ARADIGM CORPORATION

3929 Point Eden Way

Hayward, California, 94545

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To Be Held On June 9, 201629, 2018

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 Thursday,Friday, June 9, 2016,29, 2018, at 10:9:00 a.m. local time, at the offices of Aradigm’s outside counsel Hogan Lovells US LLP, 875 Third Avenue, New York, NY 10022Aradigm office; 3929 Point Eden Way, Hayward, CA 94545 for the following purposes:

1. To elect the fivefour 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 Aradigm’s Amended and Restated Articles of Incorporation to increase the authorized number of shares of Common Stock by 1015 million shares to allow Aradigm to have additional flexibility to use its capital stock for business and financial purposes in the future.

3. To approve an amendment to Aradigm’s 2015 Equity IncentiveEmployee Stock Purchase Plan to increase the aggregate number of shares of Aradigm’s Common Stock authorized for issuance under such plan by 2,400,000200,000 shares.

4. To approve, in accordance with NASDAQ Marketplace Rule 5635(d), the issuance of shares of Aradigm Common Stock upon conversion of the $23 million aggregate principal amount of senior convertible promissory notes and upon the exercise of warrants to purchase 263,436 shares of Aradigm Common Stock in connection with the 2016 Private Placement.

5. To ratify the selection of OUM & Co. LLP as Aradigm’s independent registered public accounting firm for the fiscal year ending December 31, 2016.2018.

6.5. To conduct any other business properly brought before the meeting.

These items of business are more fully described in the Proxy Statement accompanying this Notice.

The record date for the annual meeting is April 15, 2016.30, 2018. Only shareholders of record at the close of business on the record date may vote at the annual meeting or any adjournment thereof.

By Order of the Board of Directors

Igor Gonda,John M. Siebert, Ph.D.

President and ChiefInterim Principal Executive Officer

Hayward, California

May     [    ], 2016, 2018

Your vote is very important to us. Whether or not you expect to attend the annual meeting, we encourage you to vote your shares in advance. Shareholders can submit their votes over the Internet at the web address noted in the 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 June 9, 201629, 2018

QUESTIONS AND ANSWERS ABOUT THIS PROXY MATERIAL AND VOTING

Why am I receiving these materials?

We have sent you this proxy statement and proxy card because the Board of Directors (the “Board”) of Aradigm Corporation is soliciting your proxy to vote at the 20162018 Annual Meeting of 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 May 16, 201615, 2018 to all shareholders of record entitled to vote at the annual meeting.

Who can vote at the annual meeting?

Only shareholders of record as of the close of business on April 15, 201630, 2018 (the “record date”) will be entitled to vote at the annual meeting. On the record date, there were 14,777,54215,211,472 shares of our Common Stock outstanding and entitled to vote.

What am I voting on?

There are fivefour matters scheduled for a vote:

How do I vote?

Shareholder of Record.If on the 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:

1

If you have Internet access, we encourage you to vote over 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 date, 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,Thursday, June 8, 2016.28, 2018. 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 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 have your proxy vote recorded in advance of the meeting. If you attend the annual meeting and vote at the annual meeting, any previous proxy votes 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 attend the annual meeting. In any event, the method by which you vote your proxy will not limit your right to vote at the annual meeting if you decide to attend in person.

Beneficial Owner of Shares Held in Street Name.If on the record date your shares were held in an account at a brokerage firm, bank or other nominee, then you are the beneficial owner of shares held in “street 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 Internet 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, executed in your favor, from the bank, broker or other holder of record through which you hold your shares to vote in person 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 attend the annual meeting. In any event, the method by which you vote your proxy will not limit your right to vote at the annual meeting if you decide to attend in person.

How can I vote on each of the proposal?proposals?

For the election of directors, you may 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.

The Board recommends that you vote “For” all nominees for director and “For” each of the other proposals being presented to our shareholders as discussed in this proxy statement.

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 the record date.

What if I return a proxy card but do not make specific choices?

If you return a signed and dated proxy card without marking any voting selections, your shares will be voted, as applicable, “For” the election of all fivefour nominees for director, “For” the amendment to the Amended

and Restated Articles of Incorporation, “For” the amendment to our 2015 Equity Incentivethe Employee Stock Purchase Plan “For” the issuance of Common Stock associated with the 2016 Private Placement in accordance with NASDAQ Marketplace Rule 5635(d) and “For” the ratification of OUM & Co. LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2016.2018. 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.

2

Who is paying for this proxy solicitation?

We will pay for the entire cost of soliciting proxies. Directors and employees will not be paid any additional compensation for soliciting 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?

If you are a shareholder of record and youryou vote by proxy using any method, you may later revoke your proxy and change your vote at any time before the polls close at the annual meeting. You may do this by:

Only the most recent proxy vote will be counted, and all others will be discarded regardless of the method of voting.

If you are a beneficial owner of shares held in street name, you should follow the instructions provided by your brokerage firm, bank or 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 December 12, 2016,January 15, 2019, 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 April 10, 201730, 2019 and no earlier than the close of business on March 10, 2017.31, 2019. 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 Securities and Exchange Commission (the “SEC”) website at www.sec.gov.

For any proposal a shareholder does not submit for inclusion in next year’s proxy statement, but instead seeks to present directly at next year’s annual meeting in accordance with the advance notice provisions of our bylaws described above, the Company’s proxy holders may vote their proxies in their discretion, notwithstanding the shareholder’s compliance with such advance notice provisions, if the Company advises the shareholders in next year’s proxy statement about the nature of the matter and how the Company’s proxy holders intend to vote on such matter, except where the shareholder solicits proxies in the manner contemplated by, and complies with, specified provisions of the SEC’s proxy rules.

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

3

non-votes. With respect to any proposal submitted to a vote of the shareholders, the inspector of election will not count abstentions and brokernon-votes as shares counting towards the vote total for such proposal, thus abstentions and brokernon-votes may count as “Against” votes for certain proposals.

If your shares are held in street name, you will need to obtain a proxy form from your brokerage firm, bank or other nominee holding your shares and follow the instructions included on that form regarding how to instruct your brokerage firm, bank or other nominee to vote your shares. Your brokerage firm, bank or other nominee can vote your shares with respect to “discretionary” items if you fail to give instructions to your brokerage firm, bank or other nominee regarding how to vote your shares. Onnon-discretionary items for which you do not give your broker instructions, the shares will be treated as brokernon-votes.

What are brokernon-votes?

Brokernon-votes occur when a beneficial owner of shares held in street name does not give instructions to the broker or nominee holding the shares as to how to vote on matters deemed “non-routine.“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 54 (ratifying the selection of OUM & Co. LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2016)2018), but not with respect to “non-routine”“non-routine” matters. The remaining proposals listed in this proxy statement are considered “non-routine”“non-routine” under the rules and interpretations of the New York Stock Exchange (“NYSE”).

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

4

by proxy. On the record date, there were 14,777,54215,211,472 shares of Common Stock outstanding and entitled to vote. Thus, the holders of 7,388,7727,605,736 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 brokernon-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 Form8-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 our Annual Report on Form10-K for the fiscal year ending December 31, 2017 (the “2017 Annual Report on Form10-K”) are available at www.aradigm.com.

5

PROPOSAL 1

ELECTION OF DIRECTORS

Our Board currently consists of five directors. There are fivefour nominees for director this year.at the annual meeting for a total of four directorships. Each director to be reelected will hold office until the 20172019 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. It is

Pursuant to our policy to invite nominees to attendBylaws, the annual meeting and to encourage attendance at meetings at which substantial shareholder attendance is expected. Allnumber of authorized directors of the nomineesCompany is currently five. There are four directors currently serving on the Board. Following the resignation of David Bell from the Board of Directors effective February 28, 2018, Grifols, S.A. has not elected to designate an individual for reelection as aconsideration for election to the Board. If each nominee for director is elected to the Board at the annual meeting, attendedwe will have one vacancy on the 2015 Annual Meeting of Shareholders.Board following the annual meeting.

The fivefour candidates receiving the highest number of affirmative votes by the holders of shares entitled to be voted will be elected as directors. Shares represented by executed proxies will be voted, if authority to do so is not withheld, for the election of the fivefour 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 April 30, 2016.2018.

David BellEdwin H. Gordonhas been a director since August 2013. HeMarch 2018. Mr. Gordon is the founder and Managing Partner of 4cAdvisors, LLC, an advisory firm rendering differentiated financing, transactional and advisory services to life sciences companies. Mr. Gordon currently servesis Vice Chairman of Neville Chemical Company, a Pittsburgh-based hydrocarbon manufacturer. From 2012 to 2017, Mr. Gordon served as Corporate Vice Presidentmanaging director andco-Head of Grifols S.A.the Health Care Investment Banking group of Ladenburg, Thalmann & Co, Inc., a full-service investment bank providing investment banking services to life sciences companies. From 2008 to 2012, he was a managing director and General Counselhead of Grifolsthe Health Care Investment Banking group of Ladenburg, Thalmann & Co. Inc. He joined Grifols when it enteredThroughout his tenure at Ladenburg, Mr. Gordon was a member of the U.S. marketfirm’s Equity Commitment Committee. Previously, Mr. Gordon served as a Managing Director in 2003.the health care banking groups of Merriman Curham and Ford, Punk Ziegel & Co., Cowen & Co., and Furman Selz. Prior to joining Grifols,his career in investment, Mr. Bell was General Counsel to Alpha Therapeutic Corporation followingGordon served as the senior Health Care Services Equity Analyst at Morgan Stanley & Co., Tucker Anthony & Day, and Prudential Bache Securities covering health care services and managed care companies on behalf of their institutional equity businesses. Mr. Gordon holds a 23-year career as a corporate litigator. Mr. Bell has been proposed for nomination by Grifols pursuant to its rights underBA in economics and an MBA in Finance from the Governance Agreement entered into with us in August 2013 (the “Governance Agreement”).University of Pittsburgh. We believe that Mr. Bell is qualifiedGordon’s extensive banking experience and advisory services to serve as a member of our Board 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 thatvarious life sciences companies qualify him to serve as a member of our Board, 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.Board.

6

Frederick M. Hudson has been a director since April 2014. Mr. Hudson retired as a partner in charge of the health care audit practice for the Washington-Baltimore business unit of the accounting firm of KPMG, LLP on January 1, 2006 after a37-year career with the firm. Mr. Hudson is currently a director and audit committee chair of Supernus Pharmaceuticals, Inc. and a directoris vice-chair and compliancefinance committee memberchair of Maxim Health Care Services,the board of directors of GBMC Healthcare, Inc. and its affiliate, Greater Baltimore Medical Center. He also has recently served in a board capacity with the Board of Financial Administration of the Catholic Archdiocese of Baltimore, with the Board of Trustees of the Maryland Historical Society, as director and compliance committee member of Maxim Health Care Services, Inc. and as director and audit committee chair of Educate, Inc. He is vice-chair and finance committee chair of the Board of Directors of GBMC Healthcare, Inc. and its affiliate, Greater Baltimore Medical Center. Mr. Hudson received a B.S. in Accounting from Loyola University Maryland and is a Certified Public Accountant. 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.Board.

John M. Siebert, Ph.D.has been a director since November 2006. Currently, Dr. Siebert is Founderserved as Acting Chairman of the Board from January 2017 to June 2017 and CEOhas served as Chairman of Compan Pharmaceuticals, a companion animal pharmaceutical company.the Board since June 2017 (including, since February 2018, as Executive Chairman). From May 2014 to November 2015, Dr. Siebert was Chief Executive Officer of Chase Pharmaceuticals, a company conducting clinical trials in Alzheimer’s disease based on a unique hypothesis. From 2010 to 2014, he was a Partner and Chief Operating Officer of New Rhein Healthcare Investors, LLC, a private equity group. From 2008 to 2010 he was Chief Executive Officer and Founder of Compan Pharmaceuticals. From May 2003 to October 2008, Dr. Siebert was the Chairman and Chief Executive Officer of CyDex, Inc., a privately held specialty pharmaceutical company. From September 1995 to April 2003, he was President and Chief Executive Officer of CIMA Labs Inc., a publicly traded drug delivery company, and from July 1995 to September 1995 he was President and Chief Operating Officer of CIMA Labs. From 1992 to 1995, Dr. Siebert was Vice President, Technical Affairs at Dey Laboratories, Inc., a privately held pharmaceutical company. From 1988 to 1992, he headed R&D and Quality Control at a division of 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 also serves on the boardsboard of directors of Accu-Break Pharmaceuticals and Supernus Pharmaceuticals, Inc. Dr. Siebert isHe was the Chairman of ourthe Compensation Committee and was a member of the Audit Committee. He iswas also a member of both our Audit Committeethe Compensation and Nominating and Governance Committee.Committees. Dr. Siebert is a membercurrently Executive Chairman, Interim Principal Executive Officer and Acting Principal Financial Officer of the Supernus Audit Committee and the Compensation Committee.Aradigm. We believe that Dr. Siebert is qualified to serve as a member of our Board 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 beenwas Chairman of the Board sincefrom January 2005.2005 to June 2017. From July 2009 until July 2015, Mr. Thompson was Chief Executive Officer and a director of Spinnaker Biosciences, Inc., a privately held ophthalmic drug delivery company, and he is now its Chairman of the Board. 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 of Mallinckrodt Pharmaceuticals, a publicly traded pharmaceutical company. Mr. Thompson is a member of the Mallinckrodt Human Resources and Compensation Committee. 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, including his experience as both an executive officer and director of publicly traded and private corporations in the pharmaceutical industry.

7

THE BOARD OF DIRECTORS RECOMMENDS

A VOTE “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 a member of our Board 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.

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 are subject to the listing standards of The NASDAQNasdaq Capital Market (“NASDAQ”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, or any of his family members, and us, our senior management and our independent registered public accounting firm, the Board affirmatively has determined that the following three directors are independent within the meaning of the applicable NASDAQNasdaq listing standards: Mr. Gordon, Mr. Hudson, Dr. Siebert, and Mr. Thompson. In making this determination, the Board found that none of these directors had a material or disqualifying relationship with the Company. Mr. BellDr. Siebert, our Executive Chairman, Interim Principal Executive Officer and Acting Principal Financial Officer and Director 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.

Board Leadership Structure and Role in Risk Oversight

Mr. ThompsonDr. Siebert is our Chairman of the Board and he presides at all Board meetings. Our independent directors meet regularly in executive session (i.e., without management present) with no agenda set by management.meetings at which he is present.

Our Board oversees our risk managementmanagement. The Board’s role in our risk oversight and the effect that this has on the Board’s leadership structure primarily throughinclude the following:

8

Dr. Siebert currently serves as both our Interim Principal Executive Officer and our Executive Chairman. Dr. Siebert has served as our Interim Principal Executive Officer since February 2018 following the resignation of our former Chief Executive Officer, Dr. Igor Gonda, from the Company. Prior to the commencement of Dr. Siebert’s service as Interim Principal Executive Officer, the two positions of Chief Executive Officer and Chairman were not held by the same individual. The Company does not currently have a lead independent director. Dr. Siebert’s concurrent service as Interim Principal Executive Officer and Executive Chairman is on an interim basis. The Company believes that, in light of Dr. Siebert’s long-standing service as a member of the Board and his knowledge of the Company and its business, this interim leadership structure is appropriate for the Company’s circumstances at the present time.

Meetings of the Board of DirectorsDirectors; Annual Meeting Attendance

The Board held 78 meetings during the last fiscal year. Each of our current Board members attended 75%87% 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.director, with the exception of Mr. Thompson, who attended less than 75%. Mr. Thompson was on a medical leave for part of the year and did not attend meetings during that time.

In fiscal 2015,2017, our independent directors met 5 times in regularly scheduled executive sessions at which only independent directors were present. These meetings were chaired by Mr. Thompson,Dr. Siebert, the Chairman of the Board.

It is our policy to invite nominees to attend the annual meeting and to encourage attendance at meetings at which substantial shareholder attendance is expected. Five Board members attended the 2017 Annual Meeting of Shareholders, including David Bell and all of the nominees for reelection as a director at the annual meeting with the exception of Edwin Gordon, who was appointed as a director on March 6, 2018.

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 at510-265-8800. 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 Business Conduct and 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 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.

9

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 during 2015:2017:

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 individual exercise of independent judgment with regard to our business and operations.

Audit Committee

The Audit Committee oversees our corporate accounting and financial reporting processes and audits of our financial statements. 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 Audit Committee reviews and approves the retention of the independent registered public accounting firm to perform any proposed permissiblenon-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,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 Form10-K and our quarterly financial statements on Form10-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: Mr. Gordon, Mr. Hudson (chair), Dr. Siebert and Mr. Thompson. The Audit Committee is governed by a written charter that is available to shareholders on our website at 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 in accordance with NASDAQNasdaq listing standards. The Board has determined that Mr. Hudson qualifies as an “audit committee financial expert,” as defined in applicable rules of the 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

10

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 equity compensation plans, health benefit plans, deferred compensation plans and other similar programs. Three directors currently comprise the Compensation Committee: Messrs. Gordon (chair), Hudson and Thompson and Dr. Siebert (chair).Thompson. All members of our Compensation Committee are independent in accordance with NASDAQNasdaq listing standards. The Compensation Committee is governed by a written charter that is available to shareholders on our website at investor.aradigm.com.

Pursuant to its charter, the Committee may delegate authority under its charter to subcommittees as appropriate, including, but not limited to, a subcommittee composed of one or more members of the Board to grant stock awards under the Company’s equity incentive plans to persons who are not (1) “Covered Employees” under Section 162(m) of the Internal Revenue Code; (2) individuals with respect to whom the Company wishes to comply with Section 162(m) of the Code; or (3) then subject to Section 16 of the Exchange Act.

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 is comprised of two directors: Dr. SiebertMr. Hudson and Mr. Thompson (chair). Mr. Hudson was appointed to the Nominating and Corporate Governance Committee by the Board on June 1, 2017. All members of the Nominating and Corporate Governance Committee are independent in accordance

with NASDAQNasdaq listing standards. The Nominating and Corporate Governance Committee is governed by a written charter that is available to shareholders on our website at 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 Nominating and Corporate Governance 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 oftheir attendance at meetings, attended, level of participation and quality of performance. The Nominating and Corporate Governance Committee performs periodic Board and Committee self-assessments to provide directors an opportunity to critique Board and Committee performance. The Nominating and Corporate Governance 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 Nominating and Corporate Governance 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 Nominating and Corporate Governance Committee conducts any appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates as it deems appropriate. The Nominating and Corporate Governance Committee meets to discuss and consider such candidates’ qualifications and then selects a nominee for recommendation to the Board by majority vote. While the Nominating and Corporate Governance 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 Nominating and Corporate Governance 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

11

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 Nominating and Corporate Governance 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.

12

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, 20152017 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 StandardsStandard No. 114,1301,The Auditor’s CommunicationCommunications with Those Charged with Governance,Audit Committees, 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 that the audited financial statements be included in the Company’s Annual Report on Form10-K for the fiscal year ended December 31, 2015.2017 for filing with the SEC.

From the members of the Audit Committee of Aradigm Corporation:

Frederick M. Hudson, Chairman

John M. SiebertEdwin H. Gordon

Virgil D. Thompson

13

PROPOSAL 2

APPROVAL OF CERTIFICATE OF AMENDMENT TO AMENDED AND RESTATED

ARTICLES OF INCORPORATION TO INCREASE THE AUTHORIZED NUMBER OF

SHARES OF COMMON STOCK

The Board is requesting shareholder approval of an amendment to our Amended and Restated Articles of Incorporation to increase the authorized number of shares of Common Stock by 10 million15,000,000 shares from 25,045,76535,045,765 shares to 35,045,76550,045,765 shares. The additional shares of Common Stock to be authorized by adoption of the amendment would have rights identical to the currently outstanding Common Stock of Aradigm. Adoption of the proposed amendment would not affect the rights of the holders of currently outstanding shares of Common Stock of Aradigm, except for effects incidental to increasing the number of shares of Common Stock outstanding, such as dilution of the earnings (loss) per share and voting rights of current holders of Common Stock. If the amendment is adopted, it will become effective upon filing of a Certificate of Amendment of our Amended and Restated Articles of Incorporation with the Secretary of State of the State of California. The text of the proposed Certificate of Amendment is attached hereto asExhibitA (the “Certificate of Amendment”).

We desire to have theThe additional shares availableare intended to provide additionalgreater flexibility to use our capital stock for business and financial purposes in the future. We recently entered into a securities purchase agreement (as more fully described in Proposal 4) that contemplates the issuance of 4,414,587 shares of Common Stock in connection with the conversion of senior convertible promissory notes and 263,436 shares of Common Stock in connection with the issuance of warrants (the “2016 Private Placement”), which requires us to reserve a total of 4,678,023 shares of our capital stock, resulting in a total of 4,044,603 unallocated shares of Common Stock available following the 2016 Private Placement. Additionally, as more fully described in Proposal 3, we are requesting our shareholders approve an additional allocation of 2,400,000 shares for our 2015 Equity Incentive Plan.

We may also want to undertake other business transactions that involve the issuance of Common Stock,common stock, including for example, future financings, acquisition transactions, mergers, joint ventures and other general corporate purposes, although we have no current plans for any acquisition transaction or joint venture. Our Board believes that having such additional authorized shares of Common Stockcommon stock available for issuance in the future will give us greater flexibility in addressing both capital-raising and strategic opportunities and may allow such shares to be issued without the expense and delay of a special shareholders’ meeting, unless such approval is expressly required by applicable law. Although the issuance of additional shares with respect to future financings or acquisitions would dilute existing shareholders management believes that any such transactionstransaction would increase the overall long term value of Aradigm to its shareholders. Absent applicable laws, rules or regulations requiring shareholder approval, these additional shares may be used for various purposes with Board approval but without further shareholder approval. These purposes may include: raising capital, establishing strategic relationships with other companies, expanding our business or product lines through the acquisition of other businesses or products, and other purposes.

The disadvantages to increasing our authorized stock include the following:

anti-takeover consequences, and this proposal is not in response to any effort of which we are aware to accumulate our stock or obtain control of the Company.

If our shareholders do not approve the Certificate of Amendment that would increase the number of authorized shares of Common Stock, then we will not be able to increase the total number of authorized shares of Common Stock from 25,045,76535,045,765 to 35,045,76550,045,765 and, therefore, we will be very limited in our ability to issue shares of Common Stock in future financings, acquisitions, joint ventures and other business purposes.

14

The Board may determine, in its sole discretion and without any further action by our shareholders, to abandon the Certificate of Amendment before or after any approval of the Certificate of Amendment by our shareholders and before the Certificate of Amendment is filed with the Secretary of State of the State of California.

The affirmative vote of the holders of a majority of our outstanding shares of Common Stock will be required to approve this amendment to our Amended and Restated Articles of Incorporation. Because the vote of a majority of the outstanding shares is required to approve this amendment, abstentions and brokernon-votes will have the same effect as a vote “AGAINST” this proposal.

THE BOARD OF DIRECTORS RECOMMENDS

A VOTE IN FAVOR OF PROPOSAL 2.

15

PROPOSAL 3

APPROVAL OF 2015 EQUITY INCENTIVEEMPLOYEE STOCK PURCHASE PLAN, AS AMENDED

In March 2015, ourApril 1996, the Board adopted, and the shareholders subsequently approved, the 2015 Plan. As of February 16, 2016 aEmployee Stock Purchase Plan (as amended from time to time, “Purchase Plan”). A total of 607,808486,250 shares of ourthe Company’s Common Stock havehas previously been authorized for issuance under the 2015Purchase Plan (as adjusted for the Company’s reverse stock split effectuated on May 23, 2014). The most recent addition of shares to the plan was approved by shareholders at the 2017 Annual Meeting of Shareholders. At March 31, 2018, an aggregate of 344,666 shares had been issued under the Purchase Plan and 141,584 shares remained for the grant of future rights under the Purchase Plan.

During fiscal 2017, shares were purchased by employees and officers at prices ranging from $1.29 to $1.32 in the following amounts under the Purchase Plan: all current executive officers as a group (20,636 shares), and all employees (excluding current executive officers) as a group (58,313 shares). The following table reflects purchases of the Company’s Common Stock under the Purchase Plan during the period from January 1, 2018 to May 1, 2018:

New Plan Benefits

In March 2016, ourApril 2018, the Board unanimouslyof the Company adopted an amendment to the 2015Purchase Plan, subject to shareholder approval, solely to increase the number of shares authorized for issuance under the 2015Purchase Plan by 2,400,000200,000 shares to 3,007,808686,250 shares. PerOur Board believes that this amendment to the requirementsPurchase Plan is in the best interests of the 2015Company, as it permits the Company to continue to provide a convenient way for eligible employees to purchase shares of the Company’s common stock at a discounted price, which stock ownership aligns their interests with that of our shareholders.

The following summary description of the Purchase Plan, as amended, is qualified in its entirety by reference to the amendment will become effectivefull text of the Purchase Plan that is attached asExhibitB to this proxy statement, including all changes that this proposal would effectuate if approved by the affirmative vote of a majority of the shares present in person or represented by proxyour shareholders at the Annual Meeting and entitledannual meeting. The amendment to vote on the proposal. Accordingly, Proposal 3 seeks shareholder approval for the issuance of such additional shares under the 2015 Plan. This amendment is intended to allow us to provide incentives to new employees that we anticipate will be requiredreflect an increase in order for us to continue execution of the Pulmaquin^® development plan, and gives our Board greater flexibility to reward current employees with stock incentives and ensures that we can continue to provide such incentives at levels we determine are appropriate. The 2015 Plan currently authorizes for issuance a maximum of only 607,808 shares. As of March 31, 2016, the number of shares availableauthorized for issuance under future awards underas described above is included in the 2015 Plan was only 39,395 shares. Given the limited number of shares that currently remain available under the 2015 Plan, coupled with the fact that most of our outstanding options are underwater and of little or no retention value, our Board and our Management believe it is important that the share proposal be approved in order to maintain our ability to attract and retain key personnel and continue to provide them with strong incentives to contribute to our future success. We also use equity grants to motivate our key personnel to achieve performance objectives and align their interest with our shareholders, which the Board believes is critical to the successcopy of the Company.Purchase Plan attached asExhibit B.

If approved by the shareholders, all of the additional shares will be available for grant as incentive stock options within the meaning of Section 422 of the Internal Revenue Code, or as nonqualified stock options, restricted stock awards, stock appreciation rights, or other kinds of equity based compensation under the 2015 Plan. If the shareholders do not approve the amendment, no shares will be added to the number of shares available for issuance under the 2015 Plan.

16

Shareholders are requested in this Proposal 3 to approve the 2015Purchase Plan, as amended.

THE BOARD OF DIRECTORS RECOMMENDS

A VOTE “FOR” PROPOSAL 3.

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

Purpose

The purpose of the Purchase Plan is to provide a means by which employees of the Company (and any parent or subsidiary of the Company designated by the Board to participate in the Purchase Plan) may be given an opportunity to purchase, in their discretion, 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 31, 2018, the Company’s executive officer and all of the Company’s approximately 12 employees (excluding the executive officer) 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 committee of not less than two Board members. The Board may abolish any such committee at any time andre-invest in itself the administration of the Purchase Plan.

Offering Periods

The Purchase Plan is implemented by offerings of rights to all eligible employees from time to time by the Board. Generally, each such offering period 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 possessing 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 the 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 period, an agreement authorizing payroll deductions of up to 15% of such employee’s total compensation during the purchase period.

17

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 on the date of commencement of the 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 participate as of a date specified during the purchase period. All payroll deductions made for a participant are credited to his or her account under the Purchase 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 maximum aggregate number of shares which may be purchased pursuant to such offering by all participants. If the aggregate 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 the end 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 majoritygiven 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 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.

18

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 presentof Common Stock reserved for issuance under the Purchase Plan, (ii) modify the requirements relating to eligibility for participation in the Purchase Plan, or (iii) modify any other provision of the Purchase Plan in a manner that would materially increase the benefits accruing to participants under the Purchase Plan, if such approval is required in order to comply with the requirements of Rule16b-3 under the Exchange Act.

Rights granted before amendment or termination of the 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

In the event of a dissolution, liquidation or specified type of merger of the Company, the surviving corporation either in personwill assume the rights under the Purchase Plan or by proxysubstitute similar rights, or the exercise date of any ongoing offering will be accelerated such that the outstanding rights 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 not purchased under such rights again becomes available for issuance under such plan.

Federal Income Tax Information

Rights granted under the Purchase Plan are intended to qualify for favorable federal income tax treatment associated with rights 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 participant until disposition of the shares acquired, and votingthe method of taxation will depend upon the holding period of the purchased shares.

If the stock is disposed of at least two years after the beginning of the 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 meetingtime 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 ordinary income. Any further gain or any loss will be 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 approvewithhold income taxes relating to such ordinary income from other payments made to the 2015 Plan,participant. The balance of any gain will be treated as amended. The inspectorcapital gain. Even if the stock is later disposed 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 effectless than its fair market value on the outcomepurchase date, the same amount of this proposal.ordinary income is attributed to the participant, and a capital loss is recognized equal to the difference between the sales price and the fair market value of the stock on such purchase date.

19

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).

Equity Compensation Plan Information

The following table summarizes our equity compensation plan information as of MarchDecember 31, 2016.2017. Information is included for the equity compensation plans approved by our shareholders. There are no equity compensation plans not approved by our shareholders.

Plan Category		Common Stock to be Issued Upon Exercise of Outstanding Options  and Rights				Weighted-Average Exercise Price of Outstanding Options  and Rights				Common Stock Available for Future Issuance Under Equity Compensation  Plans (Excluding Securities Reflected in Column (a))
		(a)				(b)				(c)
Equity compensation plans approved by Aradigm shareholders			4,351,425	(1)		$	4.72				1,645,124	(2)
Equity compensation plans not approved by Aradigm shareholders			—				—				—

New Plan Benefits

If Proposal 3 is approved, the Committee will be able to grant awards to our employees, officers, consultants, advisors and independent contractors. Also, non-employee directors are eligible to receive awards under the 2015 Plan. As of March 31, 2016, there are 23 employees, four consultants and three non-employee directors who are eligible to participate in the 2015 Plan. One of our current non-employee directors does not receive equity as part of his compensation. See “Non-Employee Director Compensation,” for a more detailed description of our non-employee director compensation. Grants of awards under the 2015 Plan are discretionary to the Board and the Committee, to the extent that the Board has delegated its authority to the Committee to do so; consequently, except as provided below, it is not possible to determine at this time the amount or dollar value of awards to be provided under the 2015 Plan if our shareholders approve Proposal 3.

The table below provides the grants of options under the 2015 Plan that have been made to certain officers, under which no Company shares will be issued until we obtain shareholder approval of the increase in shares under the 2015 Plan. In March 2016, our Board of Directors approved, subject to shareholder approval of Proposal 3, special performance exceptional vesting stock option bonus grants to our executive officers. The performance options vest upon achievement of certain milestones related to our inhaled ciprofloxacin program.

The following summary description of the 2015 Plan, as amended, is qualified in its entirety by reference to the full text of the 2015 Plan that is attached asExhibit B, including all changes that this proposal would effect if approved by our shareholders at the annual meeting.

THE BOARD OF DIRECTORS RECOMMENDS

A VOTE IN FAVOR OF PROPOSAL 3.

The essential features of the 2015 Plan are outlined below:

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 allows 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.

Administration

The Board has discretionary authority to administer the 2015 Plan in accordance with its terms and applicable laws. The Board determines 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 is required to grant awards on a uniform or consistent basis. The Board is 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 is authorized to interpret the 2015 Plan and award agreements and has 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 are within the sole discretion of the Board, are permitted to be made at any time and are 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 is 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 are 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 2015 Plan is 3,007,808 shares. 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 Equity Incentive Plan or the 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 is 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 cashless broker-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 and cash-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 is 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 is 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, 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:20

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

each outstanding option and SAR will be cancelled in exchange for an amount equal to the fair market value of our Common Stock on the change in control date, reduced by the option exercise price or grant price of the option or SAR;

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the ownership of our common stock as of April 15, 201626, 2018 by: (i) each current director and nominee for director; (ii) each of our named executive officers;officers identified under “Compensation” below (including former officers); (iii) all of our current directors and our executive officers and directorsofficer as of April 26, 2018, as a group; and (iv) all thosepersons known by us to be beneficial owners of more than five percent of our Common Stock.

22

beneficially own 1,101,513 of these 1,235,137 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 1,101,153 shares of common stock 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 beneficially owns 67,018 of these 1,235,137 shares, and has sole voting and dispositive power over the shares of Common Stock owned by it. Ivan Lieberburg beneficially owns 66,606 of these 1,235,137 shares, and has sole voting and dispositive power over the shares 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 or Ivan Lieberburg.

(5)

Based upon information contained in a Schedule 13G/A filed with the SEC on February 16, 2016. Great Point Partners, LLC (“Great Point”) is the investment manager of (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 (v) WS Investments II, LLC (“WS”), which is the record owner of 20,059 shares of Common Stock (the “WS Shares”). By virtue of its 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, the BOVF 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, and Mr. David Kroin, as special managing member of Great Point, has voting and investment power with respect to the Managed Shares, and therefore may be deemed to be the beneficial owners of the Managed Shares. Great Point, Dr. Jay and Mr. Kroin disclaim beneficial ownership of the Managed Shares, except to the extent of their respective pecuniary interests.

(6)	Includes 105,668280,480 stock options which are exercisable within 60 days of April 15, 2016.26, 2018.

(7)(5)

Includes 46,99818,125 stock options which are exercisable within 60 days of April 15, 2016.26, 2018.

(8)(6)

Includes 41,269200,154 stock options which are exercisable within 60 days of April 15, 2016.26, 2018.

(9)(7)

Includes 44,840188,741 stock options which are exercisable within 60 days of April 15, 2016. The number also includes 5,208 shares pursuant to restricted stock units that have not vested.26, 2018.

(10)(8)

Includes 56,856206,102 stock options which are exercisable within 60 days of April 15, 2016. The number also includes 5,098 shares pursuant to restricted stock units that have not vested.26, 2018.

(11)	Mr. Bell serves as Corporate Vice President of Grifols S.A. and General Counsel of Grifols Inc. Mr. Bell disclaims any beneficial ownership in shares of our Common Stock owned by Grifols, S.A.

(12)(9)

Includes 30,565100,000 stock options which are exercisable within 60 days of April 15, 2016.26, 2018.

(13)(10)

Includes 176,991 stock options which are exercisable within 60 days of April 26, 2018.

(11)	See footnotes (6)(7) through (12)(10) 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, 2015,2017, all Section 16(a) filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied with.

23

COMPENSATION

Overview

TheOur policies of the Compensation Committee, or the Committee, with respect to the compensation of our Named Executive Officers, including Dr. Gonda, the Chief Executive Officer, Ms. Pecota, the Chief Financial Officer, and Dr. Froehlich, the Chief Medical Officer, arenamed executive officers as described below (“executives”) is designed to provide compensation sufficient to attract, motivate and retain executives of outstanding ability in our area of focus. It is the Committee’s intentWe intend 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 towe compensate our Board that isexecutives based on a mix of salary, cash incentive awards, annual equity awards and performance equity incentive awards that focus on Aradigm’sour longer term objectiveobjectives that will significantly impact shareholder value in a positive way. Completing the development and obtaining regulatory approval for our lead product candidate Linhaliq™ in a timely and cost effective manner foris our investigational drug Pulmaquin is the Company’s most important performance objective and is the focus of our executive team.

Overall, the Board and the CommitteeWe 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.

The Board and the Committeeindustry while being tailored to reward our executives for creating value for our shareholders. We believe that performance-based compensation, both cash and equity, is the most important component of the total executive compensation package for maximizing shareholder value while, at the same time, attracting, motivating and retaining high-quality executives.

Following the Pulmaquin asset being licensed to Grifols in late 2013, the Committee now believes that the execution of the Pulmaquin development program and the approval of Pulmaquin in a timely and cost effective manner should be the focus. Given the Company’s current financial situation, market capitalization and the Company’s proposed development and business plan, the Committee and the Board Accordingly, we believe that performance-based equity compensation and cash compensation payable upon the achievement of Pulmaquinour Linhaliq development and regulatory approval goals are important tools to motivate our executives.

Recent Developments

Effective February 11, 2018, our named executive officers for 2017, Dr. Igor Gonda, President and Chief Executive Officer, Nancy Pecota, Vice President, Finance, Chief Financial Officer and Corporate Secretary, and Dr. Juergen Froehlich, Chief Medical Officer, resigned their positions with the Company. Following their resignations, each of Dr. Gonda and Dr. Froehlich has entered into a consulting agreement with the Company.

Effective February 9, 2018, the Board approved temporary measures intended to preserve the Company’s cash resources until the Company is able to identify additional sources of capital. These cash preservation measures include, among other things:

Dr. Siebert has served as our Executive Chairman and Interim Principal Executive Officer since February 2018 and as our Acting Principal Financial Officer since March 2018.

Outcome of Previous “Say on Pay” Voting Results

Our shareholders are afforded an advisory vote on the compensation for our named executive officers pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and related federal

24

securities laws set forth at Section 14A of the Exchange Act. Although we describe this to be a solicitation of an advisory vote on the compensation for our named executive officers, it is more commonly known as“say-on-pay.”At our 20142017 Annual Meeting of Shareholders, over 99%95% of the votes cast for the sayour “say on paypay” advisory proposal approved our compensation program as described in our 20142017 proxy statement. The Committee and BoardWe believe that shareholders generally support our compensation policies. Therefore, we continued to apply the same general compensation principles in 2015.2017.

At our 2014 Annual Meeting of Shareholders, we also held aan advisory vote on the frequency of future advisory “say on pay” votes, or our “say when on pay” vote to determine the frequency with which we will hold the say on pay vote.advisory proposal. Of the votes cast, 19% supported a frequency of one year and 81% supported a frequency of three years. Becauseyears and the clear preferenceBoard accepted this recommendation. In accordance with the results of our shareholders is to have a say when on pay advisory vote every three years, our next say on pay vote will be held at our 20172014 Annual Meeting of Shareholders.Shareholders, we will next hold a “say on pay” advisory vote at our 2020 Annual Meeting of Shareholders and, unless the Board modifies its determination on the frequency of future advisory “say on pay” votes, we will continue to hold “say on pay” advisory votes every three years.

Compensation Consultants

Through 2014 and part of 2015,In 2017, the Committee retained the services of Setren, Smallberg & Associates, a compensation consultant (“Setren”), in order to establish a multi-year compensation plan consistent with the objectives of getting Pulmaquin approved and into the global marketplace with Grifols. In determining compensation levels for 2014 and 2015, the Committee considered data that Setren presented to the Committee and small life science companies compensation survey that Radford, Consulting compiled (the “Radford Survey”).

In 2015, the Committee also retained the services of Compensia, Inc., an independent compensation consultant, to advise the Committee on the development of a peer group of similarly situated, public life sciences companies to use for comparison of compensation levels for directors and officers.

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, and after reviewing data that the compensation consultants provideRadford provides to the Committee, as well as peer group surveys such as the Radford Survey and the Society for Human Resources Management survey.Committee.

TheIn 2017, the Committee continued to agree with the consultant’s recommendation thatadjust cash compensation for AradigmAradigm’s executives, should be adjusted over the following two years, assuming that the executives achieved the target performance objectives, to be ata target of the 50^th percentile level as compared to other similarly situated companies based on data that the consultants provided and other relevant information.peer group determined by Radford. In January 2015,March 2017, the Board approved an increase to the executives’our named executives officers’ base salary for 20152017 as follows: Dr. Gonda to $410,000,$436,720, Ms. Pecota to $336,000$357,410 and Dr. Froehlich to $395,000.$424,000.

Executive Bonus Plan. The executive bonus plan allows the Board and Committeeus to set performance objectives over apre-established performance period in order to incentivize the executives to focus on the achievement of goals, whether long-term or annual, that could be significant value creation events for our shareholders. Performance objectives set for 2017 focused on partneringadvancing our programs, raising non-dilutive capital, advancing the inhaled ciprofloxacin program, managing expenses, and achieving other significant strategic objectives. Awards are paid upon achievement ofraising capital, the objective or objectives in the form of cash and/or equity awards. The executives have been provided the opportunity to receive an equity award in the formsubmission of a stock option which Black-Scholes value is 125% of the value of the cash award. The elected stock option would vest quarterly over three years. Any equity grants awarded in connectionNew Drug Application, or NDA, with the Executive Bonus Plan are issued under equity plan in effect atFood and Drug Administration, or FDA, and the timesubmission of Committee approval.a Marketing Authorization Application, or MAA, to the European Medicines Agency, or EMA, for our lead product candidate Linhaliq.

For 2015, the Committee determined to leave the2017, target cash bonus awards (as a percentage of annual salary) remained unchanged from 2014, which set2016. Accordingly, for 2017, target cash bonus awards (aswere set as a percentage of annual salary) ofsalary at 50% for Dr. Gonda and 40% for each of Ms. Pecota and Dr. Froehlich.

For 2015,2017, the CommitteeBoard determined bonuses based on the specific corporate performance goals to bethat had been achieved for the executives’ bonus awards to be earned, with an emphasis on incentivizing management to meet certain goals that could insure rapid completionwould lead to a timely submission of the Pulmaquin clinical trials.NDA and the MAA, preparation for commercial readiness, expense controls, the performance of individual executives and the need to retain key employees during a critical time for the Company. Based on an analysis of the achievement of the performance goals during 2015,2017, the CommitteeBoard determined that Dr. Gonda, would not receive a cash bonus award, and that Ms. Pecota and Dr. Froehlich achieved 65% each80% of their target bonus awards, which resulted in aawards. Accordingly, Dr. Gonda, Ms. Pecota and Dr. Froehlich received cash paymentbonuses of $87,360$174,688, $114,371 and $102,700, respectively, under the plan.$136,448 respectively.

25

Executive Equity AwardsAwards.. Through early 2015, we generally granted equity awards under our 2005 Equity Incentive Plan (the “2005 Plan”), and after May 14, 2015 we began granting equity awards under our 2015 Equity Incentive Plan (“2015 Plan”), which was adopted by our Board and approved by our shareholders. All options granted under the 2005 Plan and the 2015 Plan have an exercise price equal to or greater than the fair market value of our common stock on the date of grant.

The Board and the Committee We 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

In 2017, the Committee have developed their expectationsemphasized incentivizing executives to help ensure the achievement Performance Award Criteria. These Performance Award Criteria included: (1) vote outcome at the FDA’s Antimicrobial Drugs Advisory Committee meeting, (2) NDA approval, and (3) achieving financing targets and submission of the MAA with respect to future grants of equity award based on several judgments:

2.

Our compensation consultants have provided current data that indicated our executives were low in equity compensation compared to comparable companies based on the Radford Survey and other peer group surveys.

In 2015, the EMA. The Committee also continued the previous plan of making annual stock option grants to bring the level of equity ownership of the executive officers to a level of approximately the 75^th percentile of the peer group determined by the Committee with advice from Radford Survey for annual equity grants, and made its recommendation to the Board. It is the Committee’s expectation that this equity grant level will continue until the executives reach a level equivalent to the 75^th percentile for total equity compensation based on market information, such as peer group information, information from the compensation consultants and the Radford Survey.grants. The Committee expects that (depending on stock value) it willcould take several years before this objective is achieved.

In light of these goals, in June 2017, the Committee recommended and Board approved in January 2015 thea grant of 42,857 options28,100 restricted stock awards to Dr. Gonda, 17,857 options20,000 restricted stock awards to Ms. Pecota and 11,429 options25,000 restricted stock awards to Dr. Froehlich that vest in four equal quarterly installments. The Board also approved options to purchase an aggregate of 60,000, 40,000 and in March 13, 2015 the grant of 27,666 options50,000 shares, respectively, to Dr. Gonda, 20,750 options to Ms. Pecota and 25,246 options to Dr. Froehlich.Froehlich in December of 2017. The January 2015 optionsOption shares vest in equal quarterly installments over threefour years from the date of grant, and the March 2015 options vest one-third on the anniversarygrant. Additionally, in December of the date of grant and then in equal quarterly installments over the following two years. Each option has a term of ten years.

The dramatic decrease in the Company’s stock price from November 2015 to present has affected the value of stock options granted prior to that period in a negative way. The Committee has re-evaluated equity bonus awards for management and intends to provide a significant increase in the performance component of the equity award program in 2016.

Special Re-Grants of Performance-Based Vested Equity Grants.

In May 2015, our shareholders approved the 2015 Plan. On September 1, 2015,2017 the Board approved (1)performance options that vest contingent on the cancellationachievement of all outstanding performance stock optionsgoals of 120,000, 80,000 and 100,000 shares respectively, to Dr. Gonda, Ms. Pecota and Dr. Froehlich.

Subsequent to the Company’s named executive officers that were grantedend of 2017, the performance-based equity awards issued in 2015, 2016 and 2017 to Dr. Gonda, Ms. Pecota and Dr. Froehlich have all been cancelled due tonon-achievement of the specified targets or due to the resignation of each officer from the Company in February 2014 (the “Cancelled Options”) under the 2005 Plan, and (2) the grant of performance stock options (the “New Options”) under the 2015 Plan. The New Options are subject to substantially the same terms and conditions as the Cancelled Options, including exercise price, performance-based vesting conditions and expiration date. The Cancelled Options were exercisable for an aggregate of 154,997 shares, which takes into account the 1-for-40 reverse stock split effected in May 2014 (the “Stock Split”), of the Company’s common stock at an exercise price of $9.60 per share, and would have vested, if at all, only upon the satisfaction of specified performance milestones, which have not occurred. The exercise price of the New Options is also $9.60 per share, which was greater than the Company’s shares’ closing trading price on NASDAQ on the Grant Date of the New Options.2017.

The Board also (a) cancelled a grant of options exercisable for 12,500 shares, which takes into account the Stock Split, that was awarded in February 2014 to the Dr. Gonda, outside of a shareholder-approved plan prior to the Company’s re-listing on NASDAQ (the “Stand-Alone Grant”), and (b) granted Dr. Gonda options exercisable for 12,500 shares (the “New Gonda Options”) under the 2015 Plan. The New Gonda Options are subject to substantially the same terms and conditions as the Stand-Alone Grant, including exercise price, performance-based vesting conditions and expiration date.

As a result of these actions, all outstanding performance-based stock options granted to our executive officers are governed by the terms and conditions of the shareholder-approved 2015 Plan.

SSeveranceeverance Benefits. The Board, upon recommendation of the Committee, previously adopted an Amended and Restated Executive Officer Severance Benefit Plan dated as ofwas established October 7, 2005, amended December 31, 2008 and was amended and restated effective April 15, 2011 along with 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 believehave historically believed that 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 thehave historically believed that 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 historically 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. As part of the temporary cash preservation measures adopted by the Board in February 2018, the Board has terminated the Amended and Restated Executive Officer Severance Benefit Plan. For more information, see “Recent Developments” above.

In addition, upon recommendation of the Committee, the Board approved in November 2015 an amendment to outstanding long-term performance-based equity grants that would allow some of the vesting of the performance-based equity grants should the performance milestones be met within a year following a termination of the executive officer without cause. The post-termination vesting is intended to reward an affected executive officer for the efforts that the officer has put toward achieving the performance goals up to the time of termination, accordingly,termination. Accordingly, the amount of vesting is ratably reduced each month over the twelve month post-termination period.

Other Compensation. EachIn 2017, each of our executives iswas 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.

26

We do not offer any qualified ornon-qualified defined benefit plans or any nonqualified deferred compensation plans.

2017 Summary Compensation Table

The following table sets forth information regarding compensation earned in 20152017 and 20142016 by the individual serving as our principal executive officer during 20152017 and our two most highly compensated executive officers who were serving as an executive officer during 20152017 (these individuals are collectively referred to as our “named executive officers”):

and option awards is discussed in Note 910 of the notes to our financial statements included in our 20152017 Annual Report on Form10-K.

(2)	Represents stock awards granted in February 2014 related to achievement of goals related to the licensing of inhaled ciprofloxacin that were vested upon grant.

(3)

For 2015,2017, represents (a) time vesting options granted in January 2015June 2017, (b) performance-based options granted in December 2017. The options described in subsection (b) have an exercise price of $4.02 per share and March 2015.target values of $482,400, $321,600 and $402,000 for Dr. Gonda, Ms. Pecota and Dr. Froehlich, respectively, if all performance conditions are achieved. For 2014,2016, represents (a) time vesting options granted in February 2014 and October 2014, andMarch 2016, (b) the special performance exceptional vesting stock option bonus grant that wasbased options granted in February 2014. The performanceMarch 2016 and (c) stock options vest upon achievementgranted in lieu of certain milestones related to our inhaled ciprofloxacin program. In accordance with FASB ASC Topic 718, awards with performance conditions are computed based on the probable outcome of the performance condition as of the grant date for the award.

(4)	The February 2014 options which were cancelled and re-granted in September 2015 as discussed above are shown in 2014.

(5)

For 2015, represents cash amounts earned in 2016 under the executive bonus plan by the named executive officers in March 2017. The options described in subsection (b) have target values of $545,400, $464,000 and $505,000 for achievement of specific corporateDr. Gonda, Ms. Pecota and Dr. Froehlich, respectively, if all performance goals relating to Pulmaquin clinical trials.conditions are achieved.

(6)(3)

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

27

Outstanding Equity Awards at December 31, 20152017

The following table providespresents certain information regarding eachconcerning the outstanding, unexercised stock optionoptions and eachoutstanding, unvested stock awardawards held by each of our named executive officers as of December 31, 2015:2017 by each named executive officer.

28

(2)	Stock options are granted at an exercise price equal to the fair market value of our Common Stock, as determined by reference to the closing price reported by Nasdaq on the date of grant.

(3)	The restricted stock unit awards outstanding vest in equal quarterly installments over four years from the date of grant.

(4)	The market value of unvested restricted stock units is based on the closing price of our Common Stock on Nasdaq of $6.70 per share on December 29, 2017.

Potential Payments Upon Termination or Change in Control

The following table sets forth potential payments payable to our currentthe named 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 currentthe named executive officers assuming their employment washad been terminated on December 31, 2015:2017:

29

Termination without cause prior tonot in connection with a change in control. IfIn accordance with our severance benefits in effect in 2017, if any of our executives isnamed executive officers had been terminated by us without cause prior tonot in connection with a change in control, upon executing a general release and waiver, such executive iswould be entitled to receive (less applicable withholding taxes) in a lump sum payment or in installments, at our discretion:

Termination without cause or constructive termination following a change incontrol. IfIn accordance with our severance benefits in effect in 2017, if any of our executives isnamed executive officers had been 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 the18-month period following a change in control, upon executing a general release and waiver, such executive is entitled to receive (less applicable withholding taxes):

Non-Employee Director 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 ournon-employee directors in 2015:2017:

30

In 2015,2017, the cash component of compensation to ournon-employee directors was amended to reviseremained unchanged from 2016 for the annual retainer and the meeting fees paid. The Chairman of the Board received an annual retainer in the value of $55,000 and all othernon-employee directors received an annual retainer in the value of $35,000. Board members also received additional annual retainers for serving on Board committees. The additional annual retainer for the Chairman of the Audit Committee was $20,000 and the additional annual retainer for all other members of the Audit Committee 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 was $10,000 and the additional annual retainer for all other members of the Nominating and Corporate Governance Committee was $5,000. In addition, the Chairman of the Board received $1,500 for each meeting and the other Board members received $1,000 for each meeting. The chairman of each committee received $1,000 for each meeting and the other committee members received $1,000 for each meeting. Our directors were also entitled to receive reimbursement of reasonableout-of-pocket expenses incurred by them to attend Board meetings.

In addition to the cash compensation, eachnon-employee director is granted an annual stock option grant. In 2015,2017, the Committee and the Board approved an annual stock option grant with a grant date fair value of $83,563.$99,989. On November 12, 2015,June 1, 2017, each of the independent directors was granted a stock option for 19,940110,485 shares of our common stock. The option vests in four equal quarterly installments starting on the first quarterly period following the vesting start date which was the date of the 20152017 annual meeting.

See “Recent Developments” above for information about changes to our cash compensation for ournon-employee directors in effective since February 2018.

31

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 FinancialInterim Principal Executive 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.

Relationship with Grifols

As of April 26, 2018, Grifols S.A., which we refer to, together with its affiliates, as Grifols, beneficially owns 9,073,532 shares of our Common Stock, or 47.7% of our outstanding common stock. This amount consists of 5,244,363 shares of our common stock and Convertible Notes (as defined below) that may currently be converted into 3,829,175 shares of common stock (for further information, see “Security Ownership of Certain Beneficial Owners and Management” above). As a result of the beneficial ownership of shares of our common stock and the agreements and arrangements described below, Grifols may be deemed to control the Company and, accordingly, is a “parent” of the Company under SEC rules. Set forth below are descriptions of transactions, agreements and arrangements with Grifols in which the Company was a participant during the years ended December 31, 2016 and December 31, 2017.

Note Financing

In 2016, we sold $23,000,000 in aggregate principal amount of our 9% senior notes, or the Convertible Notes, convertible into shares of common stock due 2021, or the Note Financing. In connection with the Note Financing, we sold to Grifols $20,000,000 in aggregate principal amount of the Convertible Notes. The Convertible Notes are governed by an indenture, dated April 25, 2016, between Aradigm and U.S. Bank National Association, as trustee, which we refer to, as amended from time to time, as the Indenture. The Convertible Notes bear interest at a rate of 9% per year, payable semiannually in arrears on November 1 and May 1 of each year commencing on November 1, 2016, and mature on May 1, 2021, unless earlier redeemed or converted. The Convertible Notes are senior unsecured and unsubordinated obligations; rank equal in right of payment to our existing and future unsecured indebtedness that is not subordinated and are effectively subordinated in right of payment to our existing and future secured indebtedness. The Convertible Notes are also initially convertible into

32

our common stock at a conversion rate of 191.9386 shares of common stock per $1,000 principal amount of Convertible Notes, representing an initial effective conversion price of $5.21 per share of common stock.

On April 18, 2018, following receipt of the requisite consent of holders of Convertible Notes, the Company entered into a Supplemental Indenture, dated as of April 18, 2018, between the Company and U.S. Bank National Association, as trustee, or the Supplemental Indenture, amending the terms of the Indenture to give effect to the certain amendments. These amendments include (i) the addition of provisions permitting the Company to make future payments of interest, including the interest payment due on May 1, 2018, on the Convertible Notes by increasing the outstanding principal amount of the Convertible Notes in the amount of the accrued interest being so paid and (ii) the removal of the Convertible Note holders’ option to require the Company to repurchase the Convertible Notes upon the occurrence of certain events, any of which constituted a “Fundamental Change” as defined in the Original Indenture.

License Agreement

The Company and Grifols entered into a License and Collaboration Agreement, or the License Agreement, in 2013. Under the License Agreement, the Company granted to Grifols an exclusive license to the Company’s inhaled liposomal ciprofloxacin compounds for the indication ofnon-cystic fibrosis bronchiectasis and other indications, or the Program, the lead product candidate of which is named Linhaliq. The license permits Grifols to commercialize Products throughout the world and grants Grifols aback-up manufacturing right to produce Products (as defined in the License Agreement).

The Company is responsible for developing the Product fornon-cystic fibrosis bronchiectasis or pulmonary infections associated withnon-cystic fibrosis bronchiectasis, in accordance with an agreed upon development plan and pursuant to a Grifols-funded budget of $65 million (which includes allocations for the Company’s internal, fully-burdened expenses). Any excess expenses are the responsibility of the Company. The Grifols-funded budget was fully utilized by the year ended December 31, 2015.

The Company will develop the Product for additional indications at Grifols’ sole expense if Grifols elects to pursue such development. The Company is responsible for obtaining regulatory approval of the first indication for the Product in the United States and the European Union. Grifols is responsible for additional regulatory expenses, including the cost of obtaining approval outside the United States and European Union, and the cost of maintaining approvals globally. Grifols is responsible for using diligent efforts to commercialize the Product in countries where regulatory approval has been obtained. The Company is responsible for supplying Grifols’ requirements of the Product and must establish primary andback-up suppliers acceptable to

Grifols. Grifols will purchase Products from the Company on a cost pass-through basis plus a margin.

With respect to the US and EU development and approval of Linhaliq fornon-cystic fibrosis bronchiectasis management, Grifols has previously paid to Aradigm reimbursements of development costs and will pay development milestone payments of up to a total of $25 million. Additionally, royalty payments on acountry-by-country basis on net sales at a rate of either 12.5% or 20% (depending on the amount of net sales) for so long as there is patent coverage or orphan drug designation (or, if longer, 10 years), except that payments will be reduced by half on acountry-by-country basis in the event that another inhaled liposomal product containing ciprofloxacin is being sold for an indication for which the Aradigm product has regulatory approval. Royalty payments may also be reduced by 50% if Aradigm has no valid patent claim or orphan drug protection in that country.

The Company’s current deferred revenue balance at December 31, 2016, was $5.0 million, representing a milestone payment which was received upon the dosing of the first patient in a Phase III clinical trial. The Company recognized $14.0 million of Grifols contract revenue for performance obligations satisfied during the year ended December 31, 2017, including the $5.0 million milestone payment received during 2017 upon the filing of the New Drug Application, or NDA.

33

The Company’s performance obligations include those related to the worldwide license to commercialize products developed from the collaboration development services for Phase 3 clinical trials that were completed as of December 31, 2016, regulatory submission services for the first indication that were complete as of September 30, 2017, and regulatory approval services in the US and EU for the first indication. In addition, the Company identified that Grifols has an option that will create manufacturing obligations for the Company upon exercise by the customer. Further, these customer options for manufacturing services were evaluated and did not include a material right.

Governance Agreement

The governance agreement with Grifols, or the Grifols Governance Agreement, which we entered into in 2013, sets forth certain rights and obligations of the Company and Grifols concerning, among other things, certain corporate governance matters, certain limitations on future acquisitions of shares of Common Stock by Grifols, and certain rights by Grifols to maintain a target level of ownership in the Company.

On the date the Grifols Governance Agreement was executed, the Company’s board of directors was reconstituted to consist of its chief executive officer, three independent directors under the Nasdaq Marketplace Rules and two persons designated by Grifols. The number of persons Grifols is entitled to designate for consideration for election to the Company’s board of directors by the Company’s nominating committee will thereafter depend on the percentage of beneficial ownership of the Company held by Grifols.

The Grifols Governance Agreement also provides that during the period beginning on the date of Closing (as defined therein) and ending 12 months after the first commercial sale of a Product, or the Restricted Period, Grifols will not directly or indirectly acquire or offer to acquire any shares of Common Stock except (i) with the approval of the Company’s board of directors and a majority of its independent directors, (ii) effected solely to the extent necessary to maintain the beneficial ownership of Grifols and its affiliates at an amount equal to 35%, or the Target Percentage, of the shares of Common Stock on a Fully Diluted Basis (as defined in the Governance Agreement), or (iii) in order to maintain its ownership percentage in the event that the Company issues new securities, in accordance with the provisions of the Governance Agreement. In 2016, in conjunction with the Note Financing, the Grifols Governance Agreement was amended, or the Amendment, to raise the Target Percentage to 43.3%. The Restricted Period terminates upon the occurrence of certain events, including a change in control of the Company and a third party publicly proposing to acquire the Company. The Governance Agreement further imposes certain “standstill” obligations on Grifols during the Restricted Period, pursuant to which Grifols and certain related persons are prohibited from soliciting proxies from the Company’s shareholders, granting proxies or entering into voting agreements and seeking additional representation on the Company’s Board of Directors.

The Grifols Governance Agreement provides Grifols with certain preemptive rights to participate in future issuances of Common Stock or equivalents of Common Stock by the Company, or the right to acquire shares of Common Stock from third parties or on the open market to maintain its Fully Diluted Ownership at the Target Percentage.

The Grifols Governance Agreement requires the approval of Grifols for certain actions by the Company which would adversely affect Grifols’ rights under the Governance Agreement, and for the Company to terminate the employment of its Chief Executive Officer or to appoint any successor Chief Executive Officer.

Registration Rights Agreement

In 2013, the Company entered into a Registration Rights Agreement with Grifols, or the Grifols Registration Rights Agreement, pursuant to which the Company agreed to provide registration rights to Grifols with respect to the shares of Common Stock to be acquired in the Company Stock Sale. Under such agreement, Grifols is entitled to require the Company to file with the SEC certain registration statements under the Securities Act of 1933, as amended, or the Securities Act, with respect to the resale of the shares of Common Stock acquired by

34

Grifols in the Company Stock Sale up to three times on FormS-1 and up to six times on FormS-3, and to include its shares of Common Stock in any registration the Company proposes for its own account or for the account of one or more of its shareholders.

Senior Promissory Notes

On April 13, 2018, the Company entered into a senior note purchase agreement, or the Purchase Agreement, whereby the lenders set forth on Schedule A of the Purchase Agreement, or the Lenders, agreed to purchase up to approximately $7 million aggregate principal amount of the Company’s 9.0% senior promissory notes due 2021 (the “Senior Promissory Notes”). Grifols agreed to purchase up to $5.95 million aggregate principal amount of the Senior Promissory Notes. Unless the Company elects otherwise, accrued interest payable on each outstanding Senior Promissory Note will be capitalized on the applicable interest payment date by adding such accrued interest to the principal balance of such Senior Promissory Note, at which time such interest will be deemed to have been paid. The Company completed the first closing under the Purchase Agreement on April 13, 2018, at which time the Company issued and sold approximately $2 million aggregate principal amount of Senior Promissory Notes to the Lenders. Subject to the satisfaction or waiver of the applicable closing conditions set forth in the Purchase Agreement at each subsequent closing, the Company anticipates the sale of the remaining approximately $5 million principal amount of the Senior Promissory Notes to occur in five subsequent monthly closings, the first of which is anticipated to occur on May 13, 2018.

The Senior Promissory Notes are senior unsecured obligations of the Company and bear interest at a fixed rate of 9.0% per annum, payable semiannually in arrears on May 1 and November 1 of each year, beginning on May 1, 2018 in the case of Senior Promissory Notes issued on April 13, 2018 and on November 1, 2018 in the case of Senior Promissory Notes issued thereafter, unless earlier redeemed or cancelled in accordance with the terms of the Senior Promissory Notes. The Senior Promissory Notes rank (i) senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the Senior Promissory Notes, (ii) equal in right of payment to any of the Company’s indebtedness that is not so subordinated, including the Convertible Notes, (iii) effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness, and (iv) structurally junior to all indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries.

The above descriptions of the Convertible Notes, the Indenture, the Supplemental Indenture, the Governance Agreement, the Amendment, the Registration Rights Agreement and the Senior Promissory Notes are summaries only and are qualified in their entirety by reference to the agreements, which are included in the Company’s filings with the SEC.

Other Transactions

We have engaged the law firm Hogan Lovells US LLP (“Hogan Lovells”) to provide legal services to the Company. An immediate family member of Virgil Thompson, one of our directors and our former Chairman, iswas formerly a partner at Hogan Lovells.Lovells during 2016 and 2017. We incurred no expenses for services performed by Hogan Lovells duringof $590,988 and $751,972 respectively for the years ended December 31, 20142016 and 2015. We anticipate that the value of services to be performed by Hogan Lovells during the current fiscal year will exceed $120,000.

35

HOUSEHOLDING OF PROXY MATERIALS

The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more shareholders sharing the same address by delivering a single proxy statement and annual report addressed to those shareholders. This process, which is commonly referred to as “householding”,“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 printed proxy materials. A single set of printed proxy materials 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 set of printed proxy 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 our printed proxy materials at their address and would like to request “householding” of their communications should contact their broker.

36

OTHER MATTERS

The Board 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,John M. Siebert, Ph.D.

President and ChiefInterim Principal Executive Officer

May     [    ], 2016, 2018

A copy of our 2017 Annual Report on Form10-K for the fiscal year ended December 31, 2015 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.

37

Exhibit A