will be taxable to a reverse stock split to holders of our shares of capital stock. This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), the Treasury regulations promulgated thereunder, and administrative rulings and court decisions in effect asparticipant until disposition of the dateshares acquired, and the method of this document, all of which may be subject to change, possibly with retroactive effect. This summary only addresses holders who hold their shares as capital assets within the meaning of the Code and does not address all aspects of U.S. federal income taxation that may be relevant to holders subject to special tax treatment, such as financial institutions, dealers in securities, insurance companies, foreign persons and tax-exempt entities. In addition, this summary does not consider the effects of any applicable state, local, foreign or other tax laws.

We have not sought and will not seek any ruling from the Internal Revenue Service (the “IRS”), or an opinion from counsel with respect to the U.S. federal income tax considerations discussed below. There can be no assurance that the tax considerations discussed below would be accepted by the IRS or a court. The tax treatment of the reverse stock split to holders may vary dependingdepend upon a holder’s particular facts and circumstances.

We urge holders to consult with their own tax advisors as to any U.S. federal, state, local or foreign tax considerations applicable to them that could result from the reverse stock split.

Except as described below with respect to cash received in lieu of fractional shares, the receipt of Common Stock in the reverse stock split should not result in any taxable gain or loss to a holder for U.S. federal income tax purposes. The aggregate tax basis of the Common Stock received by a holder as a result of the reverse stock split (including the basis of any fractional share to which a holder is entitled) will be equal to the aggregate basis of the existing Common Stock exchanged for such stock. A holder’s holding period for the Common Stock received in the reverse stock split will include the holding period of the Common Stock exchanged therefor.purchased shares.

A holder who receives cash in lieuIf the stock is disposed of a fractional shareat least two years after the beginning of Common Stockthe offering period and at least one year after the stock is transferred to the participant, then the lesser of (i) the excess of the fair market value of the stock at the time of such disposition over the purchase price or (ii) the excess of the fair market value of the stock as of the beginning of the offering period over the purchase price (determined as of the beginning of the offering period) will be treated as first receiving such fractional share and then receiving cash in redemption of such fractional share. A holderordinary income. Any further gain or any loss will generally recognizebe taxed as a capital gain or loss. Capital gains currently are generally subject to lower tax rates than ordinary income.

If the stock is sold or disposed of before the expiration of either of the holding periods described above, then the excess of the fair market value of the stock on the purchase date over the purchase price will be treated as ordinary income at the time of such disposition, and the Company may, in the future, be required to withhold income taxes relating to such ordinary income from other payments made to the participant. The balance of any gain will be treated as capital gain. Even if the stock is later disposed of for less than its fair market value on the purchase date, the same amount of ordinary income is attributed to the participant, and a capital loss on such deemed redemption in an amountis recognized equal to the difference between the amount of cash receivedsales price and the adjusted basisfair market value of the stock on such fractional share.purchase date.

There are no federal income tax consequences to the Company by reason of the grant or purchase of rights under the Purchase Plan. The Company is entitled to a deduction to the extent amounts are taxed as ordinary income to a participant (subject to the requirement of reasonableness, the provisions of Section 162(m) and the satisfaction of a tax reporting obligation).

To ensure complianceEquity Compensation Plan Information

The following table summarizes our equity compensation plan information as of December 31, 2014. Information is included for the equity compensation plans approved by our shareholders. There are no equity compensation plans not approved by our shareholders.

Below is a description of U.S. federal tax issuesthe material features of the 2015 Plan. The 2015 Plan is set forth in its entirety as Appendix B to this proxy statement is not intended or writtenstatement. The following description and summary are qualified in their entirety by reference to be used, and cannot be used, by such holder for the purpose of avoiding penalties that may be imposed on such holder under the Code; (b) any such discussion has been included by the Company in furtherance of the reverse stock split on the terms described herein; and (c) each such holder should seek advice based on its particular circumstances from an independent tax advisor.

Vote Required

Approval of Proposal Two requires the affirmative vote of at a majority of the total shares outstanding on the Record Date. As a result, abstentions and broker non-votes will have the same effect as “Against” votes.Appendix B.

THE BOARD OF DIRECTORS

RECOMMENDS A VOTE IN FAVOR OF“FOR” PROPOSAL 2.3.

****2015 Equity Incentive Plan

The 2015 Plan is intended to promote our long-term success and increase shareholder value by attracting, motivating, and retaining non-employee directors, officers, employees, advisors, consultants and independent contractors. To achieve this purpose, the 2015 Plan will allow the flexibility to grant or award stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance unit awards, performance share awards, cash-based awards and other stock-based awards to eligible individuals, thereby strengthening their commitment to our success and aligning their interests with those of our shareholders. No awards have been made under the 2015 Plan.

Administration

The Board will have discretionary authority to administer the 2015 Plan in accordance with its terms and applicable laws. The Board will determine the non-employee directors, officers, employees, advisors, consultants and independent contractors who will be granted awards under the 2015 Plan, the size and types of awards, the terms and conditions of awards and the form and content of the award agreements representing awards. The Board will not be required to grant awards on a uniform or consistent basis. The Board will be authorized to establish, administer and waive terms, conditions and performance goals of outstanding awards and to accelerate the vesting or exercisability of awards, in each case, subject to limitations contained in the 2015 Plan. The Board will be authorized to interpret the 2015 Plan and award agreements and will have authority to correct any defects, supply any omissions and reconcile any inconsistencies in the 2015 Plan and/or any award agreements and to take any other action that the Board deems necessary or appropriate for the administration of the 2015 Plan. Unless otherwise expressly provided in the 2015 Plan, the Board’s decisions, interpretations and actions concerning the 2015 Plan or any award will be within the sole discretion of the Board, will be permitted to be made at any time and will be final, conclusive and binding upon all persons and entities, including any participant and any holder or beneficiary of any award. Within the limitations of the 2015 Plan and applicable law, the Board will be authorized to delegate all or any part of its responsibilities and powers under the 2015 Plan to persons selected by it, such as to the Compensation Committee, and such persons will be permitted to exercise all of the Board’s powers under the 2015 Plan.

Shares Subject to the 2015 Plan

The maximum number of shares of our Common Stock available for issuance under the 2005 Plan was 1,430,465 shares. As of March 2, 2015, 607,808 of such shares remain available for issuance of future awards,

which shares will be rolled over to the 2015 Plan and will become available for grants under the 2015 Plan. The 2015 Plan will not increase the number of shares available for issuance. The number of shares available for delivery under the 2015 Plan will be subject to adjustment for certain changes in our capital structure, as described below under “Changes in Capital.”

The shares of Common Stock that may be issued under the 2015 Plan will be either authorized and unissued shares (which will not be subject to preemptive rights) or previously issued shares that have been reacquired and are held as treasury stock. Any shares subject to an award (under either the 2005 Plan or 2015 Plan) that is (1) forfeited, terminated, cancelled or otherwise expires or (2) settled for cash, will be available for future awards under the 2015 Plan. If we acquire or combine with another company, any awards that may be granted under the 2015 Plan in substitution or exchange for outstanding stock options or other awards of that other company will not reduce the shares available for issuance under the 2015 Plan. All shares of Common Stock, adjusted as stated above, will be available for any “incentive stock options” granted under the 2015 Plan.

Participation

The Board will be authorized to grant awards under the 2015 Plan to (a) officers, employees, advisors, consultants and independent contractors of us and our subsidiaries and affiliates, (b) those individuals who have accepted an offer of employment or consultancy from us or our subsidiaries or affiliates, and (c) our non-employee directors. However, only employees of us and our subsidiaries will be eligible to receive “incentive stock options” under the 2015 Plan.

Stock Options

A stock option is the right to purchase a specified number of shares of Common Stock in the future at a specified exercise price and subject to the other terms and conditions that will be specified in the option agreement and the 2015 Plan. Stock options granted under the 2015 Plan will be either “incentive stock options,” which may be eligible for special tax treatment under the Internal Revenue Code, or options other than “incentive stock options”, referred to as “nonqualified stock options,” as determined by the Board. All stock options that are intended to qualify as “incentive stock options” will be granted pursuant to award agreements expressly stating that the options are intended to qualify as incentive stock options, and will be subject to the terms and conditions that comply with the rules provided under section 422 of the Internal Revenue Code. The number of shares covered by each option will be determined by the Board, but no participant may be granted in any fiscal year options for more than 250,000 shares of Common Stock. The exercise price of each option will be set by the Board but cannot be less than 100% of the fair market value of the Common Stock at the time of grant (or, in the case of an “incentive stock option” granted to a 10% or more shareholder of the company or subsidiary, as applicable, 110% of that fair market value). Options granted under the 2015 Plan in substitution or exchange for options or awards of another company involved in a corporate transaction with the company or a subsidiary will have an exercise price that is intended to preserve the economic value of the award that is replaced. The fair market value of our Common Stock generally means the closing price of the Common Stock on NASDAQ on the option grant date. The exercise price of any stock options granted under the 2015 Plan will be paid by check, or, with the Board’s approval, shares of our Common Stock already owned by the option holder, a cashlessbroker-assisted exercise that complies with law, withholding of shares otherwise deliverable to the option holder upon exercise of the option or any other method approved or accepted by the Board in its discretion. Any fractional shares of Common Stock will be settled in cash.

Options will become exercisable and expire at the times and on the terms established by the Board not later than the tenth anniversary of the grant date. If the exercise of a “nonqualified stock option” on its scheduled expiration date would violate law, the option may be extended until its exercise would not violate law. Further, if a “nonqualified stock option” would expire at a time when trading of shares of our Common Stock is prohibited by our insider trading policy (or “blackout period” imposed by us) the term will automatically be extended to the

30^th day following the end of such period. Options generally terminate when the holder’s employment or service with us terminates. However, an option may be exercised for up to one year following the holder’s termination of employment or services in specified circumstances, unless the Board or the option agreement permits exercise of the option following the holder’s termination to any greater or lesser extent.

Stock Appreciation Rights

Stock appreciation rights, or SARs, may be granted by the Board with terms and conditions determined by the Board which are permitted under the 2015 Plan. Generally, SARs are awards that, upon their exercise, give the holder a right to receive from us an amount equal to the product of (1) the number of shares for which the SAR is exercised, multiplied by (2) the excess of the (a) fair market value of a share of our Common Stock on the exercise date, over (b) the grant price per share. The grant price per share of a SAR cannot be less than 100% of the fair market value of a share of our Common Stock on the grant date of such SAR. SARs granted under the 2015 Plan in substitution or exchange for SARs or awards of another company involved in a corporate transaction with the company or a subsidiary will have an exercise price that is intended to preserve the economic value of the award that is replaced. A SAR may be settled in cash, shares or a combination of cash and shares, as determined by the Board. However, a SAR granted with an option will be exercisable and terminate when the related option is exercisable and terminates, and such related option will no longer be exercisable to the extent that the holder exercises the related SAR. Likewise, such a SAR will not be exercisable to the extent that the related option is exercised. SARs will become exercisable and expire at the times and on the terms established by the Board. The number of shares covered by each SAR will be determined by the Board, but no participant may be granted in any fiscal year SARs covering more than 250,000 shares of our Common Stock.

Restricted Stock and Restricted Stock Units

Restricted stock awards are shares of our Common Stock that are awarded to a participant subject to the satisfaction of the terms and conditions established by the Board. Until the applicable restrictions lapse, shares of restricted stock will be subject to forfeiture and may not be sold, assigned, pledged or otherwise disposed of by the participant who holds those shares. Restricted stock units will be denominated in units of shares of our Common Stock, except that no shares are actually issued to the participant on the grant date. When a restricted stock unit award vests, the participant will be entitled to receive shares of our Common Stock, a cash payment based on the value of shares of our Common Stock or a combination of shares and cash. Vesting of restricted stock awards and restricted stock units may be based on continued employment or service and/or satisfaction of performance goals or other conditions established by the Board. Subject to the other terms of the 2015 Plan, a recipient of restricted stock will generally have the rights and privileges of a shareholder during the restriction period, including the right to receive any dividends, which may be subject to the same restrictions as the restricted stock, unless the Board provides otherwise in the award agreement. A recipient of restricted stock units will have none of the rights of a shareholder unless and until shares are actually delivered to the recipient. The number of shares of restricted stock and/or restricted stock units granted to a participant will be determined by the Board, but no participant may be granted in any fiscal year more than 250,000 shares subject to awards of restricted stock or restricted stock units. Upon termination of employment or service, or failure to satisfy other vesting conditions, a participant’s unvested shares of restricted stock and unvested restricted stock units are forfeited unless the participant’s award agreement, or the Board, provides otherwise.

Performance Units, Performance Shares and Cash-based Awards

Performance units, performance shares and cash-based awards granted to a participant under the 2015 Plan will be amounts credited to a bookkeeping account established for the participant. A performance unit is a fixed or variable dollar denominated unit with a value determined by the Board and stated in the award agreement. The value of a performance share is based on the value of our Common Stock. A cash-based award has a value that is established by the Board at the time of its grant. The number of performance units, performance shares andcash-based awards granted to a participant will be determined by the Board; however, no participant may be

granted in any fiscal year performance units amounting to more than $500,000, performance shares with respect to more than 250,000 shares or cash-based awards amounting to more than $500,000. Whether a performance unit, performance share or cash-based award actually will result in a payment to a participant will depend upon the extent to which performance goals or other conditions established by the Board are satisfied. After a performance unit, performance share or cash-based award has vested, the participant will be entitled to receive a payout of cash, shares of our Common Stock or a combination thereof, as determined by the Board. A participant’s award agreement will describe the effect of a termination of employment or service on the participant’s performance units, performance shares or cash-based award.

Other Stock-Based Awards

The Board will be authorized to grant to participants other stock-based awards under the 2015 Plan, which will be valued in whole or in part by reference to, or otherwise based on, shares of our Common Stock. The form of any other stock-based awards will be determined by the Board, and may include a grant or sale of unrestricted shares of our Common Stock. The number of shares of our Common Stock related to another stock-based award will be determined by the Board; however, no participant may be granted in any fiscal year other stock-based awards with respect to more than 250,000 shares (or cash amounts based on the fair market value of this number of shares on the grant date of the award). Other stock-based awards may be paid in shares of our Common Stock, cash or a combination of shares and cash, according to the award agreement. The terms and conditions, including vesting conditions, of another stock-based award will be established by the Board when the award is made. The Board will determine the effect of a termination of employment or service on a participant’s other stock-based awards.

Dividend Equivalents

The Board will be authorized to provide for the payment of dividend equivalents with respect to shares of our Common Stock subject to an award, such as restricted stock units, that have not actually been issued under that award; provided, however, that no dividends or dividend equivalents will be payable in respect to outstanding (a) options or SARS or (b) unearned performance compensation awards or other unearned award subject to performance conditions (other than or in addition to the passage of time). Dividend equivalents may be paid on a current or deferred basis, in cash or additional shares of our Common Stock and subject to such limitations and restrictions as the Board may determine.

Performance-Based Awards

Restricted stock awards, restricted stock units, performance units, performance shares, cash-based awards and other stock-based awards subject to performance conditions may, in the Board’s discretion and subject to shareholder approval of the 2015 Plan prior to the payment of any awards, be structured to qualify as performance-based compensation that is exempt from the deduction limitations of section 162(m) of the Internal Revenue Code. Awards intended to satisfy this exemption must be conditioned on the achievement of objectively determinable performance goals based on one or more of the performance measures listed below, determined in relation to the company or its subsidiaries or any of their business units, divisions, services or products, or in comparison to a designated group of other companies or index: earnings per share; earnings before interest, taxes and depreciation; earnings before interest, taxes, depreciation and amortization (EBITDA); net earnings; total shareholder return; return on equity; return on assets, investment or capital employed; operating margin; gross margin; operating income; net income (before or after taxes); net operating income; net operating income after tax; pre- and after-tax income; pre-tax profit; operating cash flow; sales or revenue targets; increases in revenue or product revenue; expenses and cost reduction goals; improvement in or attainment of expense levels; improvement in or attainment of working capital levels; economic value added (or an equivalent metric); market share; cash flow; cash flow per share; share price performance; debt reduction; implementation or completion of projects or processes; customer satisfaction; total shareholder return; shareholders’ equity; and other measures of performance selected by the Board.

The Board will determine whether the performance goals that have been chosen for a particular performance-based award have been met. The Board will have the discretion to adjust downwards but not upwards amounts payable or benefits granted, issued, retained or vested under a performance-based award described above. The Board may not waive the achievement of performance goals applicable to these awards, except in the case of the participant’s death, disability or a change in control of the company. The Board’s evaluation of the achievement of performance goals may include or exclude any of the following events that occur during a performance period: (a) gains or losses on sales or dispositions, (b) asset write-downs, (c) changes in tax law or rate, including the impact on deferred tax liabilities, (d) the cumulative effect of changes in accounting principles, (e) extraordinary items, or with respect to fiscal years beginning after December 15, 2015, events of an “unusual nature” and/or of a type that indicate “infrequency of occurrence,” and appearing in the Company’s financial statements or notes thereto appearing in the Company’s Annual Report on Form 10-K, and/or in management’s discussion and analysis of financial performance appearing in such Annual Report, (f) acquisitions occurring after the start of a performance period or unbudgeted costs incurred related to future acquisitions, (g) operations discontinued, divested or restructured during the performance period, including severance costs, (h) gains or losses on refinancing or extinguishment of debt, (i) foreign exchange gains and losses, and (j) any other similar event or condition specified in the applicable award agreement.

Deferrals of Awards

The Board may, to the extent permitted by law, require or allow participants to defer receipt of all or part of any cash or shares subject to their award agreements on the terms of any deferred compensation plan of the company or other terms set by the Board. Any such deferred compensation plan or other terms set by the Board will be exempt from, or comply with the rules under section 409A of the Internal Revenue Code.

Transferability of Awards

Options, SARs, unvested restricted stock, and other awards under the 2015 Plan may not be sold or otherwise transferred except in the event of a participant’s death to his or her designated beneficiary or by will or the laws of descent and distribution, unless otherwise determined by the Board. The Board may permit awards other than “incentive stock options” and any related SARs to be transferred for no consideration.

Change in Control

A change in control of the company (as defined in the 2015 Plan) will have no effect on outstanding awards under the 2015 Plan that the Board determines will be honored or assumed or replaced with new rights by a new employer (referred to as an alternative award), so long as the alternative award:

If the Board does not make this determination with respect to any outstanding awards, then:

Any amounts described under (2) above will be paid in cash, publicly traded securities of the new employer or a combination of cash and securities as soon as reasonably practicable, but in no event later than 10 business days, following the change in control.

Changes in Capital

In the event of a change in our capital structure, such as a stock dividend, stock split or recapitalization, or a corporate transaction, such as a merger, consolidation, reorganization or spin-off, the Board will make substitutions or adjustments that it deems appropriate and equitable to: (a) the aggregate number, class and kind of shares or other securities reserved for issuance and delivery under the 2015 Plan, (b) the number, class and kind of shares or other securities subject to outstanding awards; (c) the option exercise price, grant price or other price of securities subject to outstanding options, stock appreciation rights and, to the extent applicable, other awards; and (d) the plan’s limits on the number of shares that may be subject to awards granted to a single participant. In the case of a corporate transaction, these adjustments may include, for example, (1) cancellation of outstanding awards in exchange for payments of cash and/or property; (2) substitution of other property (for example, stock of another company) for shares of our Common Stock subject to outstanding awards; and (3) in connection with a transaction in which a subsidiary, affiliate or division of us is sold or otherwise ceases to be owned by us, arranging for the assumption of awards, or replacement of awards with new awards based on other property or other securities, by the affected subsidiary, affiliate, or division, or by the entity that controls that subsidiary, affiliate, or division (as well as any corresponding adjustments to awards that remain based upon our securities). The Board will also make appropriate adjustments and modifications in the terms of any outstanding awards to reflect, or related to, any such events, adjustments, substitutions or changes, including modifications of performance goals and changes in the length of performance periods.

Amendment and Termination

The Board will have the authority to amend, alter, suspend or terminate the 2015 Plan in whole or in part, in its sole discretion. However, the Board will be required to obtain approval of the shareholders, if required by the exemption from the short-swing profit recovery rules of the Securities Exchange Act of 1934, the tax law

requirements for “incentive stock options” or any applicable law, regulation or rule, of any amendment of the 2015 Plan that would: (a) increase the maximum number of shares of our Common Stock that may be sold or awarded under the 2015 Plan, or that may be subject to awards granted to a single participant; (b) decrease the minimum option exercise price or SAR grant price required by the 2015 Plan, except, in the case of (a) or (b), in the event of certain changes in capital of the company (as described above under “Changes in Capital”); (c) change the class of persons eligible to receive awards under the 2015 Plan; (d) change the performance measures applicable to awards intended to qualify as performance-based compensation under section 162(m) of the Internal Revenue Code; (e) extend the duration of the 2015 Plan or the maximum exercise periods of any options or SARs granted under the 2015 Plan; or (f) otherwise require shareholder approval to comply with applicable laws, regulations or rules. The Board may also amend outstanding awards.

However, no amendment, alteration, suspension or termination of the 2015 Plan or amendment of outstanding awards may materially impair the previously accrued rights of a participant under any outstanding award without his or her written consent, except (a) to comply with (1) the exemption from the short-swing profit recovery rules of the Securities Exchange Act of 1934 or (2) the exception for performance-based compensation under section 162(m) of the Internal Revenue Code, or (b) where the Board determines that the amendment or alteration either (1) is required or advisable to comply with laws, regulations, rules or accounting standards or (2) is not reasonably likely to significantly diminish, without adequate compensation, the benefits provided under an award. Additionally, the provisions of the 2015 Plan described above under “Change in Control” may not be amended, terminated or modified on or after the date of a Change in Control to materially impair any participant’s outstanding award without that participant’s prior written consent. The Board will also make adjustments that it deems appropriate to awards under the 2015 Plan in recognition of unusual or nonrecurring events affecting the company or its financial statements or changes in laws, regulations, rules or accounting principles.

The 2015 Plan will prohibit the company from reducing the exercise price or grant price of an outstanding stock option or SAR or replacing an outstanding stock option or SAR with a new option or SAR that has a lower exercise price or grant price, or with any other type of new award under the 2015 Plan, except in connection with a share change, a corporate transaction or as otherwise described under “Changes in Capital” above, without first obtaining shareholder approval.

Duration of 2015 Plan

No awards will be made under the 2015 Plan on or after the earlier of (1) the tenth anniversary of the effective date of the 2015 Plan, or (2) the date on which all shares of Common Stock reserved under the 2015 Plan have been issued or are no longer available for use under the 2015 Plan.

Forfeiture

The 2015 Plan will authorize the Board to provide for the forfeiture or recoupment of a participant’s awards in certain situations, such as the termination of the participant’s employment for cause, serious misconduct, breach of noncompetition, confidentiality or other restrictive covenants, or other activity detrimental to our business, reputation or interests.

Federal Income Tax Consequences

The following is a summary of the general federal income tax consequences to our company and to U.S. taxpayers of awards granted under the 2015 Plan. Tax consequences for any particular individual or under state or non-U.S. tax laws may be different.

Incentive Stock Options (ISOs). A participant does not recognize taxable income upon the grant or upon the exercise of an ISO (although the exercise of an ISO may in some cases trigger liability for the alternative

minimum tax). Upon the sale of ISO shares, the participant recognizes income in an amount equal to the excess, if any, of the fair market value of those shares on the date of sale over the exercise price of the ISO shares. The income is taxed at the long-term capital gains rate if the participant has not disposed of the stock within two years after the date of the grant of the ISO and has held the shares for at least one year after the date of exercise, and we are not entitled to a federal income tax deduction. ISO holding period requirements are waived when a participant dies. If a participant sells ISO shares before having held them for at least one year after the date of exercise and two years after the date of grant, the participant recognizes ordinary income to the extent of the lesser of: (a) the gain realized upon the sale; or (b) the excess of the fair market value of the shares on the date of exercise over the exercise price. Any additional gain is treated as long-term or short-term capital gain depending upon how long the participant has held the ISO shares prior to disposition. In the year of any such disposition, we will receive a federal income tax deduction in an amount equal to the ordinary income that the participant recognizes, if any, as a result of the disposition.

Nonqualified Stock Options (NQSOs). A participant does not recognize taxable income upon the grant of an NQSO. Upon the exercise of such a stock option, the participant recognizes ordinary income to the extent the fair market value of the shares received upon exercise of the NQSO on the date of exercise exceeds the exercise price. We will receive an income tax deduction in an amount equal to the ordinary income that the participant recognizes upon the exercise of the stock option.

Restricted Stock. A participant who receives an award of restricted stock does not generally recognize taxable income at the time of the award. Instead, the participant recognizes ordinary income in the first taxable year in which his or her interest in the shares becomes either: (a) freely transferable or (b) no longer subject to substantial risk of forfeiture. The amount of taxable income is equal to the fair market value of the shares less the cash, if any, paid for the shares. A participant may make an election under Internal Revenue Code Section 83(b) to recognize income at the time of grant of restricted stock in an amount equal to the fair market value of the restricted stock (less any cash paid for the shares) on the date of the award. We will receive a compensation expense deduction in an amount equal to the ordinary income recognized by the participant in the taxable year in which restrictions lapse (or in the taxable year of the award if, at that time, the participant had filed a timely election to accelerate recognition of income).

Restricted Stock Units. A participant who receives an award of restricted stock will recognize ordinary income equal to the amount of cash and the fair market value of any shares at the time of vesting. We will receive an income tax deduction in an amount equal to the ordinary income that the participant recognizes.

SARs. A participant who exercises a SAR will recognize ordinary income upon the exercise equal to the amount of cash and the fair market value of any shares received as a result of the exercise. We will receive an income tax deduction in an amount equal to the ordinary income that the participant recognizes upon the exercise of the SAR.

Other Awards. In the case of an award of performance unit awards, performance share awards, or other stock-based awards, the participant would generally recognize ordinary income in an amount equal to any cash received and the fair market value of any shares received on the date of payment. In that taxable year, we would receive a federal income tax deduction in an amount equal to the ordinary income that the participant has recognized.

Section 409A. Section 409A of the Internal Revenue Code provides special tax rules applicable to programs that provide for a deferral of compensation. Failure to comply with those requirements will result in accelerated recognition of income for tax purposes along with an additional tax equal to 20% of the amount included in income, and interest on deemed underpayments in certain circumstances. While certain awards under the 2015 Plan could be subject to Section 409A, the 2015 Plan has been drafted to comply with the requirements of Section 409A, where applicable.

Section 162(m) Limitations. Special rules under Internal Revenue Code Section 162(m) limit the deductibility of compensation paid to our Chief Executive Officer and to each of our three other most highly compensated executive officers (other than the chief financial officer) named in the summary compensation table, provided that the executive officer is employed by us as an executive officer as of the end of that year. Under Section 162(m), the annual compensation paid to each of these executives may not be deductible to the extent that it exceeds $1,000,000. However, we can preserve the deductibility of compensation related to the exercise of stock options or stock appreciation rights or the vesting of performance-based equity awards if certain conditions of Section 162(m) are met, including shareholder approval of the 2015 Plan with set limits on the number of such awards that any person may receive in a given period. Preserving the deductibility of performance-based equity awards also requires shareholder approval of the 2015 Plan with respect to certain key terms of performance related equity awards, as described in further detail above. The 2015 Plan has been designed to permit the Board to grant stock options, stock appreciation rights and performance-based equity awards that satisfy the conditions of Section 162(m).

2015 Plan Benefits

Because benefits under the 2015 Plan will depend on the Board’s actions and the fair market value of the shares at various future dates, it is not possible to determine the benefits that will be received by directors, executive officers and other employees if the 2015 Plan is approved by the shareholders.

PROPOSAL 34

RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

The Audit Committee of the Board of Directors has selected OUM & Co. LLP (formerly known as Odenberg, Ullakko, Muranishi & Co. LLP) as our independent registered public accounting firm for the fiscal year ending December 31, 20142015, and the Board 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 OUM & Co. LLP as our independent registered public accounting firm in April 2007, Ernst & Young LLP had audited our financial statements, since 1995. Representatives of OUM & Co. LLP are expected to be present by telephone 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 OUM & Co. LLP as our independent registered public accounting firm. However, the Audit Committee iswe are submitting the selection of OUM & 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) will be required to ratify the selection of OUM & 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 Accounting Fees and Services

The following table represents aggregate fees billed to us for fiscal years ended December 31, 20132014 and 2012,2013, by OUM & Co. LLP, our independent registered public accounting firm since April 2007.LLP. All services described below were pre-approved by the Audit Committee.

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, OUM & 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 Committee’s 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 the

Chairman of the Audit Committee, 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 OUM & Co. LLP is compatible with maintaining the principal accountant’s 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 OUM & 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“FOR” PROPOSAL 3.

****

PROPOSAL NO. 4

ADVISORY VOTE ON EXECUTIVE COMPENSATION

Pay that reflects performance and alignment of pay with the long-term interests of our shareholders are key principles that underlie our compensation program. In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), shareholders have the opportunity to vote, on an advisory basis, on the compensation of our named executive officers. This is often referred to as a say on pay, and provides you, as a shareholder, with the ability to cast a vote with respect to our 2013 executive compensation programs and policies and the compensation paid to the named executive officers as disclosed in this proxy statement through the following resolution:

“RESOLVED, that the shareholders approve the compensation of the named executive officers, as described in the Compensation section and in the compensation tables and accompanying narrative disclosure in this Proxy Statement.”

Our philosophy in setting compensation policies for executive officers has two fundamental objectives: (1) to attract and retain a highly skilled team of executives and (2) to align our executives’ interests with those of our shareholders by rewarding short-term and long-term performance and tying compensation to increases in shareholder value. The Compensation section herein provides a more detailed discussion of the executive compensation program and compensation philosophy.

Although the vote is non-binding, the Compensation Committee will review the voting results. To the extent there is any significant negative vote, we will consult directly with shareholders to better understand the concerns that influenced the vote. The Compensation Committee would consider the constructive feedback obtained through this process in making decisions about future compensation arrangements for our named executive officers.

As required by the Dodd-Frank Act, this vote does not overrule any decisions by the Board, will not create or imply any change to or any additional fiduciary duties of the Board and will not restrict or limit the ability of shareholders generally to make proposals for inclusion in proxy materials related to executive compensation.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR

THE APPROVAL, ON AN ADVISORY BASIS, OF EXECUTIVE COMPENSATION.

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PROPOSAL NO. 5

ADVISORY VOTE ON THE FREQUENCY OF

FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION

The Dodd-Frank Act also provides shareholders with the opportunity to indicate, on an advisory basis, their preference as to the frequency of future say on pay votes, often referred to as a say when on pay. For this proposal, shareholders can indicate whether they would prefer that we hold future advisory votes on executive compensation every one, two or three years.

The Board recommends that future advisory votes on executive compensation should be held every three years, or on a triennial basis, so that the next advisory vote would be held at our annual meeting of shareholders in 2017.

We believe that our pay is aligned with performance.

Providing an advisory vote every three years gives shareholders and proxy advisory firms adequate time to evaluate the effectiveness of both short-term and long-term compensation strategies and related business outcomes. It also provides the Compensation Committee time to respond thoughtfully to shareholder input and implement any necessary changes.

Offering the advisory vote every three years will improve the ability of institutional funds that hold shares in a large number of public companies to exercise their voting rights in a more deliberate, thoughtful and informed way. We believe that institutions will be able to provide us with more meaningful input on our compensation program if they are not simultaneously required to evaluate the compensation program of every public company, every year.

Although the vote is non-binding, the Board and the Compensation Committee will review the voting results in making a decision as to the policy to be adopted by the Board on the frequency of future advisory votes on executive compensation.

As required by the Dodd-Frank Act, this vote does not overrule any decisions by the Board, will not create or imply any change to or any additional fiduciary duties of the Board and will not restrict or limit the ability of shareholders generally to make proposals for inclusion in proxy materials related to executive compensation.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR

AN ADVISORY VOTE ON EXECUTIVE COMPENSATION EVERY THREE YEARS.4.

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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 11, 201416, 2015 by: (i) each director and nominee for director; (ii) each of our named executive officers; (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.

(4)

Based upon information contained in a Schedule 13G13G/A filed with the SEC on September 25, 2013.February 2, 2015. Boxer Capital LLC (“Boxer Capital”), Boxer Asset Management Inc. (“Boxer Management”) and Joseph Lewis may be deemed to beneficially own 51,512,7351,186,109 of these 57,517,9141,330,990 shares. Boxer Management is the managing member and majority owner of Boxer Capital. Joseph Lewis is the sole indirect owner and controls Boxer Management. Boxer Capital, Boxer Management and Joseph Lewis have shared voting and dispositive power with regard to the 51,512,7351,186,109 shares of common sharesstock they beneficially own. MVA Investors, LLC (“MVA”) is an independent, personal investment vehicle of certain employees of Boxer Capital and Tavistock Life Sciences Company, which is a Delaware corporation and an affiliate of Boxer Capital. As such, MVA is not controlled by Boxer Capital, Boxer Management or Joseph Lewis. Aaron Davis and Ivan Lieberburg are employed by Tavistock Life Sciences Company. MVA may be deemed to beneficially own 2,890,625owns 67,018 of these 57,517,9141,330,990 shares, and has sole voting and dispositive power over the Common Stockshares of common stock owned by it. Aaron Davis may be deemed to beneficially own 450,000owns 11,257 of these 57,517,9141,330,990 shares, and has sole voting and dispositive power over the Common Stockshares of common stock he owns. Ivan Lieberburg may be deemed to beneficially own 2,664,254owns 66,606 of these 57,517,9141,330,990 shares, and has sole voting and dispositive power over the Common Stockshares of common stock he owns. Neither Boxer Capital, Boxer Management nor Joseph Lewis have any voting or dispositive power with regard to the shares of Common Stock held by MVA, Aaron Davis, or Ivan Lieberburg.

(5)

Based upon information contained in the Stock Purchase Agreement entered into in connectiona Schedule 13G/A filed with the August 2013 private placement, as amended. Biomedical Value Fund, L.P. (“BVF”) is the record owner of 16,198,846 shares of Common Stock (the “BVF Shares”).SEC on February 17, 2015. Great Point Partners, LLC (“Great Point”) is the investment manager of BVF,(i) Biomedical Value Fund, L.P. (“BVF”), which is the record owner of 411,451 shares of common stock (the “BVF Shares”), (ii) Biomedical Offshore Value Fund, Ltd. (“BOVF”), which is the record owner of 257,243 shares of common stock (the “BOVF Shares”), (iii) Biomedical Institutional Value Fund, L.P. (“BIVF”), which is the record owner 101,002 shares of common stock (the “BIVF Shares”), (iv) Class D Series of GEF-PS, LP (“GEF-PS”), which is the record owner of 213,207 shares of common stock (the “GEF-PS Shares”), and by(v) WS Investments II, LLC (“WS”), which is the record owner of 20,059 shares of Common Stock (the “WS Shares”). By virtue of suchits status as investment manager for BVF, BOVF, BIVF, GEF-PS and WS, Great Point may be deemed to be the beneficial owner of the BVF Shares. Biomedical Offshore Value Fund, Ltd. (“BOVF”) isShares, the record owner of 10,342,068 shares of Common Stock (the “BOVFBOVF Shares, the BIVF Shares, the GEF-PS Shares and the WS Shares (collectively, the “Managed Shares”). Each of Dr. Jeffrey R. Jay, M.D., as senior managing member of Great Point, isand Mr. David Kroin, as special managing member of Great Point, has voting and investment power with respect to the investment manager of BOVF,Managed Shares, and by virtue of such statustherefore may be deemed to be the beneficial ownerowners of the BOVFManaged Shares. Biomedical Institutional Value Fund, L.P. (“BIVF”) is the record owner 4,060,652 shares of Common Stock (the “BIVF Shares”). Great Point, is the investment manager of BIVF,Dr. Jay and by virtue of such status may be deemed to be theMr. Kroin disclaim beneficial ownerownership of the BIVF Shares. Class D Series of GEF-PS, LP (“GEF-PS”) is the record owner of 8,571,694 shares of Common Stock (the “GEF-PS Shares”). Great Point is the investment manager of GEF-PS, and by virtue of such status may be deemed to be the beneficial owner of the GEF-PS Shares. WS Investments II, LLC (“WS”) is the record owner of 806,452 shares of Common Stock (the “WS Shares”). Great Point is the investment manager with respectManaged Shares, except to the WS Shares, and by virtueextent of such status may be deemed to be the beneficial owner of the WS Shares. David J. Morrison (“Morrison”) is the record owner of 342,868 shares of Common Stock (the “Morrison Shares”). Great Point is the investment manager with respect to the Morrison Shares, and by virtue of such status may be deemed to be the beneficial owner of the Morrison Shares.their respective pecuniary interests.

(6)	Includes 1,864,00060,822 stock options which are exercisable within 60 days of February 11, 2014.16, 2015.

(7)	Includes 725,00025,000 stock options which are exercisable within 60 days of February 11, 2014.16, 2015.

(8)	No stock options are exercisable within 60 days of February 11, 2014. The number of shares includes 500,000 shares pursuant to restricted stock awards that have not vested.

(9)	Includes 760,0004,427 stock options which are exercisable within 60 days of February 11, 2014. The number of shares also includes 208,333 shares pursuant to restricted stock units and 83,334 shares pursuant to restricted stock awards that have not vested.16, 2015.

(10)(9)

Includes 715,00023,693 stock options which are exercisable within 60 days of February 11, 2014.16, 2015. The number of shares also includes 203,9475,208 shares pursuant to restricted stock units and 25,000 shares pursuant to restricted stock awards that have not vested.

(11)(10)

Includes 70,00022,968 stock options which are exercisable within 60 days of February 11, 2014.16, 2015. The number of sharesalso includes 40,0005,098 shares pursuant to restricted stock awardsunits that have not vested.

(12)(11)

Mr. Morgan serves as President of Global MarketingBioscience and Hospital Divisions of Grifols Inc. and Corporate Vice President of Grifols, S.A. Mr. Morgan disclaims any beneficial ownership in shares of our Common Stockcommon stock owned by Grifols, S.A.

(13)(12)

Mr. Bell serves as General Counsel and Vice President of Corporate Operations and Development of Grifols Inc. and Corporate Vice President of Grifols, S.A. Mr. Bell disclaims any beneficial ownership in shares of our Common Stockcommon stock owned by Grifols, S.A.

(13)	Includes 7,968 stock options which are exercisable within 60 days of February 16, 2015.

(14)	See footnotes (6) through (13) 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, 2013,2014, all Section 16(a) filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied with, other than one Form 4 for each of Frank Barker, Helen Short, John Siebert and Virgil Thompson that were filed late.with.

COMPENSATION

Overview

The policies of the Compensation Committee, or the Committee, with respect to the compensation of executive officers, including the Chief Executive Officer, or CEO, the Chief Financial Officer, or CFO, and the Chief Medical Officer, or CMO, are designed to provide compensation sufficient to attract, motivate and retain executives of outstanding ability in our area of expertise. It is the Committee’s intent to establish an appropriate relationship between executive compensation and the creation of shareholder value. To meet these goals, the Committee recommends an executive compensation package to our Board of Directors that is based on a mix of salary, and cash incentive awards and equity awards that focus on a longer term objective that will significantly impact shareholder value in a positive way. Completing the development and obtaining regulatory approval for our investigational drug Pulmaquin^® is the most important objective and must be the focus of our executive team.

Overall, the Board and the Committee seek to provide total compensation packages that provide incentives and are competitive in terms of total potential value to our executives. The Committee’s objective is to tailor our programs 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, theThe Board and the Committee have generally weighted executives’ compensation packages more heavily in favor of equity-based compensation versus salary and cash bonus, as they believedbelieve that performance-based and equity-based compensation are the most important to maintain a strong link betweencomponents of the total executive incentivescompensation package for maximizing shareholder value while, at the same time, attracting, motivating and the creation of shareholder value. In 2012 andretaining high-quality executives. However, in 2013 that proved more difficult to implement due to the limited number of shares available for compensation purposes as compared to the number of shares necessary for financings to maintain the Company. The Board and the Committee continue to believe, however, that performance-based and equity-based compensation are the most important components of the total executive compensation package for maximizing shareholder value while, at the same time, attracting, motivating and retaining high-quality executives.

For 2012 and 2013, the Board and the Committee continued their emphasis on the long-term goal of attracting a major pharmaceutical company as a partner for our Pulmaquin^® inhaled ciprofloxacin project. While theThe Committee continued to emphasizeemphasized contingent cash compensation payable upon the achievement of certain transaction goals of particular importance in growing shareholder value, long term equity compensation rewards were not maximized.value. There continued to be an effort to conserve cash to be used to support drug development and other programs.

Due to the Pulmaquin asset being licensed to Grifols, in late 2013 the Committee believed that the emphasis hadhas shifted to execution of the Pulmaquin development program and the approval of Pulmaquin. Given the Company’s current financial situation, and market capitalization and the Company’s proposed development and business plan, the BoardCommittee and the CommitteeBoard believe that equity-based compensation and contingent cash compensation payable upon the achievement of Pulmaquin development and approval goals are important tools to motivate the Company’s executive officers in 2014 and beyond.

Outcome of Previous “Say on Pay” Voting Results

At our 2014 annual meeting of shareholders, over 99% of votes cast for the say on pay proposal approved our compensation program as described in our 2014 proxy statement. The Committee and Board believe that shareholders support our compensation policies. Therefore, we continued to apply the same general compensation principles in 2014.

At our 2014 annual meeting of shareholders, we also held a “say when on pay” vote to determine the frequency with which we will hold the say on pay vote. Of the votes cast, 19% supported a frequency of one year and 81% supported a frequency of three years. Because the clear preference of our shareholders is to have a say on pay vote every three years, our next say on pay vote will be held at our 2017 annual meeting.

Compensation Consultant

The Committee did not retain the services of a compensation consultant for 2012 in light of its focus on cash conservation. In 2013, the Committee retained the services of Setren and Smallberg, compensation consultants, in order to establish a multi-year compensation plan consistent with the objectives of getting Pulmaquin approved and into the global marketplace with Grifols. The Committee determined there were specific areas which would formcontinued to retain the basisservices of the compensation consultant for management performance focused on providing maximum return for our shareholders. While the Committee continues to believe that conserving cash to assure completion of the

Pulmaquin development program is extremely important, completing development and obtaining regulatory approval for Pulmaquin is the most important objective and must be the focus of our executive team.

2014. In determining compensation levels for 2014, the Committee considered data from the Radford small life science companies compensation survey (the “Radford Survey”). provided by the Company.

Compensation Components

Base Salary. Our practice is that management presents to the Committee its initial recommendations for executive salary levels and the Committee and Board determine whether to adjust these base salary recommendations to realign such salaries after taking into account individual responsibilities, performance, and experience, as well as any benchmarking data provided to the Committee by our consultants and reviewed by the Committee.

In 2010, the Board, upon recommendation of the Committee, maintained base salaries for Dr. Gonda and Ms. Pecota of $380,000 and $238,000, respectively. Consistent with 2010, in both 2011 and 2012, management recommended to the Board and the Committee that base salaries for Dr. Gonda, and Ms. Pecota be retained at these levels. Given the Company’s financial position, management felt, and the Board agreed, that increases in base salary for 2012 or 2013 were not appropriate.

In 2013, Dr. Gonda recommended and the Committee and Board approved promoting Ms. Pecota to CFO and Corporate Secretary of the Company. Her base salary was increased to $300,000 effective August 1, 2013. Late in 2013, Dr. Gonda recommended and the Committee and Board agreed to hire Dr. Juergen Froehlich as the Company’s Chief Medical Officer at an annual base salary of $365,000 per year.

For 2014, the Committee agreed with the consultant’s recommendation that cash compensation for Aradigm executives be in general agreement with the Radford Survey at the 50^th percentile level, with variations from that level for exceptional performance. Because Dr. Gonda had not had a salary increase for several years, and he was below the 50^th percentile, his salary was increased to $400,000 annually, effective January 1, 2014. Because Ms. Pecota had been promoted in August 2013 and received a salary increase at the time, the Committee decided to defer an additional increase.increase until later in 2014. Because Dr. Froehlich had just been hired in November 2013, the Committee decided to defer an increase until the next annual salary review. Nancy Pecota subsequently received a salary increase to $330,000 annually effective November 1, 2014.

Executive Cash Bonus Plan. The Executive Bonus Planexecutive bonus plan that was in place from 2010 until late 2013 set performance objectives that focused on the achievement of certain performance objectives over time, rather than setting annual goals, 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. Performance objectives focused on partnering our programs, raising non-dilutive capital, advancing the inhaled ciprofloxacin program and achieving other significant strategic objectives. Awards are paid upon achievement of the objective or objectives in the form of cash and/or restricted stock. In general, if the achievement of the objective results in usAradigm receiving cash then the bonus wouldwill be paid in cash; if the achievement of the objective is of strategic importance to us but does not generate cash then the bonus wouldwill be paid, at least in part, in the form of restricted stock.

In February 2014, in accordance with the plan, and based on the achievement of targets with respect to the licensing of inhaled ciprofloxacin, Dr. Gonda was granted 7,500 shares of stock that were vested upon grant and Ms. Pecota was granted 3,750 shares of stock that were vested upon grant.

In 2013, the Committee and the Board granted Dr. Gonda and Ms. Pecota a cash payout of $250,000 and $125,000, respectively, for achievement of the Grifols transaction. AdditionalIn accordance with the plan, additional compensation will accrueaccrues to Dr. Gonda and Ms. Pecota upon the achievement of certain milestones.milestones specified in the agreement. In July 2014, upon the achievement of such additional milestones, Dr. Gonda and Ms. Pecota received additional cash payouts under the plan of $166,667 and $83,333, respectively.

In December 2013, the Board, upon recommendation of the Committee, revised the Executive Bonus Planexecutive bonus plan to add to it a single year cash bonus component based on performance with percentage targets derived from the Radford Survey. In December 2013, the Board, upon recommendation of the Committee, established 2014 target cash bonus awards (as a percentage of annual salary) of 50% for Dr. Gonda and 40% for each of Ms. Pecota and Dr. Froehlich. For 2014, the Committee determined the specific corporate performance goals to be achieved for the executives’ bonus awards to be earned, with an emphasis on incentivizing management to meet certain goals that could insure rapid completion of the Pulmaquin clinical trials. Based on achievement of the performance goals during 2014, Dr. Gonda, Ms. Pecota and Dr. Froehlich earned $120,000, $80,000 and $125,000, respectively, under the plan.

Executive Equity Awards. We grant equity awards through our 2005 Equity Incentive Plan (“2005 Plan”), which was adopted by our Board and approved by our shareholders. The plan permits the grant of stockAll 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 ingranted under the 2005 Equity Incentive Plan. All options we grantPlan have an exercise price equal to the fair market value of our common stock on the date of grant.

In 2012,This year, the Committee and the Board reviewed the 2005 Plan and, Committee granted Dr. Gondain light of its impending expiration, agreed to update the plan and Ms. Pecota restricted stock awards earned pursuant to the Executive Bonus Plan for 125,000 and 60,000 shares of our common stock, respectively, upon achievement of certain objectives related to the inhaled ciprofloxacin clinical program. These grants vested 100% on April 24, 2012. No equity awards were granted to Dr. Gonda and Ms. Pecota in 2013.

In connection with the hiring of Dr. Froehlich as CMO in late 2013, the Board approved the following equity grants:

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 the long-term success of the Company. The Board and the Committee have developed their expectations with respect to future grants of equity award based on several judgments:

In late 2013, the Committee agreed to a goal of making annual stock option grants at a level of approximately the 75^th percentile of the Radford Survey for annual equity grants for the next year,in 2014, and has made its recommendation to the Board. It is the Committee’s expectation that this equity compensationgrant level wouldwill continue in future years until the executives reach a level equivalent to the 75^th percentile for total equity compensation based on the Radford Survey. The Committee expects that it will take several years before this objective is achieved. The Committee will continue to monitor this throughout 2014 and in years to come to align the incentives for executives with the interests of our shareholders.

In February 2014, the Board approved the Committee’s recommendations for the following equity grants:

Special Performance Bonus Equity Grants.In most cases the greatest financial reward accrues to the first company to achieve market entry into a new market. There are currently no approved bronchiectasis products anywherethese goals, in the world. There is, however, competition from other pharmaceutical companies developing

products for this indication. The granting of special performance bonus equity grants was discussed between the Committee and the executives that focus on this issue.

In February 2014 the Committee recommended and the Board approved the following exceptional stock option bonus grantsgrant of 57,499 options to Dr. Gonda and 27,500 options to Ms. Pecota. These options vest in equal quarterly installments over four years from the officersdate of grant. In October 2014, Dr. Froehlich was granted 38,500 options that were pricedvest over four years with 25% of the shares vesting on the one-year anniversary of the date of grant and will vest upon achievement1/48th of specified goals.the shares vesting monthly thereafter. Each option has a term of ten years.

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.

Other Compensation. Each of our executives is eligible to participate in our employee benefit plans, including medical, dental, life insurance, employee stock purchase 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.

Equity Compensation Plan Information

The following table summarizes our equityWe do not offer any qualified or non-qualified defined benefit plans or any nonqualified deferred compensation plan information as of December 31, 2013. Information is included for the equity compensation plans approved by our shareholders. There are no equity compensation plans not approved by our shareholders.plans.

Summary Compensation Table

The following table sets forth information regarding compensation earned in 20132014 and 20122013 by the individual serving as our principal executive officer during 20132014 and our two most highly compensated executive officers who were serving as an executive officer during 20132014 (these individuals are collectively referred to as our “named executive officers”):

All Other Compensation in the summary compensation table above includes the following components:

2013 Grants of Plan-Based Award

The following table sets forth information regarding plan-based awards to our named executive officers in 2013:

(5)	All Other Compensation in the summary compensation table above includes the following components:

Outstanding Equity Awards at December 31, 20132014

The following table provides information regarding each unexercised stock option and each stock award held by each of our named executive officers as of December 31, 2013:2014:

2013 Option Exercises and Stock Vested

None of our named executive officers exercised options in 2012 or 2013. Dr. Gonda had 525,000 shares of restricted stock awards vest in 2013. Ms. Pecota had 325,000 shares of restricted stock awards vest in 2013. Dr. Juergen Froehlich had zero shares of restricted stock vest in 2013.

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.

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 current executive officers assuming their employment was terminated on December 31, 2013:2014:

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:

TerminationTermination 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):

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.

Non-Employee Director Compensation

The following table sets forth a summary of the compensation we paid to our non-employee directors in 2013:2014:

(7)(6)

Dr. SiebertMr. Thompson owns stock options for 750,00025,748 shares of our common stock as of December 31, 2013,2014, of which 680,00022,587 shares are vested as of December 31, 2013. In addition, Dr. Siebert owns 253,947 restricted stock units/awards at December 31, 2013, none of which has vested.

(8)	Mr. Thompson owns stock options for 816,900 shares of our common stock as of December 31, 2013, of which 738,900 shares are vested as of December 31, 2013.2014. In addition, Mr. Thompson owns 375,0005,208 restricted stock units/awardsunits at December 31, 2013,2014, none of which has vested.

In 2014, the cash component of compensation to our non-employee directors will remain unchanged fromwas amended to revise the level initially established in 2007.annual retainer and the meeting fees paid. The Chairman of the Board will receivereceived an annual retainer in the value of $50,000$55,000 and all other non-employee directors will receivereceived 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.$35,000. Board members also receivereceived additional annual retainers for serving on Board committees. The additional annual retainer for the Chairman of the Audit Committee will be $15,000was $20,000 and the additional annual retainer for all other members of the Audit Committee will be $5,000.was $7,500. The additional annual retainer for the Chairman of the Compensation Committee was $15,000 and the additional annual retainer for all other members of the Compensation Committee was $5,000. The additional annual retainer for the Chairman of the Nominating and Corporate Governance Committee will bewas $10,000 and the additional annual retainer for all other members will beof the Nominating and Corporate Governance Committee was $5,000. The Board retainer covers six meetings in a year and, if exceeded,In addition, the Chairman of the Board will receivereceived $1,500 for each additional meeting and the other Board members will receivereceived $1,000 for each additional meeting. If the number of meetings in a year for any given committee exceeds four, theThe chairman of theeach committee will receive $1,500received $1,000 for each additional meeting and the other committee members will receivereceived $1,000 for each additional meeting. Our directors arewere also entitled to receive reimbursement of reasonable out-of-pocket expenses incurred by them to attend Board meetings.

In connection with his election as a director in 2014, on April 18, 2014, Mr. Hudson was granted a stock option for 5,000 shares of our common stock. The non-employee membersoption vests in four equal quarterly installments over one year from the date of the Board of Directors may elect to forgo all or a portion of their cash compensation in exchange for restricted stock unit grants and restricted stock awards. In 2012 and 2013, all non-employee directors elected to forgo all or a portion of their cash compensation in exchange for such grants.grant.

In addition to the cash and restricted stock compensation, each non-employee director will beis granted an annual stock option grant.

Limitation In 2014, the Committee and the Board approved an annual stock option grant with a grant date fair value of Liability$40,000. On April 18, 2014, each of Officers and Directors and Indemnification

Our articles of incorporation and bylaws include provisions to (i) eliminate the personal liabilitynon-employee directors was granted a stock option for 5,625 shares of our directors for monetary damages resultingcommon stock. The option vests in four equal quarterly installments over one year from breachesthe date of their fiduciary duty, togrant. The Committee and the extent permitted by California law and (ii) permit us to indemnify our directors and officers, employees and other agents toBoard also agreed that Grifols will be credited the fullest extent permitted by the California Corporations Code. Pursuant to Section 317value 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 liabilityoption grant 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,Mr. Bell and eachMr. Morgan, in lieu of our directors that provide, among other things, that we will indemnifyissuing 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 officer’s or director’s position as an officer, director or other agent of us, and otherwise to the full extent permitted under California law and our bylaws.grants.

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 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 Person’s 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 Person’s 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 Notices of Internet Availability of Proxy Materials or 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 Notice of Internet Availability of Proxy Materials or copies of our printed proxy materials. A single Notice of Internet Availability of Proxy Materials or set of printed proxy statementmaterials 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 Notice of Internet Availability of Proxy Materials or set of printed proxy statement and annual report,materials, 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 Notice of Internet Availability of Proxy Materials or our printed proxy statementmaterials at their address and would like to request “householding” of their communications should contact their broker.

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

March 28, 201419, 2015

A copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 20132014 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 SEC’s website at http://www.sec.gov.

Appendix A

Form of Certificate of Amendment toARADIGM CORPORATION

Employee Stock Purchase Plan

Adopted April 16, 1996

Approved by the Shareholders on June 5, 1996

Amended and Restated Articlesby the Board of Directors on April 7, 1998

ofApproved by the Shareholders on May 15, 1998

IncorporationAmended by the Board of Directors on February 2, 1999

Approved by the Shareholders on May 21, 1999

Amended by the Board of Directors on April 3, 2000

Approved by the Shareholders on May 19, 2000

Amended by the Board of Directors on April 2, 2001

Approved by the Shareholders on May 18, 2001

Amended by the Board of Directors on December 17, 2001

Approved by the Shareholders on February 8, 2002

Amended by the Board of Directors on February 19, 2003

Approved by the Shareholders on May 15, 2003

Amended by the Board of Directors on March 21, 2005

Approved by the Shareholders on May 19, 2005

Amended by the Board of Directors on April 4, 2008

Approved by the Shareholders on May 15, 2008

Amended by the Board of Directors on February 25, 2009

Approved by the Shareholders on May 15, 2009

Amended by the Board of Directors on March 22, 2013

Approved by the Shareholders on May 22, 2013

Amended by the Board of Directors on March 13, 2015

Approved by the Shareholders on May 14, 2015

Purpose

The purpose of the Employee Stock Purchase Plan (the “Plan”) is to provide a means by which employees of Aradigm Corporation, a California corporation (the “Company”), and its Affiliates, as defined in subparagraph 1(b), which are designated as provided in subparagraph 2(b), may be given an opportunity to purchase stock of the Company.

Aradigm Corporation, aThe word “Affiliate” as used in the Plan means any parent corporation duly organizedor subsidiary corporation of the Company, as those terms are defined in Sections 424(e) and existing(f), respectively, of the Internal Revenue Code of 1986, as amended (the “Code”).

The Company, by means of the Plan, seeks to retain the services of its employees, to secure and retain the services of new employees, and to provide incentives for such persons to exert maximum efforts for the success of the Company.

The Company intends that the rights to purchase stock of the Company granted under the General Corporation LawPlan be considered options issued under an “employee stock purchase plan” as that term is defined in Section 423(b) of the StateCode.

Administration

The Plan shall be administered by the Board of CaliforniaDirectors (the “Corporation”“Board”), does hereby certify:

FIRST:That, upon the Effective Time, Article III of the CertificateCompany unless and until the Board delegates administration to a Committee, as provided in subparagraph 2(c). Whether or not the Board has delegated administration, the Board shall have the final power to determine all questions of Incorporationpolicy and expediency that may arise in the administration of the CorporationPlan.

The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:

To determine when and how rights to purchase stock of the Company shall be amendedgranted and restated in its entirety as follows:the provisions of each offering of such rights (which need not be identical).

“This corporation is authorized to issue two classes of shares of stock to be designated, respectively, “Preferred Stock” and “Common Stock.” The total number of shares which the corporation is authorized to issue is [            ]. [            ] shares shall be Common Stock. 5,000,000 shares shall be Preferred Stock.

The Preferred Stock may be issuedTo designate from time to time which Affiliates of the Company shall be eligible to participate in one or more series.the Plan.

To construe and interpret the Plan and rights granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of Directors is hereby authorized to determine and alterthis power, may correct any defect, omission or inconsistency in the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock,Plan, in a manner and to fix the number of shares of anyextent it shall deem necessary or expedient to make the Plan fully effective.

To amend the Plan as provided in paragraph 13.

Generally, to exercise such series of Preferred Stock,powers and to fixperform such acts as the numberBoard deems necessary or expedient to promote the best interests of sharesthe Company and its Affiliates and to carry out the intent that the Plan be treated as an “employee stock purchase plan” within the meaning of any such seriesSection 423 of Preferred Stock and the designation of any such series of Preferred Stock. Code.

The Board may delegate administration of Directors within the limits and restrictions stated in any resolution or resolutionsPlan to a Committee composed of not fewer than two (2) members of the Board (the “Committee”) constituted in accordance with the requirements of DirectorsRule 16b-3 under the Exchange Act. 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, 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 abolish the Committee at any time and revest in the Board the administration of the Plan.

Shares Subject to the Plan

Subject to the provisions of paragraph 12 relating to adjustments upon changes in stock, the stock that may be sold pursuant to rights granted under the Plan shall not exceed in the aggregate two hundred eighty six thousand, two hundred and fifty (286,250) shares of the Company’s common stock (the “Common Stock”). If any right granted under the Plan shall for any reason terminate without having been exercised, the Common Stock not purchased under such right shall again become available for the Plan.

The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise.

Grant of Rights; Offering

The Board or the Committee may from time to time grant or provide for the grant of rights to purchase Common Stock of the Company under the Plan to eligible employees (an “Offering”) on a date or dates (the “Offering Date(s)”) selected by the Board or the Committee. Each Offering shall be in such form and shall contain such terms and conditions as the Board or the Committee shall deem appropriate, which shall comply with the requirements of Section 423(b)(5) of the Code that all employees granted rights to purchase stock under the Plan shall have the same rights and privileges. The terms and conditions of an Offering shall be incorporated by reference into the Plan and treated as part of the Plan. The provisions of separate Offerings need not be identical, but each Offering shall include (through incorporation of the provisions of this Plan by reference in the document comprising the Offering or otherwise) the period during which the Offering shall be effective, which period shall not exceed twenty-seven (27) months beginning with the Offering Date, and the substance of the provisions contained in paragraphs 5 through 8, inclusive.

Eligibility

Rights may be granted only to employees of the Company or, as the Board or the Committee may designate as provided in subparagraph 2(b), to employees of any Affiliate of the Company. Except as provided in subparagraph 5(b), an employee of the Company or any Affiliate shall not be eligible to be granted rights under

the Plan, unless, on the Offering Date, such employee has been in the employ of the Company or any Affiliate for such continuous period preceding such grant as the Board or the Committee may require, but in no event shall the required period of continuous employment be equal to or greater than two (2) years. In addition, unless otherwise determined by the Board or the Committee and set forth in the terms of the applicable Offering, no employee of the Company or any Affiliate shall be eligible to be granted rights under the Plan, unless, on the Offering Date, such employee’s customary employment with the Company or such Affiliate is for at least twenty (20) hours per week and at least five (5) months per calendar year.

The Board or the Committee may provide that, each person who, during the course of an Offering, first becomes an eligible employee of the Company or designated Affiliate will, on a date or dates specified in the Offering which coincides with the day on which such person becomes an eligible employee or occurs thereafter, receive a right under that Offering, which right shall thereafter be deemed to be a part of that Offering. Such right shall have the same characteristics as any rights originally fixinggranted under that Offering, as described herein, except that:

the date on which such right is granted shall be the “Offering Date” of such right for all purposes, including determination of the exercise price of such right;

the period of the Offering with respect to such right shall begin on its Offering Date and end coincident with the end of such Offering; and

the Board or the Committee may provide that if such person first becomes an eligible employee within a specified period of time before the end of the Offering, he or she will not receive any right under that Offering.

No employee shall be eligible for the grant of any rights under the Plan if, immediately after any such rights are granted, such employee owns stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Affiliate. For purposes of this subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in determining the stock ownership of any employee, and stock which such employee may purchase under all outstanding rights and options shall be treated as stock owned by such employee.

An eligible employee may be granted rights under the Plan only if such rights, together with any other rights granted under “employee stock purchase plans” of the Company and any Affiliates, as specified by Section 423(b)(8) of the Code, do not permit such employee’s rights to purchase stock of the Company or any Affiliate to accrue at a rate which exceeds twenty five thousand dollars ($25,000) of fair market value of such stock (determined at the time such rights are granted) for each calendar year in which such rights are outstanding at any time.

Officers of the Company and any designated Affiliate shall be eligible to participate in Offerings under the Plan, provided, however, that the Board may provide in an Offering that certain employees who are highly compensated employees within the meaning of Section 423(b)(4)(D) of the Code shall not be eligible to participate.

Rights; Purchase Price

On each Offering Date, each eligible employee, pursuant to an Offering made under the Plan, shall be granted the right to purchase up to the number of shares constituting any series, may increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issuance of shares of that series.

Effective as of the Effective Time, as defined in the Certificate of Amendment filed with the California Secretary of State on [                    ], 2014, each [            ] outstanding shares of Common Stock of the CorporationCompany purchasable with a percentage designated by the Board or the Committee not exceeding fifteen percent (15%) of such employee’s Earnings (as defined by the Board or the Committee in each Offering) during the period which begins on the Offering Date (or such later date as the Board or the Committee determines for a particular Offering) and ends on the date stated in the Offering, which date shall be combinedno later than the end of the Offering. The Board or the Committee shall establish one or more dates during an Offering (the “Purchase Date(s)”) on which rights granted under the Plan shall be exercised and converted automatically into one sharepurchases of Common Stock. Stock carried out in accordance with such Offering.

In lieuconnection with each Offering made under the Plan, the Board or the Committee may specify a maximum number of shares that may be purchased by any fractionalemployee as well as a maximum aggregate number of shares that may be purchased by all eligible employees pursuant to such Offering. In addition, in connection with each Offering that contains more than one Purchase Date, the Board or the Committee may specify a maximum aggregate number of shares which may be purchased by all eligible employees on any given Purchase Date under the Offering. If the aggregate purchase of shares upon exercise of rights granted under the Offering would exceed any such maximum aggregate number, the Board or the Committee shall make a holder wouldpro rata allocation of the shares available in as nearly a uniform manner as shall be otherwise entitled,practicable and as it shall deem to be equitable.

The purchase price of stock acquired pursuant to rights granted under the CorporationPlan shall pay cashbe not less than the lesser of:

an amount equal to such fraction multiplied byeighty-five percent (85%) of the fair market value of the stock on the Offering Date; or

an amount equal to eighty-five percent (85%) of the fair market value of the stock on the Purchase Date.

Participation; Withdrawal; Termination

An eligible employee may become a participant in the Plan pursuant to an Offering by delivering a participation agreement to the Company within the time specified in the Offering, in such form as the Company provides. Each such agreement shall authorize payroll deductions of up to the maximum percentage specified by the Board or the Committee of such employee’s Earnings during the Offering (as defined by the Board or Committee in each Offering). The payroll deductions made for each participant shall be credited to an account for such participant under the Plan and shall be deposited with the general funds of the Company. A participant may reduce (including to zero) or increase such payroll deductions, and an eligible employee may begin such payroll deductions, after the beginning of any Offering only as provided for in the Offering. A participant may make additional payments into his or her account only if specifically provided for in the Offering and only if the participant has not had the maximum amount withheld during the Offering.

At any time during an Offering, a participant may terminate his or her payroll deductions under the Plan and withdraw from the Offering by delivering to the Company a notice of withdrawal in such form as the Company provides. Such withdrawal may be elected at any time prior to the end of the Offering except as provided by the Board or the Committee in the Offering. Upon such withdrawal from the Offering by a participant, the Company shall distribute to such participant all of his or her accumulated payroll deductions (reduced to the extent, if any, such deductions have been used to acquire stock for the participant) under the Offering, without interest, and such participant’s interest in that Offering shall be automatically terminated. A participant’s withdrawal from an Offering will have no effect upon such participant’s eligibility to participate in any other Offerings under the Plan but such participant will be required to deliver a new participation agreement in order to participate in subsequent Offerings under the Plan.

Rights granted pursuant to any Offering under the Plan shall terminate immediately upon cessation of any participating employee’s employment with the Company and any designated Affiliate, for any reason, and the Company shall distribute to such terminated employee all of his or her accumulated payroll deductions (reduced to the extent, if any, such deductions have been used to acquire stock for the terminated employee) under the Offering, without interest.

Rights granted under the Plan shall not be transferable by a participant otherwise than by will or the laws of descent and distribution, or by a beneficiary designation as provided in paragraph 14 and, otherwise during his or her lifetime, shall be exercisable only by the person to whom such rights are granted.

Exercise

On each Purchase Date specified therefor in the relevant Offering, each participant’s accumulated payroll deductions and other additional payments specifically provided for in the Offering (without any increase for

interest) will be applied to the purchase of whole shares of stock of the Company, up to the maximum number of shares permitted pursuant to the terms of the Plan and the applicable Offering, at the purchase price specified in the Offering. No fractional shares shall be issued upon the exercise of rights granted under the Plan. The amount, if any, of accumulated payroll deductions remaining in each participant’s account after the purchase of shares which is less than the amount required to purchase one share of stock on the final Purchase Date of an Offering shall be held in each such participant’s account for the purchase of shares under the next Offering under the Plan, unless such participant withdraws from such next Offering, as provided in subparagraph 7(b), or is no longer eligible to be granted rights under the Plan, as provided in paragraph 5, in which case such amount shall be distributed to the participant after such final Purchase Date, without interest. The amount, if any, of accumulated payroll deductions remaining in any participant’s account after the purchase of shares which is equal to the amount required to purchase whole shares of stock on the final Purchase Date of an Offering shall be distributed in full to the participant after such Purchase Date, without interest.

No rights granted under the Plan may be exercised to any extent unless the shares to be issued upon such exercise under the Plan (including rights granted thereunder) are covered by an effective registration statement pursuant to the Securities Act of 1933, as amended (the “Securities Act”) and the Plan is in material compliance with all applicable state, foreign and other securities and other laws applicable to the Plan. If on a Purchase Date in any Offering hereunder the Plan is not so registered or in such compliance, no rights granted under the Plan or any Offering shall be exercised on such Purchase Date, and the Purchase Date shall be delayed until the Plan is subject to such an effective registration statement and such compliance, except that the Purchase Date shall not be delayed more than twelve (12) months and the Purchase Date shall in no event be more than twenty-seven (27) months from the Offering Date. If on the Purchase Date of any Offering hereunder, as delayed to the maximum extent permissible, the Plan is not registered and in such compliance, no rights granted under the Plan or any Offering shall be exercised and all payroll deductions accumulated during the Offering (reduced to the extent, if any, such deductions have been used to acquire stock) shall be distributed to the participants, without interest.

Covenants of the Company

During the terms of the rights granted under the Plan, the Company shall keep available at all times the number of shares of stock required to satisfy such rights.

The Company shall seek to obtain from each federal, state, foreign or other regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the rights granted under the Plan. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such rights unless and until such authority is obtained.

Use of Proceeds from Stock

Proceeds from the sale of stock pursuant to rights granted under the Plan shall constitute general funds of the Company.

Rights as a Shareholder

A participant shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to rights granted under the Plan unless and until the participant’s shareholdings acquired upon exercise of rights under the Plan are recorded in the books of the Company.

Adjustments upon Changes in Stock

If any change is made in the stock subject to the Plan, or subject to any rights granted under the Plan (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), the Plan and outstanding rights will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan and the class(es) and number of shares and price per share of stock subject to outstanding rights. Such adjustments shall be made by the Board or the Committee, the determination of which shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a “transaction not involving the receipt of consideration by the Company.”)

In the event of: (1) a dissolution or liquidation of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company’s Common Stock (pre-reverse-split),outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (4) the acquisition by any person, entity or group within the meaning of Section 13(d) or 14(d) of the Exchange Act or any comparable successor provisions (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or any Affiliate of the Company) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of directors, then, as determined by the Board in its sole discretion (i) any surviving or acquiring corporation may assume outstanding rights or substitute similar rights for those under the Plan, (ii) such rights may continue in full force and effect, or (iii) participants’ accumulated payroll deductions may be used to purchase Common Stock immediately prior to the transaction described above and the participants’ rights under the ongoing Offering terminated.

Amendment of the Plan

The Board at any time, and from time to time, may amend the Plan. However, except as provided in paragraph 12 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the shareholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will:

Increase the number of shares reserved for rights under the Plan;

Modify the provisions as to eligibility for participation in the Plan (to the extent such modification requires shareholder approval in order for the Plan to obtain employee stock purchase plan treatment under Section 423 of the Code or to comply with the requirements of Rule 16b-3 promulgated under the Exchange Act as amended (“Rule 16b-3”)); or employee stock purchase plan treatment under Section 423 of the Code or to comply with the requirements of Rule 16b-3 promulgated under the Exchange Act as amended (“Rule 16b-3”)); or

Modify the Plan in any other way if such modification requires shareholder approval in order for the Plan to obtain employee stock purchase plan treatment under Section 423 of the Code or to comply with the requirements of Rule 16b-3.

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 employee stock purchase plans and/or to bring the Plan and/or rights granted under it into compliance therewith.

Rights and obligations under any rights granted before amendment of the Plan shall not be impaired by any amendment of the Plan, except with the consent of the person to whom such rights were granted, or except as necessary to comply with any laws or governmental regulations, or except as necessary to ensure that the Plan and/or rights granted under the Plan comply with the requirements of Section 423 of the Code.

Designation of Beneficiary

A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant’s account under the Plan in the event of such participant’s death subsequent to the end of an Offering but prior to delivery to the participant of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant’s account under the Plan in the event of such participant’s death during an Offering.

Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant’s death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its sole discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.