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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
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ARADIGM
CORPORATION
3929 Point Eden Way
Hayward, California, 94545
NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
To
Be Held On May 26, 2011
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,
May 26, 2011, at 9:00 a.m. local time at
Aradigms offices for the following purposes:
1. To reelect the five 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 ratify the selection of Odenberg, Ullakko,
Muranishi & Co. LLP as Aradigms independent
registered public accounting firm for the fiscal year ending
December 31, 2011.
3. To conduct any other business properly brought before
the meeting.
These items of business are more fully described in the Proxy
Statement accompanying this Notice.
The record date for the annual meeting is March 31, 2011.
Only shareholders of record at the close of business on that
date may vote at the meeting or any adjournment thereof.
By Order of the Board of Directors
Igor Gonda, Ph.D.
President and Chief Executive Officer
Hayward, California
April 6, 2011
Important Notice Regarding the Availability of Proxy
Materials for the Shareholders Meeting to Be
Held on May 26, 2011 at 9:00 am at 3929 Point Eden Way,
Hayward, California, 94545
The proxy statement and the Annual Report on
Form 10-K
are available at www.aradigm.com.
You are cordially invited to attend the meeting in person.
Whether or not you expect to attend the meeting, please
complete, date, sign and return the enclosed proxy as promptly
as possible in order to ensure your representation at the
meeting. A return envelope (which is postage prepaid if mailed
in the United States) has been provided for your convenience.
Even if you have voted by proxy, you may still vote in person if
you attend the meeting. Please note, however, that if your
shares are held of record by a broker, bank or other nominee and
you wish to vote at the meeting, you must obtain a proxy issued
in your name from that record holder.
Table of
Contents
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Why am I
receiving these materials?
We have sent you these proxy materials because the Board of
Directors of Aradigm Corporation is soliciting your proxy to
vote at the 2011 Annual Meeting of Shareholders. You are invited
to attend the annual meeting to vote on the proposals described
in this proxy statement. However, you do not need to attend the
meeting to vote your shares. Instead, you may simply complete,
sign and return the enclosed proxy card.
We intend to mail these proxy materials on or about
April 6, 2011 to all shareholders of record entitled to
vote at the annual meeting.
Who can
vote at the annual meeting?
Only shareholders of record at the close of business on
March 31, 2011 will be entitled to vote at the annual
meeting. On this record date, there were 172,304,235 shares
of Common Stock outstanding and entitled to vote.
Shareholder
of Record: Shares Registered in Your Name
If on March 31, 2011 your shares were registered directly
in your name with our transfer agent, Computershare
Trust Company, N.A., then you are a shareholder of record.
As a shareholder of record, you may vote in person at the
meeting or vote by proxy. Whether or not you plan to attend the
meeting, we urge you to fill out and return the enclosed proxy
card to ensure your vote is counted.
Beneficial
Owner: Shares Registered in the Name of a Broker or
Bank
If on March 31, 2011 your shares were held in an account at
a brokerage firm, bank, dealer, or other similar organization,
then you are the beneficial owner of shares held in street
name and these proxy materials are being forwarded to you
by that organization. The organization holding your account is
considered the shareholder of record for purposes of voting at
the annual meeting. As a beneficial owner, you have the right to
direct your broker or other agent regarding how to vote the
shares in your account. You are also invited to attend the
annual meeting. However, since you are not the shareholder of
record, you may not vote your shares in person at the meeting
unless you request and obtain a valid proxy from your broker or
other agent.
What am I
voting on?
There are two matters scheduled for a vote:
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Reelection of five directors for a one year term, until the next
Annual Meeting of Shareholders;
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Ratification of the selection by the Audit Committee of the
Board of Directors of Odenberg, Ullakko, Muranishi &
Co. LLP as our independent registered public accounting firm for
the fiscal year ending December 31, 2011.
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How do I
vote?
You may either vote For all the nominees for
director or you may Withhold your vote for any
nominee you specify. For the other matter to be voted on, you
may vote For or Against or abstain from
voting. The procedures for voting are fairly simple:
Shareholder
of Record: Shares Registered in Your Name
If you are a shareholder of record, you may vote in person at
the annual meeting or vote by proxy using the enclosed proxy
card. Whether or not you plan to attend the meeting, we urge you
to vote by proxy to ensure your vote is counted. You may still
attend the meeting and vote in person even if you have already
voted by proxy.
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To vote in person, come to the annual meeting and we will give
you a ballot when you arrive.
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To vote using the proxy card, simply complete, sign and date the
enclosed proxy card and return it promptly in the envelope
provided. If you return your signed proxy card to us before the
annual meeting, we will vote your shares as you direct.
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Beneficial
Owner: Shares Registered in the Name of Broker or
Bank
If you are a beneficial owner of shares registered in the name
of your broker, bank, or other agent, you should have received a
proxy card and voting instructions with these proxy materials
from that organization rather than from Aradigm. Simply complete
and mail the proxy card to ensure that your vote is counted. To
vote in person at the annual meeting, you must obtain a valid
proxy from your broker, bank, or other agent. Follow the
instructions from your broker or bank included with these proxy
materials, or contact your broker or bank to request a proxy
form.
How many
votes do I have?
On each matter to be voted upon, you have one vote for each
share of Common Stock you own as of March 31, 2011.
However, you may be able to cumulate your votes for
Proposal 1, the reelection of directors, if at least one
shareholder gives notice at the meeting, before the voting, that
he or she intends to cumulate votes. Under cumulative voting,
you have five votes for each share of Common Stock you own. You
may cast all of your votes for one candidate, or you may
distribute your votes among different candidates as you choose.
However, you may cumulate votes (cast more than one vote per
share) for a candidate only if the candidate is nominated before
the voting and at least one shareholder gives notice at the
meeting, before the voting, that he or she intends to cumulate
votes. If you do not specify how to distribute your votes, by
giving your proxy you are authorizing the proxyholders (the
individuals named on your proxy card) to cumulate votes in their
discretion.
What if I
return a proxy card or otherwise vote but do not make specific
choices?
If you return a signed and dated proxy card or otherwise vote
without marking any voting selections, your shares will be
voted, as applicable For the reelection of all five
nominees for director and For the ratification of
Odenberg, Ullakko, Muranishi & Co. LLP as our
independent registered public accounting firm for the fiscal
year ending December 31, 2011. If any other matter is
properly presented at the meeting, your proxyholder (one of the
individuals named on your proxy card) will vote your shares
using his or her best judgment.
Who is
paying for this proxy solicitation?
We will pay for the entire cost of soliciting proxies. In
addition to these proxy materials, our directors and employees
and Georgeson, Inc. (Georgeson) may also solicit
proxies in person, by telephone, or by other means of
communication. Directors and employees will not be paid any
additional compensation for soliciting proxies, but Georgeson,
if retained, would be paid its customary fee, estimated to be
$10,000 plus
out-of-pocket
expenses, if it coordinates proxy materials distribution and
solicits proxies.
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What does
it mean if I receive more than one set of proxy
materials?
If you receive more than one set of proxy materials, your shares
may be registered in more than one name or in different
accounts. Please follow the voting instructions on the proxy
cards and proxy materials to ensure that all of your shares are
voted.
Can I
change my vote after submitting my proxy?
Yes. You can revoke your proxy at any time before the final vote
at the meeting. If you are the record holder of the shares, you
may revoke your proxy in any one of following ways:
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You may submit another properly completed proxy card with a
later date.
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You may send a timely written notice that you are revoking your
proxy to our Secretary at 3929 Point Eden Way, Hayward,
California, 94545.
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You may attend the annual meeting and vote in person. Simply
attending the meeting will not, by itself, revoke your proxy.
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Your most current proxy card is the one that is counted.
If your shares are held by your broker or bank as a nominee or
agent, you should follow the instructions provided by your
broker or bank.
When are
shareholder proposals due for next years annual
meeting?
To be considered for inclusion in next years proxy
materials, your proposal must be submitted in writing by
December 21, 2011, to our Secretary at 3929 Point Eden Way,
Hayward, California, 94545. If you wish to submit a proposal
that is not to be included in next years proxy materials
or nominate a director, you must do so no later than the close
of business on March 27, 2012 and no earlier than the close
of business on February 26, 2012. You are also advised to
review our bylaws, which contain additional requirements about
advance notice of shareholder proposals and director
nominations. A copy of our bylaws is available via written
request to our Secretary at 3929 Point Eden Way, Hayward,
California, 94545, or by accessing EDGAR on the SECs
website at www.sec.gov.
How are
votes counted?
Votes will be counted by the inspector of election appointed for
the meeting, who will separately count For and (with
respect to proposals other than the reelection of directors)
Against votes, abstentions and broker non-votes.
With respect to any proposal submitted to a vote of the
shareholders, the inspector of election will not count
abstentions and broker non-votes as shares counting towards the
vote total for such proposal.
If your shares are held by your broker as your nominee (that is,
in street name), you will need to obtain a proxy
form from the institution that holds your shares and follow the
instructions included on that form regarding how to instruct
your broker to vote your shares. If you do not give instructions
to your broker, your broker can vote your shares with respect to
discretionary items, but not with respect to
non-discretionary items. On non-discretionary items
for which you do not give your broker instructions, the shares
will be treated as broker non-votes.
What are
broker non-votes?
Broker non-votes occur when a beneficial owner of shares held in
street name does not give instructions to the broker
or nominee holding the shares as to how to vote on matters
deemed non-routine. Generally, if shares are held in
street name, the beneficial owner of the shares is entitled to
give voting instructions to the broker or nominee holding the
shares. If the beneficial owner does not provide voting
instructions, the broker or nominee can still vote the shares
with respect to matters that are considered to be
routine, but not with respect to
non-routine matters. Under the rules and
interpretations of the New York Stock Exchange
(NYSE), non-routine matters are
generally those involving a contest or a matter that may
substantially affect the rights or privileges of shareholders,
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such as mergers or shareholder proposals. Under recent changes
to NYSE Rule 452, the election of directors is now also
considered a non-routine matter.
How many
votes are needed to approve each proposal?
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For the reelection of directors, the five nominees receiving the
highest number of For votes (from the holders of
votes of shares present in person or represented by proxy and
entitled to vote at the meeting on the reelection of directors)
will be elected. Withheld votes and broker non-votes will have
no effect on the outcome of the reelection of directors.
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To be approved, Proposal 2 (ratifying the selection of
Odenberg, Ullakko, Muranishi & Co. LLP as our
independent registered public accounting firm for the fiscal
year ending December 31, 2011) must receive
For votes from the holders of a majority of shares
present either in person or by proxy and entitled to vote. The
inspector of election will not count abstentions and broker
non-votes as shares towards the vote total for this proposal, in
which case abstentions and broker non-votes will have no effect
on the outcome of this proposal.
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What is
the quorum requirement?
A quorum of shareholders is necessary to hold a valid meeting. A
quorum will be present if shareholders holding a majority of the
outstanding shares entitled to vote are present at the meeting
in person or represented by proxy. On the record date, there
were 172,304,235 shares of Common Stock outstanding and
entitled to vote. Thus, the holders of 86,152,118 shares
must be present in person or represented by proxy at the meeting
or by proxy to have a quorum.
Your shares will be counted towards the quorum only if you
submit a valid proxy (or one is submitted on your behalf by your
broker, bank or other nominee) or vote at the meeting. The
inspector of election will treat abstentions and broker
non-votes as shares counted towards the quorum requirement. If
there is no quorum, the holders of a majority of the shares
present in person or represented by proxy at the meeting may
adjourn the meeting to another date.
How can I
find out the results of the voting at the annual
meeting?
Preliminary voting results will be announced at the annual
meeting. Final voting results will be published on our
Form 8-K
filed with the SEC within four business days after the annual
meeting.
What
proxy materials are available on the internet?
This proxy statement and Annual Report on
Form 10-K
are available at www.aradigm.com.
PROPOSAL 1
REELECTION
OF DIRECTORS
Our Board of Directors (the Board) currently
consists of five directors. There are five nominees for director
this year. Each director to be reelected will hold office until
the next annual meeting and until his or her successor is
elected, or until the directors death, resignation or
removal. Each of the nominees listed below is currently a member
of our 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. All of the
nominees for reelection as a director at the 2011 Annual Meeting
of Shareholders attended the 2010 Annual Meeting of
Shareholders, with the exception of Ms. Howson.
The five candidates receiving the highest number of affirmative
votes by the holders of shares entitled to be voted will be
elected. Shares represented by executed proxies will be voted,
if authority to do so is not withheld, for the reelection of the
five nominees named below. If any nominee becomes unavailable
for reelection as a result of an unexpected occurrence, your
shares will be voted for the election of a substitute nominee
proposed by us. Each person nominated for reelection has agreed
to serve if elected. Our management has no reason to believe
that any nominee will be unable to serve.
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Nominees
The following is a brief biography of each nominee for director
and their ages as of March 31, 2011. Each nominee is
currently serving as a director of Aradigm.
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Name
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Age
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Principal Occupation/Position Held With Us
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Frank H. Barker
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Director
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Igor Gonda
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President, Chief Executive Officer and Director
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Tamar Howson
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Director
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John M. Siebert
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Director
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Virgil D. Thompson
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Chairman and Director
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Frank H. Barker has been a director since May
1999. From January 1980 to January 1994,
Mr. Barker served as a company group chairman of
Johnson & Johnson, Inc., a diversified health care
company, and was Corporate Vice President from January 1989 to
January 1996. Mr. Barker retired from Johnson &
Johnson, Inc. in January 1996. Mr. Barker holds a B.A. in
Business Administration from Rollins College, Winter Park,
Florida.
Igor Gonda, Ph.D. has served as our President and
Chief Executive Officer since August 2006 and as a director
since September 2001. From December 2001 to August 2006,
Dr. Gonda was the Chief Executive Officer and Managing
Director of Acrux Limited, a publicly traded specialty
pharmaceutical company located in Melbourne, Australia. From
July 2001 to December 2001, Dr. Gonda was our Chief
Scientific Officer and, from October 1995 to July 2001, was our
Vice President, Research and Development. From February 1992 to
September 1995, Dr. Gonda was a Senior Scientist and Group
Leader at Genentech, Inc. His key responsibilities at Genentech
were the development of the inhalation delivery of rhDNase
(Pulmozyme) for the treatment of cystic fibrosis and
non-parenteral methods of delivery of biologics. Prior to that,
Dr. Gonda held academic positions at the University of
Aston in Birmingham, United Kingdom, and the University of
Sydney, Australia. Dr. Gonda holds a B.Sc. in Chemistry and
a Ph.D. in Physical Chemistry from Leeds University, United
Kingdom. Dr. Gonda was the Chairman of our Scientific
Advisory Board until August 2006.
Tamar D. Howson has been a director since November 2010.
From 2001 to 2007, she served as Senior Vice President of
Corporate and Business Development and was a member of the
executive committee at Bristol-Myers Squibb Company
(Bristol-Myers). During her tenure at Bristol-Myers,
Ms. Howson was responsible for leading the companys
efforts in external alliances, licensing and acquisitions. From
1991 to 2000, Ms. Howson served as Senior Vice President
and Director of Business Development at SmithKline Beecham plc,
a global pharmaceutical company. She also managed SR One Ltd., a
venture capital fund of SmithKline Beecham, plc. From 1990 to
1991, Ms. Howson held the position of Vice President,
Venture Investments at Johnston Associates, Inc., and from 1987
to 1990, she served as Director of Worldwide Business
Development and Licensing for Squibb Corporation. She previously
served as Executive Vice President of Corporate Development for
Lexicon Pharmaceuticals, Inc. and on the boards of Ariad
Pharmaceuticals, Inc., SkyePharma, plc, NPS Pharmaceuticals,
Inc., Targacept, Inc., and the Healthcare Businesswomens
Association. Ms. Howson received her MBA in finance and
international business from Columbia University. She holds a MS
from the City College of New York and a BS from Technion in
Israel. Tamar Howson is currently a partner with JSB-Partners,
LP, a transaction advisory firm serving the life sciences
industry. She is also a consultant to Pitango Venture Fund, and
a member of the advisory board to Triana Venture Partners, Inc.
She serves on the boards of Soligenix, Inc., OXIGENE, Inc.,
Idenix Pharmaceuticals, Inc., and S*Bio Pte Ltd.
John M. Siebert, Ph.D. has been a director since
November 2006. From May 2003 to October 2008, Dr. Siebert
was the Chairman and Chief Executive Officer of CyDex
Pharmaceuticals, Inc., a privately held specialty pharmaceutical
company. From September 1995 to April 2003, he was President and
Chief Executive Officer of CIMA Labs Inc., a publicly traded
drug delivery company, and from July 1995 to September 1995 he
was President and Chief Operating Officer of CIMA Labs. From
1992 to 1995, Dr. Siebert was Vice President, Technical
Affairs at Dey Laboratories, Inc., a privately held
pharmaceutical company. From 1988 to 1992, he worked at Bayer
Corporation. Prior to that, Dr. Siebert was employed by
E.R. Squibb & Sons, Inc., G.D. Searle & Co.
and The Procter & Gamble Company. Dr Siebert holds a
B.S. in Chemistry from Illinois Benedictine University, an M.S.
in Organic Chemistry from Wichita State University and a Ph.D.
in Organic Chemistry from the University of Missouri.
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Virgil D. Thompson has been a director since June 1995
and has been Chairman of the Board since January 2005. Since
July 2009, Mr. Thompson has been Chief Executive Officer
and a director of Spinnaker Biosciences, Inc., a privately held
ophthalmic drug delivery company. From November 2002 until July
2007, Mr. Thompson was President and Chief Executive
Officer of Angstrom Pharmaceuticals, Inc., a privately held
pharmaceutical company. From September 2000 to November 2002,
Mr. Thompson was President, Chief Executive Officer and a
director of Chimeric Therapies, Inc., a privately held
biotechnology company. From May 1999 until September 2000,
Mr. Thompson was the President, Chief Operating Officer and
a director of Savient Pharmaceuticals, a publicly traded
specialty pharmaceutical company. From January 1996 to April
1999, Mr. Thompson was the President and Chief Executive
Officer and a director of Cytel Corporation, a publicly traded
biopharmaceutical company that was subsequently acquired by IDM
Pharma, Inc. From 1994 to 1996, Mr. Thompson was President
and Chief Executive Officer of Cibus Pharmaceuticals, Inc., a
privately held drug delivery device company. From 1991 to 1993,
Mr. Thompson was President of Syntex Laboratories, Inc., a
U.S. subsidiary of Syntex Corporation, a publicly traded
pharmaceutical company. Mr. Thompson holds a B.S. in
Pharmacy from Kansas University and a J.D. from The George
Washington University Law School. Mr. Thompson is chairman
of the board of directors of Questcor Pharmaceuticals, Inc., a
publicly traded pharmaceutical company, and is a director of
Savient Pharmaceuticals and Soligenix, Inc.
THE BOARD
OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
Qualifications
of Directors and Nominees
The following is a brief discussion of the specific experience,
qualifications, attributes or skills that led to the conclusion
that our directors and nominees should serve as one of our
directors at this time:
We believe that our directors and nominees have an appropriate
balance of knowledge, experience, attributes, skills and
expertise required for our Board as a whole and that we have
sufficient independent directors to comply with applicable laws
and regulations. We believe that our directors have a broad
range of personal characteristics including leadership,
management, scientific, technological, business, marketing and
financial experience and abilities to act with integrity, with
sound judgment and collegiality, to consider strategic
proposals, to assist with the development of our strategic plan
and oversee its implementation, to oversee our risk management
efforts and executive compensation, to provide leadership, to
provide required expertise on Board committees and to commit the
requisite time for preparation and attendance at Board and
committee meetings.
In addition, four of our five directors are independent under
the listing standards of the Nasdaq Global Market
(Nasdaq) (Dr. Gonda, our Chief Executive
Officer, being the only exception as he is an employee) and our
Nominating and Corporate Governance Committee believes that all
five directors are independent of the influence of any
particular shareholder or group of shareholders whose interests
may diverge from the interests of our shareholders as a whole.
We believe that each director brings a strong background and set
of skills to the Board, giving the Board as a whole competence
and experience from a wide variety of areas.
Dr. Gonda has served as our Chief Executive Officer since
2006 and as one of our directors since 2001. In addition to his
leadership, strategic planning and extensive knowledge of the
day to day operations of our business, he has a commercial,
scientific and academic background in the delivery of
pharmaceuticals using inhalation. His education includes degrees
in chemistry and physical chemistry.
Mr. Thompson, our Chairman of the Board, is our longest
serving director giving him substantial knowledge of our company
and its business. Mr. Thompson has extensive experience in
the life sciences industry and has served as an executive with
numerous pharmaceutical and drug delivery companies, both public
and private. He also brings experience as a director of other
public and private life sciences companies. His education
includes degrees in pharmacy and law.
Mr. Barkers career at Johnson & Johnson,
Inc., a diversified health care company, has given him broad
experience in leadership, executive management, global
operations and consensus building. Mr. Barkers
service on
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our Board since 1999 has given him a substantial knowledge of
our company and its business. His education includes a degree in
business administration.
Dr. Siebert has extensive experience in the life sciences
industry, including as Chairman and Chief Executive Officer of a
privately held specialty pharmaceutical company, President and
Chief Executive Officer of a publicly traded drug delivery
company and additional management and executive management roles
at drug delivery and pharmaceutical companies. Our Board has
determined that Dr. Sieberts background, especially
his executive management roles, qualifies him as our Audit
Committee financial expert. His education includes degrees in
chemistry and organic chemistry.
Ms. Howson, our newest director, brings a strong background
and focus on strategic transactions and commercialization
opportunities, particularly those with pharmaceutical companies.
She currently serves as a director of several other public and
private life sciences companies. Her education includes an MBA
with a focus on finance and international business.
Independence
of the Board of Directors
We have chosen to apply the listing standards of Nasdaq in
determining the independence of our directors. The Board
consults with counsel to ensure that the Boards
determinations are consistent with all relevant securities and
other laws and regulations regarding the definition of
independent, including those set forth in pertinent
listing standards of Nasdaq, as in effect from time to time.
Consistent with these considerations, after review of all
relevant transactions or relationships between each director and
nominee for director, or any of his or her family members, and
us, our senior management and our independent registered public
accounting firm, the Board affirmatively has determined that the
following four directors and nominees for directors are
independent within the meaning of the applicable Nasdaq listing
standards: Mr. Barker, Ms. Howson, Dr. Siebert,
and Mr. Thompson. In making this determination, the Board
found that none of these directors or nominees for director had
a material or disqualifying relationship with the Company.
Dr. Gonda, our President and Chief Executive Officer, is
not an independent director within the meaning of the applicable
Nasdaq standards by virtue of his employment with Aradigm. In
addition, each person who served as a director for any portion
of 2010 was independent within the meaning of the applicable
Nasdaq listing standards, except for Dr. Gonda.
Board
Leadership Structure and Role in Risk Oversight
Mr. Thompson is our Chairman of the Board and he presides
at all Board of Directors meetings. Our independent directors
meet regularly in executive session (i.e., without management
present) with no agenda set by management.
Our Board of Directors oversees our risk management. This
oversight is administered primarily through the following:
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The Boards review and approval of our business plan
(prepared and presented to the Board by our Chief Executive
Officer and other management), including the projected
opportunities and challenges facing our business each year;
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At least quarterly review of our business developments, business
plan implementation and financial results;
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Our Audit Committees oversight of our internal controls
over financial reporting and its discussion with management and
the independent accountants regarding the quality and adequacy
of our internal controls and financial reporting (and related
reports to the full Board); and
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Our Compensation Committees reviews and makes
recommendations to the Board regarding our executive officer
compensation and its relationship to our business plans.
|
7
Meetings
of the Board of Directors
The Board held 15 meetings during the last fiscal year. Each of
our current Board members attended 75% or more of the aggregate
of the meetings of the Board and of the committees on which they
served during the year, with the exception of Ms. Howson
who joined the Board in November 2010.
In fiscal 2010, our independent directors met or held telephonic
Board meetings 6 times in regularly scheduled executive sessions
at which only independent directors were present. These meetings
were chaired by Mr. Thompson, the Chairman of the Board.
Persons interested in communicating with the independent
directors with their concerns or issues may address
correspondence to a particular director or to the independent
directors generally, in care of Aradigm at 3929 Point Eden Way,
Hayward, California, 94545.
Shareholder
Communications with the Company and the Board of
Directors
We have implemented a process by which shareholders may
communicate with the Company. Shareholders who wish to
communicate with the Company may send an email to
investor@aradigm.com or may telephone the investor
relations line at the Company at
510-265-9370.
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 may do so by sending
written communications addressed to the Secretary of Aradigm at
3929 Point Eden Way, Hayward, California 94545. All
communications will be compiled by our Secretary and submitted
to the Board or the individual directors on a periodic basis.
All communications directed to the Audit Committee in accordance
with our whistleblower policy that relate to questionable
accounting or auditing matters involving us will be forwarded
directly to the Audit Committee.
Code of
Ethics
We have adopted the Aradigm Corporation Code of Business Conduct
and Ethics that applies to all of our officers, directors and
employees. The Code of Business Conduct and Ethics is available
on our website at www.aradigm.com. If we make any substantive
amendments to the Code of Business Conduct and Ethics or grant
any waiver from a provision of the Code to any executive officer
or director, we will promptly disclose the nature of the
amendment or waiver on our website.
Information
Regarding the Committees of our Board of Directors
The Board has three committees: an Audit Committee, a
Compensation Committee and a Nominating and Corporate Governance
Committee. The following table provides membership information
and meeting information for each of the Board committees during
2010:
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|
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|
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|
Nominating and
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|
|
|
|
Corporate
|
Name
|
|
Audit
|
|
Compensation
|
|
Governance
|
|
Frank H. Barker
|
|
|
X
|
|
|
|
X
|
|
|
|
X
|
*
|
Igor Gonda
|
|
|
|
|
|
|
|
|
|
|
|
|
Tamar Howson
|
|
|
|
|
|
|
X
|
|
|
|
|
|
John M. Siebert
|
|
|
X
|
*
|
|
|
X
|
|
|
|
X
|
|
Virgil D. Thompson
|
|
|
X
|
|
|
|
X
|
*
|
|
|
X
|
|
Total meetings in fiscal year 2010
|
|
|
7
|
|
|
|
5
|
|
|
|
5
|
|
Below is a description of each committee of the Board. The Board
has determined that each member of each committee meets the
applicable Nasdaq rules and regulations regarding
independence and that each member is free of any
relationship that would impair his or her individual exercise of
independent judgment with regard to Aradigm.
8
Audit
Committee
The Audit Committee of the Board was established by the Board in
accordance with Section 3(a)(58)(A) of the Securities
Exchange Act of 1934, as amended, to oversee our corporate
accounting and financial reporting processes and audits of our
financial statements. For this purpose, the Audit Committee
performs several functions. The Audit Committee evaluates the
performance of and assesses the qualifications of our
independent registered public accounting firm. In this role, it
determines and approves the engagement of our independent
registered public accounting firm and determines whether to
retain or terminate the existing independent registered public
accounting firm or to appoint and engage a new independent
registered public accounting firm. The Committee reviews and
approves the retention of the independent registered public
accounting firm to perform any proposed permissible non-audit
services; monitors the rotation of partners of the independent
registered public accounting firm on our audit engagement team
as required by law; confers with management and our independent
registered public accounting firm regarding the effectiveness of
internal controls over financial reporting, and establishes
procedures, as required under applicable law, for the receipt,
retention and treatment of complaints received by us regarding
accounting, internal accounting controls or auditing matters and
the confidential and anonymous submission by employees of
concerns regarding questionable accounting or auditing matters.
The Committee reviews the financial statements to be included in
our Annual Report on
Form 10-K
and our quarterly financial statements on
Form 10-Q
and discusses with management and our independent registered
public accounting firm the results of the annual audit.
Currently, three directors comprise the Audit Committee:
Messrs. Barker and Thompson and Dr. Siebert (chair).
The Audit Committee is governed by a written charter that is
available to shareholders on our website at www.aradigm.com.
The Board annually reviews the Nasdaq listing standards
definition of independence for Audit Committee members and has
determined that all members of our Audit Committee are
independent (as independence is currently defined in
Rule 4350(d)(2)(A)(i) and (ii) of the Nasdaq listing
standards). The Board has determined that Dr. Siebert
qualifies as an audit committee financial expert, as
defined in applicable rules of the Securities and Exchange
Commission (the SEC). The Board made a qualitative
assessment of Dr. Sieberts level of knowledge and
experience based on a number of factors, including formal
education and executive experience.
Compensation
Committee
The Compensation Committee of the Board reviews and recommends
to the Board the overall compensation strategy and policies for
us. The Compensation Committee reviews and recommends to the
Board corporate performance goals and objectives relevant to the
compensation of our executive officers and other senior
management; reviews and recommends to the Board the compensation
and other terms of employment of our Chief Executive Officer;
reviews and recommends to the Board for approval the
compensation and other terms of employment of the other
officers; and oversees the administration of our stock option
and stock purchase plans, health benefit plans, stock bonus
plans, deferred compensation plans and other similar programs.
Three directors currently comprise the Compensation Committee:
Messrs. Barker and Thompson (chair) and Ms. Howson.
Dr. Siebert served as a member of the Compensation
Committee prior to November 2010 and Ms. Howsons
appointment to the Board and the Compensation Committee. All
members of our Compensation Committee are independent (as
independence is currently defined in Rule 4200(a)(15) of
the Nasdaq listing standards). The Compensation Committee is
governed by a written charter that is available to shareholders
on our website at www.aradigm.com.
Nominating
and Corporate Governance Committee
The Nominating and Corporate Governance Committee of the Board
is responsible for identifying, reviewing and evaluating
candidates to serve as directors (consistent with criteria
approved by the Board), recommending to the Board candidates for
election and reelection to the Board, making recommendations to
the Board regarding the membership of the committees of the
Board, assessing the performance of the Board and its committees
and monitoring compliance with our Code of Business Conduct and
Ethics. Currently, the Nominating and Corporate Governance
Committee consists of three directors: Dr. Siebert and
Messrs. Barker (chair) and Thompson. All current members of
the Nominating and Corporate Governance Committee are
independent (as independence is
9
currently defined in Rule 4200(a)(15) of the Nasdaq listing
standards). The Nominating and Corporate Governance Committee is
governed by a written charter that is available to shareholders
on our website at www.aradigm.com.
Any potential candidates for director nominees, including
candidates recommended by shareholders, are reviewed in the
context of the current composition of the Board, our operating
requirements and the long-term interests of shareholders. In
conducting this assessment, the Committee considers such factors
as it deems appropriate given our current needs and those of our
Board, to maintain a balance of knowledge, experience and
capability. The Nominating and Corporate Governance Committee
reviews directors overall service during their term,
including the number of meetings attended, level of
participation and quality of performance. The Committee also
determines whether the nominee would be independent, which
determination is based upon applicable Nasdaq listing standards,
applicable SEC rules and regulations and the advice of counsel,
if necessary. The Committee then compiles a list of potential
candidates from suggestions it may receive, but may also engage,
if it deems appropriate, a professional search firm to generate
additional suggestions. The Committee conducts any appropriate
and necessary inquiries into the backgrounds and qualifications
of possible candidates as it deems appropriate. The Committee
meets to discuss and consider such candidates
qualifications and then selects a nominee for recommendation to
the Board by majority vote. While the Committee and the Board
have from time to time received and considered suggestions from
shareholders for nominations to the Board, the Committee has
received no suggestions for which disclosure is required in this
proxy statement.
The Nominating and Corporate Governance Committee will consider
director candidates recommended by shareholders. The Committee
will consider candidates recommended by shareholders in the same
manner as it considers recommendations from other sources.
Shareholders who wish to recommend individuals for consideration
by the Nominating and Corporate Governance Committee to become
nominees for election to the Board may do so by delivering a
written recommendation to the Nominating and Corporate
Governance Committee at the following address: 3929 Point Eden
Way, Hayward, California 94545 at least 60 days prior, but
no more than 90 days prior, to the anniversary date of the
last annual meeting of shareholders. Submissions should include
the full name of the proposed nominee, a description of the
proposed nominees business experience for at least the
previous five years, complete biographical information, a
description of the proposed nominees qualifications as a
director and a representation that the nominating shareholder is
a beneficial or record owner of our stock.
The Nominating and Corporate Governance Committee has not
established specific minimum qualifications for recommended
nominees or specific qualities or skills for one or more of our
directors to possess. The Nominating and Corporate Governance
Committee uses a subjective process for identifying and
evaluating nominees for director, based on the information
available to, and the subjective judgments of, the members of
the Nominating and Corporate Governance Committee and our then
current needs for the Board as a whole, although the Committee
does not believe there would be any difference in the manner in
which it evaluates nominees based on whether the nominee is
recommended by a shareholder. The Nominating and Corporate
Governance Committee considers the needs for the Board as a
whole when identifying and evaluating nominees and, among other
things, considers diversity in background, age, experience,
qualifications, attributes and skills in identifying nominees,
although it does not have a formal policy regarding the
consideration of diversity. In 2010, the Nominating and
Corporate Governance Committee recommended Ms. Howson as a
new director for election to the Board. See Qualifications
of Directors and Nominees for a description of the
diversity of our current directors.
10
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,
2010 with our management. The Audit Committee has discussed with
the independent registered public accounting firm the matters
required to be discussed by Statement on Auditing Standards
No. 114, The Auditors Communication with Those
Charged with Governance, as adopted by the Public Company
Accounting Oversight Board (PCAOB) in
Rule 3200T. The Audit Committee has also received the
written disclosures and the letter from the independent
registered public accounting firm required by applicable
requirements of the PCAOB regarding the independent registered
public accounting firms communications with the Audit
Committee concerning independence, and has discussed with the
independent registered public accounting firm the independent
registered public accounting firms independence. Based on
the foregoing, the Audit Committee has recommended to the Board
of Directors that the audited financial statements be included
in the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2010.
From the members of the Audit Committee of Aradigm Corporation:
Frank H. Barker
John M. Siebert, Chairman
Virgil D. Thompson
PROPOSAL 2
RATIFICATION
OF SELECTION OF INDEPENDENT REGISTERED
PUBLIC
ACCOUNTING FIRM
The Audit Committee of the Board of Directors has selected
Odenberg, Ullakko, Muranishi & Co. LLP as our
independent registered public accounting firm for the fiscal
year ending December 31, 2011 and has further directed that
management submit the selection of an independent registered
public accounting firm for ratification by our shareholders at
the annual meeting. Prior to the selection of Odenberg, Ullakko,
Muranishi & Co. LLP as our independent registered
public accounting firm in April 2007, Ernst & Young
LLP had audited our financial statements, since 1995.
Representatives of Odenberg, Ullakko, Muranishi & Co.
LLP are expected to be present at the annual meeting. They will
have an opportunity to make a statement if they so desire and
will be available to respond to appropriate questions.
Neither our bylaws nor other governing documents or law require
shareholder ratification of the selection of Odenberg, Ullakko,
Muranishi & Co. LLP as our independent registered
public accounting firm. However, the Audit Committee is
submitting the selection of Odenberg, Ullakko,
Muranishi & Co. LLP to the shareholders for
ratification as a matter of good corporate practice. If the
shareholders fail to ratify the selection, the Audit Committee
will reconsider whether or not to retain that firm. Even if the
selection is ratified, the Audit Committee in its discretion may
direct the appointment of a different independent registered
public accounting firm at any time during the year if they
determine that such a change would be in the best interests of
Aradigm and its shareholders.
The affirmative votes of the holders of a majority of the shares
present in person or represented by proxy and voting at the
annual meeting (which shares voting affirmatively also
constitute a majority of the required quorum) will be required
to ratify the selection of Odenberg, Ullakko,
Muranishi & Co. LLP. For purposes of this vote,
abstentions and broker non-votes will not be counted for any
purpose in determining whether this matter has been approved.
(*) The material in
this report is not soliciting material, is not
deemed filed with the SEC, and is not to be
incorporated by reference into any filing of the Company under
the Securities Act of 1933, as amended, or the Securities Act of
1934, as amended, whether made before or after the date hereof
and irrespective of any general incorporation language contained
in such filing.
11
Principal
Accounting Fees and Services
The following table represents aggregate fees billed to us for
fiscal years ended December 31, 2010 and 2009, by Odenberg,
Ullakko, Muranishi & Co. LLP, our independent
registered public accounting firm since April 2007. All services
described below were pre-approved by the Audit Committee.
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Fiscal Year Ended December 31,
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|
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2010
|
|
2009
|
|
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(In thousands)
|
|
Audit Fees(1)
|
|
$
|
164
|
|
|
$
|
230
|
|
Audit-related Fees
|
|
|
|
|
|
|
|
|
Tax Fees
|
|
|
|
|
|
|
18
|
|
All Other Fees
|
|
|
14
|
|
|
|
|
|
Total Fees
|
|
$
|
178
|
|
|
$
|
248
|
|
|
|
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(1) |
|
Audit fees represent fees for professional services related to
the performance of the audit of our annual financial statements,
review of our quarterly financial statements and consents on SEC
filings. |
Pre-Approval
Policies and Procedures
The Audit Committee pre-approves audit services, audit-related
services and non-audit services provided by our independent
registered public accounting firm, Odenberg, Ullakko,
Muranishi & Co. LLP, and will not approve services
that the Audit Committee determines are outside the bounds of
applicable laws and regulations. Pre-approval may also be given
as part of the Audit Committees approval of the scope of
the engagement of the independent registered public accounting
firm or on an individual explicit
case-by-case
basis before the independent registered public accounting firm
is engaged to provide each service. The pre-approval of services
may be delegated to the Chairman of the Audit Committee, but the
decision must be reported to the full Audit Committee at its
next scheduled meeting.
The Audit Committee has determined that the rendering of the
services, other than audit services, by Odenberg, Ullakko,
Muranishi & Co. LLP is compatible with maintaining the
principal accountants independence.
The affirmative vote from the holders of a majority of shares
present either in person or by proxy and entitled to vote will
be required to ratify the selection of Odenberg, Ullakko,
Muranishi & Co. LLP as our independent registered
public accounting firm. The inspector of election will not count
abstentions and broker non-votes as shares towards the vote
total for this proposal, in which case abstentions and broker
non-votes will have no effect on the outcome of this proposal.
THE BOARD
OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
12
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of our common stock as of February 28, 2011 by:
(i) each director and nominee for director; (ii) each
of the executive officers named in the Summary Compensation
Table (provided below); (iii) all of our executive officers
and directors as a group; and (iv) all those known by us to
be beneficial owners of more than five percent of our common
stock.
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Beneficial Ownership Common(1)
|
|
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Number of Shares
|
|
Percent of Total (%)
|
|
First Eagle Investment Management, LLC.(2)
|
|
|
61,712,652
|
|
|
|
35.82
|
|
1345 Avenue of the Americas
|
|
|
|
|
|
|
|
|
New York, NY 10105
|
|
|
|
|
|
|
|
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Novo Nordisk A/S(3)
|
|
|
26,204,122
|
|
|
|
15.21
|
|
Novo Alle DK 2880
|
|
|
|
|
|
|
|
|
Bagsvaerd G7
|
|
|
|
|
|
|
|
|
Conus Partners, Inc.(4)
|
|
|
11,135,988
|
|
|
|
6.46
|
|
49 West 38th Street, 11th Floor
|
|
|
|
|
|
|
|
|
New York, NY 10018
|
|
|
|
|
|
|
|
|
Laurence W. Lytton(5)
|
|
|
8,864,608
|
|
|
|
5.14
|
|
467 Central Park West
|
|
|
|
|
|
|
|
|
New York, NY 10025
|
|
|
|
|
|
|
|
|
Igor Gonda, Ph.D.(6)
|
|
|
2,985,059
|
|
|
|
1.73
|
|
Nancy Pecota(7)
|
|
|
863,125
|
|
|
|
*
|
|
D. Jeffery Grimes(8)
|
|
|
184,661
|
|
|
|
*
|
|
Virgil D. Thompson( 9)
|
|
|
792,983
|
|
|
|
*
|
|
Frank H. Barker(10)
|
|
|
746,250
|
|
|
|
*
|
|
Tamar D. Howson(11)
|
|
|
80,357
|
|
|
|
*
|
|
John M. Siebert, Ph.D.(12)
|
|
|
567,750
|
|
|
|
*
|
|
All executive officers and directors as a group
(7 persons)(13)
|
|
|
6,220,185
|
|
|
|
3.61
|
|
|
|
|
* |
|
Less than one percent |
|
(1) |
|
This table is based upon information supplied by officers,
directors and principal shareholders and Forms 4 and
Schedules 13D and 13G filed with the Securities and Exchange
Commission (SEC). Unless otherwise indicated in the
footnotes to this table and subject to community property laws
where applicable, we believe that each of the shareholders named
in this table has sole voting and investment power with respect
to the shares indicated as beneficially owned. Applicable
percentages are based on 172,304,235 shares of common stock
outstanding on February 28, 2011. Unless otherwise
indicated, the address of each person on this table is
c/o Aradigm
Corporation, 3929 Point Eden Way, Hayward, California, 94545. |
|
(2) |
|
Based upon information contained in a Schedule 13G filed
with the SEC on September 22, 2010, and other information
known to us, First Eagle Management (FEIM) (formerly
Arnhold and S. Bleichroeder Advisors, LLC), an investment
adviser registered under Section 203 of the Investment
Advisers Act of 1940, may be deemed to beneficially own
61,712,652 shares of our common stock, as a result of
acting as investment advisor to various clients. Clients of FEIM
have the right to receive and the ultimate power to direct the
receipt of dividends from, or the proceeds of the sale of, such
securities. First Eagle Value in Biotechnology Master Fund,
Ltd., a Cayman Islands company for which FEIM acts as investment
adviser, may be deemed to beneficially own 31,276,465 of these
61,712,652 shares. In addition, 21 April Fund, Ltd., a
Cayman Islands company for which FEIM acts as investment
adviser, may be deemed to beneficially own 16,458,279 of these
61,712,652. DEF Associates N.V., a Netherlands Antilles company
for which FEIM acts as investment adviser, may be deemed to
beneficially own 8,378,378 of these 61,712,652 shares.
21 April Fund, L.P., a |
13
|
|
|
|
|
Delaware limited partnership for which FEIM acts as an
investment advisor, may be deemed to beneficially own 5,599,530
of these 61,712,652 shares, |
|
(3) |
|
Based upon information contained in a Form 4 filed on
November 09, 2010. |
|
(4) |
|
Based upon information contained in a Schedule 13G
Amendment No. 1, filed with the SEC for the year ending
December 31, 2010. |
|
(5) |
|
Based upon information contained in a Schedule 13G, filed
with the SEC on February 24, 2011. |
|
(6) |
|
Includes 1,259,625 stock options shares which are exercisable
within 60 days of February 28, 2011. The number of
shares also includes 500,000 shares pursuant to restricted
stock awards that have not vested. Additionally, the number of
shares does not include a total of 300,000 shares that vest
only upon the occurrence of certain future events pursuant to a
restricted stock bonus agreement between Dr. Gonda and
Aradigm. |
|
(7) |
|
Includes 328,125 stock options which are exercisable within
60 days of February 28, 2011. The number of shares
also includes 300,000 shares pursuant to restricted stock
awards that have not vested. |
|
(8) |
|
Mr. Grimes employment with the Company terminated as
of June 18, 2010. As of February 28, 2011, no stock
option awards and no restricted stock awards remain outstanding. |
|
(9) |
|
Includes 424,500 stock options which are exercisable within
60 days of February 28, 2011. The number of shares
also includes 208,333 shares pursuant to restricted stock
units that have not vested. |
|
(10) |
|
Includes 362,500 stock options which are exercisable within
60 days of February 28, 2011. The number of shares
also includes 62,500 shares pursuant to restricted stock
awards that have not vested. |
|
(11) |
|
Includes 37,500 stock options which are exercisable within
60 days of February 28, 2011. The number of shares
also includes 32,143 shares pursuant to restricted stock
awards that have not vested. |
|
(12) |
|
Includes 345,000 stock options which are exercisable within
60 days of February 28, 2011. The number of shares
also includes 125,000 shares pursuant to restricted stock
units that have not vested. |
|
(13) |
|
See footnotes (6) through (12) 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, 2010, all Section 16(a) filing
requirements applicable to our officers, directors and greater
than ten percent beneficial owners were complied with.
COMPENSATION
The policies of the Compensation Committee, or the Committee,
with respect to the compensation of executive officers,
including the Chief Executive Officer, or CEO, are designed to
provide compensation sufficient to attract, motivate and retain
executives of outstanding ability and potential and to establish
an appropriate relationship between executive compensation and
the creation of shareholder value. To meet these goals, the
Committee recommends executive compensation packages to our
Board of Directors that are based on a mix of salary, bonus and
equity awards.
Overall, the Board and the Committee seek to provide total
compensation packages that are competitive in terms of total
potential value to our executives, and that are tailored to the
unique characteristics of our Company in order to create an
executive compensation program that will adequately reward our
executives for their roles in creating value for our
shareholders. The Board and the Committee intend to provide
executive compensation packages that are competitive with other
similarly situated companies in our industry. Historically, the
Board and the Committee generally weighted executives
compensation packages more heavily in favor of equity-based
14
compensation versus salary, as they believe performance and
equity-based compensation is important to maintain a strong link
between executive incentives and the creation of shareholder
value. The Board and the Committee believe that performance and
equity-based compensation are the most important component of
the total executive compensation package for maximizing
shareholder value while, at the same time, attracting,
motivating and retaining high-quality executives. For 2010, the
Board and the Committee continued their emphasis on equity-based
compensation and placed added emphasis on contingent cash
compensation payable upon the achievement of certain goals of
particular importance in growing shareholder value. Given the
Companys current financial situation and market
capitalization, the state of the equity markets and the
Companys proposed business plan, the Board and the
Committee believed that equity-based compensation and contingent
cash compensation payable upon the achievement of goals of
particular importance to the Company remain important tools to
motivate the Companys executive officers.
The Board and the Committee have reviewed this Compensation
Discussion and Analysis with the Companys management.
Benchmarking
of Compensation Practices
The Board and the Committee believe it is important when making
compensation-related decisions to be informed as to current
practices of similarly situated publicly held companies in the
life sciences industry. In late 2008, given the Board and
Committees focus on equity-based compensation, the Board
and the Committee retained a consultant to review equity-based
compensation of executives in the biotechnology industry. The
consultant prepared a study reviewing the equity-based
compensation practices of 120 publicly held
small-to-medium
size biotechnology companies. In addition to this benchmarking
study, the Board and the Committee take into account input from
other sources, including past benchmarking studies, and publicly
available data relating to the compensation practices and
policies of other companies within and outside of our industry.
Benchmarking studies were used primarily in making compensation
decisions for Dr. Igor Gonda, our President and Chief
Executive Officer, Ms. Nancy Pecota, our Vice President,
Finance and Chief Financial Officer, and Mr. D. Jeffery
Grimes, our former Vice President, Legal Affairs, General
Counsel & Corporate Secretary. Given the
Companys operating performance and continued need for
capital, in 2010 the Board and the Committee retained total cash
compensation for these three executive officers at the same
level as paid in 2009. Consistent with the Boards and the
Committees greater emphasis on equity-based compensation,
in 2009 they sought to establish equity compensation for these
three executive officers at a level approximately equal to the
equity-based compensation paid at the 75th percentile of
comparable companies in the life sciences industry, based on the
survey conducted in late 2008.
The Committee has in the past retained and may in the future
retain the services of third-party executive compensation
specialists, as the Committee sees fit, in connection with the
establishment of compensation and related policies. The
Committee did not retain the services of third-party executive
compensation specialists for establishing 2010 compensation and
related policies as these services are costly and the Company is
focused on conserving cash.
Compensation
Components
Base Salary. Generally, the Board and the
Committee believe that executive base salaries should be set
near the median of the range of salaries for executives in
similar positions and with similar responsibilities at
comparable companies. The Board and the Committee believe that
maintaining base salary amounts at or near the industry median
minimizes competitive disadvantage while conserving the
Companys cash resources and avoiding paying amounts in
excess of what they believe to be necessary to motivate
executives to meet corporate goals. Base salaries are typically
reviewed annually. In the past, management has presented the
Committee with its initial recommendations for executive salary
levels and the Committee and Board have determined whether to
adjust these base salary recommendations to realign such
salaries with median market levels after taking into account
individual responsibilities, performance, experience as well as
the benchmarking data reviewed by the Committee.
For 2009, the Board, upon recommendation of the Committee,
established base salaries for Dr. Gonda, Ms. Pecota
and Mr. Grimes of $380,000, $238,000 and $230,000,
respectively. For 2010, management
15
recommended to the Board and Committee that base salaries for
Dr. Gonda, Ms. Pecota and Mr. Grimes be retained
at their 2009 levels. Given the Companys financial
position, management felt, and the Board agreed, that an
increase in base salary for 2010 was not appropriate.
Executive
Bonus Plan.
In addition to base salaries, the Board and the Committee
believe that performance-based cash bonuses can play an
important role in providing incentives to our executives to
achieve defined corporate goals.
In early 2009, the Board, upon the recommendation of the
Committee, reviewed the target bonus amount (defined as a set
percentage of base salary) for each executive. The target bonus
amount was set at a level that, upon achievement of 100% of the
target goals, would have resulted in bonus payments that the
Board and the Committee believed to be at or near the median
level for target bonus amounts for comparable companies included
in the benchmark studies and that, upon achievement beyond the
target goals, could have resulted in bonuses of up to 150% of
the target bonus amount. In early 2009, the Board, upon
recommendation of the Committee, established 2009 target bonus
awards (as a percentage of base salary) of 50% for
Dr. Gonda and 40% for Ms. Pecota and Mr. Grimes.
The Committee also reviewed a detailed set of overall corporate
performance goals (target goals) prepared by management that
were intended to apply to the executives bonus awards and,
with some distinctions, to the bonus awards for all of our other
employees. The Committee then worked with management to develop
final corporate performance goals that were set at a level the
Committee believed management could achieve over the next year.
For each individual corporate goal, the Committee established
relative weights and then set target performance for
Level 1 satisfaction (50% of target payout for that goal),
Level 2 satisfaction (100% of target payout for that goal)
and Level 3 satisfaction (150% of target payout for that
goal) of the corporate goal, with the attainment of each
specified level of performance tied to a specific percentage
payout of the target bonus amount for that goal. The relative
weights for each individual corporate goal could be changed by
the Board during the year as a result of external and internal
events and their impact upon the Company.
The goals were designed to lead to results that would maximize
shareholder value. For example, at the start of 2009, the Board
and Committee determined that the ARD-3100/3150 program (i.e.,
the Companys liposomal ciprofloxacin programs for the
management of infections in patients with bronchiectasis and
cystic fibrosis) would likely drive the Companys value in
2009, and so they weighted the goal related to development of
the ARD-3100/3150 program higher than the other operational
performance goals.
At the end of 2009, the Board, upon the recommendation of the
Committee, determined the level of achievement for each
corporate goal, on a goal by goal basis, and awarded credit for
the achievement of goals as a percentage of the target bonus.
Final determinations as to bonus levels were then based on the
achievement of these corporate goals, which are the same for all
executives, as well as the Boards and the Committees
assessment as to the overall success of the Company and the
development of the business.
Bonus payments under the annual bonus plan were contingent on
continued employment with the Company at the end of 2009.
In January 2010, the Board and Committee determined the
executive team had satisfied corporate goals to a level that
would have entitled them to a payout of 30% of their target
bonus amounts. Management recommended to the Board and Committee
not to pay the executives a bonus for 2009. Management felt, and
the Board agreed, that given the Companys cash position
and the economic climate, a bonus was not appropriate.
In January 2010, the Board, upon recommendation of the
Committee, revised the Executive Bonus Plan to convert it from
an annual performance evaluation period to a multi-year
performance evaluation period. The Board established, upon
recommendation of the Committee, performance objectives that are
not dependent upon the objective being achieved within a fixed
time period, in order to incentivize the executives to focus on
the achievement of longer term goals that could be significant
value creation events for our shareholders. The objectives focus
on partnering the Companys programs, raising non-dilutive
capital for the Company, advancing the
ARD-3100/3150
program and the achievement of other significant strategic
objectives. The bonus will be paid upon achievement of the
objective and will be in the form of cash
and/or
restricted stock. In general, if the achievement of the
objective results in the receipt of cash by the Company then the
bonus will be paid in cash; if the
16
achievement of the objective is of strategic importance to the
Company but does not generate cash then the bonus will be paid
in the form of restricted stock.
No payouts were made in 2010 to any executive under the revised
Executive Bonus Plan.
Equity Awards. The Board and the Committee
believe that providing a significant portion of our
executives total compensation package in stock options and
restricted stock awards aligns the incentives of our executives
with the interests of our shareholders and with our long-term
success. The Board and the Committee develop their equity award
determinations based on their judgments as to whether the
complete compensation packages provided to our executives,
including prior equity awards, are sufficient to retain,
motivate and adequately award the executives.
We grant equity awards through our 2005 Equity Incentive Plan,
which was adopted by our Board and shareholders to permit the
grant of stock options, stock appreciation rights, restricted
shares, restricted stock units, performance shares and other
stock-based awards to our officers, directors, scientific
advisory board members, employees and consultants. All of our
employees, directors, scientific advisory board members and
consultants are eligible to participate in the 2005 Equity
Incentive Plan. All options we grant have an exercise price
equal to the fair market value of our common stock on the date
of grant.
For 2009, the Board and Committee decided to grant equity awards
as a combination of stock options and restricted stock awards.
The stock options granted in 2009 vest quarterly over two years
and the restricted stock awards vest annually over one year. In
July 2009, the Committee granted Dr. Gonda, Ms. Pecota
and Mr. Grimes restricted stock awards for 600,000, 200,000
and 200,000 shares of our common stock, respectively. These
grants vested 100% on August 1, 2010 for Dr. Gonda and
Ms. Pecota. Mr. Grimes was no longer an employee of
the Company on August 1, 2010; therefore, his restricted
stock award did not vest. In addition, Dr. Gonda was
granted two awards of 200,000 shares each, which would vest
upon achievement of certain objectives related to the
ARD-3100/3150 program. The Committee felt that the 2009 equity
awards were necessary to bring our executives equity
compensation levels to a level the Committee believes is
necessary to retain a talented and capable management team
during a critical time period for the ARD-3100/3150 program.
During 2010, the objectives for one of these 200,000 share
awards to Dr. Gonda was met and will vest upon approval of
the Compensation Committee, while the other award was cancelled
for non-achievement of the stated objectives.
In September 2010, the Committee granted Dr. Gonda and
Ms. Pecota restricted stock awards for 500,000 and
300,000 shares of our common stock, respectively. These
grants vest 100% on September 16, 2011, contingent upon
continued employment. The Committee granted these awards in
order to encourage retention of executives important to the
realization of the Companys business objectives.
The Committee anticipates making future equity award grants to
executives annually, subject to its discretion. The Committee
believes this award structure is consistent with our executive
compensation policies.
Severance Benefits. The Board, upon
recommendation of the Committee, previously adopted an Amended
and Restated Executive Officer Severance Plan, dated as of
December 31, 2008, and approved change of control
agreements with each of our executive officers, the terms of
which are more fully described below in the section entitled
Potential Payments Upon Termination or Change in
Control. The Board and the Committee believe these
severance and change in control benefits are an essential
element of our executive compensation package and assist us in
recruiting and retaining talented individuals. Our business is
inherently risky and the Board and the Committee believe the
severance benefits encourage our executives to take necessary
but reasonable business risks to increase shareholder value. The
Board and the Committee believe the change of control benefits
align our executives interests more greatly in favor of
corporate liquidity events that can be potentially valuable to
our shareholders. They have established these severance and
change of control benefits at levels that they feel are
comparable to benefits offered to executives in similar
positions and with similar responsibilities at comparable
companies.
Other Compensation. All of our executives are
eligible to participate in our employee benefit plans, including
medical, dental, life insurance and 401(k) plans. These plans
are available to all employees and do not discriminate in favor
of executive officers. It is generally our policy to not extend
significant perquisites to our executives that are not available
to our employees generally. We have no current plans to make
changes to levels of benefits and perquisites provided to
executives.
17
Summary
Compensation Table
The following table sets forth information regarding
compensation earned in 2010 and 2009 by the individual serving
as our principal executive officer during 2010 and our two most
highly compensated executive officers (other than our principal
executive officer) who were serving as executive officers at
some point during the year ended 2010 (these individuals are
collectively referred to as our named executive
officers):
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
Incentive Plan
|
|
All Other
|
|
|
|
|
|
|
Salary
|
|
Bonus
|
|
Awards(1)
|
|
Awards(1)
|
|
Compensation
|
|
Compensation
|
|
Total
|
|
|
Year
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Igor Gonda, PhD
|
|
|
2010
|
|
|
|
380,000
|
|
|
|
|
|
|
|
90,000
|
|
|
|
68,750
|
|
|
|
|
|
|
|
34,961
|
|
|
|
573,711
|
|
President and Chief
|
|
|
2009
|
|
|
|
380,000
|
|
|
|
|
|
|
|
172,000
|
|
|
|
52,675
|
|
|
|
|
|
|
|
30,028
|
|
|
|
634,703
|
|
Executive Officer
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nancy Pecota
|
|
|
2010
|
|
|
|
238,000
|
|
|
|
|
|
|
|
54,000
|
|
|
|
41,250
|
|
|
|
|
|
|
|
7,989
|
|
|
|
341,239
|
|
Vice President, Finance and
|
|
|
2009
|
|
|
|
238,000
|
|
|
|
|
|
|
|
46,750
|
|
|
|
30,100
|
|
|
|
|
|
|
|
4,750
|
|
|
|
319,600
|
|
Chief Financial Officer
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D. Jeffery Grimes(2)
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|
2010
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108,000
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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188,762
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|
|
|
296,762
|
|
Former Vice President,
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2009
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230,000
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|
|
|
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46,750
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30,100
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|
|
|
|
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14,341
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|
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321,191
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|
Legal Affairs, General Counsel
and Corporate Secretary
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|
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|
(1) |
|
For 2010 and 2009, amounts represent the grant date fair value
of awards and options that were issued in that year. |
|
(2) |
|
Mr. Grimes employment with the Company terminated as
of June 18, 2010. During 2010, Mr. Grimes received
$157,374 in severance payments and $20,078 in accrued vacation
payout which are included in All Other Compensation. |
All Other Compensation in the summary compensation table above
includes the following components:
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Employee
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Life
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401(k)
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Stock
|
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|
|
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Health Care
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Insurance
|
|
Matching
|
|
Equity
|
|
|
|
|
|
|
|
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Contribution
|
|
Premiums
|
|
Contributions
|
|
Incentive
|
|
All Other
|
|
Total
|
Name
|
|
Year
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Igor Gonda, Ph.D.
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|
|
2010
|
|
|
|
21,398
|
|
|
|
1,980
|
|
|
|
8,250
|
|
|
|
3,333
|
|
|
|
|
|
|
|
34,961
|
|
|
|
|
2009
|
|
|
|
18,428
|
|
|
|
2,100
|
|
|
|
8,250
|
|
|
|
1,250
|
|
|
|
|
|
|
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30,028
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|
Nancy Pecota
|
|
|
2010
|
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|
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836
|
|
|
|
1,414
|
|
|
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5,739
|
|
|
|
|
|
|
|
|
|
|
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7,989
|
|
|
|
|
2009
|
|
|
|
573
|
|
|
|
1,499
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|
|
|
2,678
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|
|
|
|
|
|
|
|
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4,750
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|
D. Jeffery Grimes(1)
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2010
|
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6,119
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|
725
|
|
|
|
3,316
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|
|
1,150
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|
|
|
177,452
|
|
|
|
188,762
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|
|
|
2009
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|
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5,433
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|
1,449
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|
|
|
6,209
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|
|
|
1,250
|
|
|
|
|
|
|
|
14,341
|
|
|
|
|
(1) |
|
Mr. Grimes employment with the Company terminated as
of June 18, 2010. During 2010, Mr. Grimes received
$157,374 in severance payments and $20,078 in accrued vacation
payout which are included in All Other Compensation. |
18
2010
Grants of Plan-Based Award
The following table sets forth information regarding plan-based
awards to our named executive officers in 2010:
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All Other
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Option
|
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|
Grant
|
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|
|
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|
|
Estimated Future
|
|
Estimated Future
|
|
Awards:
|
|
Exercise
|
|
Date Fair
|
|
|
|
|
|
|
Payouts Under Non-
|
|
Payouts Under
|
|
Number of
|
|
or Base
|
|
Value of
|
|
|
|
|
|
|
Equity Incentive
|
|
Equity Incentive
|
|
Securities
|
|
Price of
|
|
Stock and
|
|
|
|
|
|
|
Plan Awards(1)
|
|
Plan Awards
|
|
Underlying
|
|
Option
|
|
Option
|
|
|
Grant
|
|
Approval
|
|
Target
|
|
Maximum
|
|
Target
|
|
Maximum
|
|
Options
|
|
Awards
|
|
Awards(2)
|
Name
|
|
Date
|
|
Date
|
|
($)
|
|
($)
|
|
(#)
|
|
(#)
|
|
(#)
|
|
($/sh)
|
|
($)
|
|
Igor Gonda, Ph.D.
|
|
|
9/17/2010
|
|
|
|
9/17/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
|
|
0.00
|
|
|
|
90,000
|
|
|
|
|
9/17/2010
|
|
|
|
9/17/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
|
|
0.18
|
|
|
|
68,750
|
|
|
|
|
1/01/2010
|
|
|
|
1/01/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nancy Pecota
|
|
|
9/17/2010
|
|
|
|
9/17/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
|
|
0.00
|
|
|
|
54,000
|
|
|
|
|
9/17/2010
|
|
|
|
9/17/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
|
|
0.18
|
|
|
|
41,250
|
|
|
|
|
1/01/2010
|
|
|
|
1/01/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D. Jeffery Grimes
|
|
|
1/1/2010
|
|
|
|
1/1/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reflects each executive officers participation in our 2010
Executive Bonus Plan. The amount of bonus actually earned by
each executive officer was zero, as indicated in the summary
compensation table above. |
|
(2) |
|
The method and assumptions used to calculate the value of stock
and option awards granted to our named executive officers is
discussed in Note 9 of the notes to our financial
statements included in our 2010 Annual Report on
Form 10-K. |
19
Outstanding
Equity Awards at December 31, 2010
The following table provides information regarding each
unexercised stock equity award held by each of our named
executive officers as of December 31, 2010:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Market or
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned
|
|
Payout Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares, Units
|
|
Unearned
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
or Other
|
|
Shares,
|
|
|
|
|
Underlying Unexercised
|
|
Option
|
|
|
|
Rights That
|
|
Units or Other
|
|
|
|
|
Options
|
|
Exercise
|
|
Option
|
|
Have Not
|
|
Rights That
|
|
|
|
|
Exercisable
|
|
Unexercisable
|
|
Price (1)
|
|
Expiration
|
|
Vested
|
|
Have Not Vested
|
Name
|
|
|
|
(#)
|
|
(#)
|
|
($)
|
|
Date
|
|
(#)
|
|
($)
|
|
Igor Gonda, Ph.D.
|
|
|
(8
|
)
|
|
|
62,500
|
|
|
|
437,500
|
|
|
|
0.18
|
|
|
|
9/17/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
|
|
85,000
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
6,800
|
|
|
|
|
(2
|
)
|
|
|
153,125
|
|
|
|
196,875
|
|
|
|
0.25
|
|
|
|
1/21/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
375,000
|
|
|
|
125,000
|
|
|
|
1.60
|
|
|
|
12/04/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
|
|
51,000
|
|
|
|
|
(4
|
)
|
|
|
500,000
|
|
|
|
|
|
|
|
1.87
|
|
|
|
08/10/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
|
|
|
|
1.52
|
|
|
|
05/18/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
|
|
|
|
5.30
|
|
|
|
05/19/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
|
|
|
|
5.30
|
|
|
|
05/20/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
5.30
|
|
|
|
05/13/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
|
|
|
|
6.50
|
|
|
|
05/15/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
|
|
|
|
4.75
|
|
|
|
02/19/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
17.25
|
|
|
|
05/21/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
|
|
|
|
17.15
|
|
|
|
05/17/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
|
|
|
|
|
|
24.10
|
|
|
|
02/11/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500
|
|
|
|
|
|
|
|
17.20
|
|
|
|
09/20/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,312
|
|
|
|
|
|
|
|
30.00
|
|
|
|
03/15/2011
|
|
|
|
|
|
|
|
|
|
Nancy Pecota
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
|
|
51,000
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,500
|
|
|
|
2,975
|
|
|
|
|
(2
|
)
|
|
|
87,500
|
|
|
|
112,500
|
|
|
|
0.25
|
|
|
|
1/21/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
126,562
|
|
|
|
98,438
|
|
|
|
0.39
|
|
|
|
09/30/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
37,500
|
|
|
|
262,500
|
|
|
|
0.18
|
|
|
|
9/17/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the fair market value of a share of our common stock
on the grant date of the option. |
|
(2) |
|
The option vests over four years with 1/16 of the shares of
underlying common stock vesting every three months from the
grant date. |
|
(3) |
|
The restricted stock award vests in full if within four years
following the grant of the award the company achieves certain
product and product-pipeline development milestones. |
|
(4) |
|
The option vests over four years with 1/4 of the shares of
underlying common stock vesting on the first anniversary of the
grant date and 1/48 of the shares of underlying common stock
vesting each month thereafter. |
|
(5) |
|
The option vests over four years with 1/4 of the shares of
underlying common stock vesting on the first anniversary of the
grant date and 1/16 of the shares of underlying common stock
vesting every three months thereafter. |
|
(6) |
|
Each restricted stock award will vest 1/2 of the shares on the
first anniversary of the grant date and 1/2 of the shares on the
second anniversary of the grant date. |
|
(7) |
|
Each restricted stock award will vest on September 16, 2011. |
20
|
|
|
(8) |
|
The option vests over two years with 1/8 of the shares of
underlying common stock vesting every three months from the
grant date. |
2010
Option Exercises and Stock Vested
None of our named executive officers exercised options in 2009
or 2010. Mr. Gonda had 840,000 shares of restricted
stock awards vest in 2010. Ms. Pecota had
217,500 shares of restricted stock awards vest in 2010.
Mr. Grimes had 17,500 shares of restricted stock
awards vest in 2010.
Pension
Benefits
None of our named executive officers participate in or have
account balances in qualified or non-qualified defined benefit
plans sponsored by us. The Committee may elect to adopt
qualified or non-qualified defined benefit plans in the future
if the Committee determines that doing so is in our best
interests.
Nonqualified
Deferred Compensation
None of our named executive officers participate in or have
account balances in nonqualified defined contribution plans or
other nonqualified deferred compensation plans maintained by us.
The Committee may elect to provide our officers and other
employees with non-qualified defined contribution or other
nonqualified deferred compensation benefits in the future if the
Committee determines that doing so is in our best interests.
Potential
Payments Upon Termination or Change in Control
The following table sets forth potential payments payable to our
current executive officers upon termination of employment or a
change in control. The Committee may in its discretion revise,
amend or add to the benefits if it deems advisable. The table
below reflects amounts payable to our current executive officers
assuming their employment was terminated on December 31,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
without
|
|
|
|
|
|
|
|
|
|
|
|
Cause or
|
|
|
|
|
|
Termination
|
|
|
|
|
|
Constructive
|
|
|
|
|
|
Without
|
|
|
|
|
|
Termination
|
|
|
|
|
|
Cause Prior to a
|
|
|
|
|
|
Following a
|
|
|
|
|
|
Change in
|
|
|
Change in
|
|
|
Change
|
|
|
|
|
|
Control
|
|
|
Control
|
|
|
in Control
|
|
Name
|
|
Benefit
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Igor Gonda, Ph.D.
|
|
Salary
|
|
|
380,000
|
|
|
|
|
|
|
|
760,000
|
|
|
|
Bonus
|
|
|
190,000
|
|
|
|
|
|
|
|
380,000
|
|
|
|
Option acceleration(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock award acceleration(1)
|
|
|
|
|
|
|
51,000
|
|
|
|
176,800
|
|
|
|
Benefits continuation
|
|
|
21,773
|
|
|
|
|
|
|
|
43,545
|
|
|
|
Career transition assistance
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total value:
|
|
|
591,773
|
|
|
|
51,000
|
|
|
|
1,380,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nancy Pecota
|
|
Salary
|
|
|
238,000
|
|
|
|
|
|
|
|
238,000
|
|
|
|
Bonus
|
|
|
95,200
|
|
|
|
|
|
|
|
95,200
|
|
|
|
Option acceleration(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock award acceleration(1)
|
|
|
|
|
|
|
|
|
|
|
53,975
|
|
|
|
Benefits continuation
|
|
|
8,003
|
|
|
|
|
|
|
|
8,003
|
|
|
|
Career transition assistance
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total value:
|
|
|
341,203
|
|
|
|
|
|
|
|
405,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The value of the stock and option award acceleration was
calculated using a value of $0.17 per share of common stock,
which was the last reported closing sale price of our common
stock on December 31, 2010. |
21
Termination without cause prior to a change in
control. If any of our executives is terminated
by us without cause prior to a change in control, upon executing
a general release and waiver, such executive is entitled to
receive (less applicable withholding taxes) in a lump sum
payment or in installments, at our discretion:
|
|
|
|
|
an amount equal to such executives annual base salary;
|
|
|
|
an amount equal to 50% of annual base salary for Dr. Gonda
and 40% of annual base salary for Ms. Pecota, representing
historical target bonus; and
|
|
|
|
continuation of such executives health insurance benefits
for 12 months.
|
Acceleration upon a change in control. If we
undergo a change in control on or prior to December 31,
2011, the 300,000 share restricted stock award granted to
Dr. Gonda will vest in full.
Termination without cause or constructive termination
following a change in control. If any of our
executives is terminated by us without cause or constructively
terminated (which includes a material reduction in title or
duties, a material reduction in salary or benefits or a
relocation of 50 miles or more) during the
18-month
period following a change in control, upon executing a general
release and waiver, such executive is entitled to receive (less
applicable withholding taxes):
|
|
|
|
|
a lump sum payment equal to twice such executives annual
base salary, in the case of Dr. Gonda, and such
executives annual base salary, in the case of
Ms. Pecota;
|
|
|
|
a lump sum payment equal to such executives annual base
salary multiplied by (i) 100%, in the case of
Dr. Gonda, and (ii) 40%, in the case of
Ms. Pecota, representing twice such executives
historical target bonus, in the case of Dr. Gonda, and such
executives historical target bonus, in the case of
Ms. Pecota;
|
|
|
|
continuation of such executives health insurance benefits
for 24 months, in the case of Dr. Gonda, and
12 months, in the case of Ms. Pecota;
|
|
|
|
reimbursement of actual career transition assistance
(outplacement services) incurred by such executive within six
months of termination in an amount up to $20,000, in the case of
Dr. Gonda, and $10,000, in the case of
Ms. Pecota; and
|
|
|
|
acceleration of vesting of any stock options or restricted stock
awards that remain unvested as of the date of such
executives termination.
|
Compensation
Committee Interlocks and Insider Participation
No interlocking relationship exists between our Board or the
Committee and the board of directors or the compensation
committee of any other company, nor has any such interlocking
relationship existed in the past.
Report of
the Compensation Committee
The Committee reviewed and discussed with management the
Compensation Discussion and Analysis required by
Item 402(b) of
Regulation S-K,
which is contained in this Proxy Statement. Based on this review
and discussion, the Committee recommended to the Board that the
Compensation Discussion and Analysis be included in this Proxy
Statement.
Members of the Aradigm Corporation Compensation Committee:
Frank H. Barker
Tamar D. Howson
Virgil D. Thompson, Chairman
22
Non-Employee
Director Compensation
The following table sets forth a summary of the compensation we
paid to our non-employee directors in 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
Option
|
|
Restricted Stock
|
|
|
|
|
Paid in Cash
|
|
Awards(1)
|
|
Awards(1)
|
|
Total
|
Name
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Frank H. Barker(2)
|
|
|
28,000
|
|
|
|
9,140
|
|
|
|
30,000
|
|
|
|
67,140
|
|
Tamar D. Howson(3)
|
|
|
|
|
|
|
20,745
|
|
|
|
7,714
|
|
|
|
28,459
|
|
John M. Siebert(4)
|
|
|
53,000
|
|
|
|
9,140
|
|
|
|
15,000
|
|
|
|
77,140
|
|
Virgil D. Thompson(5)
|
|
|
62,500
|
|
|
|
9,140
|
|
|
|
25,000
|
|
|
|
96,640
|
|
|
|
|
(1) |
|
Amount represents the grant date fair value of options and
restricted stock awards granted in 2010. |
|
(2) |
|
Mr. Barker owns stock options for 387,500 shares of
our common stock as of December 31, 2010, of which
337,500 shares are vested as of December 31, 2010. In
addition, Mr. Barker owns 125,000 restricted stock awards
at December 31, 2010, none of which has vested. |
|
(3) |
|
Ms. Howson owns stock options for 150,000 shares of
our commons stock as of December 31, 2010 of which none are
vested as of December 31, 2010. In addition Ms. Howson
owns 42,857 restricted stock awards at December 31, 2010,
none of which has vested. |
|
(4) |
|
Dr. Siebert owns stock options for 370,000 shares of
our common stock as of December 31, 2010, of which
320,000 shares are vested as of December 31, 2010. In
addition, Dr. Siebert owns 125,000 restricted stock units
at December 31, 2010, none of which has vested. |
|
(5) |
|
Mr. Thompson owns stock options for 449,500 shares of
our common stock as of December 31, 2010, of which
399,500 shares are vested as of December 31, 2010. In
addition, Mr. Thompson owns 208,333 restricted stock units
at December 31, 2010, none of which has vested. |
In 2011, the Chairman of the Board will receive an annual
retainer in the value of $50,000 and all other non-employee
directors will receive an annual retainer in the value of
$30,000. The retainers may be paid in cash or an equivalent
value of restricted stock at the option of the director. Board
members also receive additional annual retainers for serving on
Board committees. The additional annual retainer for the
Chairman of the Audit Committee will be $15,000 and the
additional annual retainer for all other members of the Audit
Committee will be $5,000. The additional annual retainer for the
Chairman of the Compensation Committee and the Chairman of the
Nominating and Corporate Governance Committee will be $10,000
and the additional annual retainer for all other members will be
$5,000. The Board retainer covers six meetings in a year and, if
exceeded, the Chairman of the Board will receive $1,500 for each
additional meeting and the other Board members will receive
$1,000 for each additional meeting. If the number of meetings in
a year for any given committee exceeds four, the chairman of the
committee will receive $1,500 for each additional meeting and
the other committee members will receive $1,000 for each
additional meeting. Our directors are also entitled to receive
reimbursement of reasonable
out-of-pocket
expenses incurred by them to attend Board meetings.
In addition to the cash and restricted stock compensation, each
non-employee director will be granted an annual stock option
grant.
Limitation
of Liability of Officers and Directors and
Indemnification
Our articles of incorporation and bylaws include provisions to
(i) eliminate the personal liability of our directors for
monetary damages resulting from breaches of their fiduciary
duty, to the extent permitted by California law and
(ii) permit us to indemnify our directors and officers,
employees and other agents to the fullest extent permitted by
the California Corporations Code. Pursuant to Section 317
of the California Corporations Code, a corporation generally has
the power to indemnify its present and former directors,
officers, employees and agents against any expenses incurred by
them in connection with any suit to which they are, or are
threatened to be made, a party by reason of their serving in
such positions so long as they acted in good faith and in a
manner they reasonably believed to be in, or not opposed to, the
best interests of a corporation and, with respect to any
criminal action, they had no reasonable cause to believe their
conduct was unlawful. We believe that these provisions are
necessary to attract and retain qualified persons as directors
and officers. These provisions do not eliminate liability for
breach of
23
the directors duty of loyalty to us or our shareholders,
for acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law, for any transaction
from which the director derived an improper personal benefit or
for any willful or negligent payment of any unlawful dividend.
We entered into indemnification agreements with certain
officers, including each of our named executive officers, and
each of our directors that provide, among other things, that we
will indemnify such officer or director, under the circumstances
and to the extent provided for therein, for expenses, damages,
judgments, fines and settlements such officer or director may be
required to pay in actions or proceedings to which such officer
or director is or may be made a party by reason of such
officers or directors position as an officer,
director or other agent of us, and otherwise to the full extent
permitted under California law and our bylaws.
CERTAIN
TRANSACTIONS
Review,
Approval or Ratification of Transactions with Related
Persons
The Board has adopted, in writing, a policy and procedures for
the review of related person transactions. Any related person
transaction we propose to enter into must be reported to our
Chief Financial Officer and, unless otherwise reviewed and
approved by the Board, shall be reviewed and approved by the
Audit Committee in accordance with the terms of the policy,
prior to effectiveness or consummation of any related person
transaction, whenever practicable. The policy defines a
related person transaction as any financial
transaction, arrangement or relationship (including any
indebtedness or guarantee of indebtedness), or any series of
similar transactions, arrangements or relationships in which
Aradigm (i) was or is to be a participant, (ii) the
amount involved exceeds $120,000 and (iii) a Related Person
(as defined therein) had or will have a direct or indirect
material interest. In addition, any related person transaction
previously approved by the Audit Committee or otherwise already
existing that is ongoing in nature shall be reviewed by the
Audit Committee annually to ensure that such related person
transaction has been conducted in accordance with the previous
approval granted by the Audit Committee, if any, and that all
required disclosures regarding the related person transaction
are made. Transactions involving compensation of executive
officers shall be reviewed and approved by the Compensation
Committee in the manner specified in the charter of the
Compensation Committee. As appropriate for the circumstances,
the Audit Committee shall review and consider the Related
Persons interest in the related person transaction, the
approximate dollar value of the amount involved in the related
person transaction, the approximate dollar value of the amount
of the Related Persons interest in the transaction without
regard to the amount of any profit or loss, whether the
transaction was undertaken in the ordinary course of business,
whether the transaction with the Related Person is proposed to
be, or was, entered into on terms no less favorable to the
Company than terms that could have been reached with an
unrelated third party, the purpose of, and the potential
benefits to us of the transaction and any other information
regarding the related person transaction or the Related Person
in the context of the proposed transaction that would be
material to investors in light of the circumstances of the
particular transaction.
HOUSEHOLDING
OF PROXY MATERIALS
The SEC has adopted rules that permit companies and
intermediaries (e.g., brokers) to satisfy the delivery
requirements for proxy statements and annual reports with
respect to two or more shareholders sharing the same address by
delivering a single proxy statement and annual report addressed
to those shareholders. This process, which is commonly referred
to as householding, potentially means extra
convenience for shareholders and cost savings for companies.
This year, a number of brokers with account holders who are our
shareholders will be householding our proxy
materials. A single proxy statement will be delivered to
multiple shareholders sharing an address unless contrary
instructions have been received from the affected shareholders.
Once you have received notice from your broker that they will be
householding communications to your address,
householding will continue until you are notified
otherwise or until you revoke your consent. If, at any time, you
no longer wish to participate in householding and
would prefer to receive a separate proxy statement and annual
report, please notify your broker, direct your written request
to Aradigm Corporation, Secretary, 3929 Point Eden Way, Hayward,
CA 94545 or contact our Secretary at
(510) 265-9000.
Shareholders who currently receive multiple copies of the proxy
statement at their address and would like to request
householding of their communications should contact
their broker.
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OTHER
MATTERS
The Board of Directors knows of no other matters that will be
presented for consideration at the annual meeting. If any other
matters are properly brought before the meeting, it is the
intention of the persons named in the accompanying proxy to vote
on such matters in accordance with their best judgment.
By Order of the Board of Directors
Igor Gonda, Ph.D.
President and Chief Executive Officer
April 6, 2011
A copy of our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2010 is available
without charge upon written request to: Secretary, Aradigm
Corporation, 3929 Point Eden Way, Hayward, CA 94545. Copies may
also be obtained without charge through the SECs website
at
http://www.sec.gov.
25
PROXY
ARADIGM CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 26, 2011
The undersigned hereby appoints IGOR GONDA and NANCY E. PECOTA, and each of them, as attorneys
and proxies of the undersigned, with full power of substitution, to vote all shares of stock of
Aradigm Corporation that the undersigned may be entitled to vote at the 2011 Annual Meeting of
Shareholders of Aradigm Corporation to be held at Aradigm Corporations offices located at 3929
Point Eden Way, Hayward, California on Thursday, May 26, 2011 at 9:00 a.m. local time, and at any
and all postponements, continuations and adjournments thereof, with all powers that the undersigned
would possess if personally present, upon and in respect of the following matters and in accordance
with the following instructions, with discretionary authority as to any and all other matters that
may properly come before the meeting.
þ Please mark votes as in this example.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW AND A VOTE FOR
PROPOSAL 2
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL NOMINEES LISTED IN
PROPOSAL 1 AND FOR PROPOSAL 2, AS MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC
INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
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1.
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To reelect (01)
Frank H. Barker,
(02) Igor Gonda,
(03) Tamar D.
Howson, (04) John
M. Siebert and (05)
Virgil D. Thompson
as directors to
hold office until
the next annual
meeting of
shareholders and
until their
successors are
elected.
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FOR ALL NOMINEES
WITHHELD FROM ALL NOMINEES
FOR ALL NOMINEES EXCEPT:
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o
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2.
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To ratify the
selection of
Odenberg, Ullakko,
Muranishi & Co. LLP
as Aradigms
independent
registered public
accounting firm for
the fiscal year
ending December 31,
2011.
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FOR
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AGAINST
o
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ABSTAIN
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Please vote, date and promptly return this proxy in the enclosed return envelope which is
postage prepaid if mailed in the United States.
Please sign exactly as your name appears hereon. If stock is registered in the names of two
or more persons, each should sign. Executors, administrators, trustees, guardians and
attorneys-in-fact should add their titles. If signer is a corporation, please give full corporate
name and have a duly authorized officer sign. If signer is a partnership, please sign in
partnership name and by authorized person.
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Signature:
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Signature:
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