<PAGE>
                                                                    Exhibit 10.2

                               ARADIGM CORPORATION

                           WARRANT REPRICING AGREEMENT

      THIS WARRANT REPRICING AGREEMENT (this "AGREEMENT") is made as of February
10, 2003, by and among ARADIGM CORPORATION, a California corporation (the
"COMPANY") with its principal office at 3929 Point Eden Way, Hayward, California
94545, and the persons listed on the Schedule of Holders attached hereto as
EXHIBIT A (the "HOLDERS"). Capitalized terms used but not defined in this
Agreement shall have the meanings given to them in the Purchase Agreement (as
defined below).

                                    RECITALS

      WHEREAS, the Company, the Holders and certain other investors listed on
the Schedule of Purchasers attached to the Purchase Agreement as Exhibit A
(together with the Holders, the "INVESTORS") have entered into that certain
Securities Purchase Agreement (the "PURCHASE AGREEMENT"), of even date herewith,
pursuant to which the Company has agreed to sell and issue and the Investors
have agreed to purchase Common Shares and Warrants;

      WHEREAS, at the Closing (as defined below), as a material inducement to
the Holders to enter into the Purchase Agreement, the Company desires to issue
and each Holder desires to acquire the New Common Warrants (as defined herein),
in exchange for and upon cancellation of Common Stock Warrants ("COMMON
WARRANTS") held by the Holders and issued pursuant to the Securities Purchase
Agreement (the "PREFERRED AGREEMENT") dated December 11, 2001 by and among the
Company and certain persons listed on the Schedule of Purchasers attached to the
Preferred Agreement as Exhibit A, and the Company desires to assumer certain
other obligations with respect to the Holders, all upon the terms and conditions
stated in this Agreement.

      NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:

                                   ARTICLE 1

                         ISSUANCE OF NEW COMMON WARRANTS

      1.1 REPRICING OF COMMON WARRANTS. At the Closing, subject to the terms and
conditions of this Agreement, the Company agrees to cancel and reissue the
Common Warrants held by the Holders, such that the exercise price per share of
the Common Warrants shall be $1.12 and Section 2.1 of each Common Warrant,
providing for net issue exercise, shall be amended such that it is available in
certain limited circumstances, in the form attached hereto as EXHIBIT B (the
reissued Common Warrants referred to herein as the "NEW COMMON WARRANTS") and
each Holder agrees to cancel and surrender to the Company its Common Warrants.
The


                                       1.
<PAGE>
New Common Warrants and the shares of Common Stock of the Company ("COMMON
STOCK") issuable upon exercise of the New Common Warrants (the "SHARES") are
collectively referred to herein as the "SECURITIES."

                                   ARTICLE 2

                             CLOSING DATE; DELIVERY

      2.1 CLOSING DATE. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in the Purchase Agreement, the issuance of the New
Common Warrants (the "CLOSING") shall occur on the Closing Date as defined in
the Purchase Agreement.

      2.2 DELIVERY. At the Closing, the Company will deliver a duly executed New
Common Warrant to each Holder entitled to receive a New Common Warrant pursuant
to Section 1.1 of this Agreement, upon delivery to the Company by such Holder of
the Common Warrant held by such Holder.

                                   ARTICLE 3

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

      The Company represents and warrants to the Holders:

      3.1 CORPORATE POWER; AUTHORIZATION. The Company has all requisite legal
and corporate power and has taken all requisite corporate action to execute and
deliver this Agreement, to issue the New Common Warrants and to carry out and
perform all of its obligations under this Agreement. This Agreement constitutes,
and upon execution and delivery by the Company of the New Common Warrants, the
New Common Warrants will constitute, legal, valid and binding obligations of the
Company, enforceable in accordance with their respective terms, except (a) as
limited by applicable bankruptcy, insolvency, reorganization or similar laws
relating to or affecting the enforcement of creditors' rights generally and (b)
as limited by equitable principles generally. The execution and delivery of this
Agreement does not, and the performance of this Agreement, the compliance with
the provisions hereof and the issuance of the New Common Warrants by the Company
will not materially conflict with, or result in a material breach or violation
of the terms, conditions or provisions of, or constitute a material default
under, or result in the creation or imposition of any material lien pursuant to
the terms of, the Articles of Incorporation (the "ARTICLES") or Bylaws of the
Company or any statute, law, rule or regulation or any state or federal order,
judgment or decree or any indenture, mortgage, lease or other material agreement
or instrument to which the Company or any of its properties is subject.

      3.2 ISSUANCE AND DELIVERY OF THE NEW COMMON WARRANTS. Upon exercise of the
New Common Warrants in accordance with the terms thereof, the Shares will be
validly issued, fully paid and nonassessable. The issuance and delivery of the
New Common Warrants is not subject to preemptive or any other similar rights of
the shareholders of the Company or any liens or encumbrances.


                                       2.
<PAGE>
                                   ARTICLE 4

            REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE HOLDERS

      Each Holder hereby severally represents and warrants to the Company:

      4.1 AUTHORIZATION. Holder represents and warrants to the Company that: (a)
Holder has all requisite legal and corporate or other power and capacity and has
taken all requisite corporate or other action to execute and deliver this
Agreement, and to carry out and perform all of its obligations under this
Agreement; and (b) this Agreement constitutes the legal, valid and binding
obligation of such Holder, enforceable in accordance with its terms, except (i)
as limited by applicable bankruptcy, insolvency, reorganization, or similar laws
relating to or affecting the enforcement of creditors' rights generally and (ii)
as limited by equitable principles generally.

      4.2 INVESTMENT EXPERIENCE. Holder is an "accredited investor" as defined
in Rule 501(a) under the Securities Act. Holder is aware of the Company's
business affairs and financial condition and has had access to and has acquired
sufficient information about the Company to reach an informed and knowledgeable
decision to acquire the New Common Warrants. Holder has such business and
financial experience as is required to give it the capacity to protect its own
interests in connection with the acquisition of the New Common Warrants.

      4.3 INVESTMENT INTENT. Holder is acquiring the New Common Warrants for its
own account as principal, for investment purposes only, and not with a present
view to, or for, resale, distribution or fractionalization thereof, in whole or
in part, within the meaning of the Securities Act, other than as contemplated by
Article 7 hereof. Holder understands that its acquisition of the New Common
Warrants has not been registered under the Securities Act or registered or
qualified under any state securities law in reliance on specific exemptions
therefrom, which exemptions may depend upon, among other things, the bona fide
nature of Holder's investment intent as expressed herein. Holder has completed
or caused to be completed the Holder Questionnaire attached to the Purchase
Agreement as Exhibit D for use in preparation of the Registration Statement, and
the responses provided therein shall be true and correct as of the Closing Date
and will be true and correct as of the effective date of the Registration
Statement. Holder has, in connection with its decision to acquire the New Common
Warrants, relied solely upon the SEC Documents and the representations and
warranties of the Company contained herein and in the Purchase Agreement. Holder
will not, directly or indirectly, offer, sell, pledge, transfer or otherwise
dispose of (or solicit any offers to buy, purchase or otherwise acquire or take
a pledge of) any of the Securities except in compliance with the Securities Act,
and the rules and regulations promulgated thereunder.

      4.4 REGISTRATION OR EXEMPTION REQUIREMENTS. Holder further acknowledges
and understands that the Securities may not be resold or otherwise transferred
except in a transaction registered under the Securities Act or unless an
exemption from such registration is available.

      4.5 DISPOSITIONS. Holder will not, prior to the effectiveness of the
Registration Statement, if then prohibited by law or regulation, sell, offer to
sell, solicit offers to buy, dispose of, loan, pledge or grant any right with
respect to (collectively, a "DISPOSITION") the Securities, nor will such Holder
engage in any hedging or other transaction which is designed or could


                                       3.
<PAGE>
reasonably be expected to lead to or result in a Disposition of Securities by
such Holder or any person or entity. In addition, the Holder agrees that for so
long as it owns any Shares, it will not enter into any Short Sales. For such
purposes, a "Short Sale" by the Holder means a short sale of Shares executed at
a time when the Holder has no equivalent offsetting long position in the Common
Stock. For purposes of determining whether the Holder has an equivalent
offsetting long position in the Shares, shares that the Holder is entitled to
receive within sixty (60) days (whether pursuant to contract or upon conversion
or exercise of convertible securities) will be included as if held long by the
Holder.

      4.6 NO LEGAL, TAX OR INVESTMENT ADVICE. Holder understands that nothing in
this Agreement or any other materials presented to Holder in connection with the
acquisition of the New Common Warrants constitutes legal, tax or investment
advice. Holder has consulted such legal, tax and investment advisors as it, in
its sole discretion, has deemed necessary or appropriate in connection with its
acquisition of the New Common Warrants.

      4.7 CONFIDENTIALITY. Holder will hold in confidence all information
concerning this Agreement and the placement of the Securities hereunder until
the earlier of such time as (a) the Company has made a public announcement
concerning the Agreement and the placement of the Securities hereunder, or (b)
this Agreement is terminated; provided, however, that the foregoing provision of
this Section 4.7 shall not apply if the Company does not issue a press release
concerning the Agreement and the placement of the Securities hereunder within
two (2) days of the Closing.

      4.8 RESIDENCY. Holder's principal executive officers are in the
jurisdiction set forth immediately below Holder's name of the signature pages
hereto.

      4.9 GOVERNMENTAL REVIEW. Holder understands that no United States federal
or state agency or any other government or governmental agency has passed upon
or made any recommendation or endorsement of the New Common Warrants.

      4.10 LEGEND. Holder understands that, until such time as the Registration
Statement has been declared effective or the Securities may be sold pursuant to
Rule 144 under the Securities Act without any restriction as to the number of
securities as of a particular date that can then be immediately sold, the
Securities may bear a restrictive legend in substantially the following form
(and a stop transfer order may be placed against transfer of the certificates
for the Shares):

                  "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
            REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
            SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR IN ANY OTHER
            JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED,
            SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
            STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS UNLESS
            OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE


                                       4.
<PAGE>
            EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS."

      4.11 FOREIGN INVESTORS. If Holder is not a United States person (as
defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as
amended), Holder hereby represents that it has satisfied itself as to the full
observance of the laws of its jurisdiction in connection with any invitation to
acquire the New Common Warrants or any use of this Agreement, including (a) the
legal requirements within its jurisdiction for the acquisition of the New Common
Warrants, (b) any foreign exchange restrictions applicable to such acquisition,
(c) any government or other consents that may need to be obtained, and (d) the
income tax and other tax consequences, if any, that may be relevant to the
purchase, holding, redemption, sale or transfer of the Securities. Holder's
acquisition and continued beneficial ownership of the Securities will not
violate any applicable securities or other laws of Holder's jurisdiction.

                                   ARTICLE 5

                  CONDITIONS TO CLOSING OBLIGATIONS OF HOLDERS

      Each Holder's obligation to acquire the New Common Warrants at the Closing
is, at the option of such Holder, subject to the fulfillment or waiver as of the
Closing Date of the following conditions:

      5.1 REPRESENTATIONS AND WARRANTIES. The representations made by the
Company in Article 3 hereof shall be true and correct in all material respects
when made, and shall be true and correct in all material respects on the Closing
Date with the same force and effect as if they had been made on and as of such
date.

      5.2 COVENANTS. All covenants contained in this Agreement to be performed
by the Company on or prior to the Closing Date shall have been performed or
complied with in all material respects and the sale and issuance of the Common
Shares and the Warrants pursuant to the Purchase Agreement shall have been
consummated.

                                   ARTICLE 6

                  CONDITIONS TO CLOSING OBLIGATIONS OF COMPANY

      The Company's obligation to sell and issue the New Common Warrants at the
Closing is, at the option of the Company, subject to the fulfillment or waiver
of the following conditions:

      6.1 REPRESENTATIONS AND WARRANTIES. The representations made by the
Holders in Article 4 hereof shall be true and correct in all material respects
when made, and shall be true and correct in all material respects on the Closing
Date with the same force and effect as if they had been made on and as of such
date.

      6.2 COVENANTS. All covenants contained in this Agreement to be performed
by the Holders on or prior to the Closing Date shall have been performed or
complied with in all material respects and the sale and issuance of the Common
Shares and the Warrants pursuant to the Purchase Agreement shall have been
consummated.


                                       5.
<PAGE>
                                   ARTICLE 7

                                    COVENANTS

      7.1 REGISTRATION RIGHTS OF SHARES. The Company and the Holders shall
comply with the provisions of Article 7 of the Purchase Agreement as if the term
"Registrable Shares" defined in Section 7.1(b) of the Purchase Agreement
includes the Shares.

      7.2 REGISTRATION RIGHTS FOR PRIOR ISSUANCES. The Company hereby covenants
and agrees that:

            (a) with respect to the Holders, to the extent the obligations of
the Company pursuant to Section 7.2 of that certain Securities Purchase
Agreement, dated August 12, 2001 (the "AUGUST 2001 PURCHASE AGREEMENT"), by and
among the Company and certain persons listed on the Schedule of Purchasers
attached to the August 2001 Purchase Agreement as Exhibit A, would otherwise
cease and terminate due to the operation of part (c) of Section 7.6 of the
August 2001 Purchase Agreement, such obligations shall not cease or terminate
until the earlier to occur of (a) such time as all of the Registrable Shares (as
defined in the August 2001 Purchase Agreement) have been resold, (b) such time
as all of the Registrable Shares (as defined in the August 2001 Purchase
Agreement) may be resold in a three-month period pursuant to Rule 144, or (c)
the third anniversary of the Closing Date (as defined in the Purchase
Agreement);

            (b) with respect to the Holders, to the extent the obligations of
the Company pursuant to Section 7.2 of the Preferred Agreement would otherwise
cease and terminate due to the operation of part (c) of Section 7.6 of the
Preferred Agreement, such obligations shall not cease or terminate until the
earlier to occur of (a) such time as all of the Registrable Shares (as defined
in the Preferred Agreement) have been resold, (b) such time as all of the
Registrable Shares (as defined in the Preferred Agreement) may be resold in a
three-month period pursuant to Rule 144, or (c) the third anniversary of the
Closing Date (as defined in the Purchase Agreement); and

            (c) to the extent the indemnification obligations of the Company
pursuant to Section 7.4 of the Purchase Agreement are broader in scope than the
indemnification obligations of the Company pursuant to Section 7.4 of the August
2001 Purchase Agreement or pursuant to Section 7.4 of the Preferred Agreement
(the "PRIOR AGREEMENTS"), with respect to the Holders, the indemnification
obligations of the Company pursuant to Section 7.4 of the Purchase Agreement
shall apply to the Prior Agreements.

                                   ARTICLE 8

                                  MISCELLANEOUS

      8.1 WAIVERS AND AMENDMENTS. The terms of this Agreement may be waived or
amended with the written consent of the Company and each Holder.

      8.2 GOVERNING LAW. This Agreement shall be governed in all respects by and
construed in accordance with the laws of the State of California without any
regard to conflicts of laws principles.


                                       6.
<PAGE>
      8.3 SUCCESSORS AND ASSIGNS. The provisions hereof shall inure to the
benefit of, and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties to this Agreement. No Holder shall assign this
Agreement without the prior written consent of the Company.

      8.4 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
thereof.

      8.5 SEVERABILITY OF THIS AGREEMENT. If any provision of this Agreement
shall be judicially determined to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.

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

      8.7 CURRENCY. All references to "dollars" or "$" in this Agreement shall
be deemed to refer to United States dollars.

                  [REMAINDER OF THIS PAGE INTENTIONALLY BLANK.]


                                       7.
<PAGE>
      The foregoing agreement is hereby executed as of the date first above
written.

                              ARADIGM CORPORATION, a California corporation

                              By:         /s/ Richard P. Thompson
                                 -------------------------------------------

                              Name:       Richard P. Thompson

                              Title:      President and CEO


                              HOLDER:

                              NEW ENTERPRISE ASSOCIATES 10, LIMITED
                              PARTNERSHIP

                              By:         /s/ Eugene A. Trainer, III
                                 -----------------------------------------------

                              Name:       Eugene A. Trainer, III

                              Title:      Administrative General Partner
                                          & Chief Operating Officer


                              DOMAIN PUBLIC EQUITY PARTNERS LP

                              By:         Domain Public Equity Associates LLC

                              Its:        General Partner

                                 By:      /s/ Nicole Vitullo
                                    --------------------------------------------

                                 Name:    Nicole Vitullo

                                 Title:   Managing Member


                              CAMDEN PARTNERS STRATEGIC FUND II-A, L.P.

                              By:         Camden Partners Strategic II, LLC,
                                              its general partner

                                 By:      /s/ Richard M. Johnston
                                    --------------------------------------------

                                 Name:    Richard M. Johnston

                                 Title:   Managing Member


                                      A-1.
<PAGE>
                              CAMDEN PARTNERS STRATEGIC FUND II-B, L.P.

                              By:         Camden Partners Strategic II, LLC,
                                              its general partner

                                 By:      /s/ Richard M. Johnston
                                    --------------------------------------------

                                 Name:    Richard M. Johnston

                                 Title:   Managing Member


                              CASTLE CREEK HEALTHCARE PARTNERS, LLC

                              By:Castle Creek Partners, LLC

                                 By:      /s/ Thomas A. Frei
                                    --------------------------------------------

                                 Name:    Thomas A. Frei

                                 Title:   Investments Manager


                              CC LIFESCIENCE, LTD.

                              By:         Castle Creek Lifescience Partners, LLC

                                 By:      /s/ Thomas A. Frei
                                    --------------------------------------------

                                 Name:    Thomas A. Frei

                                 Title:   Investments Manager


                                      A-2.
<PAGE>
                                    EXHIBIT A

                               SCHEDULE OF HOLDERS

<TABLE>
<CAPTION>
HOLDER                                                                    WARRANTS
<S>                                                                      <C>
New Enterprise Associates 10, Limited Partnership                        2,685,948
1119 St. Paul Street
Baltimore, Maryland 21202
Tel: (410) 244-0115
Fax: (410) 752-7721
Attn: John Nehra

State or Country of Residence: Maryland

Domain Public Equity Partners L.P.                                         402,890
One Palmer Square, Suite 515
Princeton, New Jersey 08542
Tel: (609) 683-5656
Fax: (609) 683-4581
Attn: Nicole Vitullo

State or Country of Residence:
New Jersey

Camden Partners Strategic Fund II-A, L.P.                                  368,160
c/o Camden Partners, Inc.
One South Street, Suite 2150
Baltimore, Maryland 21202
Tel: (410) 895-3800
Fax: (410) 895-3805
Attn: Richard M. Johnston

State or Country of Residence:
Maryland

Camden Partners Strategic Fund II-B, L.P.                                   21,840
c/o Camden Partners, Inc.
One South Street, Suite 2150
Baltimore, Maryland 21202
Tel: (410) 895-3800
Fax: (410) 895-3805
Attn: Richard M. Johnston

State or Country of Residence:
Maryland
</TABLE>


                                      A-3.
<PAGE>
<TABLE>
<S>                                                                        <C>
Castle Creek Healthcare Partners LLC                                       268,593
c/o Castle Creek Healthcare Partners, LLC
111 West Jackson Boulevard, Suite 2020
Chicago, Illinois 60604
Tel: (312) 499-6900
Fax: (312) 499-6999
Attn: Thomas A. Frei

State or Country of Residence:
Illinois

CC Lifescience, Ltd.                                                       268,593
c/o Castle Creek Healthcare Partners, LLC
111 West Jackson Boulevard, Suite 2020
Chicago, Illinois 60604
Tel: (312) 499-6900
Fax: (312) 499-6999
Attn: Thomas A. Frei

State or Country of Residence:
Illinois
</TABLE>


                                      A-4.
<PAGE>
                                    EXHIBIT B

                           FORM OF NEW COMMON WARRANT

THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO SUCH SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

                               ARADIGM CORPORATION

                        WARRANT TO PURCHASE COMMON STOCK

                                                             _____________, 2003

                          VOID AFTER DECEMBER 14, 2006

      THIS CERTIFIES THAT, for value received, ___________________________, with
its principal office at __________________________, or assigns (the "Holder"),
is entitled to subscribe for and purchase at the Exercise Price (defined below)
from Aradigm Corporation, a California corporation, with its principal office at
3929 Point Eden Way, Hayward, CA 94545 (the "Company") up to
____________________ (_____) shares of the Common Stock of the Company (the
"Common Stock").

      1. DEFINITIONS. As used herein, the following terms shall have the
following respective meanings:

            (a) "Exercise Period" shall mean the period commencing with the date
of this Warrant and ending on December 14, 2006, unless sooner terminated as
provided below.

            (b) "Exercise Price" shall mean $1.12 per share, subject to
adjustment pursuant to Section 5 below.

            (c) "Exercise Shares" shall mean the shares of the Company's Common
Stock issuable upon exercise of this Warrant.

      2. EXERCISE OF WARRANT. The rights represented by this Warrant may be
exercised in whole or in part at any time during the Exercise Period, by
delivery of the following to the Company at its address set forth above (or at
such other address as it may designate by notice in writing to the Holder):

            (a) An executed Notice of Exercise in the form attached hereto;

            (b) Payment of the Exercise Price either (i) in cash or by check, or
(ii) by cancellation of indebtedness; and


                                       2.
<PAGE>
            (c) This Warrant.

      Upon the exercise of the rights represented by this Warrant, a certificate
or certificates for the Exercise Shares so purchased, registered in the name of
the Holder or persons affiliated with the Holder, if the Holder so designates,
shall be issued and delivered to the Holder within a reasonable time after the
rights represented by this Warrant shall have been so exercised.

      The person in whose name any certificate or certificates for Exercise
Shares are to be issued upon exercise of this Warrant shall be deemed to have
become the holder of record of such shares on the date on which this Warrant was
surrendered and payment of the Exercise Price was made, irrespective of the date
of delivery of such certificate or certificates, except that, if the date of
such surrender and payment is a date when the stock transfer books of the
Company are closed, such person shall be deemed to have become the holder of
such shares at the close of business on the next succeeding date on which the
stock transfer books are open.

      2.1 NET EXERCISE. Notwithstanding any provisions herein to the contrary,
after the date on which a Registration Statement (as defined in Section 7.1 of
the Securities Purchase Agreement dated February 10, 2003, by and among the
Company and the persons listed on the Schedule of Purchasers attached thereto as
Exhibit A) has first gone effective, if (i) at any time a Registration Statement
is no longer effective and (ii) the fair market value of one share of the
Company's Common Stock is greater than the Exercise Price (at the date of
calculation as set forth below), in lieu of exercising this Warrant by payment
of cash, the Holder may elect to receive shares equal to the value (as
determined below) of this Warrant (or the portion thereof being canceled) by
surrender of this Warrant at the principal office of the Company together with
the properly endorsed Notice of Exercise in which event the Company shall issue
to the Holder a number of shares of Common Stock computed using the following
formula:

                          X = Y (A-B)
                              -------
                                 A

         Where    X =     the number of shares of Common Stock to be issued to
                          the Holder

                  Y =     the number of shares of Common Stock purchasable under
                          the Warrant or, if only a portion of the Warrant is
                          being exercised, the portion of the Warrant being
                          canceled (at the date of such calculation)

                  A =     the fair market value of one share of the Company's
                          Common Stock (at the date of such calculation)

                  B =     Exercise Price (as adjusted to the date of such
                          calculation)

      For purposes of the above calculation, the "fair market value" of one
share of Common Stock shall mean (i) the average of the closing sales prices for
the shares of Common Stock on the Nasdaq National Market or other trading market
where such security is listed or traded as reported by Bloomberg Financial
Markets (or a comparable reporting service of national reputation selected by
the Company and reasonably acceptable to the holders if Bloomberg Financial
Markets is not then reporting sales prices of such security) (collectively,
"Bloomberg") for the ten (10) consecutive trading days immediately preceding
such date, or (ii) if the Nasdaq


                                       3.
<PAGE>
National Market is not the principal trading market for the shares of Common
Stock, the average of the reported sales prices reported by Bloomberg on the
principal trading market for the Common Stock during the same period, or, if
there is no sales price for such period, the last sales price reported by
Bloomberg for such period, or (iii) if neither of the foregoing applies, the
last sales price of such security in the over-the-counter market on the pink
sheets or bulletin board for such security as reported by Bloomberg, or if no
sales price is so reported for such security, the last bid price of such
security as reported by Bloomberg, or (iv) if fair market value cannot be
calculated as of such date on any of the foregoing bases, the fair market value
shall be as determined by the Board of Directors of the Company in the exercise
of its good faith judgment.

      3. COVENANTS OF THE COMPANY.

      3.1 COVENANTS AS TO EXERCISE SHARES. The Company covenants and agrees that
all Exercise Shares that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued and
outstanding, fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issuance thereof. The Company further covenants and
agrees that the Company will at all times during the Exercise Period, have
authorized and reserved, free from preemptive rights, a sufficient number of
shares of its Common Stock to provide for the exercise of the rights represented
by this Warrant. If at any time during the Exercise Period the number of
authorized but unissued shares of Common Stock shall not be sufficient to permit
exercise of this Warrant, the Company will take such corporate action as may, in
the opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.

      NO IMPAIRMENT. Except and to the extent as waived or consented to by the
Holder, the Company will not, by amendment of its Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may be necessary or appropriate in order to protect
the exercise rights of the Holder against impairment.

      NOTICES OF RECORD DATE. In the event of any taking by the Company of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend (other than a cash
dividend which is the same as cash dividends paid in previous quarters) or other
distribution, the Company shall mail to the Holder, at least ten (10) days prior
to the date specified herein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend or distribution.

      4. REPRESENTATIONS OF HOLDER.

      ACQUISITION OF WARRANT FOR PERSONAL ACCOUNT. The Holder represents and
warrants that it is acquiring the Warrant solely for its account for investment
and not with a view to or for sale or distribution of said Warrant or any part
thereof. The Holder also represents that the entire legal and beneficial
interests of the Warrant and Exercise Shares the Holder is acquiring is being
acquired for, and will be held for, its account only.


                                       4.
<PAGE>
      SECURITIES ARE NOT REGISTERED.

            (a) The Holder understands that the Warrant and the Exercise Shares
have not been registered under the Securities Act of 1933, as amended (the
"Act") on the basis that no distribution or public offering of the stock of the
Company is to be effected. The Holder realizes that the basis for the exemption
may not be present if, notwithstanding its representations, the Holder has a
present intention of acquiring the securities for a fixed or determinable period
in the future, selling (in connection with a distribution or otherwise),
granting any participation in, or otherwise distributing the securities. The
Holder has no such present intention.

            (b) The Holder recognizes that the Warrant and the Exercise Shares
must be held indefinitely unless they are subsequently registered under the Act
or an exemption from such registration is available. The Holder recognizes that
the Company will register the Exercise Shares pursuant to the provisions of
Section 7 of that certain Warrant Repricing Agreement dated February 10, 2003.

            (c) The Holder is aware that neither the Warrant nor the Exercise
Shares may be sold pursuant to Rule 144 adopted under the Act unless certain
conditions are met, including, among other things, the existence of a public
market for the shares, the availability of certain current public information
about the Company, the resale following the required holding period under Rule
144 and the number of shares being sold during any three month period not
exceeding specified limitations.

      DISPOSITION OF WARRANT AND EXERCISE SHARES.

            (d) The Holder further agrees not to make any disposition of all or
any part of the Warrant or Exercise Shares in any event unless and until:

                  The Company shall have received a letter secured by the Holder
from the Securities and Exchange Commission stating that no action will be
recommended to the Commission with respect to the proposed disposition; or

                  There is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in accordance
with said registration statement; or

                  The Holder shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and if reasonably
requested by the Company, the Holder shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, for the Holder to
the effect that such disposition will not require registration of such Warrant
or Exercise Shares under the Act or any applicable state securities laws.

            (e) The Holder understands and agrees that all certificates
evidencing the shares to be issued to the Holder may bear the following legend:

      "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
      1933, AS AMENDED (THE "ACT"). THEY MAY


                                       5.
<PAGE>
      NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
      AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE ACT OR
      AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
      IS NOT REQUIRED."

      5. ADJUSTMENT OF EXERCISE PRICE.

            (a) In the event of changes in the outstanding Common Stock of the
Company by reason of stock dividends, split-ups, recapitalizations,
reclassifications, combinations or exchanges of shares, separations,
reorganizations, liquidations, or the like, the number and class of shares
available under the Warrant in the aggregate and the Exercise Price shall be
correspondingly adjusted to give the Holder of the Warrant, on exercise for the
same aggregate Exercise Price, the total number, class, and kind of shares as
the Holder would have owned had the Warrant been exercised prior to the event
and had the Holder continued to hold such shares until after the event requiring
adjustment. The form of this Warrant need not be changed because of any
adjustment in the number of Exercise Shares subject to this Warrant.

            (b) If at any time or from time to time the holders of Common Stock
of the Company (or any shares of stock or other securities at the time
receivable upon the exercise of this Warrant) shall have received or become
entitled to receive, without payment therefor,

                  (i) Common Stock or any shares of stock or other securities
which are at any time directly or indirectly convertible into or exchangeable
for Common Stock, or any rights or options to subscribe for, purchase or
otherwise acquire any of the foregoing by way of dividend or other distribution
(other than a dividend or distribution covered in section 5(a) above),

                  (ii) any cash paid or payable otherwise than as a cash
dividend, or

                  (iii) Common Stock or additional stock or other securities or
property (including cash) by way of spinoff, split-up, reclassification,
combination of shares or similar corporate rearrangement (other than shares of
Common Stock pursuant to Section 5(a) above),

then and in each such case, the Holder hereof will, upon the exercise of this
Warrant, be entitled to receive, in addition to the number of shares of Common
Stock receivable thereupon, and without payment of any additional consideration
therefor, the amount of stock and other securities and property (including cash
in the cases referred to in clauses (ii) and (iii) above) which such Holder
would hold on the date of such exercise had he been the holder of record of such
Common Stock as of the date on which holders of Common Stock received or became
entitled to receive such shares or all other additional stock and other
securities and property.

      6. FRACTIONAL SHARES. No fractional shares shall be issued upon the
exercise of this Warrant as a consequence of any adjustment pursuant hereto. All
Exercise Shares (including fractions) issuable upon exercise of this Warrant may
be aggregated for purposes of determining whether the exercise would result in
the issuance of any fractional share. If, after aggregation, the exercise would
result in the issuance of a fractional share, the Company shall, in lieu of


                                       6.
<PAGE>
issuance of any fractional share, pay the Holder otherwise entitled to such
fraction a sum in cash equal to the product resulting from multiplying the then
current fair market value of an Exercise Share by such fraction.

      7. NO SHAREHOLDER RIGHTS. This Warrant in and of itself shall not entitle
the Holder to any voting rights or other rights as a shareholder of the Company.

      8. TRANSFER OF WARRANT. Subject to applicable laws and the restriction on
transfer set forth on the first page of this Warrant, this Warrant and all
rights hereunder are transferable, by the Holder in person or by duly authorized
attorney, upon delivery of this Warrant and the form of assignment attached
hereto to any transferee designated by Holder. The transferee shall sign an
investment letter in form and substance satisfactory to the Company.

      9. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost,
stolen, mutilated or destroyed, the Company may, on such terms as to indemnity
or otherwise as it may reasonably impose (which shall, in the case of a
mutilated Warrant, include the surrender thereof), issue a new Warrant of like
denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed.
Any such new Warrant shall constitute an original contractual obligation of the
Company, whether or not the allegedly lost, stolen, mutilated or destroyed
Warrant shall be at any time enforceable by anyone.

      10. NOTICES, ETC. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day, (c) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) one (1) day after deposit with
a nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the Company
at the address listed on the signature page and to Holder at ___________________
or at such other address as the Company or Holder may designate by ten (10) days
advance written notice to the other parties hereto.

      11. ACCEPTANCE. Receipt of this Warrant by the Holder shall constitute
acceptance of and agreement to all of the terms and conditions contained herein.

      12. GOVERNING LAW. This Warrant and all rights, obligations and
liabilities hereunder shall be governed by the laws of the State of California.


                                       7.
<PAGE>
      IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer as of _____________, 2003.

                                   ARADIGM CORPORATION, a California corporation


                                   By: _________________________________________

                                   Name: _______________________________________

                                   Title: ______________________________________
<PAGE>
                               NOTICE OF EXERCISE

TO: ARADIGM CORPORATION

      (1)   | | The undersigned hereby elects to purchase ________ shares of
the Common Stock of ARADIGM CORPORATION (the "Company") pursuant to the terms of
the attached Warrant, and tenders herewith payment of the exercise price in
full, together with all applicable transfer taxes, if any.

            | | The undersigned hereby elects to purchase ________ shares of
Common Stock of the Company pursuant to the terms of the net exercise provisions
set forth in Section 2.1 of the attached Warrant, and shall tender payment of
all applicable transfer taxes, if any.

      (2) Please issue a certificate or certificates representing said shares of
Common Stock of the Company in the name of the undersigned or in such other name
as is specified below:

                            ________________________
                                     (Name)

                            ________________________

                            ________________________
                                    (Address)

      (3) The undersigned represents that (i) the aforesaid shares of Common
Stock are being acquired for the account of the undersigned for investment and
not with a view to, or for resale in connection with, the distribution thereof
and that the undersigned has no present intention of distributing or reselling
such shares, other than as contemplated by Article 7 of the Warrant Repricing
Agreement dated as of February 10, 2003 by and among the Company and holders
named therein; (ii) the undersigned is aware of the Company's business affairs
and financial condition and has acquired sufficient information about the
Company to reach an informed and knowledgeable decision regarding its investment
in the Company; (iii) the undersigned is experienced in making investments of
this type and has such knowledge and background in financial and business
matters that the undersigned is capable of evaluating the merits and risks of
this investment and protecting the undersigned's own interests; (iv) the
undersigned understands that the shares of Common Stock issuable upon exercise
of this Warrant have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), by reason of a specific exemption from the
registration provisions of the Securities Act, which exemption depends upon,
among other things, the bona fide nature of the investment intent as expressed
herein, and, because such securities have not been registered under the
Securities Act, they must be held indefinitely unless subsequently registered
under the Securities Act or an exemption from such registration is available;
(v) the undersigned is aware that the aforesaid shares of Common Stock may not
be sold pursuant to Rule 144 adopted under the Securities Act unless certain
conditions are met and until the undersigned has held the shares for the number
of years prescribed by Rule 144, that among the conditions for use of the Rule
is the availability of current information to the public about the Company; and
(vi) the undersigned agrees not to make any disposition of all or any part of
the aforesaid shares of Common Stock unless and until there is then in effect a
registration statement under the Securities Act covering such proposed
disposition and such disposition is made in accordance with said registration
<PAGE>
statement, or the undersigned has provided the Company with an opinion of
counsel satisfactory to the Company, stating that such registration is not
required.

___________________________             __________________________
(Date)                                  (Signature)

                                        __________________________
                                        (Print name)


                                     B-3-2.
<PAGE>
                                 ASSIGNMENT FORM

                  (To assign the foregoing Warrant, execute
                  this form and supply required information.
                  Do not use this form to purchase shares.)

      FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to

Name: _________________________________________________________________________
                                 (Please Print)

Address: ______________________________________________________________________
                                 (Please Print)

Dated:  __________, 20__

Holder's
Signature: ____________________________________________________________

Holder's
Address: ______________________________________________________________

NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever. Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign
the foregoing Warrant.


                                     B-3-3.