United States
             Securities and Exchange
             Commission
                    Washington D.C. 20549
                    
                          FORM 10-K
[X]    Annual Report Pursuant to Section 13 or 15(d) of the
  Securities Exchange Act of 1934 (Fee Required) For the
  Fiscal Year Ended December 31, 1997
  
                             or
                              
[ ]    Transition Report Pursuant to Section 13 or 15(d) of
 the Securities Exchange Act of 1934 (Fee Not Required)  For
  the Transition Period From           to           .

               Commission File Number: 0-28402
                              
                     ARADIGM CORPORATION
                              
       California                              94-3133088
(State or other jurisdiction of            (I.R.S. Employer
incorporation or organization)             Identification
No.)

        26219 Eden Landing Road, Hayward,  CA  94545
           (Address of principal executive offices)
           
Registrant's telephone number, including area code:
(510) 783-0100

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value

   Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or  for  such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.      Yes  X         No

   Indicate  by check mark if disclosure of delinquent
filers pursuant  to  Item  405  of Regulation S-K  is  not
contained herein, and will not be contained, to the best of
registrant's knowledge,  in  definitive  proxy  or
information  statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.  [
]

    As  of  January 30, 1998, there were 10,632,133 shares
of common  stock  outstanding.   The aggregate  market  value
of voting  stock  held  by non-affiliates of the  Registrant
was approximately $47,846,983 based upon the closing price of
the common  stock on January 30, 1998 on The Nasdaq Stock
Market. Shares  of  common  stock held by each officer,
director  and holder of five percent or more of the
outstanding Common stock have  been excluded in that such
persons may be deemed  to  be affiliates.   This
determination of affiliate  status  is  not necessarily a
conclusive determination for other purposes.
             DOCUMENTS INCORPORATED BY REFERENCE
                              
                              
    Portions of the Proxy Statement of Registrant for the
1998 Annual Meeting of Shareholders to be filed with the
Securities and  Exchange  Commission not later than 120  days
after  the close  of  the Registrant's fiscal year are
incorporated  into Part III of this Form 10-K.

                           PART I
                              
Item 1.   BUSINESS

 This   Report   on   Form   10-K   contains   forward-
looking
statements,   including,   without   limitation,
statements
regarding   timing  and  results  of  clinical   trials,
the
establishment   of  corporate  partnering  arrangements,
the
anticipated commercial introduction of the Company's
products and  the  timing  of  the Company's cash
requirements.  These forward-looking   statements   involve
certain   risks            and
uncertainties  that  could  cause  actual  results  to
differ materially  from  those  in  such forward-looking
statements. Potential risks and uncertainties include,
without limitation, those  mentioned in this report and in
particular, the factors described below in Part II, under the
heading "Risk Factors".

Overview

  Aradigm  is  engaged in the development of  novel
pulmonary drug  delivery  systems designed to enhance the
delivery  and effectiveness  of  a number of existing and
development  stage drugs  and  reduce  the  need  for
injectable  drug  delivery. Aradigm's principal product
development programs are based  on its  AERx(TM)  system,
which uses proprietary technologies  to create  aerosols
from liquid drug formulations  for  delivery locally  to the
lung or systemically via the lung. The Company believes that
its systems can potentially be used to deliver a number of
existing drugs for a variety of applications and may also
offer a promising means of delivery for many  new  drugs
being developed by pharmaceutical and biotechnology
companies.

  The  Company's  lead AERx product under development  is
the AERx  Pain  Management System, which is  designed  to
deliver narcotic  analgesics  systemically  by  inhalation
for the
treatment  of  chronic and acute pain. This  system  is
being developed  in collaboration with SmithKline Beecham
under  an agreement  entered  into in September 1997.  The
Company  has completed two Phase I clinical trials and
commenced  Phase  II clinical  trials of the AERx Pain
Management System  in  March 1998.  There  can  be no
assurance that these clinical  trials will  be successful.
The Company is also developing the  AERx Diabetes Management
System to permit diabetes patients to selfadminister insulin
without needles. The Company has  completed
four  clinical  feasibility studies  with  the  AERx
Diabetes Management  System. In addition, based on its
breath  control and  compliance monitoring technologies, the
Company has  also developed  the  SmartMist(R)  Respiratory
Management  System, which  is  designed  to  improve the
delivery  technique  and compliance  of patients using
metered dose inhalers  ("MDIs"). The  Company  obtained
510(k) clearance from the FDA  for  the SmartMist  system
in  1996  and has  recently  launched  this product.
However, the Company does not anticipate significant sales
of  the SmartMist system until a marketing  partner  is
obtained  for  this  product. The Company  believes  that
its current  and potential products can improve the
management  of certain  diseases  by reducing the overall
cost  of  therapy, enhancing  patient management and
compliance and providing  an improved  means  to administer
drugs outside of  the  hospital setting.
  The  Company's  plans  and intentions with  respect  to
the development  and  commercialization of  its
technologies  are subject to a number of risks and
uncertainties. There  can  be no  assurance that the Company
will obtain required regulatory clearances and approvals or
that the Company will be  able  to successfully develop and
commercialize any of its products  or potential products.
Background _ Pulmonary Drug Delivery
  Pulmonary  drug delivery is widely used to treat
respiratory diseases by delivering pharmaceuticals locally
to the lung and may  have  utility  in  the delivery  of
drugs  for  systemic application  by using the lung's
natural ability  to  transfer molecules  into the
bloodstream. The potential  for  pulmonary delivery to the
bloodstream for systemic effect offers a  noninvasive
alternative to injection that  may  achieve  a  more rapid
speed  of onset and superior bioavailability  than  has been
shown with other approaches, such as oral, transdermal or
nasal  delivery.  Speed  of onset is an important
therapeutic element for many drugs, including morphine for
pain management and  insulin for diabetes. Pulmonary
delivery of drugs for the treatment of respiratory diseases
has proven desirable because topical application to affected
lung tissues promotes a  rapid therapeutic effect and
minimizes the side effects  of  several important  pulmonary
drugs. The  Company  believes  that  the reproducibility of
pulmonary drug delivery is a critical  part of  achieving
therapeutic effect and can best be  realized  by regulating
particle  size and velocity  and  activating  drug delivery
at the appropriate point in the inspiratory cycle.
  To  deliver  pharmaceuticals to or through the lungs,
drugs must  be transformed into a low velocity aerosol (a
suspension of drug particles in air) which can be inhaled by
the patient. Small particles (i.e., less than four microns
in diameter) are able  to  pass through the lung's airways
and be dispersed  in the alveoli, where they may enter the
bloodstream for systemic effect.  Larger particles (i.e.,
greater than four microns  in diameter) typically get
deposited in the large airways,  where they may be useful in
treating diseases of the lung.
  Three  aerosol generating technologies currently  are
being used  for  pulmonary drug delivery: nebulizers, MDIs
and  dry powder inhalers ("DPIs"). Each of these systems was
originally developed  to  treat  lung  diseases  and
produces  a   local therapeutic effect by depositing
aerosolized medication in the large  airways of the lung.
The effectiveness of these devices depends   upon  proper
inhalation  technique  to  produce   a consistent,
reproducible dose. In addition,  the  ability  of
these   technologies  to  improve  the  management  of
major pulmonary  diseases  has been limited by  their
inability  to correct  poor  patient technique automatically
or  to  provide physicians  with information on patient
inhalation and  dosing patterns.
  Nebulizers.  Nebulizers are primarily used in hospitals
for the  treatment of respiratory diseases, such as asthma.
Liquid drug  is loaded into the nebulizer prior to each use,
and  the patient  breathes through a mouthpiece or mask as a
continuous fog  of drug particles is produced. Because
nebulizers require an  external power source or compressed
gas supply,  they  are not  easily portable. Although drugs
in liquid form are easily converted  to  an  aerosol,
nebulizers  are  inefficient  and require  several  minutes
to  administer  a  single  dose  of medication.  Because
nebulizers  produce  a  wide  range
of
particle  sizes,  these devices are impractical  for
systemic delivery.

  MDIs. Metered dose inhalers, the most widely used system
for pulmonary  drug delivery, have been in existence for
over  40 years  and  are  used  to deliver asthma drugs.
The  drug  is packaged in a portable canister as a
suspension or solution in a
volatile  propellant, typically CFCs. To self-administer  a
drug, the patient must depress the canister, releasing a
highvelocity  jet of aerosolized drug, while inhaling
slowly  and evenly.  Although  widely  used, there  are
certain  inherent problems  with  the  use  of MDIs.  A
patient  must  properly coordinate  inhalation and
activation of the  aerosol  jet  to optimize  the
effectiveness  of treatment.  Several  clinical studies
have  demonstrated that patients routinely  use  MDIs
improperly,  resulting in ineffective delivery.  Much  of
the drug  is  deposited at the back of the throat  and
swallowed, rather  than  reaching  the  desired  location
in  the  lung. Moreover, MDIs also produce a wide range of
particle sizes and are not optimal for the delivery of
systemic therapies.

  DPIs.  Dry  powder inhalers, which are also used to
deliver drugs  locally to the lung, have been and are being
developed by  pharmaceutical companies to replace CFC-based
MDI systems. DPI  drugs  are  formulated  in solid  form
and  packaged  in portable  containers.  Patients self-
administer  the  drug  by inhaling  small,  dry particles.
Dry powder drug  formulations present  a considerable
challenge for pharmaceutical  chemists because  drugs  must
be  prepared as  solids,  must  tolerate storage  in  a
solid  phase  and must  facilitate  rapid  and complete
dispersion as an aerosol at the point of delivery. To date,
DPIs have been used for the local delivery of some drugs to
the lung, although several companies are now exploring the
development  of  DPIs  for  the  systemic  delivery  of
other compounds, including proteins and peptides.

Aradigm Approach

  The  Company  believes  that  its  pulmonary  drug
delivery technology will produce precise, reproducible
delivery of  the desired  drug dose, either systemically or
locally,  and  that its  systems  may be capable of
improving or enabling  a  wide range  of  pulmonary drug
delivery applications.  Aradigm  has combined core
competencies in physics, electrical engineering, mechanical
engineering and pharmaceutical sciences to overcome the
limitations  of  conventional  pulmonary  drug  delivery
systems.  Through this integrated approach,  the  Company
has developed  technologies which address each  of  the
four  key elements which it believes are required for the
development of effective pulmonary drug delivery products:

  *       Ease  of Drug Formulation: The Aradigm systems
take
    advantage of existing drug formulations, primarily
    liquid drug  formulations (aqueous or ethanol-aqueous
    mixtures), thereby  potentially reducing the time, cost
    and  risk  of formulation   development  compared  to
    other   pulmonary delivery  technologies. Many drugs
    being  considered  for pulmonary   delivery,   including
    macromolecules,                                   are
    currently  marketed  in  stable  liquid  formulations.
    In addition, liquid formulations facilitate the
    generation of small  particle aerosols necessary for
    efficient  delivery deep into the lung.
    
  *       Efficient Precision Aerosol Generation: Aradigm
has
    developed a proprietary aerosolization technology
    capable of  producing low velocity, small particle
    aerosols at the point  of  delivery necessary for
    efficient deposition  of drug  in  the  lung. Through
    this technology, the  Company believes  it  is  able  to
    overcome  the  limitations  of conventional  pulmonary
    drug delivery  systems  in  which particle  size  and
    velocity  cannot  be  optimized                   for
    systemic delivery.

  *       Automated  Breath-Controlled Delivery: Since
proper
    inhalation  technique  is  needed  to  achieve
    effective pulmonary drug delivery, Aradigm's systems are
    designed to guide  the  patient  to inhale slowly and
    evenly  and  to automatically deliver a drug aerosol at
    the correct  point early  in  the inspiratory cycle.
    Studies have shown  that most patients use improper
    inhalation technique, resulting in  less  effective
    therapy, and  that  patient  training becomes
    ineffective over time. The Company believes  that its
    breath  control  technology will result  in  improved
    patient inhalation techniques.
    
  *        Patient  Compliance  Monitoring:  Because
patient
    adherence  to  prescribed dosing regimens is an
    important determinant of therapeutic benefit, Aradigm's
    systems  are also
    being   designed  to  record  drug  administration,
    inhalation   patterns  and  other  relevant
    physiological information for use by physicians to
    analyze and  optimize patient treatment regimens and
    improve patient outcomes.
    
  Aradigm is seeking to exploit various combinations of
these four elements to develop pulmonary drug delivery
systems which overcome  the  limitations  of  existing
systems  or   enable pulmonary   delivery  of  drugs  which
are   currently                                       not
deliverable systemically via the lung.

Aradigm Technology Platform

  The  Company's principal product platform, the AERx
system, is  a  novel  drug delivery system that is being
developed  to enable   pulmonary  delivery  of  a  wide
range   of   liquid pharmaceuticals for local or systemic
effect. The AERx  system is  based  on  a  proprietary
aerosol  generation  technology capable  of  producing low
velocity, small particles  suitable for  efficient  and
reproducible pulmonary delivery.  By  also incorporating
the  Company's proprietary breath  control  and compliance
monitoring  technologies,  the  AERx   system
is
designed  to  optimize the delivery of aerosolized
medications to  the  lung  for local or systemic effect. The
AERx  system aerosolizes liquid drug formulations that are
pre-packaged  in proprietary  unit-dose packets for
inhalation. Each  unit-dose packet  is  comprised  of (i) a
small  blister  package  which stores  a  liquid drug
formulation and (ii) an  aerosolization
nozzle  consisting  of a membrane incorporating  an  array
of
micromachined holes.

  The AERx device creates a respirable aerosol by releasing
a mechanical actuator that is activated automatically  when
the patient's  inhalation  is  optimal  for  drug  delivery.
The
actuator  compresses the blister packet, thereby forcing
open the  sealed channel and extruding the liquid drug
through  the aerosolization nozzle. The aerosolized drug
produced  by  this process  is  then inhaled through the
mouthpiece of  the  AERx device.  The  aerosolization  of
the  liquid  drug  via                                the
disposable nozzle takes approximately one second and
produces a  low velocity, fine particle aerosol necessary
for optimized
deposition  within  the  lung. The size  of  the  droplets
or
particles  that form the emitted aerosol is dependent  on
the
diameter   of   the   nozzle  holes.  The  diameter   of
the
micromachined  holes within the nozzle can be sized  for
each specific  clinical  application,  including  the
creation                                             of
larger particles for delivery of drug to the large airways
of
the lung for local effect or smaller particles for delivery
of drug deep into the lung for systemic effect.

  Many   drugs   being  considered  for  pulmonary
delivery,
including  macromolecules, are currently  marketed  in
stable liquid  formulations. Formulations developed for  use
in  the
AERx  system are in liquid form, typically employing
aqueousbased  solvents,  similar  to those used  for
injections.                                           No
propellants are required since mechanical pressure is used
to
generate  the aerosol. Moreover, since the drug is  stored
in
unit-dose packets, preservatives should not be needed for
most applications, further simplifying the formulation
process.

  The  AERx  system employs a patented technology  to
measure
precisely  the  airflow while the patient is inhaling
through
the  mouthpiece of the device. Indicator lights on the
device guide  the  patient  to  inhale slowly  and  evenly
within  a predetermined  range  suitable for  drug
delivery.  When  the desired  flow  rate  is established
early in  the  inspiratory cycle,  the  device is activated.
Breath control ensures  that the  patient  is  breathing
correctly  each  time  a  dose                        of
aerosolized drug is delivered. As a result, a consistent
dose of medication is delivered each time the product is
used.

  The  AERx system can automatically record information
about each drug   administration,  including   dosage,
breathing
technique  and  other relevant physiological  parameters,
for later review by the patient and health care
professionals. The Company  intends  to customize the
software embedded  in  each AERx  system  for  the
particular therapeutic  application                   in
order  to  collect  and  present the data  most  relevant
for managing  each patient type. Electronic patient
identification and  lock-out mechanisms can also be
incorporated in the  AERx system  to  prevent unauthorized
use or overdose. The
Company
believes  that  the  combined features  of  the  AERx
system,
optimized for each application, will make the individual
AERx products effective disease management tools.

  The  Company has also developed the SmartMist system,
which incorporates  the  Company's  breath  control  and
compliance monitoring  technologies, for use with standard
MDIs  for  the treatment  of  asthma  and  other
respiratory  diseases.  The SmartMist system, which the
Company has launched, is  a  handheld,  battery-operated
aerosol  drug  delivery  system                       for
existing  asthma  drugs, such as beclomethasone.  The
patient
inserts  a standard MDI into the SmartMist system and
inhales
normally through the mouthpiece. When the desired flow rate
is
established  early  in  the  inspiratory  cycle,  the  MDI
is automatically actuated by the SmartMist system.  The
delivery of  the  medication is breath controlled, rather
than manually activated,  eliminating the need for the
patient to coordinate pressing and breathing while using an
MDI.
Strategy
  Aradigm's  goal  is to become the leader in the
development and commercialization of pulmonary drug delivery
products. The Company's   strategy  incorporates  the
following   principal elements:
  Focus  on  Early  Product  Opportunities:  The  Company
is focusing its initial commercial development efforts on
product opportunities  which have the potential to  reach
the  market quickly.   The   Company   designed   the
SmartMist   system specifically to take advantage of the
shorter regulatory cycle for  510(k)  clearance.  Aradigm
has  launched  the  SmartMist system,  however, the Company
does not anticipate  significant sales  of  the SmartMist
system until a marketing  partner  is obtained  for this
product. The Company's initial  therapeutic product is
expected to be the AERx Pain Management System  for the
delivery  of  morphine.  Because  morphine  is  a   well
characterized  drug  with a demonstrated safety  profile,
the Company believes the AERx Pain Management System carries
less development  risk than new drug development projects
and  may require   less  time  for  regulatory  approval.
For  similar reasons,  the Company is pursuing development
of  systems  for other  existing  pharmaceuticals, such as
insulin,  that  have known efficacy and safety profiles.
Nevertheless, there can be no  assurance that the Company
can secure regulatory  approval for   its   potential
products  or  that  the   Company                 can
successfully develop or market any such products.

  Establish Broad Applicability: The Company believes that
its AERx  technology  can effectively deliver many
pharmaceutical products. The Company is conducting
feasibility studies  on  a number  of compounds to
demonstrate the applicability  of  the AERx  system  to  a
broad range of molecule sizes  and  types, including
proteins,  peptides,  gene   vectors               and
small
molecules. The Company plans to publish results from these
and other studies to promote the acceptance of the AERx
system  as a                                      viable
pulmonary drug delivery technology for a wide variety
of compounds. The Company believes this strategy will
maximize the number of commercial product opportunities for
Aradigm and will  increase the interest of potential
partners  to  develop drugs  for  the  AERx system, thereby
reducing  the  Company's dependence on any single product.

  Establish  Collaborative Relationships: In order to
enhance its commercial opportunities and effectively
leverage its core scientific  resources, Aradigm intends to
enter into  multiple collaborative   relationships   for
the   development                                 and
commercialization of new products utilizing its
technologies. Through product development collaborations,
Aradigm will  seek access to proprietary pharmaceutical
compounds as well  as  to the  resources and expertise
necessary to conduct  late  stage clinical  trials and
obtain regulatory approvals. In addition, the  Company will
pursue relationships with pharmaceutical and device
companies   with   established   sales            forces
and
distribution  channels  in the Company's  target  markets.
By establishing such collaborative relationships, Aradigm
intends to  introduce multiple new products while avoiding
the need to establish  drug  discovery research and  sales
and  marketing capabilities  for  each target market.  The
Company  recently
established  such  a  relationship  with  SmithKline
Beecham, covering  the  development  and marketing  of  the
AERx  Pain Management System and is also investigating the
feasibility of delivering  proprietary compounds using the
AERx  system  for other  companies. However, the Company
will need to  establish additional corporate development
collaborations and there  can be  no  assurance that it will
be able to do so on  reasonable terms, or at all.
  Build Strong Proprietary Position: The Company believes
that establishing  a strong proprietary position in
pulmonary  drug delivery  could provide an important
competitive advantage  in its  target  markets.  The
Company has  aggressively  pursued patent  protection of its
technology and as of March 13,  1998 has  28  issued  United
States patents and  has  a  number  of additional  United
States patent applications  pending.  When appropriate,  the
Company  also  seeks  international  patent protection.
While there can be no assurance that  any  of  the Company's
patents  will  provide  a  significant  commercial
advantage,  these  patents are intended to provide
protection for  important aspects of the Company's
technology,  including aerosol generation, breath control,
compliance monitoring  and unit-dose  formulation. In
addition, the Company is developing in-house  manufacturing
capability  for  the  production   of certain  components of
its products, including the  disposable unit-dose  packet
for the AERx system, to further protect  its core
technologies.
Aradigm Product Applications
  The  Company  is  developing the AERx platform  based  on
a comprehensive   approach  to  pulmonary  drug  delivery
that
includes drug formulation, aerosol generation, patient
breath control  and  compliance monitoring technologies. The
Company believes that the AERx platform will be broadly
applicable  to drugs  that  are  intended for systemic
delivery,  for  local delivery  to  the  lung  and  for
pulmonary  diagnostics.  The Company  currently  is
developing  AERx  products  for                     pain
management  and diabetes management. In addition, the
Company is  planning  to  develop AERx systems  for  the
non-invasive delivery of certain other drugs, including
proteins, peptides, gene vectors and small molecules.

AERx Pain Management System

  The Company is developing the AERx Pain Management System
as a                                                 non-
invasive,  patient-controlled pulmonary  drug  delivery
product  for treatment of chronic and acute pain.  The
Company is  developing  and  plans to commercialize  this
product  in collaboration  with  SmithKline  Beecham.  The
Company
has
completed two Phase I clinical trials and commenced  Phase
II clinical  trials of the AERx Pain Management System  in
March 1998.   There  can be no assurance that these clinical
trials will be successful.

  SmithKline Beecham and Aradigm have targeted cancer pain
and post-operative pain as the first two applications for
the AERx Pain  Management System. Among cancer patients,
more than four million people worldwide suffer from pain, a
majority of  whom experience  multiple  "breakthrough"  pain
events  each  day. Breakthrough pain refers to acute
exacerbations of pain  which "breakthrough"   the
patient's  baseline   level   of                    pain
medication.  In  the postoperative arena, 20 million
patients worldwide each year require treatment with narcotic
analgesics after surgery.

  Products currently available for pain management deliver
the analgesic     substance   by  oral,  transdermal,
intravenous,
intramuscular  or  subcutaneous  routes.  Available
patient-
controlled analgesia ("PCA") products allow patients to
selfadminister  pain  medication on demand from a
microprocessorcontrolled
intravenous  infusion  pump.  PCA   systems         are
frequently  used  for  intravenous delivery  in  the
hospital
setting.  Widespread  adoption of PCA  outside  the
hospital, however,   has  been  limited  by  the
requirement       for                                an
intravenous delivery site that requires regular and
expensive maintenance.  Home use of PCA can cost as much as
$4,000  per month,  due partially to the home nursing
required to maintain the  needle site. However, there are
currently no non-invasive pain   management  products  that
can  match  the  speed                               of
intravenous  administration of narcotic analgesics  for
rapid relief of breakthrough pain events.

  The Company believes that a patient-controlled, non-
invasive drug  delivery  system  that  provides  for  rapid
uptake  of medication  could  significantly expand the
market  for  pain management                         in  the
outpatient  setting  and   improve                  the
management  of pain in the hospital. The AERx Pain
Management System  is  expected to have features similar to
current  PCA systems, but without the need for intravenous
access       and  the
resulting impairment of patient ambulation. The AERx system
is being   designed  to  be  programmed  to  allow  for
patient-
activated  delivery  in accordance with  a  physician-
directed dosing  program.  Lock-out mechanisms being
designed     for  the
product should eliminate the risk of inappropriate dosing,
and a        patented  electronic patient identification
feature  should
prevent  unauthorized  use  of the  device.  An
automatically maintained  dosing  event diary kept by  the
AERx  system  is designed  to  allow the physician to
closely  monitor  patient use. The Company believes that
these features of the AERx Pain Management System, combined
with the inherent speed  of  onset of pulmonary delivery,
should provide a significant advance in pain  management
with important applications in both the  home and hospital
settings.

  The  Company has completed two U.S. Phase I clinical
trials covering  the use of the AERx system to deliver
morphine.  The first  study,  conducted  at Harris
Laboratories  in                                    Lincoln,
Nebraska,  involved  16  healthy volunteers  given
increasing doses  of morphine via the AERx system and, on
separate  days, intravenous  injection. At all doses
investigated,  the  speed and  reproducibility of morphine
delivery to  the  bloodstream were  comparable  between  the
AERx  system  and  intravenous administration.  The second
Phase I study, conducted                             with
12
healthy  volunteers at Massachusetts General Hospital,
showed comparable
pharmacokinetic  and  pharmacodynamic
responses
between  AERx  delivery  and  intravenous  administration
of
morphine. Based on the results obtained in these two  Phase
I
clinical  trials, Aradigm initiated Phase II clinical
testing in  March  1998.  Depending on the outcome of  that
Phase  II testing, pivotal Phase III testing of the AERx
Pain Management System  for the delivery of morphine could
commence  in  early 1999. There can be no assurance that the
Company will be  able to  commence these clinical trials on
a timely basis                                      or  that
such trials, if commenced, will be successful.

  In   September   1997,  Aradigm  entered  into   a
product
development  and  commercialization agreement with
SmithKline Beecham  covering use of the AERx Pain Management
System  for the   delivery  of  narcotic  analgesics.  The
Company     and
SmithKline Beecham will collaborate on the development of
the products  within this field. Under the terms of the
agreement,
SmithKline  Beecham  has  been  granted  worldwide  sales
and marketing  rights to the AERx Pain Management System
for  use with  such  analgesics, and Aradigm retains all
manufacturing rights.  If this system receives regulatory
approval,  Aradigm expects  to  sell devices and drug
packets to, and to  receive royalties on sales by,
SmithKline Beecham.
  Pursuant to the SmithKline Beecham agreement, Aradigm
could receive  approximately  $30 million in milestone  and
product development payments and approximately $10 million
in  equity investments   by   the  time  the  first  product
from  the
collaboration  is  commercialized. As of  December  1997,
the Company had received $14.0 million of these amounts, of
which $5.0  million  resulted from the purchase  of  Aradigm
Common Stock by SmithKline Beecham.  In addition, as a
result of  its initiation  of  Phase  II trials of the AERx
Pain  Management System  in  March 1998, the Company
qualified  to  receive  an additional   $9  million  payment
from  SmithKline   Beecham. Additional milestone payments
and product development payments will  be  paid  if  Aradigm
and SmithKline Beecham  decide  to jointly  develop
additional AERx products  which  incorporate other narcotic
analgesics.  There can be no assurance that the Company
will  be  able  to  meet the  milestones  under  this
agreement on a timely basis, if at all.

AERx Diabetes Management System

  The  Company  is  developing the  AERx  Diabetes
Management System  to  permit  diabetes patients to non-
invasively  selfadminister  insulin. The Company believes
that patients,  when provided   with   a  non-invasive
delivery   alternative                                 to
injection,  will be more likely to self-administer insulin
as often  as needed to keep tight control of their blood
glucose levels.  The  Company has completed four clinical
feasibility studies  with the AERx Diabetes Management
System. The Company plans  to  complete  development of and
to commercialize  this system  in collaboration with a
pharmaceutical company and  is currently in discussions with
several potential collaborators. However,  there can be no
assurance that the Company  will  be able to enter into any
collaboration on favorable terms or  at all,  or  that  the
Company  will  be  able  to  successfully commercialize this
system, when and if it receives  regulatory approval.

  In healthy individuals, the pancreas secretes insulin,
which helps the body to regulate blood glucose levels.
Patients with Type  I diabetes do not have the ability to
produce their  own insulin  and  must  self-inject insulin
regularly  to  control their  disease. Patients with Type II
diabetes are  unable  to use  efficiently  the insulin that
their body produces.  While they  may  have  some impairment
in their ability  to  produce insulin  as  well, it is the
defect in their  ability  to  use insulin  efficiently that
leads to the addition of insulin  to their treatment
program. By increasing the circulating insulin
concentration, the inefficiency can be partially overcome.
The Diabetes  Control  and  Complications  Trial  ("DCCT")
study sponsored by National Institutes of Health from 1983
to  1993 indicated that insulin doses should be adjusted
throughout the day  in  response to frequently measured
blood glucose levels. The  DCCT  study showed that keeping
blood glucose  levels  as close to normal as possible slows
the onset and progression of eye,  kidney  and nerve
diseases often caused by diabetes.  In fact,  the DCCT study
demonstrated that any sustained lowering of  blood glucose
levels is beneficial, even if the person has a      history
of poor blood glucose control.

  The  Company  believes that approximately 700,000
Americans suffer  from  Type I diabetes. Virtually all of
them  are  on daily  insulin  injection  therapy,  and  most
are  currently monitoring  their  own blood glucose level.
According  to  the Center for Disease Control, as of 1997,
approximately eight to nine  million  Americans  have been
diagnosed  with  Type  II diabetes. Although most patients
with Type II diabetes do  not currently  use insulin as part
of their therapy, in  aggregate they  consume  the  majority
of insulin  used  in  the  United States, due to their
larger numbers. The insulin market in the United States
exceeded $870 million in 1996. The direct  costs associated
with diabetes are estimated to be greater than  $45 billion
annually.
  Patients  with diabetes often avoid or limit the  amount
of insulin  therapy  because  of the pain  and
inconvenience  of administering the drug by injection. The
Company believes that its AERx Diabetes Management System
can provide a non-invasive method  for delivery of insulin
that would be efficacious  and reproducible.  Clinical
studies conducted by  the  Company  to date  have
demonstrated that insulin delivered via a prototype of  the
AERx Diabetes Management System achieved maximum blood
glucose  reductions in healthy fasting volunteers in half
the time required for subcutaneous insulin injections. The
Company believes this more rapid onset of action could allow
diabetics to  dose  themselves  closer  to  mealtimes,
better  matching insulin  levels  to  caloric intake. The
reductions  in  blood glucose  levels  were  also at least
as reproducible  in  both magnitude  and  time  to  maximum
reduction  as  subcutaneous injections.
  The  AERx  Diabetes Management System is being  designed
to enable patients with diabetes to comply more effectively
with their insulin therapy, thereby lessening the risk of
long-term complications.  A clinical study conducted by the
Company  in healthy  fasting  volunteers  has  shown  that
the   way
an
individual  breathes during delivery has a significant
effect on  the pharmacokinetic profile of the delivered
insulin.  The Company   believes   that  its  proprietary
breath   control technology  can  be  employed in the AERx
Diabetes  Management System to eliminate this potential
variability as a factor  in the  pulmonary delivery of
insulin. Standard insulin therapies presently require that
doses of insulin given by injection  be adjusted  in
increments of one international unit.  The  AERx Diabetes
Management System is being designed to  provide  the same
one unit dosing adjustability. The Company believes that the
combined features of the AERx Diabetes Management  System
will allow people with diabetes to achieve more consistent
and precise control over their blood glucose levels.


Additional Potential AERx Applications

  The Company is evaluating the use of AERx systems to
deliver a
variety  of  additional pharmaceutical  compounds  and  has
successfully evaluated a number of drugs via in vitro  and
in vivo  feasibility studies. Aradigm has carried  out  12
human clinical trials using an early prototype AERx system
to  study morphine sulfate, insulin, the diagnostic agent
(99m) Tc-DTPA, and   several   partners'  proprietary
molecules   (proteins, peptides  and  a  small  molecule).
In  addition,  preclinical feasibility research has been
carried out on a number of small molecules, proteins and non-
viral gene vectors.

A  partial list of compounds that have been evaluated or may
be evaluated appears below:

Pharmaceutical                Biologicals
Albuterol*      Midazolam*    Alpha            Gamma
                              Interferon       Interferon
Beclomethasone* NSAIDs        Calcitonin       Gene
                                               Vectors*
Cromolyn*       Pentamidine   Condensed DNA    Growth
                                               Hormone
Fentanyl*       Sumatriptan   DNAse*           IGF-1
Levorphanol     Triamcinolone Erythropoietin*

*  Indicates  compounds  which the  Company  has
successfully
aerosolized.

  The   Company  has  not  yet  acquired  rights  to
develop applications for any of the proprietary compounds
listed above and may not pursue or be successful in
acquiring such rights.

  The   Company  believes  that  the  AERx  system  may
have applicability            for   a  range  of  compounds
developed       by
pharmaceutical  and  biotechnology companies,  including
many compounds that cannot be delivered orally. Due to their
large size  and  poor oral bioavailability, macromolecules
developed by  the  biotechnology  industry are  typically
developed  in liquid  formulations and delivered by
injection.  The  Company believes  that the AERx platform
can potentially  provide  for improved  delivery and broader
applications of these therapies or potential therapies.

SmartMist Respiratory Management System

  The   Company  has  developed  and  launched  the
SmartMist Respiratory Management System to improve the
effectiveness  of MDIs.  The  SmartMist system is a hand-
held,  battery-operated aerosol drug delivery system for
existing asthma drugs such as beclomethasone. The initial
target market is individuals  with moderate   to
severe   asthma.  By   improving   the   self-
administration  of drugs via MDIs, the Company  believes
that these patients will be better managed, have fewer
symptoms and will  make  fewer visits to the emergency room,
resulting  in improved patient care and reduced health care
expenses.

  Asthma  is an inflammatory disease process characterized
by abnormally high responsiveness of the tracheobronchial
tree to a        multitude of stimuli, such as dust, pollen
and stress.  The
hallmark of the disease is reversible airway obstruction,
and the characteristic wheezing sounds are due to narrowing
of the airways.  Asthma  is  a  chronic disease  which,  if
properly treated, should not progress to crisis stage.

  Of the estimated 14 million people with asthma in the
United States,  approximately one million people with
severe  asthma consume  a  majority  of the over $5 billion
which  is  spent annually for direct health care costs
related to the treatment of  asthma.  Over half of those
dollars is spent  on  hospital care, including approximately
470,000 hospitalizations and  1.5
million  emergency  room visits resulting  from  acute
asthma incidents.  It  is  believed  that most
hospitalizations  for treatment   of   asthma  represent
patient   management   and compliance failures. The Company
believes that improvements in patient   management  and
compliance  could  reduce   patient utilization  of  costly
acute care and  the  overall  cost  of asthma management.

  Studies have shown that up to 70% of patients use their
MDIs incorrectly  and  that  many  patients  revert  to
incorrect
technique  following  training. Even patients  who  have
good technique are inconsistent in applying it. Proper
technique is particularly  important for patients using
topical  steroids, which  treat  the underlying inflammation
that causes  asthma. Unlike  short-acting bronchial
dilators, inhaled steroids  can take  six  to eight weeks to
effect improvement noticeable  to the  patient.  With no
immediate relief of symptoms  providing feedback  to  the
patient, there is no way for patients  using topical
steroids to know if they have received  the  intended drug
dose.
  The  management of asthma can also be improved by
monitoring patient  compliance with the prescribed therapy
and  recording the  effect  of the therapy. Peak flow,
defined  as  the  peak velocity  achieved  during maximum
forced  exhalation,  is  a direct indicator of large airway
constriction. Measurements of peak  flow can be made using
commercially available electronic pulmonary function
monitors. Routine peak flow measurement has been  generally
recommended by pulmonary specialists but  many patients do
not diligently take and record these measurements.
  The Company believes that its SmartMist system is capable
of addressing  MDI  limitations,  such  as  improper
inhalation, improperly  timed  release of the aerosol,  and
the  lack  of information regarding patient usage and
patient lung  function following usage. The patient inserts
a standard MDI  into  the SmartMist system and inhales
through the mouthpiece. Indicator lights  on  the system
switch from red to green to  guide  the patient  to  inhale
slowly and evenly within  a  predetermined range  suitable
for drug delivery. When the desired flow  rate is
established  early in the inspiratory cycle,  the  MDI  is
automatically actuated by the SmartMist system.  The
delivery of  the  medication is breath controlled, rather
than manually activated,  eliminating the need for the
patient to coordinate pressing  and breathing while using an
MDI. Additionally,  the SmartMist  system incorporates an
electronic peak flow  meter, which  quantitatively measures
the effect of therapy when  the patient exhales though a
separate mouthpiece attached  to  the system.  The  peak
flow rate is displayed to the  patient  and recorded  in
the internal memory of the product. Each  system can  store
approximately  90  days   of   data   for             drug
administrations,  inhalation patterns and  pulmonary
function that  can be downloaded into a computer for review
by patients and  health  care professionals to enhance
patient  management and compliance.

  Aradigm has completed a radiolabeled asthma drug study
that demonstrates  the  benefits of the breath  control
technology incorporated in the SmartMist system. In
addition, the Company has  completed two clinical studies to
support market adoption of  the  SmartMist system. The first
study, which involved  40 patients  with  asthma, was
conducted  at  the  University  of California  at San
Francisco and the National Jewish  Hospital in  Denver  to
compare the technique of  patients  using  the SmartMist
system with the technique of other  patients  using MDIs
equipped with the Technique Assessor, a research  device
developed  by  Aradigm  to measure how  patients  actuate
and inhale  through  conventional MDIs.  This  study  showed
that patients  in  the SmartMist group had significantly
more  MDI inhalations  rated as "correct" (91% versus 46%).
The  second study was conducted at Northwest Asthma and
Allergy in Seattle and  involved  13 steroid-dependent
adolescent  patients  with asthma. The SmartMist system was
given to all 13 patients  and used  to evaluate patient
compliance with a medication regimen and  to accurately
assess how reliably and accurately patients recorded  this
information  in peak  flow  diaries.  Although
patient diaries indicated that all patients were at least
80% compliant, data recorded by the SmartMist system
revealed that only  five of the 13 patients studied were 80%
compliant  with the prescribed medication regimen.
  The  SmartMist system received 510(k) clearance from the
FDA in  May  1996  and was launched in early 1998.  The
SmartMist system  is currently designed to be used with the
most  widely prescribed  MDIs,  and its design may be
modified  to  accept additional  MDI designs. The suggested
retail  price  for  the Company's  SmartMist system is $545
per unit.  The Company  is actively seeking corporate
partners for this product based  on a            strategic
decision  to  focus internal  resources  on  its
growing  AERx  opportunities and on  the  belief  that  it
is unlikely  the  SmartMist  system will  achieve  its
potential unless  it  is  sold  as part of a broader
pulmonary  disease management  program.  To that end, the
Company  has  initiated discussions with several potential
pharmaceutical and  disease management partners.

Sales and Marketing

  The  Company plans to establish collaborative
relationships, such as its agreement with SmithKline
Beecham, to develop  and commercialize  its AERx and
SmartMist products. Through  these collaborations,  Aradigm
intends  to  access  resources                  and
expertise  to conduct late stage clinical development  and
to market   and  sell  AERx  products.  The  Company's
preferred partners  will  generally  have  both  a
commercial     and   a
development presence in the target market, and will also
have a commitment to grow that market via drug delivery
technology.
Where  consistent with its other objectives, Aradigm plans
to give  preference to potential partners whose pipelines
contain multiple  products  whose  value  could  be
enhanced  by  the Company's AERx pulmonary drug delivery
technology.

  In  order to commercialize the SmartMist system, the
Company established                             a
separate   business   unit   incorporating
manufacturing,   sales,   marketing   and   customer
service
capabilities.  As well, the Company is pursuing
collaborations with  pharmaceutical firms, disease
management  companies  and managed care organizations in
order to develop the market  for this product and to realize
its potential as part of a broader pulmonary disease
management program.

Manufacturing

  The  Company  is  producing the SmartMist  system  with
the assistance  of  contract manufacturers who are
providing  the main  components and subassemblies. The
Company performs final assembly,  calibration, testing and
shipping at its facilities in California.

  The  Company  is building its own manufacturing
capabilities for the production of key components of its
AERx drug delivery systems.   The  Company  plans  to
internally   produce                            the
disposable nozzles, assemble the disposable unit-dose
packets and fill the drug into the unit-dose packets. The
Company also plans  to  perform  final assembly,
calibration,  testing  and packaging  of  the  AERx devices
currently  under  development using  substantially  the same
approach  as  it  is  using  to produce the SmartMist
system. This manufacturing capability is expected  to  be
established at the Company's  facilities  in California.

The  Company  believes that it is capable of  producing  the
AERx unit-dose packets in volumes adequate to support Phase
II clinical trials. The Company is developing processes  and
has ordered  equipment that is intended to provide by the
end  of 1998  the  ability to produce AERx drug packets in
quantities sufficient  for  Phase  III  clinical  trials
and  commercial production of the AERx Pain Management
System.
  The  Company anticipates making significant expenditures
to provide  for  the  high  volume  manufacturing  required
for
multiple  AERx  products,  if such products  are
successfully developed. There can be no assurance that the
Company will  be able to complete the scale-up process in a
timely manner or at a
commercially reasonable cost.

  Although the majority of the materials used in the
SmartMist system  or  in Aradigm's potential AERx products
are  readily available  from multiple sources, certain
materials, including the  ASICs,  microprocessors, plastics
and plastic  laminates, are  or  will be available initially
only from single sources. While   the   Company  has
contingency  plans  for  alternate suppliers,  there can be
no assurance that the  Company  could find alternate
manufacturers for such components. Even if  new suppliers
are  secured, there can be no assurance  that  this would
not significantly reduce the Company's ability to supply
product during any transition.

Competition

  The  Company faces intense competition. The Company
believes that  its  products  will  compete  on  the  basis
of  dosage reproducibility,    safety,   system
efficiency,    patient convenience,  ability  to provide
compliance  data  and  cost. Several companies are
developing and marketing nebulizer,  MDI and  DPI  devices
as well as other drug delivery  approaches, including
aerosolization technologies. Aradigm is aware that a number
of  pharmaceutical  and  biotechnology  companies  and
research institutions are working on the pulmonary delivery
of peptide  and  protein dry powders. There can be  no
assurance that  competitors  will  not introduce products
or  processes competitive  with, or superior to, those under
development  by the Company. Many of the Company's
competitors are much larger and have far greater resources
than Aradigm. These competitors include companies working on
developing systems for other noninvasive  routes  of
delivery, such as oral,  transdermal  and intranasal
administration, as well as  companies  working  on pulmonary
delivery systems. New drugs or further developments in
alternative  drug  delivery methods  may  provide  greater
therapeutic benefits for a specific drug or indication or
may offer  comparable performance at lower cost than the
Company's pulmonary drug delivery systems under development.

Intellectual Property and Other Proprietary Rights

  The Company's business and competitive position is
dependent upon  its  ability to protect its proprietary
technology  and avoid infringing the proprietary rights of
others.

  The Company relies on patents, patent applications and
trade secret law to protect its proprietary technology. As
of  March 1998,  the Company has 28 United States patents
and additional United  States patent applications pending.
There  can  be  no assurance  that any of the Company's
patent applications  will issue  or, if issued, will later
be found valid if challenged. Further, there can be no
assurance that any issued patents, or applications which
might later issue as patents, will  provide the Company with
a degree of market exclusivity sufficient for
the  Company  to  compete profitably against its
competitors. Patents  can  not  prevent others from
developing  alternative technologies which are used for
aerosolized drug delivery  and patent  applications do not
provide any exclusivity until  and if  they  are issued as a
patent. Because the general idea  of aerosolized drug
delivery is well established, no  entity  may obtain  patent
protection covering all forms  of  aerosolized delivery of
all types of drugs. There can be no assurance that others
have  not independently developed or will not  develop
devices,  components and methods of aerosolized drug
delivery, and  obtained  or will obtain patents on such,
which  patents could  be  used to prevent the Company from
making,  using  or selling its patented technology.
  The  Company's success will depend on its ability to
obtain patents, maintain trade secrets and operate without
infringing upon the proprietary rights of others. A
substantial number of patents  have  been  issued to
competitors  in  the  field  of aerosolized  drug  delivery.
These and other  competitors  and institutions may have
applied for other patents and may obtain additional patents
and proprietary rights relating to products or  processes
similar to those of the Company. The Company may not  be
able  to obtain a license under any such  patent  and
therefore could be prevented from making products or
carrying out  processes  that may be important to the
business  of  the Company.
  The  Company  has  carried out and continues  to  carry
out searches  of  publications, including patents  and
scientific papers relating to the business of the Company.
These searches are  supplemented by searches done by
examiners in the  United States Patent Office and other
patent offices reviewing patent applications  of  the
Company. Many  entities  are  obtaining patents  and
publishing papers in the  field  of  aerosolized delivery
and  there  can be no assurance  that  the  searches carried
out  by  the  Company have found  the  most  relevant
publications.  Thus,  patents may exist  which  would
provide competitors  with  the  ability to prevent  the
Company  from making  or selling its products. Further,
existing and  future patents  or  other  publications may
hinder  or  prevent  the Company  from  obtaining  patents
or draw  into  question  the validity of patents already
issued to the Company.
  The  Company's current policy is to file patent
applications on  what  it  deems to be important
technological developments which  might relate to products
of the Company or  methods  of using such products. To date
all inventions have originated in the  United States and all
patent applications were originally filed  in the United
States. The Company also seeks to protect some   of   these
inventions  through  foreign                    counterpart
applications   in  selected  other  countries.   The
Company
currently  has National Phase applications pending  in
patent offices outside of the United States. Statutory
differences in patentable subject matter may limit the
protection the Company can  obtain  on some of its
inventions outside of  the  United States.  For  example,
methods of  treating  humans  are  not patentable  in  many
countries outside of the  United  States. These  and other
issues may prevent the Company from obtaining patent
protection  outside  of the  United  States.  Further,
competitors  may  have obtained or could later  obtain
patent protection  outside of the United States which  would
prevent the  Company  from  making,  using  or  selling
products   or processes  of its business in countries other
than the  United States.

The  Company's policy is to require its officers, employees,
consultants  and  advisors to execute proprietary
information and  invention and assignment agreements upon
commencement  of their relationships with the Company. These
agreements provide that  all confidential information
developed or made known  to the individual during the course
of the relationship shall  be kept  confidential  except in
specified  circumstances.  These agreements also provide
that all inventions developed  by  the individual on behalf
of the Company shall be assigned  to  the Company  and  that
the  individual will  cooperate  with  the Company in
connection with securing patent protection  on  the
invention  if  the  Company wishes to pursue such
protection. There can be no assurance, however, that these
agreements will provide  meaningful  protection for the
Company's  inventions, trade secrets or other proprietary
information in the event of unauthorized use or disclosure
of such information.
Government Regulation
 All  medical  devices  and  drugs,  including  the
Company's products  under  development, are  subject  to
extensive  and rigorous regulation by the federal
government, principally the FDA, and by state and local
governments. If these products are marketed  abroad, they
also are subject to export requirements and  to  regulation
by  foreign governments.  The  regulatory clearance
process  is  generally  lengthy,               expensive
and
uncertain. The Federal Food, Drug, and Cosmetic Act (the
"FDC Act"),  and other federal statutes and regulations,
govern  or influence  the  development, testing,
manufacture,  labeling, storage,   approval,   advertising,
promotion,   sale                              and
distribution  of  such  products.  Failure  to   comply
with applicable FDA and other regulatory requirements can
result in sanctions being imposed on the Company or the
manufacturers of its                           products,
including  warning  letters,  fines,  product
recalls  or seizures, injunctions, refusals to permit
products to  be  imported  into or exported out of the
United  States, refusals  of the FDA to grant premarket
clearance or premarket approval of medical devices and drugs
or to allow the  Company to  enter  into  government supply
contracts,  withdrawals  of previously   approved  marketing
applications  and   criminal prosecutions.

 The   FDA  and  other  regulatory  agency  requirements
for
manufacturing,   product  testing  and  marketing   can
vary depending  upon whether the product is a medical device
or  a drug.  Sales of the Company's products outside of  the
United States are subject to foreign regulatory requirements
that may vary  from  country  to country. The time required
to  obtain clearance from a foreign country may be longer or
shorter than that  required by the FDA, and clearance or
approval or  other product  requirements may differ. There
can  be  no  assurance that  the  Company will be able to
obtain necessary regulatory clearances or approvals on a
timely basis, if at all, for  any of  its  products under
development, and delays in receipt  or failure  to receive
such clearances or approvals, the loss  of previously
received clearances or approvals,  or  failure  to comply
with existing or future regulatory requirements  could have
a material adverse effect on the Company.

Regulation of Medical Devices

 The  Company  is  required to file a  premarket
notification ("510(k)   notification")  submission  or
premarket  approval ("PMA")  application  or supplement with
the  FDA  before  it begins  marketing a new medical device
or changes or  modifies an existing device in a manner that
could significantly affect the  device's safety or
effectiveness or changes the  device's
intended use.
 The  FDA  categorizes  medical  devices  into  one  of
three regulatory  classifications -- Class I, II or III  --
on  the basis of controls deemed by the FDA to be reasonably
necessary to  assure their safety and effectiveness.
Generally, Class  I devices  are  subject  to  general
controls  (e.g.,  labeling, premarket  notification, and
adherence  to  the  current  good manufacturing  practice
("cGMP")  regulations   for   medical devices). Class II
devices are subject to general and  special controls
(e.g.,    performance    standards,    post-market
surveillance,  patient registries and FDA  guidelines).
Class III  devices,  which  typically are life-sustaining
or  lifesupporting and implantable devices, or new devices
that  have been  found  not to be substantially equivalent
to  a  legally marketed predicate device, are subject to
general controls and also   require   clinical  testing  to
assure   safety                                      and
effectiveness before FDA approval is obtained.  The  FDA
also has  the authority to require clinical testing of Class
I  and II devices.

 If   a   company   can  establish  that  a  new   device
is
"substantially equivalent" to a legally marketed Class I or
II medical device, or to a preamendment Class III medical
device (i.e., a Class III device in commercial distribution
prior  to enactment of the Medical Device Amendments of
1976) for  which the  FDA has not called for PMA
applications, the company  may seek  clearance  to  market
the device  by  filing  a  510(k) notification.  The  510(k)
may  need  to  be   supported
by
appropriate  data, including clinical study data,
establishing substantial  equivalence to the FDA's
satisfaction.  The  FDA recently  has been requiring a more
rigorous demonstration  of substantial equivalence.

 The   Company  may  not  place  the  device  into
commercial distribution  until  an  order of substantial
equivalence  is issued by the FDA. No law or regulation
specifies the time  by which  the FDA must respond to a
510(k) notification. At  this time,  the  FDA  typically
responds to a  510(k)  notification within  90  to  180
days,  although  some  submissions   take considerably
longer. An FDA order may declare that the  device is
substantially equivalent and allow the proposed device  to
be  marketed  in  the  United States. The FDA  may
determine, however,   that  the  proposed  device  is  not
substantially equivalent  or  may  require  further
information,  such
as
additional   test   data,  before  it   can   make   a
final
determination.

 If  a  company  cannot establish that a  proposed  device
is substantially  equivalent  to  a  legally  marketed
predicate device, the company must seek premarket approval
from the  FDA through the submission of a PMA application. A
PMA application must be supported by extensive data,
including preclinical and clinical   trial   data,  to
demonstrate   the   safety                           and
effectiveness  of  the device. If human  clinical  trials
are required  and  the device presents a "significant
risk,"  the company  must file an investigational device
exemption ("IDE") application  prior  to  commencing
clinical  trials.  The  IDE application must be supported by
data, typically including the results   of  animal  and
mechanical  testing.  If  the                        IDE
application  is  not  disapproved by the FDA,  human
clinical trials  may begin at the specified investigational
sites  and with  the specified number of patients 30 days
after  the  FDA receives  the  application. Sponsors of
clinical  trials  are permitted  to  sell study devices,
provided compensation  does not  exceed the cost of
manufacture, research, development and
handling.  The  clinical trials must be  conducted  under
the auspices of an independent institutional review board
("IRB") established  pursuant to FDA regulations. If the
device  does not  present  a significant risk, the study may
be  conducted under IRB authority as a nonsignificant risk
study.
 Following  receipt  of  the  PMA  application,  if  the
FDA
determines  that the application is sufficiently  complete
to permit  a  substantive  review, the  agency  will  "file"
the application.  Once the submission is filed, the FDA
begins  a review  of the PMA application. The FDA has 180
days to review a  PMA  application, although reviews more
often occur over  a significantly  protracted time period,
and the  FDA  generally takes  two  years or more from the
date of filing to  complete its review.

 The  PMA  process can be expensive, uncertain and lengthy.
A number of devices for which premarket approval has been
sought by  other companies have never been approved. Review
time  is often  significantly extended by the FDA,  which
may  require more  information or clarification of
information provided  in the
submission.  During  the  review  period,  an   advisory
committee  likely will be convened to review and evaluate
the application  and  provide recommendations to  the  FDA
as  to whether  the device should be approved. In addition,
the  FDA will  inspect the manufacturing facility to ensure
compliance with  the  cGMP  regulations  for  medical
devices  prior  to approval  of  the PMA application. If
granted,  the  premarket approval  may include significant
limitations on the indicated uses for which the product may
be marketed, and the agency may require post-marketing
studies of the device.

 There  can  be  no assurance that any required FDA  or
other governmental  clearance or approval will be  granted,
or,  if granted,  will  not be withdrawn. Governmental
regulation  may prevent  or substantially delay the
marketing of the Company's proposed  products and cause the
Company to  undertake  costly procedures.  In  addition, the
extent of  potentially  adverse government   regulation
that   might   arise   from   future administrative
regulations  or  policy  or  from  legislation cannot  be
predicted.  Any failure  to  obtain  or  delay  in obtaining
such  clearances or approvals could materially  and
adversely affect the Company's ability to market its
proposed products.

 The   FDA's  Medical  Device  Reporting  regulation
requires medical   device   manufacturers,   distributors,
and   user facilities to provide information to the agency
on  deaths  or serious  injuries or illnesses alleged to
have been associated with  the  use of its devices, as well
as product malfunctions that would likely cause or
contribute to death, serious injury or  serious  illness  if
the malfunction  were  to  recur.  In addition, the FDA
prohibits a company from promoting a cleared or  approved
device for an indication for use not approved  by the FDA.

 In  May 1996, the Company obtained 510(k) clearance from
the FDA for the initial version of its SmartMist Asthma
Management System   to
guide  patient  self-administration  of   asthma
medications and compile data on drug delivery events and
lung function. The Company has launched the product but is
pursuing collaborations  with pharmaceutical firms, disease
management companies  and managed care organizations in
order to  develop the  market  for this product. There can
be no assurance  that the                            Company
will  be  able  to  fully  develop  and  market
successfully  the  commercial version of the SmartMist
Asthma
Management  System,  or  whether  changes  to  the
commercial version  of  the  SmartMist  Asthma  Management
System   will necessitate the submission of a second 510(k)
notice.  If  the submission of a second 510(k) notice is
required, there can be no assurance that clearance can be
obtained in a timely manner or
at  all.  Delays  in  receipt  of  market  clearance
or
restrictions  on  the  types of asthma drugs  with  which
the SmartMist  Asthma Management System can be used or
failure  to comply  with existing or future regulatory
requirements  could have a material adverse effect on the
Company.

Regulation of Drugs

 Different  types  of FDA regulations apply  to  various
drug products,  depending upon whether they are marketed
only  upon the  order of a physician (i.e., they are
prescription  drugs) or  over-the-counter,  are biological,
insulin  or  antibiotic drugs  or  are  controlled drugs,
such as  narcotics.  Product development  and  approval
within this  regulatory  framework takes   a  number  of
years,  involves  the  expenditure
of
substantial  resources and is uncertain.  Many  drug
products ultimately do not reach the market because they are
not  found to  be  safe  or  effective or cannot  meet  the
FDA's  other regulatory  requirements.  In  addition,  there
can   be          no
assurance  that  the  current regulatory  framework  will
not change  or  that additional regulation will not arise
at  any stage  of  the Company's product development that
may  affect approval, delay the submission or review of an
application  or require additional expenditures by the
Company.

 The  activities  required before a new drug  product  may
be marketed  in  the  United  States  include  pre-clinical
and
clinical   testing.   Preclinical  tests  include
laboratory
evaluation of product chemistry and other characteristics
and animal studies to assess the potential safety and
efficacy  of the  product  as  formulated.  Many
preclinical  studies  are regulated by the FDA under a
series of regulations called  the current  Good  Laboratory
Practice regulations. Violations  of these regulations can,
in some cases, lead to invalidation  of the studies,
requiring such studies to be replicated.

 The  preclinical work necessary to administer
investigational drugs to human subjects is summarized in an
IND application to the  FDA.  FDA regulations provide that
human clinical  trials may  begin 30 days following
submission of an IND application, unless  the  FDA  advises
otherwise  or  requests  additional information. There is no
assurance that the submission  of  an IND  will  eventually
allow a company  to  commence  clinical trials.  Once
trials have commenced, the  FDA  may  stop  the trials  by
placing them on "clinical hold" because of concerns about,
for example, the safety of the product being tested.

 Clinical testing involves the administration of the  drug
to healthy  human volunteers or to patients under the
supervision of  a  qualified principal investigator, usually
a  physician, pursuant  to an FDA reviewed protocol. Each
clinical study  is conducted  under  the  auspices of  an
IRB  at  each  of  the institutions at which the study will
be conducted. An IRB will consider,  among other things,
ethical factors, the safety  of human subjects, informed
consent requirements and the possible liability  of the
institution. Human clinical trials typically are  conducted
in three sequential phases, but the phases  may overlap.
Phase I trials consist of testing the product  in  a small
number of patients or normal volunteers, primarily  for
safety,   at   one  or  more  dosage  levels,   as   well
as
characterization   of   a   drug's   pharmacokinetic
and/or
pharmacodynamic  profile.  In Phase  II  clinical  trials,
in addition  to  safety, the efficacy of the product  is
usually evaluated  in a patient population. Phase III trials
typically involve additional testing for safety and clinical
efficacy in an  expanded population at geographically
dispersed sites. All of  the  phases  of  clinical studies
must  be  conducted  in conformance with FDA's bioresearch
monitoring regulations.
 A  company  seeking  FDA  approval  to  market  a  new
drug, including insulin and controlled substances, must file
a  new drug application ("NDA") with the FDA pursuant to the
FDC Act. In  addition to reports of the preclinical and
clinical trials conducted under an effective IND
application, the NDA includes information  pertaining  to
the  preparation  of   the   drug substance,
analytical  methods,  drug  product  formulation,
details  on the manufacture of finished products and
proposed product  packaging and labeling. Submission of a
NDA does  not assure  FDA  approval  for marketing. The
application  review process  generally  takes several years
to complete,  although reviews  of  treatments for cancer
and other  life-threatening diseases may be accelerated or
expedited. However, the process may  take substantially
longer if, among other things, the FDA has  questions or
concerns about the safety or efficacy  of  a product.  In
general, the FDA requires at least two  properly conducted,
adequate  and  well-controlled  clinical   studies
demonstrating  efficacy with sufficient levels of
statistical assurance.

 Notwithstanding the submission of safety and  efficacy
data, the  FDA  ultimately may decide that the application
does  not satisfy  all of its regulatory criteria for
approval. The  FDA also  may  require additional clinical
tests (i.e.,  Phase  IV clinical trials) following NDA
approval to confirm safety  and efficacy.

 In  addition,  the  FDA  may  in  some  circumstances
impose restrictions on the use of the drug that may be
difficult  and expensive to administer. Product approvals
may be withdrawn if compliance with regulatory requirements
are not maintained  or if  problems  occur after the product
reaches the market.  The FDA  also  requires  reporting of
certain  safety  and  other information  that  becomes
known  to  a  manufacturer  of  an approved  drug.  The
product testing and approval  process  is likely  to  take
a substantial number of years  and  involves expenditure  of
substantial  resources.  There  can   be
no
assurance that any approval will be granted on a timely
basis, or  at  all.  Upon approval, a prescription drug may
only  be marketed  for the approved indications in the
approved  dosage forms and at the approved dosage.

 Among  the  other requirements for drug product  approval
is the  requirement that the prospective manufacturer
conform  to the  FDA's  and cGMP regulations for drugs. In
complying  with the  cGMP  regulations, manufacturers must
continue to  expend time,  money  and  effort in production,
record  keeping  and quality  control  to assure that the
product meets  applicable specifications  and other
requirements. The  FDA  periodically inspects  manufacturing
facilities in  the  United  States  to assure  compliance
with applicable cGMP requirements.  Failure of  the  Company
to comply with the cGMP regulations or  other FDA
regulatory  requirements could have  a  material  adverse
effect on the Company.

 The   Company   is  developing  applications  of   its
AERx
technology  for  the delivery of morphine,  insulin  and
lung imaging  agents via inhalation. The Company believes
that  the
use  of  its AERx technology for insulin and morphine
delivery via  inhalation  will  be  subject to  the  drug
regulations, including conducting clinical studies pursuant
to an  IND  and the  submission  and approval of an NDA
before  marketing  can occur. If the Company obtains FDA
approval to market the  AERx Diabetes  Management System for
the delivery of insulin,  each batch  of  unit-dose insulin-
containing packages used  in  the AERx Diabetes Management
System will be subject to the insulin certification
requirements.
 The  Company also will be subject to certain user  fees
that the  FDA is authorized to collect under the
Prescription  Drug User Fees Act of 1992 for certain drugs,
including insulin and morphine.  User fees also pertain to
the establishments  where the  products  are made and to the
marketed prescription  drug products.  In addition to these
FDA requirements, the  Company is
subject  to  foreign  regulatory  authorities   governing
clinical  trials and drug sales. Unapproved new drugs  can
be exported  from  the  United States to  certain  countries
for commercialization only after FDA authorization is
obtained.

 In   addition,   due  to  limited  experience  with
chronic administration  of drugs delivered via the lung  for
systemic effect, the FDA may require clinical data to
demonstrate  that such chronic administration is safe. There
can be no assurance that the Company will be able to present
such data in a timely manner, or at all.

Other Regulations

 Products   marketed  outside  the  United  States  that
are
manufactured in the United States are subject to  certain
FDA regulations, as well as regulation by the country in
which the products are to be sold. The Company also would be
subject  to foreign regulatory requirements governing
clinical trials  and medical device and drug product sales
if products are marketed abroad.  Whether  or  not  FDA
approval  has  been  obtained, approval of a product by the
comparable regulatory authorities of  foreign  countries
usually  must  be  obtained  prior  to commencement  of
marketing of the product in those  countries. The  approval
process varies from country to country  and  the time
required may be longer or shorter than that required  for
FDA approval.

 The  Company is subject to numerous federal, state and
local laws  relating to such matters as controlled drug
substances, safe     working    conditions,    manufacturing
practices, environmental protection, fire hazard control and
disposal  of hazardous  or  potentially hazardous
substances. For  example, the  United  States Drug
Enforcement Agency ("DEA")  regulates controlled  drug
substances,  such  as  morphine  and   other narcotics.
Establishments handling controlled drug substances such  as
morphine  must,  for  example,  be  registered
and
inspected  by  the DEA, and may be subject to export,
import, security  and  production  quota  requirements.  In
addition, advertising  and  promotional materials  relating
to  medical devices  and  drugs  are,  in certain
instances,  subject  to regulation  by the Federal Trade
Commission or the FDA.  There can  be no assurance that the
Company will not be required  to incur   significant  costs
to  comply  with  such  laws
and
regulations  in  the future or that such laws  or
regulations will  not  have  a material adverse effect upon
the  Company's business, financial condition or results of
operations.

International Scientific Advisory Board

  The   Company  has  assembled  an  International
Scientific Advisory   Board  comprised  of  scientific  and
development advisors that provide expertise, on a consulting
basis, in the areas      of   pain   management,   allergy
and   immunology,
pharmaceutical development and drug delivery, but are
employed elsewhere  on  a full time basis. As a result, they
can  only spend  a limited amount of time on the Company's
affairs.  The International Scientific Advisory Board
assists the Company on issues  related  to  potential
product  applications,  product development  and  clinical
testing.  Its  members,  and  their affiliations and areas
of expertise, include:

         Name               Affiliation     Area of
Expertise
Peter Byron, Ph.D.       Medical College of Aerosol Science/
                         Virginia, Virginia Pharmaceutics
                         Commonwealth
                         University
                              
Michael Cousins, M.D.    University of      Pain Management
                         Sydney, Australia

Peter Creticos, M.D.     The Johns Hopkins
Allergy/Immunology
                         University School  /Asthma
                         of Medicine
                              
Stanley S. Davis, Ph.D.  Professor of       Drug Delivery
                          Pharmacy,
                        University of
                         Nottingham
                              
Jeffrey Drazen, M.D.     Harvard University Pulmonary
Medicine
                       Medical School
                              
Lorne Eltherington,      Sequoia Hospital   Pain Management
M.D., Ph.D.

Richard Kitz, M.D.       Harvard University Anesthesiology
                       Medical School,
                        Massachusetts
                         General Hospital

Lawrence M.              The Johns Hopkins
Allergy/Immunology
Lichtenstein, M.D.,      University School
Ph.D.                    of Medicine

Christopher Saudek,      The Johns Hopkins
Endocrinology
M.D.                     University School
                       of Medicine
                            
Leigh Thompson, M.D.,    CEO, Profound
Pharmaceutical
Ph.D.                    Quality Resources, Product
                         former Chief       Development
                       Scientific
                         Officer, Eli Lilly
                         and Company
                              
Employees

  As  of  December 31, 1997, the Company had 92 employees,
of whom   65   were  in  product  development,  seven   were
in manufacturing, eight were in sales and marketing and  12
were in  business  development,  finance  and
administration.  The Company  believes  that  its future
success  is  dependent  on attracting and retaining highly-
skilled scientific, sales  and marketing  and  senior
management personnel.  Competition  for such  skills  is
intense, and there is no assurance  that  the
Company  will continue to be able to attract and retain
highcaliber employees. The Company's employees are not
represented by  any collective bargaining agreement. The
Company considers its relations with its employees to be
good.
Executive Officers of the Company
   The following table sets forth certain information with
respect to the executive officers of the Company as of
December 31, 1997:

       Name                Age            Position
Richard P. Thompson         46    President, Chief Executive
                                  Officer and Director
R. Jerald Beers             49    Executive Vice President,
                                  Marketing and Business
                                  Development
R. Ray Cummings             41    Vice President, Business
                                  Development
Maximillian D. Fiore        42    Vice President,
                                  Engineering
Igor Gonda, Ph.D.           50    Vice President, Research &
                                  Development
Mark A. Olbert              42    Vice President, Finance &
                                  Administration and Chief
                                  Financial Officer
Babatunde A. Otulana, M.D.  41    Vice President, Clinical
                                  Affairs
Reid M. Rubsamen, M.D.      41    Vice President, Medical
                                  Affairs, Secretary and
                                  Director
                                  
                                  
  Richard  P. Thompson has been a director of the Company
and has  served  as  the Company's President and  Chief
Executive Officer since 1994 and was Chief Financial Officer
from  April 1996  until December 1996. From 1991 to 1994, he
was President of  LifeScan,  Inc.,  a Johnson & Johnson
Company,  a  medical device manufacturing and development
company. Mr. Thompson was a  founder of LifeScan and between
1981 and 1991 he  held  the
positions  of  Vice  President,  Operations,  and  later
Vice President,  Sales  and  Marketing, at LifeScan.  Mr.
Thompson holds  a  B.S.  in biological sciences from the
University  of California  at  Irvine and an M.B.A. from
California  Lutheran College.

  R.  Jerald Beers has served as the Company's Executive
Vice President, Marketing and Business Development since
July 1997. From  1996  until  July  1997, Mr. Beers  was  an
independent consultant.  From  1990  to  1996,  Mr.  Beers
held   several positions  at  Genentech,  Inc.,  a
pharmaceutical   company, including  Vice  President,
Marketing,  General  Manager   of Genentech  Canada, Inc.
and Director, Marketing  Planning  and Development. Mr.
Beers holds a B.A. in Political Science  from Brown
University  and an M.B.A. from the  Kellogg  School  of
Management at Northwestern University.

  R.  Ray Cummings has served as the Company's Vice
President, Business Development since 1995. From 1994 to
1995, he  served as         Vice   President,   Business
Development   of   Celtrix
Pharmaceuticals. From 1992 to 1994, Mr. Cummings was
employed as  Director, Corporate Licensing of G. D. Searle
and Company, a               pharmaceutical  company. From
1990  to  1992,  he  was  the
Director of New Business Development and Licensing of
Immunex Corporation,  another  pharmaceutical  company.  Mr.
Cummings holds  a B.S. in biological sciences from Stanford
University,
an  M.S.  in  biochemistry and molecular biology from
Harvard University  and  an  M.B.A.  from  University  of
California, Berkeley.
Mr.  Cummings  resigned from  the  Company  as  of
January 1998.
  Maximillian  D.  Fiore  has served  as  the  Company's
Vice President,  Engineering since 1994. From  1991  to
1994,  Mr. Fiore served as Director of Engineering at
Lifescan, Inc. From 1990 to 1991, Mr. Fiore was the IMX(TM)
Business Unit Research &
Development   Manager   for   Abbott   Laboratories,
a
pharmaceuticals and medical device company. Mr. Fiore holds
a B.S.E.E.   and   a  B.S.  in  engineering  from
Northwestern University and an M.S.E.E. in bio-
medical/microprocessor-based instrument design from
University of Wisconsin.

  Igor   Gonda,  Ph.D.  has  served  as  the  Company's
Vice President, Research and Development since 1995. From
1992  to 1995,  Dr.  Gonda was a Senior Scientist and Group
Leader  at Genentech,  Inc. Prior to joining Genentech,
Inc.,  Dr.  Gonda was  a  Senior  Lecturer  in  the
Department  of  Pharmacy  at University  of Sydney,
Australia. Dr. Gonda holds a  B.Sc.  in chemistry  and  a
Ph.D.  in  physical  chemistry   from
the
University of Leeds, United Kingdom.

  Mark  A.  Olbert joined the Company in late  1996  as
Chief Financial
Officer   and   Vice   President,   Finance
and
Administration. Prior to joining the Company, Mr.  Olbert
was with  Amgen Inc., a biotechnology company, where he
spent  six years in finance operations and was most recently
the Director of  Mergers & Acquisitions. Prior to joining
Amgen, Mr. Olbert held   financial  management  positions
at  Ashton-Tate
and
Atlantic  Richfield.  Mr. Olbert holds  a  B.A.  in
molecular biology  from the State University of New York at
Buffalo  and an M.B.A. from the Amos Tuck School of Business
Administration at Dartmouth College.

  Babatunde A. Otulana, M.D. has served as the Company's
Vice President, Clinical Affairs since October 1997. From
1991  to 1997,  Dr.  Otulana was a Medical Reviewer in the
Division  of Pulmonary Drug Products at the Center for Drug
Evaluation  and Research,  FDA. From 1992 to 1997, Dr.
Otulana also served  as an   Assistant  Professor  of
Medicine  in  the  Division  of Pulmonary
and  Critical  Care  Medicine,  Howard  University
Hospital.  Dr.  Otulana obtained his M.D  from  University
of Ibadan,  Nigeria  and  completed  a  Pulmonary
Fellowship  at Paparuth Hospital, University of Cambridge,
United Kingdom.

  Reid  M. Rubsamen, M.D., founder of the Company, has been
a director  of the Company and has served as the Company's
Vice President,  Medical  Affairs and  Secretary  since
1991.  Dr. Rubsamen is a Board Certified anesthesiologist
having received his  medical training at Pacific Medical
Center, San Francisco and Massachusetts General Hospital,
where in 1989 he served as Chief Resident in Anesthesia. He
was also a doctoral candidate in  the  computer  science
department  at  the  Massachusetts Institute of Technology,
leaving in 1990 to found the Company. Dr.  Rubsamen  holds
an  A.B. in  biochemistry  and  computer science  from the
University of California, Berkeley,  and  an M.S. in
computer science and an M.D. from Stanford University.


Item 2.   PROPERTIES
      At  December  31,  1997,  Aradigm  leased
approximately 33,000  square  feet of office space in four
buildings  in  an office  park  at 26219 Eden Landing Road,
Hayward, California.
In  January  1998,  the  Company negotiated  a  lease  for
an additional  77,000 square feet of space at its  current
site. The  Company's leases for such office space expire at
various times  through  the year 2014.  Minimum annual
payments  under these  leases will be approximately $843,000
and $1.1  million in  1998  and 1999, respectively. The
Company uses this  space for  general  administrative,
product  development,  clinical, manufacturing  and
research  and  development  purposes.  The Company believes
that its existing facilities are adequate  to meet  its
requirements for the near term and that  additional space
will be available on commercially reasonable  terms  if
needed.
Item 3.   LEGAL PROCEEDINGS
       The  Company  is  not currently a party  to  any
legal proceedings.
Item 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
       No  matters  were submitted to a vote of the
Company's security holders during the quarter ended December
31, 1997.
                           PART II
Item 5.    MARKET FOR THE REGISTRANT'S COMMON STOCK AND
      RELATED                  STOCKHOLDER MATTERS
MARKET INFORMATION
 The  Company's  common stock trades on  The  Nasdaq
National Market  under the symbol "ARDM".  Public trading of
the common stock commenced on June 20, 1996.  Prior to that,
there was no public market for the common stock.  The
following table  sets forth,  for  the  periods indicated,
the high  and  low  sales prices  per  share  (excluding
retail  markup,  markdowns  and commissions)  of  the
common stock  on  The  Nasdaq  National Market:
                                        HIGH      LOW
      1996
      Second quarter                 $ 11.13    $ 9.52
      (beginning June 20, 1996)
      Third quarter                    10.25      7.75
      Fourth quarter                   11.50      9.63

      1997
      First quarter                  $ 10.00    $ 8.25
      Second quarter                    9.38      5.63
      Third quarter                    14.25      5.63
      Fourth quarter                   15.13      8.13

 As  of  February  28,  1998,  there  were  approximately
181 shareholders  of  record  and approximately  1,000
beneficial holders of the Company's common stock.

DIVIDEND POLICY

 The  Company  has never paid cash dividends  on  its
capital stock  and  does not anticipate paying cash
dividends  in  the foreseeable   future,  but  intends  to
retain  its                capital
resources  for  reinvestment  in  its  business.   Any
future
determination to pay cash dividends will be at the
discretion of  the  Board  of  Directors and will be
dependent  upon  the Company's financial condition, results
of operations,  capital requirements and other such factors
as the Board of  Directors
deems relevant.
RECENT SALES
 On  October  31,  1997,  the  Company  sold  and  issued,  in
reliance  on  Section 4(2) of the Securities Act of  1938,  as
amended,  to  SmithKline Beecham PLC  405,064  shares  of  the
Company's  common  stock for an aggregate  purchase  price  of
$5,000,008.75  pursuant to a Stock Purchase  Agreement,  dated
September 30, 1997, between the Company and SmithKline Beecham PLC.
USE OF PROCEEDS
 Use of Proceeds
 (1)  The   effective  date  of  the  Company's   registration
      statement filed on Form S-1 (SEC file number 0-28402) (the
"Registration Statement") for which the following information is
being disclosed is June 20, 1996.

 (2)  The  Company's initial public offering pursuant  to  the
      above-referenced registration statement commenced on June 20,
      1996 (the "Offering").
      
  (3)  The Offering did not terminate before any securities were
      sold.
 (4)  (i)   The Offering has not terminated.
      (iii)     The managing underwriters were Cowen & Company,
          CIBC Oppenheimer Corp. and Invemed Associates, Inc.
    (iv)      The Offering was for Common Stock of the Company.
      (v)  Pursuant to the Offering, the Company registered and
          sold 2,500,000 shares of Common Stock with an aggregate
          offering price of the amount registered and sold of
          $27,500,000.
    (vi)      Following are the amount of expenses incurred (a)
          from the effective date of the Registration Statement to
          the ending period of the reporting period and (b) for the
          Registrant's account in connection with the issuance and
          distribution of the Common Stock pursuant to the Offering:
          
          Underwriting discounts and commissions  $1,925,000
          Finders' Fees                                 None
          Expenses paid to or for underwriters          None
          Other expenses                             983,412 Total
          expenses                          $2,908,412
          
      (vi)      The net offering proceeds to the Company, after
          deducting the total expenses above, were $24,591,588.
          
      (vii)     Following are the uses, including amounts, of the
          net offering proceeds from the effective date of the
Registration Statement to the ending period of the reporting period:

          Employee wages and benefits            $10,680,575
          Office space and utilities               2,410,128
          Scientific supplies and equipment        2,773,467
          Travel and conferences                   1,331,267
          Clinical trials and contracts            4,660,943
          Professional services                    2,735,208
          Other purposes                                None

          All  of  the  foregoing uses were direct or
             indirect payment to others.
             
      (vii)    The  use  of proceeds described in (vii)
above
          does  not represent a material change in the use
          of proceeds described in the prospectus.
          
          
Item 6.    SELECTED FINANCIAL DATA
Years Ended    1997         1996         1995
December 31,
(In thousands,
except per
share amounts)

Statements of
Operations
Data:

Contract and   $3,685       $730         $155
license
revenues

Operating
expenses:
 Research and  12,732       7,981        3,440
development
 General and   6,732        2,958        2,334
administrative
   Total       19,464       10,939       5,774
expenses
Loss from      (15,779)     (10,209)     (5,619)
operations
Interest       1,329        1,179        206
income
Interest       (234)        (52)         (20)
expense
Net loss       $(14,684)   $(9,082)    $(5,433)

Basic and      $ (1.43)    $(1.49)     $(5.41)
diluted net
loss per share
(1)
Shares used in
computing      10,280       6,098        1,004
basic and
diluted net
loss per share
(1)

Balance Sheet
Data:

Cash, cash     $24,305      $28,534      $12,117
equivalents
and
investments
Working        15,999       23,486       11,594
capital
Total assets   30,294       30,733       13,306
Accumulated    (35,827)     (21,144)     (12,069)
deficit
Total          18,659       27,886       12,121
shareholders'
equity
Years Ended    1994        1993
December 31,
(In thousands,
except per
share amounts)

Statements of
Operations
Data:

Contract and   $125        $-
license
revenues

Operating
expenses:
 Research and  2,198       926
development
 General and   1,664       741
administrative
   Total       3,862       1,667
expenses
Loss from      (3,737)     (1,667)
operations
Interest       38          13
income
Interest       (34)        (1)
expense
Net loss       $(3,733)    $(1,655)
Basic and      $(4.40)     $(2.12)
diluted net
loss per share
(1)
Shares used in
computing      849         780
basic and
diluted net
loss per share
(1)

Balance Sheet
Data:

Cash, cash     $6,087     $1,932
equivalents
and
investments
Working        5,739       1,781
capital
Total assets   6,343       2,055
Accumulated    (6,636)     (2,903)
deficit
Total          5,960       1,888
shareholders'
equity



(1)  See Note 1 of Notes to Financial Statement for an explanation of
  shares used in computing basic and diluted net loss per share.
  
Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS
       The following discussion of the financial condition
and results  of  operations  of  the Company  should  be
read  in conjunction  with  the Financial Statements  and
the  related Notes thereto included elsewhere in this Form
10-K. Except for historical  information contained herein,
the  discussion  in this  section contains forward-looking
statements,  including, without limitation, statements
regarding timing and results of clinical  trials,  the
establishment of corporate  partnering arrangements, the
anticipated commercial introduction  of  the Company's
products  and  the timing  of  the  Company's  cash
requirements. These forward-looking statements involve
certain risks                                and
uncertainties that could cause actual  results  to
differ   materially   from  those  in   such   forward-
looking
statements.    Potential  risks  and  uncertainties
include, without  limitation, those mentioned in  this
report  and  in particular,  the  factors described  in
Part  II,  under  the heading "Risk Factors".

Overview

      Since its inception in 1991, Aradigm has been engaged
in the  development  of pulmonary drug delivery  systems.
As  of December  31, 1997, the Company had an accumulated
deficit  of $35.8                             million.  The
Company  has  been  unprofitable  since
inception  and  expects to incur additional  operating
losses over at least the next several years as the Company's
research and  development  efforts, preclinical  and
clinical  testing activities  and manufacturing scale-up
efforts expand  and  as the Company plans and builds its
late-stage clinical and early commercial production
capabilities.  To date, Aradigm has  not sold          any
products   and  does  not  anticipate   receiving
significant  revenue from products in 1998.   The  sources
of working  capital  have  been equity  financing,
financing  of equipment acquisitions, interest earned on
investments of cash and  revenues  from  research and
feasibility  agreements  and development contracts.

Results of Operations

     Years Ended December 31, 1997, 1996 and 1995

     Contract  and  License  Revenue.   The  Company
reported revenues  from contracts and license fees of $3.7
million  in 1997  compared to $730,000 in 1996 and $155,000
in 1995. The
increase  in  1997 revenue was due primarily to a
development and
commercialization  agreement  that  was  executed   with
SmithKline   Beecham  in  September  1997   to   develop
and
commercialize  a  pulmonary  delivery  system  for
providing breakthrough pain relief using narcotic
analgesics.  Under the terms                  of  the
agreement,  Aradigm  could  receive          up        to
approximately  $30  million  in  milestones  and
development
payments  by  the  time the first product  is
commercialized. Additional milestones and development costs
would be  paid  if SmithKline  Beecham and Aradigm decided
to develop  additional narcotic analgesics for delivery with
the AERx Pain Management System.               Included in
1996 revenues were $500,000  of  license
fees  from a human clinical feasibility testing agreement
and $230,000  of  contract research revenues.  1995 revenues
were derived entirely from contract research agreements.

     Research   and   Development  Expenses.    Research
and
development  expenses  have  increased  each  year  since
the Company's  inception;  these expenses were  $12.7
million  in 1997  compared  to $8.0 million in 1996 and
$3.4  million  in
1995.    Research and development expenses in 1997,  1996
and 1995   represented  65%,  73%  and  60%  of  total
expenses, respectively.   Research  and  development
expenses  in  1997 increased  by 60% over 1996, attributable
primarily to  hiring of  additional  scientific personnel
and  expenses  associated with the expansion of research and
development efforts on  the AERx  system.   Research  and
development  expenses  in  1996 increased by 132% over 1995,
similarly attributable to  hiring additional  scientific
personnel, increased  costs  associated with the expansion
of research and development efforts on  the AERx  and
SmartMist  systems  and  initiation  of  additional clinical
testing of the AERx and SmartMist systems.
     These expenses represent proprietary research expenses
as well  as  the  costs related to contract research revenue
and include  salaries and benefits of scientific  and
development personnel,  laboratory supplies, consulting
services  and  the expenses  associated  with  the
development  of  manufacturing processes.
The  Company  expects  research  and  development
spending to increase significantly over the next few years
as the  Company  continues to expand its research and
development activities
to   support   current   and   potential   future
collaborations and initiates commercial manufacturing  of
the AERx system

     General   and   Administrative  Expenses.   General
and
administrative expenses were $6.7 million in 1997 compared
to $3.0  million in 1996 and $2.3 million in 1995.   General
and administrative expenses increased by 128% in 1997
compared  to 1996  and 27% in 1996 compared to 1995,
attributable primarily to  support  of  the  Company's
increased  research  efforts, additional
facilities   expense,  administrative   staffing,
business  development  and marketing activities.  The
Company expects  to incur greater general and administrative
expenses in  the future as it expands its operations and
increases  its efforts  to develop collaborative
relationships with corporate partners.

     Interest  Income.   Interest  income  increased  to
$1.3 million  in  1997  from $1.2 million in 1996 and
$206,000  in 1995. Interest income in 1997 was consistent
with that in 1996 due  to  similar average cash balances
during those two years. Interest  income increased
significantly in 1996  compared  to 1995  primarily due to
increased average cash balances in 1996 resulting  from the
sales of preferred stock in December  1995 and  common
stock  in  June  1996  in  conjunction  with  the Company's
initial public offering.

     Interest Expense.  Interest expense was $234,000 in
1997 compared  to  $52,000  in  1996 and $20,000  in  1995.
These increases  resulted primarily from higher outstanding
capital lease   and   equipment  loan  balances  under  the
Company's equipment lines of credit.

     Net Operating Loss Tax Carryforwards.  As of December
31, 1997,   the  Company  had  federal  net  operating  loss
tax
carryforwards   of   approximately   $35.0   million.
These carryforwards  will  expire  beginning  in  the   year
2006. Utilization of net operating loss carryforwards may be
subject to  substantial annual limitation due to the
ownership  change limitation provided for by the Internal
Revenue Code of  1986. The  annual  limitation may result in
the  expiration  of  net operating loss carryforwards before
utilization.

Liquidity and Capital Resources

      The  Company has financed its operations since
inception primarily  through private placements and public
offerings  of its  capital  stock,  proceeds from
financings  of  equipment acquisitions, contract research
revenue and interest earned on investments. As of December
31, 1997, the Company had received approximately $54.0
million in net proceeds from sales of  its capital  stock.
The Company also has a $5.0 million equipment line  of
credit, of which approximately $2.9 million  remains
available  for  purchases  through  September  1998.   As
of
December 31, 1997, the Company had cash, cash equivalents
and short-term investments of approximately $24.3 million.

      Net  cash  used  in operating activities  in  1997,
was $7.8  million compared to $7.1 million in 1996.  This
increase resulted
primarily  from  an  increase  in   net              loss
of
$5.6  million and increases in current assets, largely
offset by  net increases in accrued liabilities and deferred
revenue. Net cash used in operating activities in 1996 was
$7.1 million compared  to  $5.2  million in 1995.  This
increase  resulted primarily  from  an  increase in  net
loss  of  $3.6  million partially  offset  by an increase in
accrued  liabilities  and accounts payable reduced by a net
increase in current assets.

      Net  cash provided by investing activities in  1997
was $737,000  compared  to $10.8 million net cash  used  in
1996. This increase resulted primarily from the Company's
receipt of net  proceeds from investment maturities
partially  offset  by expenditures  made for capital
equipment.  Net  cash  used  in investing  activities in
1996 was $10.8  million  compared  to $535,000  in   1995.
The increase resulted primarily  from  the
Company's  net purchase of investments and additional
capital expenditures.

      Net  cash provided by financing activities in  1997
was $6.4  million  primarily  from the receipt  of  proceeds
from equipment loans and issuances of common stock partially
offset by  repayment of capital lease obligations.  Net cash
provided by  financing  activities in 1996 of  $24.3
million  was  due primarily  to  the receipt of net proceeds
from the  Company's initial  public  offering.   Net cash
provided  by  financing activities for 1995 was $11.7
million, primarily a  result  of $11.6  million in net
proceeds from the issuance of  preferred stock.

      The development of the Company's technology and
proposed products  will  require a commitment of substantial
funds  to conduct the costly and time-consuming research and
preclinical and  clinical  testing  activities necessary  to
develop  and refine such technology and proposed products
and to bring  any such   products  to  market.   The
Company's  future  capital requirements will depend on many
factors, including  continued progress  in  the  research
and development of  the  Company's technology  and  drug
delivery systems,  the  ability  of  the Company  to
establish  and maintain  favorable  collaborative
arrangements  with  others, progress with preclinical
studies and  clinical trials, the time and costs involved in
obtaining regulatory approvals, the cost of development and
the rate  of scale  up  of the Company's production
technologies, the  cost involved  in  preparing, filing,
prosecuting  maintaining  and enforcing  patent claims and
the need to acquire  licenses  or other rights to new
technology.

     The  Company expects that its existing capital
resources, committed funding from its existing corporate
partnership with SmithKline  Beecham and projected interest
income will  enable the Company to maintain current and
planned operations through
at  least  1998.  However, there can be no assurance that
the
Company  will not need to raise substantial additional
capital to  fund its operations prior to such time.  There
can  be  no assurance  that  additional financing  will  be
available  on acceptable  terms or at all.  The Company's
cash requirements, however, may vary materially from those
now planned because of results of research and development
efforts, including capital expenditures  and  funding
preclinical  and  clinical  trials, manufacturing    scale-
up    in    connection                            with
the
commercialization  of the SmartMist system, and
manufacturing capacity   for   preclinical,   clinical   and
full    scale
manufacturing requirements of the AERx system. The Company
may seek  additional  funding  through collaborations  or
through public  or  private equity or debt financings.
However,  there cannot  be  any  assurance that additional
financing  can  be obtained  on acceptable terms, or at all.
If additional  funds are
raised         by  issuing  equity  securities,  dilution
to
shareholders may result. If adequate funds are not
available, the  Company may be required to delay, to reduce
the scope of, or  to  eliminate one or more of its research
and  development programs,  or  to  obtain  funds  through
arrangements   with
collaborative partners or other sources that may  require
the Company to relinquish rights to certain of its
technologies or products that the Company would not
otherwise relinquish.

     As  the  year  2000  approaches, an issue  impacting
all companies  has  emerged  regarding  how  existing
application software  programs and operating systems can
accommodate  this date  value.                   In  brief,
many existing  application  software
products in the marketplace were designed to accommodate
only a  two  digit  date position which represents the year
(e.g., "95"  is  stored on the system and represents the
year  1995). As  a  result, the year 1999 (i.e., "99") could
be the maximum date  value  systems  will  be  able  to
accurately  process. Management  is  in  the process of
working with  its  software vendors  to assure that the
Company is prepared for  the  year 2000.   Management does
not anticipate that the  Company  will incur  significant
operating expenses or be required to invest heavily  in
computer  system improvements  to  be  year  2000 compliant.

Risk Factors

      Except for historical information contained herein,
the discussion    in   this   section   contains   forward-
looking statements,   including,   without   limitation,
statements regarding   timing  and  results  of  clinical
trials,                                          the
establishment   of  corporate  partnering  arrangements,
the
anticipated commercial introduction of the Company's
products and  the  timing  of  the Company's cash
requirements.  These forward-looking   statements   involve
certain   risks
and
uncertainties  that  could  cause  actual  results  to
differ materially from those in such forward-looking
statements.

Early Stage of Company

     Aradigm,  incorporated in January 1991, is  in  an
early stage of development, has a limited history of
operations  and has  generated only limited revenues to
date. The Company  has only one product, the SmartMist
Respiratory Management System, cleared  for  commercial
sale,  and  virtually  all  of
its
potential  products  are  in an early  stage  of  research
or development.  There  can be no assurance  that  the
Company's research and development efforts will be
successful, that  any potential  products  will be proven
safe and  effective,  that regulatory  clearance or approval
for the sale of any  of  its
potential  products  will be obtained or  that  the
SmartMist system  or  any  of the Company's potential
products  can                                        be
manufactured in commercial quantities or at an acceptable
cost or marketed successfully.

History of Losses; Anticipated Future Losses

     The  Company has not been profitable since inception
and, through  December 31, 1997, has incurred a cumulative
deficit of          approximately  $35.8  million.  The
Company  expects                                     to
continue  to incur substantial losses over at least  the
next several  years  as  the  Company's  research  and
development efforts,   preclinical   and  clinical   testing
activities, marketing and manufacturing scale-up efforts
expand and as the Company  plans  and builds its late stage
clinical  and  early commercial  production capabilities. To
achieve  and  sustain profitable operations, the Company,
alone or with others, must successfully   market  and  sell
the  SmartMist   Respiratory Management System and develop,
obtain regulatory approval for, manufacture, introduce,
market and sell products utilizing the Company's  AERx
technologies. There can be no assurance  that the  Company
can generate sufficient product revenue to become profitable
or to sustain profitability.

Uncertainty of Successful Product Development

     The  Company's  AERx systems are at  an  early  stage
of
development   and  are  being  tested  using  patient-
operated prototypes.   The                           AERx
systems  will  require   substantial
additional  development, preclinical and clinical testing
and investment  before  they  can  be commercialized.  To
further develop  its  AERx  systems,  the Company  must
address  many engineering  and  design issues, including
ensuring  that  the device  has  the ability to deliver a
reproducible  amount                                   of
drug into the bloodstream and can be manufactured
successfully as  a  hand-held  system. No assurance can be
made  that  the Company   will  be  successful  in
addressing  these  design, engineering   and  manufacturing
issues.  Additionally,                                 the
Company  may need to formulate and will need to package
drugs for  delivery  by its AERx systems. There can be no
assurance that  the  Company will be able to successfully
formulate  and package such drugs. The Company will need to
demonstrate  that drugs   delivered  by  its  AERx  systems
remain   safe                                        and
efficacious  and  that over time and under  differing
storage conditions,  such  drugs will not be subject  to
physical                                             or
chemical instability or other problems that would prohibit
the AERx systems from being commercially viable. While
development efforts are at different stages for different
products,  there can be no assurance that the Company will
be successful in any of  its product development efforts, or
that the Company  will not  abandon some or all of its
proposed products. Failure                             by
the Company to successfully develop its potential products
in
a  timely manner would have a material adverse effect  on
the Company.

Uncertainty of Successful Product Commercialization

     The  Company's  success in commercializing  its
products will  be dependent upon many factors, including
acceptance                                           by
health  care  professionals and patients.  Acceptance  of
the Company's  products will largely depend on demonstrating
that the Company's products are competitive with alternate
delivery systems  with  respect to safety, efficacy, ease
of  use  and price.  The  Company believes that market
acceptance  of  its SmartMist   system  will  depend
largely  upon  health                                care
professionals  and  third-party payors  determining  that
the
SmartMist  system  offers medical and economic  benefits
over existing  asthma therapies. In addition, the SmartMist
system is  specifically designed for the canisters currently
used  by some  of  the  leading manufacturers of MDIs. If,
among  other things, manufacturers decide to change the
dimensions of their canisters, the Company could be
adversely affected.  Moreover, MDIs use chlorofluorocarbons
("CFCs") as a propellant for  the medication.   The
Company  is  aware  of   initiatives   and international
agreements to ban CFCs,  which  could  have  an adverse
effect on the Company.  In order to commercialize  the
SmartMist system, the company is pursuing collaborations
with pharmaceutical firms, disease management companies and
managed care  organizations in order to develop the  market
for  this product  and  to realize its potential as part  of
a  broader disease  management program.  There can be no
assurance  that the  SmartMist system or the Company's
products in development will  prove competitive or that the
Company will be successful in  taking products from their
current state of development to commercial introduction or
success. Failure by the Company  to successfully
commercialize its potential products in a  timely manner
would have a material adverse effect on the Company.

Dependence Upon Collaborative Partners and Need for
Additional Collaborative Partners
     The Company's commercialization strategy is dependent,
in part,  on the Company's ability to enter into agreements
with collaborative partners. The Company's ability to
successfully develop and commercialize its first AERx
system, the AERx Pain Management  System,  is dependent on
the  Company's  corporate partnership  with SmithKline
Beecham. SmithKline  Beecham  has agreed to undertake
certain collaborative activities with  the Company,  fund
research and development activities  with  the Company, make
certain payments to the Company upon achievement of  certain
milestones and pay royalties to the Company if and when  a
product is commercialized. If SmithKline Beecham fails to
conduct these collaborative activities in a timely  manner
or   at  all,  the  preclinical  or  clinical  development
or
commercialization of the AERx Pain Management System  will
be delayed.  In  addition, the agreement  may  be
terminated  by SmithKline  Beecham  and  there  can  be  no
assurance    that
development  and  milestone payments will be received.
Should the  Company  fail  to receive development  funds  or
achieve milestones  set  forth in the agreement, or should
SmithKline Beecham  breach  or  terminate the  agreement,
the  Company's business, financial condition and results of
operations  would be materially adversely affected.

     The Company will need to enter into additional
agreements with  corporate  partners  to  conduct  the
clinical  trials, manufacturing, marketing and sales
necessary to  commercialize its  other  potential  products.
In  addition,  the  Company's ability  to  apply  the AERx
system to any proprietary  drugs, including new drugs,
biotechnology drugs or established  drugs in  proprietary
formulations, will depend  on  the  Company's ability  to
establish and maintain corporate partnerships  or other
collaborative  arrangements  with   the   holders   of
proprietary  rights to such drugs. There can be  no
assurance that  the  Company will be able to establish  such
additional corporate   partnerships  or  collaborative
arrangements   on favorable terms or at all, or that its
existing or any  future corporate partnerships or
collaborative arrangements  will  be successful.  In
addition,  there can  be  no  assurance  that existing  or
future corporate partners or collaborators  will not  pursue
alternative technologies or  develop  alternative products
either on their own or in collaboration with  others,
including the Company's competitors. There can be no
assurance that  disputes will not arise in the future with
the Company's existing  or  future corporate partners or
collaborators,  and any  such  disagreements could lead to
delays in the research, development or commercialization of
any potential products  or result  in  litigation  or
arbitration  which  would  be  time consuming  and
expensive.  Should any  corporate  partner  or collaborator
fail to develop or commercialize successfully any product to
which it has obtained rights from the Company,  the
Company's   business,  financial  condition  and  results
of
operations may be materially adversely affected.

Limited Manufacturing Experience

     The Company has only limited experience in
manufacturing. To                                    date,
the   Company  has  scaled-up  its  manufacturing
capabilities  to support the product launch of  the
SmartMist system.  In  the  event the SmartMist system
achieves  market acceptance,  the  Company will need to
further  increase  its current manufacturing capacity. In
addition, the Company is in the  process  of increasing the
production of disposable  drug packets  for the AERx system
for later stage clinical  trials. The  Company  anticipates
making significant  expenditures  to attempt  to provide for
the high volume manufacturing required for  multiple AERx
products, if such products are successfully developed.
There  can be no assurance that manufacturing  and quality
control  problems  will  not  arise  as  the  Company
attempts  to  scale-up,  or  that any  such  scale-up  can
be achieved  in  a timely manner or at a commercially
reasonable cost.  Any  failure to surmount such problems
could  delay  or prevent  late stage clinical testing and
commercialization  of the Company's products. The Company's
manufacturing facilities and  those  of its contract
manufacturers will be  subject  to periodic  regulatory
inspections by the FDA and other  federal and  state
regulatory agencies and such facilities must comply with
good manufacturing practice ("GMP") requirements of  the
FDA.  There can be no assurance the Company will satisfy
such regulatory  requirements and any failure to  satisfy
GMP  and other requirements could have a material adverse
effect on the Company.

     The  Company  uses contract manufacturers to produce
key components,  assemblies and subassemblies  for  its
SmartMist devices and intends to use contract manufacturers
in a similar way  in  connection with clinical and
commercial manufacturing of  its  AERx devices. There can be
no assurance that  Aradigm will  be  able to enter into or
maintain satisfactory contract manufacturing  arrangements.
Certain components  of  Aradigm's current  and  potential
products are  or  will  be  available initially  only  from
single sources. While  the  Company  has contingency  plans
for alternate suppliers, there  can  be  no assurance that
the Company could find alternate suppliers  for such
components. Even if new suppliers are secured, there  can be
no  assurance that this would not significantly reduce  or
eliminate  the Company's ability to supply product during
any transition.  A  delay of or interruption in  production
could have  a  material  adverse effect on the  Company's
business, financial condition and results of operations.

Future Capital Needs; Uncertainty of Additional Funding

     The   Company's   operations  to   date   have
consumed substantial and increasing amounts of cash. The
negative  cash flow   from  operations  is  expected  to
continue   in the
foreseeable   future.  The  development   of   the
Company's
technology and proposed products will require a commitment
of
substantial  funds.  In  addition, costly  and  time-
consuming research and preclinical and clinical testing
activities  must be
conducted  to  develop,  refine  and  commercialize  such
technology and proposed products. The Company's future
capital requirements will depend on many factors, including
continued progress  in  the  research and development of
the  Company's technology  and  drug delivery systems,  the
ability  of  the Company  to  establish  and maintain
favorable  collaborative arrangements  with  others,
progress with preclinical  studies and  clinical trials, the
time and costs involved in obtaining regulatory approvals,
the cost of development and the rate  of scale-up  of the
Company's production technologies,  the  cost involved  in
preparing, filing, prosecuting, maintaining  and enforcing
patent claims and the need to acquire  licenses  or other
rights to new technology.

     The  Company has financed its operations since
inception primarily  through private placements and public
offerings  of its  capital  stock,  proceeds from
financings  of  equipment acquisitions, contract research
revenue and interest earned on investments.   The  Company
anticipates  that  its   existing resources,  anticipated
payments from its  existing  corporate partners  and
projected  interest  income,  will  enable  the Company to
maintain its current and planned operations through 1998.
However, there can be no assurance that the Company will not
need to raise substantial additional capital to fund  its
operations prior to such time. There can be no assurance
that additional financing will be available on acceptable
terms  or at  all.  If  additional funds are raised  by
issuing  equity securities,  substantial dilution to
shareholders may  result. If  adequate  funds  are not
available,  the  Company  may  be required  to delay, reduce
the scope of, or eliminate  one  or more  of its research or
development programs or obtain  funds through  arrangements
with collaborative  partners  or  others that  may require
the Company to relinquish rights to  certain of  its
technologies, product candidates or products that  the
Company would not otherwise relinquish.

Dependence Upon Proprietary Technology; Uncertainty of
Patents and Proprietary Technology

     The  field of aerosolized drug delivery is crowded and
a substantial number of patents have been issued in this
field. Competitors  and  institutions  may  have  applied
for  other patents  and  may  obtain additional patents  and
proprietary rights  relating  to  products or processes
competitive  with those of the Company. Patents or other
publications may hinder or  prevent the Company from
obtaining patent protection being sought  or draw into
question the validity of patents  already issued  to the
Company. In addition, patents issued to  others might
provide  competitors with the ability  to  prevent  the
Company  from  making its products or carrying  out
processes necessary for use of its products. The Company may
not be able to  obtain a license under any such patent and
may thereby  be prevented from making products or carrying
out processes which are  important  or essential to the
business of  the  Company. Although issued patents are
presumed valid under federal  law, none  of  the  patents of
the Company has been  challenged  in litigation. There can
be no assurance that any of such patents will  be  found
valid if challenged. There  also  can  be  no assurance that
any of the applications will issue or if issued will later
be found valid if challenged. Further, there can be no
assurance  that  any issued patents or applications  which
might  later issue as patents will provide the Company with
a degree  of  market exclusivity sufficient for the  Company
to profitably  compete  against its competitors.  Pending
United
States  applications are maintained in secret until  they
are issued  as  patents  and as such can not be  searched
by  the Company.  There may be pending applications which
will  later issue as patents which will create infringement
issues for the Company.  Further, patents already issued to
the  Company  or applications  of  the  Company which are
pending  may  become involved  in interferences that could
be resolved in favor  of competitors  of  the  Company and
involve the  expenditure  of substantial financial and human
resources of the Company.
     Company  policy  is  to require its officers,
employees, consultants  and  advisors to execute proprietary
information and invention assignment agreements upon
commencement of their relationships  with the Company. There
can  be  no  assurance, however,                     that
these  agreements  will  provide   meaningful
protection  for  the Company's inventions,  trade  secrets
or other proprietary information in the event of
unauthorized use or
disclosure  of  such  information.  Violations  of   such
agreements   are   difficult  to  police.  See   "Business
_ Intellectual Property and Other Proprietary Rights."

Government   Regulation;  Uncertainty  with  Preclinical
and
Clinical Testing

     All   medical  devices  and  new  drugs,  including
the
Company's products under development, are subject to
extensive and rigorous regulation by the federal government,
principally the  FDA, and by state and local governments.
Such regulations govern   the  development,  testing,
manufacture, labeling,
storage,   premarket   clearance  or  approval,
advertising,
promotion, sale and distribution of such products. If
medical devices  or drug products are marketed abroad, they
also  are subject to regulation by foreign governments.

     The   regulatory  process  for  obtaining  FDA
premarket
clearances or approvals for medical devices and drug
products is  generally  lengthy, expensive and uncertain.
Securing  FDA marketing   clearances  and  approvals  often
requires   the
submission   of   extensive  clinical  data   and
supporting information  to the FDA. Product clearances and
approvals,  if granted,                              can  be
withdrawn  for  failure  to  comply   with
regulatory  requirements or upon the occurrence of
unforeseen problems following initial marketing.

     There  can be no assurance that the Company will be
able to  obtain necessary regulatory clearances or approvals
on  a timely  basis,  if  at  all, for any  of  its
products  under development, and delays in receipt or
failure to receive  such clearances or approvals or failure
to comply with existing  or future  regulatory requirements
could have a material  adverse effect  on  the  Company.
Moreover, regulatory  clearances  or approvals for products
such as medical devices and new  drugs, even  if granted,
may include significant limitations  on  the uses  for which
such products may be marketed. Certain changes to  marketed
medical  devices and new drugs  are  subject  to additional
FDA review and clearance or approval. There can  be no
assurance  that  any  clearances  or  approvals  that  are
required,  once  obtained,  will  not  be  withdrawn  or
that compliance   with   other  regulatory  requirements
can        be
maintained. Further, failure to comply with applicable FDA
and other  regulatory requirements can result in  sanctions
being imposed  on the Company or the manufacturers of its
products, including warning letters, fines, product recalls
or seizures, injunctions,  refusals to permit products to be
imported  into or exported out of the United States,
refusals of FDA to grant premarket  clearance or premarket
approval of medical  devices
and  drugs  or  to allow the Company to enter into
government supply contracts, withdrawals of previously
approved marketing applications and criminal prosecutions.
     The  Company received 510(k) clearance from  the  FDA
in 1996   for   the  SmartMist  system.  The  Company  has
made modifications   to  the  SmartMist  system   since
receiving clearance,  which  the Company believes  do  not
require  the submission of new 510(k) notifications to the
FDA.  There  can be no assurance, however, that the FDA
would agree with any of the Company's determinations not to
submit a new 510(k) notice for  any of these changes or
would not require the Company  to submit a new 510(k) notice
for any of the changes made to  the device. If the FDA
requires the Company to submit a new 510(k) notice  for  any
modification to the  SmartMist  system,  the Company  may be
prohibited from marketing the modified  device until  the
510(k) notice is cleared by the FDA,  which  could have a
material adverse effect on the Company.
     The Company may also be subject to certain user fees
that the  FDA is authorized to collect under the
Prescription  Drug User Fees Act of 1992 for certain drugs,
including insulin and morphine.  This  act  expired  on
September  30,  1997,
and
legislation to reauthorize it has been passed by the House
and Senate. It must be reconciled in a House-Senate
conference and signed by the President to become law.

     Before the Company can file for regulatory approvals
for the  commercial sale of the Company's potential AERx
products, the  FDA  will  require  extensive  preclinical
and  clinical testing  to  demonstrate  the  safety  and
efficacy  of  such potential products. To date, the Company
has tested  an  early prototype patient-operated version of
the AERx Pain Management System with morphine on a limited
number of healthy volunteers in  Phase  I clinical trials in
the United States. Failure  of the Company to progress to
more advanced clinical trials would have a material adverse
effect on the Company. There can be no assurance  that  the
Company  will  be  able  to  manufacture sufficient
quantities of the disposable unit-dose packets  to support
any future clinical trials of the AERx system, or that the
design  requirements  of the AERx  system  will  make  it
feasible for development beyond the prototype currently
being used.

     The  timing of completion of clinical trials is
dependent upon, among other factors, the enrollment of
patients. Patient recruitment is a function of many factors,
including the  size of  the  patient  population, the
proximity  of  patients  to clinical sites, the eligibility
criteria for the study and the existence  of competitive
clinical trials. Delays  in  planned patient  enrollment in
the Company's current trials or  future clinical trials may
result in increased costs, program  delays or  both,  which
could have a material adverse effect  on  the Company.

     The  Company also is developing applications of its
AERx system for the delivery of insulin and other compounds.
These applications  are  in  an early stage of development
and  the regulatory   requirements  associated   with
obtaining   the
necessary   marketing  approvals  from  the  FDA   and
other
regulatory  agencies are not known. There can be no
assurance that  these applications of the AERx system will
prove  to  be viable  or  that  any necessary regulatory
approvals  will  be obtained  in a timely manner, if at all.
Although the  Company believes  the data regarding the
Company's potential  products is
encouraging,  the  results  of  initial  preclinical  and
clinical  testing  of the products under  development  by
the Company are not necessarily predictive of results that
will be obtained  from  subsequent or more extensive
preclinical  and clinical testing. Furthermore, there can be
no assurance  that clinical trials of products under
development will demonstrate the  safety  and efficacy of
such products at all  or  to  the extent necessary to obtain
regulatory approvals. Companies  in the   medical   device,
pharmaceutical   and   biotechnology industries  have
suffered significant  setbacks  in  advanced clinical
trials,  even  after promising  results  in  earlier trials.
The failure to demonstrate adequately the safety  and
efficacy  of  a  therapeutic product under  development
could delay  or prevent regulatory approval of the product
and would have a material adverse effect on the Company.
     In  addition,  due  to  limited experience  with
chronic administration  of drugs delivered via the lung  for
systemic effect, the FDA may require clinical data to
demonstrate  that such chronic administration is safe. There
can be no assurance that the Company will be able to present
such data in a timely manner, or at all.
     The  FDA  and  other regulatory agency  requirements
for manufacturing,   product  testing  and  marketing   can
vary depending  upon whether the product is a medical device
or  a drug.  Manufacturers of medical devices  and  drugs
also  are required to comply with the applicable GMP
requirements, which relate to product testing and quality
assurance as well as the corresponding maintenance of
records and documentation.  There can  be  no assurance that
the Company will be able to  comply with  the applicable GMP
and other FDA regulatory requirements as  it  scales  up its
manufacturing operations. Such  failure could have a
material adverse effect on the Company.
     In  addition,  in  order for the Company  to  market
its products in Europe and in certain other foreign
jurisdictions, the  Company  and  its  distributors and
agents  must  obtain required  regulatory  approvals and
clearances  and  otherwise comply   with  extensive
regulations  regarding  safety                         and
quality.  These  regulations, including the  requirements
for approvals  or  clearance to market and the time
required  for regulatory review, vary from country to
country. There can  be no assurance that the Company will
obtain regulatory approvals in  such  countries or that it
will not be required  to  incur significant  costs  in
obtaining or maintaining  its  foreign regulatory approvals.
Delays in receipt of approvals to market the Company's
products, failure to receive these approvals, or future
loss  of previously received approvals  could  have  a
material  adverse effect on the Company's business,
financial condition and results of operations.

     Because   the  Company's  AERx  Pain  Management
System clinical  studies involve morphine, the Company is
registered with  the  Drug Enforcement Agency ("DEA") and
its  facilities are subject to inspection and DEA export,
import, security and production quota requirements. There
can be no assurance  that the Company will not be required
to incur significant costs to comply  with  DEA  regulations
in  the  future  or  that  such regulations  will not have a
material adverse  effect  on  the Company.

Highly Competitive Markets; Risk of Alternative Therapies

     The  medical  device,  pharmaceutical  and
biotechnology industries  are highly competitive and rapidly
evolving.  The Company's  success will depend on its ability
to  successfully
develop products and technologies for pulmonary drug
delivery. If a competing company were to develop or acquire
rights to  a better  pulmonary  delivery  device,  the
Company  could                                 be
materially and adversely affected.

     The   Company  is  in  competition  with
pharmaceutical, biotechnology  and drug delivery companies
and other  entities engaged  in  the  development  of
alternative  drug  delivery systems  or  new drug research
and testing, as  well  as  with entities  producing  and
developing  injectable  drugs.   The Company is aware of a
number of companies currently seeking to develop
new   products  and  non-invasive  alternatives to
injectable  drug  delivery,  including  oral,  intranasal
and transdermal  delivery systems and colonic absorption
systems. The Company also is aware of other companies
currently engaged in  the  development and commercialization
of  pulmonary  drug delivery   systems  and  enhanced
injectable  drug                               delivery
systems.  Many  of  the  Company's  competitors  have
greater research                                      and
development    capabilities,    experience,
manufacturing,  marketing,  sales,  financial  and
managerial resources                            than   the
Company  and  represent   significant
competition  for the Company. Acquisitions of  competing
drug delivery  companies  by  large  pharmaceutical
companies or
partnering  arrangements between such companies could
enhance competitors'  financial, marketing and  other
resources.  The Company's  competitors  may succeed  in
developing  competing technologies, obtaining FDA approval
for products more rapidly than  the  Company  and gaining
greater market  acceptance  of their  products than the
Company's products. There can  be  no assurance that
developments by others will not render some  or all   of
the  Company's  proposed  products  or  technologies
uncompetitive or obsolete, which would have a material
adverse effect on the Company.

Dependence on Key Personnel

     The  Company  is dependent upon a limited number  of
key management  and technical personnel. The loss of the
services of  one  or  more of such key employees could have
a  material adverse  effect  on  the Company. In addition,
the  Company's success  will  depend upon its ability to
attract  and  retain additional  highly qualified sales,
management,  manufacturing and  research  and  development
personnel. The  Company  faces intense  competition in its
recruiting activities,  and  there can  be  no assurance
that the Company will be able to attract or retain qualified
personnel.

Exposure to Product Liability

     The   research,  development  and  commercialization
of
medical  devices and therapeutic products entails
significant product                             liability
risks.  If  the  Company   succeeds            in
commercializing  products using the SmartMist  system  or
the AERx  system  and  if  it  succeeds in  developing
additional devices and new products, the use of such
products in clinical trials and the commercial sale of such
products may expose the Company  to  liability  claims.
These  claims  might  be  made directly by consumers or by
pharmaceutical companies or others selling such products.
Companies often address the exposure of such  risk by
obtaining product liability insurance.  Although the
Company  currently  maintains limited  product  liability
insurance, there can be no assurance that the Company will
be able  to  obtain additional or maintain existing
insurance  on acceptable  terms,  or  at all, or in  amounts
sufficient  to protect  the  Company. A successful claim
brought against  the Company  in  excess of the Company's
insurance coverage  would
have a material adverse effect on the Company's business.
Uncertainty Related to Third-Party Reimbursement
     In  both  domestic  and  foreign markets,  sales  of
the Company's current and potential products, if any, will
depend in  part on the availability of reimbursement from
third-party payors  such  as government health
administration authorities, private  health insurers and
other organizations.  Third-party payors  are  increasingly
challenging  the  price  and  costeffectiveness  of  medical
products and services.  Significant uncertainty  exists as
to the reimbursement  status  of  newly approved health care
products. There can be no assurance  that any  of  the
Company's current and potential products will  be
reimbursable by third-party payors. In addition, there can
be no assurance that the Company's current and potential
products will be considered cost-effective or that adequate
third-party reimbursement will be available to enable
Aradigm to  maintain price  levels sufficient to realize a
profit. Legislation  and regulations  affecting  the
pricing  of  pharmaceuticals  may change before the
Company's current and potential products are approved  for
marketing and any such  changes  could  further limit
reimbursement.
Hazardous Materials
     The  Company's operations involve the controlled  use
of hazardous   materials,  chemicals  and   various
radioactive compounds.  Although  the  Company believes
that  its  safety procedures for handling and disposing of
such materials comply with   the
standards  prescribed  by   state   and   federal
regulations,  the risk of accidental contamination  or
injury from  these materials cannot be completely
eliminated. In  the event  of  such an accident, the Company
could be held  liable for  any  damages that result and such
liability could  exceed the resources of the Company.

Possible Volatility of Stock Price

     The  market  prices  for securities  of  many
companies, including  the Company, engaged in pharmaceutical
development activities  historically  have been highly
volatile  and  the market from time to time has experienced
significant price and volume  fluctuations  that  are
unrelated  to  the  operating performance of particular
companies. Prices for the  Company's Common  Stock  may  be
influenced by many  factors,  including investor  perception
of  the  Company,  fluctuations  in  the Company's operating
results and market conditions relating  to the
pharmaceutical  industry. In addition,  announcements  of
technological  innovations or new commercial products  by
the Company  or  its  competitors, delays in  the
development  or approval of the Company's product
candidates, developments  or disputes  concerning patent or
proprietary  rights,  publicity regarding   actual  or
potential  developments  relating                      to
products  under development by the Company or its
competitors, regulatory developments in both the United
States and  foreign countries,                       public
concern  as  to  the   safety                        of
drug
technologies and economic and other external factors, as
well as  period-to-period  fluctuations in financial
results,  may have  a  significant impact on the market
price of the  Common

Stock.  Finally, future sales of substantial amounts of
Common Stock by existing shareholders could also adversely
affect the prevailing  price of the Common Stock. In the
past,  following periods  of  volatility in the market
price  of  a  company's securities, class action securities
litigation has often  been
instituted   against  such  a  company.  Any  such  litigation
instigated  against  the Company could result  in  substantial
costs and a diversion of management's attention and resources,
which  could  have a material adverse effect on the  Company's
business, financial condition and operating results.



Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


       REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
                               
The Board of Directors and Shareholders
Aradigm Corporation

      We have audited the accompanying balance sheets of
Aradigm Corporation  as of December 31, 1997 and 1996, and
the  related statements  of operations, shareholders' equity,
and cash  flows for  each  of  the three years in the period
ended December  31, 1997.                  These financial
statements are the responsibility of  the
Company's  management.   Our responsibility  is  to  express
an opinion on these financial statements based on our audits.

       We  conducted  our  audits in accordance  with
generally accepted  auditing standards.  Those standards
require  that  we plan  and perform the audit to obtain
reasonable assurance about whether   the financial  statements
are  free   of   material
misstatement.   An audit includes examining, on  a  test
basis,
evidence supporting the amounts and disclosures in the
financial statements.   An  audit also includes assessing  the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We  believe that our audits provide a
reasonable basis  for  our opinion.

      In our opinion, the financial statements referred to
above present fairly, in all material respects, the financial
position of  Aradigm Corporation at December 31, 1997 and
1996,  and  the results  of  its operations and its cash flows
for each  of  the three years in the period ended December 31,
1997, in conformity with generally accepted accounting
principles.


                                               ERNST & YOUNG
LLP
Palo Alto, California
February 6, 1998

                      Aradigm Corporation
                               
                        Balance Sheets
               (In thousands, except share data)
                               
                                           December 31,
                                         1997        1996
  Assets
  Current assets:
   Cash and cash equivalents           $15,517     $17,454
   Short-term investments                8,788       8,078
   Receivables                             261           -
   Inventories                             520           -
   Other current assets                    409         451
     Total current assets               25,495      25,983
                               
 Investments                                -       3,002
 Property and equipment, net            4,417       1,453
 Notes receivable from officers           303         220
 Other assets                              79          75
    Total assets                      $30,294     $30,733
 Liabilities and shareholders'                   equity
 Current liabilities:
  Accounts payable                    $ 1,505     $   601
  Accrued clinical and other                -         899
  studies
  Accrued compensation                    728         280
  Deferred revenue                      6,339         169
  Other accrued liabilities               342         279
  Current portion of capital lease
  obligations                             582         269
     and equipment loans
    Total current liabilities           9,496       2,497

 Noncurrent portion of capital
  lease obligations                     2,139         350
     and equipment loans

 Commitments and contingencies

 Shareholders' equity:
 Preferred stock, no par value;                  5,000,000
  shares authorized; no           -                     -
  shares  issued or outstanding
 Common stock, no par value,                     40,000,000
  shares authorized;
issued and outstanding shares:       54,976      49,821
1997 - 10,632,133; 1996 -
  10,214,054
  Shareholder notes receivable          (386)        (483)
  Deferred compensation                 (104)        (308)
  Accumulated deficit                 (35,827)    (21,144)
    Total shareholders' equity         18,659      27,886
    Total liabilities and             $30,294    $30,733
  shareholders' equity



                      Aradigm Corporation
                   Statements of Operations
        (In thousands, except share and per share data)



                           Years ended December 31, 1997
                        1996        1995
                        
                        
Contract and license  $  3,685    $   730      $  155
  revenues
  
Expenses:
  Research and       12,732       7,981         3,440
  development
  General and        6,732        2,958         2,334
  administrative
    Total expenses   19,464       10,939        5,774
                            
Loss from operations (15,779)     (10,209)    (5,619)

 Interest income      1,329        1,179           206
 Interest expense     (234)        (52)           (20)
   Net loss           $(14,684)   $(9,082)   $ (5,433)
                            
   Basic and diluted     $(1.43)   $(1.49)    $(5.41)
   net loss per
   share
 Shares used in
  computing basic    10,280,091   6,098,038   1,004,133
   and diluted net
   loss per share



                 Aradigm Corporation
          Statement of Shareholders' Equity
          (In thousands, except share data)
          
          
                  Preferred Stock     Common Stock
                   Shares    Amount   Shares   Amount
Balances at      3,503,458  $12,566  936,679   $  114
December 31,
1994
Issuance of      -              -    397,375      156
common stock
Repurchase of    -              -    (7,029)      (3)
common stock
Repayment of     -              -         -         -
notes
receivable
Issuance of
Series E        2,108,452  11,553        -         -
convertible
preferred
stock
Net loss         -              -         -         -

Balances at      5,611,910  24,119   1,327,025      267
December 31,
1995
Issuance of      -              -    662,629      350
common stock
Repurchase of    -              -    (2,766)      (1)
common stock
Issuance of
common stock
upon           (5,611,910) (24,119)  5,727,166   24,119
conversion of
preferred
stock and
warrants,  net
Issuance of      -              -    2,500,000   24,591
common stock
Deferred         -              -         -       495
compensation
Amortization of  -              -         -         -
deferred
compensation
Net change in    -              -         -         -
unrealized
gain (loss) on
available-for-
sale
investments
Net loss         -              -         -         -
Balances at      -              -   10,214,054   49,821
December 31,
1996
Issuance of      -              -    432,513    5,164
common stock
Repurchase of    -              -    (14,434)     (9)
common stock
Repayment of     -              -         -         -
shareholder
notes
Amortization of  -              -         -         -
deferred
compensation
Net change in    -               -        -         -
unrealized
gain (loss) on
available-for-
sale
investments
Net loss         -              -         -         -

Balances at      -          $   -    10,632,133   $54,976
December 31,
1997


                    Aradigm Corporation
               Statement of Shareholders' Equity
                        (continued)
               (In thousands, except share data)

               Share-                         Total
               holder    Deferred   Accumu-   Share-
               Notes     Compen-    lated     holders
               Receiv-   sation    Deficit   Equity able
               
Balances at      $(84)  $   -   $(6,636)  $ 5,960
December 31,
1994
Issuance of      (143)      -         -         13
common stock
Repurchase of       3       -         -         -
common stock
Repayment of       28       -         -        28
notes
receivable
Issuance of
Series E             -       -         -    11,553
convertible
preferred
stock
Net loss           -       -     (5,433)   (5,433)

Balances at      (196)      -   (12,069)   12,121
December 31,
1995
Issuance of      (288)      -         -        62
common stock
Repurchase of       1       -         -         -
common stock
Issuance of
common stock
upon               -       -         -         -
conversion of
preferred
stock and
warrants,
net
Issuance of         -       -         -    24,591
common stock
Deferred            -   (495)         -         -
compensation
Amortization        -     187         -       187
of deferred
compensation
Net change in       -       -         7         7
unrealized
gain (loss)
on available-
for-sale
investments
Net loss            -       -   (9,082)   (9,082)

Balances at      (483)  (308)   (21,144)   27,886
DecemberE31,
1996
Issuance of         -       -         -     5,164
common stock
Repurchase of       9       -         -         -
common stock
Repayment of       88       -         -        88
shareholder
notes
Amortization        -     204         -       204
of deferred
compensation
Net change in       -       -         1        1
unrealized
gain (loss)
on available-
for-sale
investments
Net loss            -       -   (14,684)  (14,684)


Balances at      $(386) $(104)  $(35,827)   $18,659
December 31,
1997


                     Aradigm Corporation
                   Statements of Cash Flows
                        (In thousands)


                        Years ended December 31,
                        1997          1996          1995

Cash flows from
operating activities
Net loss              $(14,684)     $(9,082)     $(5,433)

Adjustments to
reconcile net loss
to net cash used in
operating
activities:
Depreciation and          691          389         193
amortization
Amortization of           204           187          -
deferred
compensation
Loss on disposal of         -           -          18
property and
equipment
Loss on sale-               -           -          95
leaseback
transaction
Changes in operating
assets and
liabilities:
Receivables              (261)          260       (260)

Inventories and          (478)         (376)      (39)
other current assets
Other assets               (4)          (8)        (59)

Accounts payable         904            426        (40)

Accrued liabilities    (388)          1,172         118

Deferred revenue      6,170             (61)         230

Cash used in         (7,846)          (7,093)     (5,177)
operating activities


Cash flows from
investing activities
Capital expenditures  (2,756)           (811)       (535)

Purchases of        (27,278)        (191,767)
available-for-sale
investments
Proceeds from         29,571         180,694
maturities of
available-for-sale
investments
Cash used in         (463)          (11,884)        (535)
investing activities

Cash flows from
financing activities
Proceeds from         -                 -           11,553
issuance of
preferred stock
Proceeds from        5,164           24,653          13
issuance of common
stock, net
Proceeds from           88               -            28
repayments of
shareholder notes
Proceeds from sale
of equipment in sale-     -             -             390
leaseback
transaction
Notes receivable       (83)             (69)         (151)
from officers
Proceeds from        1,437                 -           -
equipment loans
Payments on lease    (234)              (270)         (91)
obligations and
equipment loans
Cash provided by      6,372            24,314      11,742
financing activities


Net (decrease)       (1,937)            5,337      6,030
increase in cash and
cash equivalents
Cash and cash         17,454            12,117     6,087
equivalents at
beginning of year
Cash and cash       $ 15,517          $17,454      $12,117
equivalents at end
of year

Supplemental
investing and
financing activities
Common stock issued   $     -    $   288      $  143
in exchange for
notes receivable
Common stock
repurchased upon      $     9    $     1      $  3
cancellation of
shareholder notes
Acquisition of        $   899    $   395      $  585
equipment under
capital leases
Aradigm Corporation Notes to Financial Statements
December 31, 1997

1. Organization and Summary of Significant Accounting Policies

Organization and Basis of Presentation
Aradigm  Corporation  (the  OCompanyO)  was  incorporated   in
California.  Through June 1997, prior to the  signing  of  the
Company's collaborative agreement with SmithKline Beecham (see
Note   7),  the  Company was in the development stage.   Since
inception,  Aradigm  has been engaged in the  development  and
commercialization  of  non-invasive  pulmonary  drug  delivery
systems.    The   Company   does  not   anticipate   receiving
significant revenue from the sale of products in the  upcoming
year.  Principal  activities to date have  included  obtaining
financing,  recruiting  management  and  technical  personnel,
securing   operating  facilities,  conducting   research   and
development, and expanding commercial production capabilities.
These  factors indicate that the Company's ability to continue
its research, development and commercialization activities  is
dependent  upon the ability of management to obtain additional
financing as required.

Use of Estimates
The  preparation  of financial statements in  conformity  with
generally  accepted accounting principles requires  management
to  make  estimates  and assumptions that affect  the  amounts
reported  in the financial statements and accompanying  notes.
Actual results could differ from those estimates.

Depreciation and Amortization
The  Company  records  property  and  equipment  at  cost  and
calculates  depreciation using the straight-line  method  over
the estimated useful lives of the respective assets, generally
four  to  seven years. Machinery and equipment acquired  under
capital  leases  is  amortized over the useful  lives  of  the
assets.  Leasehold improvements are amortized over the shorter
of the term of the lease or useful life of the improvement.

Revenue Recognition
Contract   revenues  consist  of  revenue  from  collaboration
agreements  and  feasibility studies. The  Company  recognizes
revenue  ratably under the agreements as costs  are  incurred.
Deferred  revenue represents the portion of research  payments
received  that  has  not  been  earned.   In  accordance  with
contract   terms,   up-front  and  milestone   payments   from
collaborative     research    agreements    are     considered
reimbursements  for costs incurred under the  agreements  and,
accordingly,   are  generally  deferred  when   received   and
recognized  as  revenue based on actual efforts expended  over
the remaining terms of the agreements.  Non-refundable signing
or  license  fee  payments that are not  dependent  on  future
performance  under collaborative agreements are recognized  as
revenue  when received.  Costs of contract revenue approximate
such  revenue  and  are included in research  and  development
expenses.

Net Loss Per Share
Effective December 31, 1997, the Company adopted Statement  of
Financial  Accounting Standards No. 128, "Earnings Per  Share"
("SFAS  128").   SFAS 128 requires the presentation  of  basic
earnings  (loss)  per  share and diluted earnings  (loss)  per
share,  if  more  dilutive,  for all  periods  presented.   In
accordance  with SFAS 128, basic net loss per share  has  been
computed using the weighted average number of shares of common
stock outstanding during the period.

Net  loss  per share for 1996 and 1995 have been retroactively
restated   to  apply  the  requirements  of  Staff  Accounting
Bulletin  No.  98,  issued by the SEC in February  1998  ("SAB
98").   Under  SAB  98,  certain shares of  common  stock  and
options  to purchase shares of common stock issued  at  prices
substantially below the per share price of shares sold in  the
Company's initial public offering previously included  in  the
computation of shares outstanding pursuant to Staff Accounting
Bulletin  Nos.  55,  64  and  83 are  now  excluded  from  the
computation.

The  following  pro  forma per share  data,  as  adjusted,  is
provided  to  show the calculation on a consistent  basis  for
1997, 1996 and 1995.  It has been computed as described above,
but  includes the retroactive effect from the date of issuance
of  the  conversion of convertible preferred stock  to  common
shares  upon  the  closing  of the  Company's  initial  public
offering in June 1996.

A   reconciliation  of  shares  used  in  the  calculation  of
historical  and pro forma, as adjusted, basic and diluted  net
loss per share follows:
                                   Year ended December 31, 1997
                                 1996                    1995
Net loss                        $(14,684)   $(9,082)    $(5,433)


Basic and Diluted
Weighted average common shares
outstanding used in computing
basic and diluted net loss    10,280,091  6,098,038   1,004,133
per share
Basic and diluted net loss per  $  (1.43)  $(1.49)    $(5.41)
share

Pro  Forma  Basic and Diluted,
as adjusted
Shares used in computing basic
and diluted net loss per      10,280,091  6,098,038   1,004,133
share
Adjusted to reflect the effect        -    2,529,456   3,503,468
of the assumed conversion of
preferred stock
Shares used in computing pro
forma basic and diluted net   10,280,091   8,627,494   4,507,601
loss per share, as adjusted
Pro forma basic and diluted
net loss per share, as         $  (1.43)  $(1.05)      $(1.21)
adjusted

Had  the  Company  been  in  a net  income  position,  diluted
earnings per share would have included the shares used in  the
computation of pro forma basic net loss per share as  well  as
an  additional  222,031 shares related to outstanding  options
and  warrants  not  included above (as  determined  using  the
treasury stock method).

Employee Benefit Plans
The  Company has a 401(k) Plan which stipulates that all full
time  employees  with at least three months of employment  can
elect  to  contribute to the 401(k) Plan, subject  to  certain
limitations,  up  to  20% of salary on  a  pretax  basis.  The
Company  has the option to provide matching contributions  but
has not done so to date.

Recent Accounting Pronouncements
In  June 1997, the Financial Accounting Standards Board issued
Statement  of  Financial Accounting Standards No.  130  ("SFAS
130"),  "Reporting  Comprehensive Income,"  and  Statement  of
Financial   Accounting  Standards  No.   131   ("SFAS   131"),
"Disclosures  about  Segments of  an  Enterprise  and  Related
Information,"  which  require  additional  disclosures  to  be
adopted beginning in the first quarter of 1998 and on December
31,  1998,  respectively.   Under SFAS  130,  the  Company  is
required to display comprehensive income and its components as
part  of the Company's full set of financial statements.  SFAS
131 requires that the Company report financial and descriptive
information  about  its  reportable operating  segments.   The
Company is evaluating the impact, if any, of SFAS 130 and SFAS
131  on  its future financial statement disclosures, but  does
not  believe the additional disclosure will be material to the
financial statements.

Reclassifications
Certain reclassifications of prior year amounts have been made
to conform with current year presentation.

2. Financial Instruments

Cash Equivalents and Investments
The  Company considers all highly liquid investments purchased
with  an original maturity of three months or less to be  cash
equivalents.  The Company places its cash and cash equivalents
in  money market funds, commercial paper and corporate  master
notes.   The  Company's  short-term  investments  consist   of
corporate  notes and market auction preferred securities  with
maturities  ranging  from  3 to 12 months.  Other  investments
consist  of  corporate notes with maturities greater  than  12
months.

The  Company classifies its investments as available-for-sale.
Available-for-sale investments are recorded at fair value with
unrealized  gains  and losses reported  in  the  statement  of
shareholders' equity.  Fair values of investments are based on
quoted  market  prices, where available.  Realized  gains  and
losses,  which have been immaterial to date, are  included  in
interest  and other income and are derived using the  specific
identification method for determining the cost of  investments
sold.  Dividend and interest income is recognized when earned.
The  following  summarizes the Company's cash equivalents  and
investments:
                                         Estimated Fair Value
                                           at December 31,
                                          1997          1996
Cash and cash equivalents:
  Money market fund                   $   6,000       $ 17,000
  Commercial paper                   14,331,000     16,939,000

                                   $ 14,337,000   $ 16,956,000

Short-term investments:
  Commercial paper                 $  3,272,000    $         -
  Corporate notes                     3,216,000     6,978,000
  Market auction preferred
  securities                          2,300,000     1,100,000

                                   $  8,788,000    $8,078,000

Investments:
  Corporate notes                  $  -          $ 3,002,000

As  of December 31, 1997 and 1996, the difference between  the
estimated  fair value and the amortized cost of available-for
sale securities was immaterial.  As of December 31, 1997,  the
average  portfolio duration was approximately two months,  and
the  contractual  maturity of any single  investment  did  not
exceed six months from the balance sheet date.

3. Inventories

Inventories  are stated at the lower of cost (first-in  firstout
basis) or market.  Inventories consist of the following:
                                             December 31,
                                            1997      1996

Raw materials                              $479,000   $      -

Finished goods                              41,000          -
                                           $520,000   $      -

4. Property and Equipment

Property and equipment consist of the following:
                                          December 31,
                                        1997         1996

Machinery and equipment               $3,294,000  $601,000
Furniture and fixtures                   434,000   273,000
Lab equipment                          1,048,000   594,000
Computer equipment and software          755,000   496,000
Leasehold improvements                   288,000   201,000
                                       5,819,000 2,164,000 Less
accumulated depreciation and          (1,402,000) (711,000)
amortization
                                      $4,417,000  $1,453,000

Property  and  equipment at December 31, 1997 includes  assets
under capitalized leases of approximately $3,322,000 ($980,000
in  1996).  Accumulated amortization related to leased  assets
was  approximately $392,000 at December 31, 1997 ($344,000  in
1996).
5. Leases and Commitments
In  August  1997,  the  Company obtained  an  additional  $5.0
million  equipment lease line of credit of which approximately
$2.9  million  remains  available at  December  31,  1997  for
purchases through September 1998.  Amounts borrowed under  the
Company's  equipment lines of credit bear  interest  at  rates
from  10%  to  15%  and are collateralized  by  the  equipment
purchased.   Under  the  terms of the  lease  agreements,  the
Company has the option to purchase the leased equipment  at  a
negotiated  price at the end of each lease term.  The  Company
leases  its  office  and laboratory facilities  under  several
operating leases expiring through the year 2014.
Future  minimum  lease payments under noncancelable  operating
and capital leases at December 31, 1997 are as follows:
                                      Operating     Capital
                                      Leases        Leases
Years ending December 31:
1998                                 $843,000      $954,000
1999                                1,066,000       842,000
2000                                1,298,000       723,000
2001                                1,620,000       684,000
2002 and thereafter                33,539,000       462,000

Total minimum lease payments       $38,366,000     3,665,000

Less amount representing interest                 ( 944,000)
Present   value  of  future   lease               2,721,000
payments
Current  portion of  capital  lease               ( 582,000)
obligations
Noncurrent portion of capital lease                $2,139,000
obligations
Rent expense under these operating leases totaled $420,000 and
$197,000  for  the  years ended December 31,  1997  and  1996,
respectively.

6. Shareholders' Equity

Capital Stock
In  June  1996,  the  Company  completed  the  initial  public
offering  of  its common stock.  The Company issued  2,500,000
shares  for  net  proceeds of $24.6  million.   Prior  to  the
closing of the initial public offering, the Company effected a
three-for-two   split   of  its  outstanding   common   stock.
Concurrent  with  the closing of the initial public  offering,
previously  outstanding shares of Series A,  B,  C,  D  and  E
preferred stock were converted into 5,611,911 shares of common
stock.   All  share  and per share data  in  the  accompanying
financial statements has been adjusted retroactively  to  give
effect to the stock split.

Stock Warrants
In  September 1997, in connection with a consulting agreement,
the  Company  issued  a warrant that entitles  the  holder  to
purchase  170,000 shares of common stock at an exercise  price
of $8.96 per share. This warrant is exercisable through August
2003.   In  June  1995,  in connection  with  a  master  lease
agreement,  the  Company issued a warrant  that  entitles  the
holder  to  purchase  37,500 shares  of  common  stock  at  an
exercise price of $4.23 per share. This warrant is exercisable
through JuneE20, 1998.  At December 31, 1997, the Company  has
reserved 207,500 shares of its common stock for issuance  upon
exercise of these common stock warrants.  No amounts have been
recorded  for the above warrant issuances as the amounts  were
determined to be immaterial at the time of issuance.
1996 Equity Incentive Plan
In  April  1996, the Company's Board of Directors adopted  and
the  Company's shareholders approved the 1996 Equity Incentive
Plan  (the "Plan"), which amended and restated the 1992  Stock
Option  Plan.   Options granted under the Plan may  be  either
incentive  or  nonstatutory stock options.   At  December  31,
1997,  the  Company had authorized 1,980,000 shares of  common
stock for issuance under the Plan.  Options granted under  the
Plan  expire no later than ten years from the date  of  grant.
For incentive and nonstatutory stock option grants, the option
price  shall  be at least 100% and 85%, respectively,  of  the
fair value on the date of grant, as determined by the Board of
Directors.   If at any time the Company grants an option,  and
the  optionee directly or by attribution owns stock possessing
more  than  10%  of  the total combined voting  power  of  all
classes of stock of the Company, the option price shall be  at
least 110% of the fair value and shall not be exercisable more
than five years after the date of grant.

Options  granted  under  the 1996 Equity  Incentive  Plan  are
immediately  exercisable and generally vest over a  period  of
four  years from the date of grant.  Under the Plan, employees
may  exercise  options in exchange for a note payable  to  the
Company.   As of December 31, 1997 and 1996, notes  receivable
from shareholders of $386,000 and $483,000, respectively, were
outstanding.  These notes generally bear interest  at  6%  and
are  due and payable in regular installments over a five  year
period.   Any  unvested stock issued is subject to  repurchase
agreements  whereby the Company has the option  to  repurchase
unvested shares upon termination of employment at the original
issue  price. The common stock has voting rights but does  not
have  resale rights prior to vesting. During 1997, the Company
granted  options  to purchase 550,600 shares of  common  stock
none  of which were exercised.  The Company has repurchased  a
total  of  24,229 shares in accordance with these  agreements. As
of  December  31, 1997, 219,410 shares  of  the  Company's common
stock remained subject to repurchase and 985,099 shares were
reserved for issuance upon exercise of options.

The following is a summary of activity under the Plan:

                                            Options Outstanding
                      Shares
                     Available                          Weighted
                     for Grant   Number of  Price Per  Average
                        of        Shares      Share    Exercise
                      Options                           Price
Balance at           270,825     539,175        $0.10-     $0.29
December 31, 1994                               $0.37
   Shares            150,000     -              $-         $-
   authorized
   Shares granted    (290,550)   290,550        $0.33-     $0.43
                                                $0.43
   Shares            -           (335,876)      $0.33-     $0.38
   exercised                                    $0.43
   Shares            41,607      (41,607)       $0.33-     $0.39
   cancelled                                    $0.43
Balance at           171,882     452,242        $0.10-     $0.30
December 31, 1995                               $0.43
   Shares           1,005,000     -             $-         $-
   authorized
   Shares granted    (523,520)   523,520        $0.57-     $3.66
                                                $9.88
   Shares            -           (662,629)      $0.10-     $0.53
   exercised                                    $5.33
Balance at           653,362     313,133        $0.10-     $5.45
December 31, 1996                               $9.88
   Shares granted    (550,600)   550,600        $6.88-     $8.75
                                               $12.88
   Shares           -           (5,625)         $5.33     $5.33
   exercised
   Shares            24,229      -              $0.37-     $0.49
   repurchased                                  $0.57
   Shares            26,825      (26,825)       $5.33-     $6.03
   cancelled                                    $9.88
Balance at           153,816     831,283        $0.10-     $7.62
December 31, 1997                              $12.88


                        Options Outstanding and Exercisable
                                                Weighted
                                  Weighted       Average
                                   Average      Remaining
Exercise Price Range    Number    Exercise     Contractual
                                    Price         Life
                                               (in years) $0.10-
     $2.00              69,033      $0.46          6.6
     $4.00-$6.88        188,900     $5.70          8.7
     $7.00-$9.88        473,200     $8.42          9.2
    $11.13-$12.88       100,150    $12.35          9.8
    $0.10-$12.88        831,283     $7.62          9.0

The  Company has elected to follow Accounting Principles Board
Opinion  No.  25, "Accounting for Stock Issued  to  Employees"
("APB 25"), and the related Interpretations in accounting  for
its  employee stock options because, as discussed  below,  the
alternative fair value accounting provided for under Statement of
Financial  Accounting Standards No. 123,  "Accounting  for Stock-
Based Compensation" ("SFAS 123"), requires use of option pricing
valuation models that were not developed for  use  in valuing
employee stock options.  Under APB 25, the Company has generally
recognized no compensation expense with respect  to such awards.

The  Company  recorded deferred compensation of  approximately
$495,000  for the difference between the grant price  and  the
deemed  fair  value of certain of the Company's  common  stock
options granted in 1996.  This amount is being amortized  over
the  vesting period of the individual options, generally a 48-
month period.  Deferred compensation expense recognized in the
years  ended  December  31, 1997 and  1996  was  approximately
$204,000 and $187,000, respectively. The weighted average fair
value  of  options granted during 1996 with an exercise  price
below  the deemed fair value of the Company's common stock  on
the  date  of grant was $2.15.  There were no such  grants  in
1997.  The  weighted  average fair value  of  options  granted
during 1997 and 1996 with an exercise price equal to the  fair
value  of the Company's common stock on the date of grant  was
$3.35 and $5.60, respectively.

Pro forma information regarding net loss and basic and diluted
net  loss  per  share  is required by  SFAS  123,  which  also
requires that the information be determined as if the  Company
had   accounted   for  its  employee  stock  options   granted
subsequent  to December 31, 1994 under the fair  value  method
prescribed  by this statement.  The fair value of options  was
estimated at the date of grant using the Black-Scholes  option
pricing  model  with  the following assumptions:  a  risk-free
interest  rate ranging from 5.7%-6.4%, 5.1%-5.8% and 5.5%-7.9%
for  the  years  ending  December 31,  1997,  1996  and  1995,
respectively; a dividend yield of 0.0%; a volatility factor of
the  expected  market price of the Company's common  stock  of
0.7;  and  a  weighted average expected option  life  of  four
years.   Options granted prior to the Company's initial public
offering in June 1996 have a volatility factor of 0.0.

For purposes of pro forma disclosure, the estimated fair value
of the options is amortized to expense over the vesting period
of  the  options  using the straight-line method.   Pro  forma
information on the above basis is as follows:

                                  Year ended December 31, 1997
                            1996                         1995
Pro forma net loss       $(14,960,000)  $(9,117,000)     $(5,437,000)
Net loss - as reported   $(14,684,000)  $(9,082,000)     $(5,433,000)

Pro forma basic and      $ (1.46)       $ (1.50)         $ (5.41)
diluted net loss per
share
Basic and diluted net    $ (1.43)       $ (1.49)         $ (5.41)
loss per share - as
reported

The effects of applying SFAS 123 for pro forma disclosures are
not likely to be representative of the effects on reported net
loss  for future years.  Pro forma net loss for the year ended
December  31,  1997  reflects compensation expense  for  three
years'  vesting, while the year ending December 31, 1998  will
reflect  compensation  expense  for  four  years'  vesting  of
outstanding stock options.

Employee Stock Purchase Plan
Under  the Employee Stock Purchase Plan (the "Purchase Plan"),
150,000  shares  of  common  stock have  been  authorized  for
issuance.  Shares may be purchased under the Purchase Plan  at
85% of the lesser of the fair market value of the common stock
on  the grant date or purchase date.  As of December 31, 1997,
21,824 shares have been issued under the Purchase Plan.

1996 Non-Employee Directors' Stock Option Plan
The  1996  Non-Employee  Directors'  Stock  Option  Plan  (the
"Directors' Plan") authorizes the grant of 225,000 options for
the  Company's common stock. As of December 31,  1997,  52,500
options have been granted under the Directors' Plan.

7. Collaborative Agreements

In  September  1997, the Company executed  a  development  and
commercialization agreement with SmithKline  Beecham  covering
use  of  the  AERx Pain Management System for the delivery  of
narcotic analgesics.  The Company and SmithKline Beecham  will
collaborate  on  the development of the products  within  this
field.   Under the terms of the agreement, SmithKline  Beecham
has  been  granted  exclusive worldwide  sales  and  marketing
rights  to  the AERx Pain Management System for use with  such
analgesics, and Aradigm retains all manufacturing rights.   If
this  system receives regulatory approval, Aradigm expects  to
sell  devices  and drug packets to SmithKline Beecham  and  to
receive royalties on sales by SmithKline Beecham.

Pursuant  to  the SmithKline Beecham agreement, Aradigm  could
receive  up  to  approximately $30 million  in  milestone  and
product  development  payments,  and  $10  million  in  equity
investments   if   and  when  the  first  product   from   the
collaboration is commercialized. In October 1997, the  Company
received  $14  million  from  SmithKline  Beecham  under   the
agreement,  of  which $5 million resulted  from  the  sale  of
shares  of  Aradigm  Common Stock.  Additional  milestone  and
product  development  payments will be  paid  if  Aradigm  and
SmithKline  Beecham decide to jointly develop additional  AERx
products which incorporate other opiates or opioids.   Through
December  31, 1997, the Company has recognized total  contract
revenue of $2.7 million.

In  December  1996,  the Company entered  into  a  feasibility
agreement  with  a  pharmaceutical company  to  determine  the
feasibility  of  using the CompanyOs AERx(TM)  Pulmonary  Drug
Delivery  System  for  the delivery of a specified  drug.  The
agreement  provides  for a $169,500 research  and  development
payment  and  a  $237,500  payment  upon  acceptance  by   the
pharmaceutical company of certain specified deliverables.  All
revenue under this agreement was recognized in 1997.

In  December  1995,  the Company entered  into  a  feasibility
agreement  with  a  pharmaceutical company  to  determine  the
feasibility  of  using  the  CompanyOs  AERx  Pulmonary   Drug
Delivery  System  for  the delivery of a specified  drug.  The
agreement  provided  for a $260,000 research  and  development
payment.   Under  this  agreement,  revenues  of  $30,000  and
$230,000  were recognized in 1995 and 1996, respectively.   In
November  1996,  the  Company  entered  into  a  second   such
agreement with the pharmaceutical company that provided for  a
$140,000  research and development payment.  Costs  associated
with research and development activities attributable to these
agreements   are   expected   to  approximate   the   revenues
recognized.   The agreement also provided for a non-refundable
license fee of $500,000 upon execution of the agreement, which
was recognized as revenue in 1996.
8. Related Party Transactions

At  DecemberE31,  1997,  the  Company  has  notes  receivable,
including accrued interest, totaling $303,000 from officers of
the Company. Included therein are $153,000 of promissory notes
bearing interest at 6%-7% per annum, generally due and payable
three years from the date of the notes, and collateralized  by
certain  personal assets of the officers and  a  $90,000  full
recourse  promissory  note bearing no  interest  and  due  and
payable in SeptemberE1998.

At  DecemberE31, 1997, the fair value of these  notes  is  not
materially  different  from their carrying  values.  The  fair
values  were  estimated using discounted cash  flow  analyses,
using  interest rates currently offered for loans with similar
terms and to borrowers of similar credit quality.

9. Income Taxes

The  Company uses the liability method to account  for  income
taxes   as  required  by  Statement  of  Financial  Accounting
Standards  No.E109, OAccounting for Income TaxesO. Under  this
method,  deferred  tax assets and liabilities  are  determined
based on differences between financial reporting and tax bases
of  assets and liabilities and are measured using enacted  tax
rules  and  laws  that are expected to be in effect  when  the
differences are expected to reverse.

Significant  components of the CompanyOs deferred  tax  assets
are as follows:

                                        December 31,

                                     1997           1996





Net operating loss carryforward   $13,735,000    $7,336,000
Research and development credit   1,769,000      851,000
carryforward


Other                               36,000       611,000


Gross deferred tax assets         15,540,000     8,798,000


Valuation allowance              (15,540,000)   (8,798,000)


Net deferred tax assets           $      -       $     -

The valuation allowance increased by $6,742,000 and $3,751,000
in 1997 and 1996, respectively.

At  December 31,  1997,  the Company had  net  operating  loss
carryforwards of approximately $35,000,000 for federal  income
tax  purposes expiring in the years 2006 through 2012 and  net
operating  losses for state income tax purposes of $33,000,000
expiring in the years 1998 through 2002. At December 31, 1997,
the  Company had research and development credit carryforwards
for  federal  income tax purposes of approximately $1,380,000,
which expire in the years 2006 through 2012.

Because  of  the "change in ownership" provisions of  the  Tax
Reform  Act  of  1986, utilization of the  Company's  tax  net
operating loss carryforwards and tax credit carryforwards  may
be  subject  to an annual limitation in future periods.  As  a
result   of  the  annual  limitation,  a  portion   of   these
carryforwards may expire before ultimately becoming  available
to reduce future income tax liabilities.

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE
         
     None.



                           PART III.
                               
                               
Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Identification of Directors

       The  information required by this Item  concerning  the
Company's  directors  is incorporated by  reference  from  the
section   captioned  "Proposal  1:   Election  of   Directors"
contained in the Company's Definitive Proxy Statement  related
to the Annual Meeting of Shareholders to be held May 15, 1998,
to  be  filed by the Company with the Securities and  Exchange
Commission (the "Proxy Statement").

Identification of Executive Officers

       The  information required by this Item  concerning  the
Company's  executive offices is set forth in Part  I  of  this
Report.
Section 16(a) Compliance
      The information regarding compliance with Section 16(a)
of the Securities Exchange Act of 1934, as amended, required by
this Item is incorporated by reference from the Proxy
Statement.
Item 11.                      EXECUTIVE COMPENSATION
      The information required by this Item is incorporated by
reference  from the section captioned "Executive Compensation"
contained in the Proxy Statement.
Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
      The information required by this Item is incorporated by
reference  from the section captioned "Security  Ownership  of
Certain  Beneficial Owners and Management"  contained  in  the
Proxy Statement.
Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
      The information required by this Item is incorporated by
reference  from  the section captioned "Certain  Transactions"
and "Executive Compensation" contained in the Proxy Statement.




                            PART IV
                               
                               
Item 14.  EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS

          ON FORM 8-K

(a)   (1) Financial Statements.

      Included in Part II of this Report:

        Report of Ernst & Young LLP, Independent Auditors
        Balance Sheets --- December 31, 1997 and 1996
        Statements of Operations --- Years ended December 31,
        1997, 1996, and 1995
        
        
        Statements of Shareholders' Equity --- Years ended
        December 31, 1997, 1996 and 1995
        
        
        Statements of Cash Flows --- Years ended December 31,

        1997, 1996 and 1995

        Notes to Financial Statements

  (2) Financial Statement Schedules.

      None.

  (3) Exhibits.

      3.1 (1) Amended and Restated Articles of Incorporation of
               the Company.
      3.2 (1) Bylaws of the Company
4.1     Reference is made to Exhibits 3.1 and 3.2
4.2 (1) Specimen stock certificate
4.3 (1) Amended and Restated Investor Rights Agreement,
         dated December 22, 1995, among the Company and
         certain of its shareholders
10.1 (1) (2) Form of Indemnity Agreement between the
         Registrant and each of its directors and
         officers
10.2 (1) (2) The Company's Equity Incentive Plan, as
         amended (the "Equity Incentive Plan")
10.3 (1) (2) Form of the Company's Incentive Stock
         Option Agreement under the Equity Incentive
         Plan
10.4 (1) (2) Form of the Company's Nonstatutory Stock
         Option Agreement under the Equity Incentive
         Plan
10.5 (1) (2) Form of the Company's Non-Employee
         Directors' Stock Option Plan
10.6 (1) (2) Form of the Company's Nonstatutory Stock
         Option Agreement under the Non-Employee
         Directors' Stock Option Plan
10.7 (1) (2) Form of the Company's Employee Stock
         Purchase Plan
10.8 (1) (2) Form of the Company's Employee Stock
         Purchase Plan Offering Document
10.9 (1)Lease Agreement for the property located at
         26219 Eden Landing Road, Hayward, California,
         dated November 1992 and amended November 29,
         1994, between the Company and Hayward Point
         Eden I Limited Partnership
10.9a   Second Amendment to Lease, dated December 22,
         1997, between the Company and Hayward Point
         Eden I Limited Partnership
10.9b   Third Amendment to Lease, dated January 28,
         1998, between the Company and Hayward Point
         Eden I Limited Partnership
10.10    Lease Agreement for the property located
         at 26224 Executive Place, Hayward, California,
         dated January 28,1998, between the Company and
         Hayward Point Eden I
         Limited Partnership
10.11 (1)    Lease Agreement for the property located at
         3930 Point Eden Way, Hayward, California, dated
         February 21, 1996, between the Company and
         Hayward Point Eden I Limited Partnership
10.11a  First Amendment to Lease, dated June 10, 1996,
         between the Company and Hayward Point Eden I
         Limited Partnership
10.11b  Second Amendment to Lease, dated December 22,
         1997, between the Company and Hayward Point
         Eden I Limited Partnership
10.11c  Third Amendment to Lease, dated January 28,
         1998, between the Company and Hayward Point
         Eden I Limited Partnership
10.12 (1) (2)Stock Purchase Agreement and related
         agreements, including Promissory Note, dated
         May 19, 1994, between the Company and Richard
         P. Thompson
10.13 (1) (2)Stock Purchase Agreement and related
         agreements, including Promissory Note, dated
         May 23, 1995, between the Company and R. Ray
         Cummings
10.14 (1) (2)Note Agreement and Promissory Note Secured
         by Deed of Trust, dated May 1, 1995, between
         the Company and R. Ray Cummings
10.15 (1) (2)Promissory Note, dated October 26, 1995,
               between the Company and Igor Gonda
               10.16 (1) (2)Promissory Note, dated December
               27, 1995, between the Company and Igor Gonda
      10.17 (1)    Master Lease Agreement and Warrant,
               between the Company and Comdisco, Inc., dated
               June 9, 1995
      10.18 (3)(4) Product Development and Commercialization
               Agreement between the Company and SmithKline
               Beecham PLC
      10.19 (3)(4) Stock Purchase Agreement between the
               Company and SmithKline Beecham PLC
      10.20   Lease Agreement for the property located at
               3911 Trust Way, Hayward, California, dated March
               17, 1997, between the Company and Hayward Point
               Eden I Limited Partnership
      10.20a  First Amendment to Lease, dated December 22,
               1997, between the Company and Hayward Point
               Eden I Limited Partnership
      10.20b  Second Amendment to Lease, dated January 28,
               1998, between the Company and Hayward Point
               Eden I Limited Partnership
      10.21   Lease Agreement for the property located in
               Phase V of the Britannia Point Eden Business
               Park in Hayward, California, dated January 28,
               1998, between the Company and Britannia Point
               Eden, LLC
      23.1    Consent of Ernst & Young L.L.P., Independent
               Auditors.  Reference is made to page 57.
      24.1    Power of Attorney.  Reference is made to page
               54.
-----------------------------------------

      (1)Incorporated by reference to the indicated exhibit in
        the Company's Registration Statement on Form S-1 (No.
        333-4236), as amended.
      (2)  Represents a management contract or compensatory plan or
        arrangement.
      (3)  Incorporated by reference to the Company's Form 8-K filed
        on November 11, 1997.
      (4)    Confidential treatment requested.
(b)       Reports on Form 8-K.
         A Form 8-K dated September 30, 1997, was filed on November
      11, 1997.  On September 30, 1997, the Company entered into a
      Product Development and Commercialization Agreement (the
      "Agreement") with SmithKline Beecham PLC ("SB") for the purpose
      of developing and commercializing
      a pulmonary drug delivery system for providing immediate

      pain relief using narcotic analgesics.  In connection

      with the Agreement, the Company sold and issued to SB

      pursuant to a  Stock Purchase Agreement 405,064 shares of

      the Company's common stock at an aggregate purchase price

      of $5,000,008.75.

(c)       Index to Exhibits.

      See Exhibits listed under Item 14 (a) (3).

(d)       Financial Statement Schedules.

      None.








                          SIGNATURES
       Pursuant to the requirements of Section 13 or 15(d)  of
the  Securities Exchange Act of 1934, the Registrant has  duly
caused  this  report  to  be  signed  on  its  behalf  by  the
undersigned,  thereunto  duly  authorized,  in  the  City   of
Hayward, State of California, on the 24th day of March, 1998.
                              ARADIGM CORPORATION
                              By /s/ Richard P. Thompson
                              Richard P. Thompson
                              President and Chief Executive
                              Officer
                              
                              
                       POWER OF ATTORNEY
                               
   KNOW  ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints, jointly  and
severally, Richard P. Thompson and Reid M. Rubsamen, M.D., and
each  one of them, attorneys-in-fact for the undersigned, each
with the power of substitution, for the undersigned in any and
all  capacities, to sign any and all amendments to this Report
on  Form 10-K, and to file the same, with exhibits thereto and
other  documents in connection therewith, with the  Securities
an  Exchange  Commission, hereby ratifying and confirming  all
that  each of said attorneys-in-fact, or his substitutes,  may
do or cause to be done by virtue hereof.

  IN  WITNESS  WHEREOF, each of the undersigned has  executed
this  Power of Attorney as of the date indicated opposite  his
name.

   Pursuant to the requirements of the Securities and Exchange
Act  of  1934,  this  Report  has been  signed  below  by  the
following  persons  on  behalf of the Registrant  and  in  the
capacities and on the dates indicated.

  Signature             Title                        Date

/s/Richard P. Thompson  President, Chief       March 24, 1998
Richard P. Thompson     Executive Officer
                         and Director
                        (Principal Executive
                        Officer)


/s/Mark A. Olbert      Vice President,      March 24, 1998
Mark A. Olbert         Finance and
                        Administration
                       and Chief Financial
                       Officer(Principal
                       Financial and
                       Accounting Officer)


/s/Reid M. Rubsamen    Vice President,      March 24, 1998
Reid M. Rubsamen,M.D.  Medical Affairs,
                         Secretary
                       and Director
                             
                             
/s/Jared A. Anderson,  Director             March 24, 1998
Jared A. Anderson,
Ph.D.

/s/Ross A. Jaffe       Director            March 24, 1998
Ross A. Jaffe, M.D.



/s/Burton J. McMurtry  Director            March 24, 1998
Burton J. McMurtry,
Ph.D.

/s/Gordon W. Russell   Director            March 24, 1998
Gordon W. Russell


/s/Fred E. Silverstein Director            March 24, 1998 Fred
E. Silverstein,
M.D.

/s/Virgil D. Thompson  Director            March 24,1998 Virgil

D. Thompson





EXHIBIT 23.1





      CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
                               
                               
                               
                               
We   consent  to  the  incorporation  by  reference   in   the
Registration Statement on Form S-8 No. 333-15947 pertaining to
the  1996  Equity  Incentive Plan of Aradigm Corporation,  the
Employee Stock Purchase Plan of Aradigm Corporation,  and  the
Non-Employee   Directors'  Stock  Option   Plan   of   Aradigm
Corporation of our report dated February 6, 1998, with respect
to the financial statements of Aradigm Corporation included in
the  Annual Report (Form 10-K) for the year ended December 31,
1997.


ERNST & YOUNG LLP

Palo Alto, California
March 23, 1998



EXHIBIT 10.9A

                   SECOND AMENDMENT TO LEASE
                               
                               
    THIS SECOND AMENDMENT TO LEASE ("Second Amendment") is
entered into as of December 22, 1997 between HAYWARD POINT EDEN
I LIMITED PARTNERSHIP, a Delaware limited partnership
("Landlord") and ARADIGM CORPORATION, a California corporation
("Tenant") previously known as Miris Medical Corporation, with
reference to the following facts:

     A.   Landlord and Tenant (then known as Miris Medical
Corporation) are parties to a Lease dated as of November 20,
1992, as amended by a First Amendment to Lease dated as of
November 29, 1994 (as amended, the "Lease"), covering certain
premises consisting of approximately 5,600 square feet of space
in Building H of the Britannia Point Eden Business Park (the
"Center") and commonly known as 26219 Eden Landing Road,
Hayward, California 94545 (the "Premises").
     B.   Concurrently with the execution of this Second
Amendment, Landlord and Tenant are negotiating over a new lease
covering portions of Building G in the Center, a new lease
covering a new building of approximately 80,000 square feet to
be constructed by Landlord or an affiliate in or adjacent to
the Center (the "Phase V Lease"), and amendments of two other
existing leases between Landlord and Tenant affecting portions
of Buildings E and H in the Center.

     C.   In connection with the negotiation and execution of
the leases and amendments described in the preceding paragraph,
Landlord and Tenant wish to make certain changes in the Lease
as more particularly set forth herein.

     D.   Terms used herein as defined terms but not
specifically defined herein shall have the meanings assigned to
such terms in the Lease.

     NOW, THEREFORE, in consideration of the mutual agreements
set forth herein and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree as follows:

     1.   Extension of Term; Rental.  Effective as of the date
of execution of this Second Amendment, (a) Paragraphs 1 and 2
of the First Amendment to the Lease, as described above, are
terminated and shall be of no further force or effect; (b) the
term of the Lease is extended until the day immediately
preceding the fifth (5th) anniversary of this Second Amendment,
subject to the early termination provision hereinafter set
forth; and (c) the minimum monthly rental payable under Section
3.1(a) of the Lease during such fiveyear extended term of the
Lease, as amended hereby, shall be as follows:

          Months              Minimum Monthly Rental
                               
           01-12              $  5,320.00 ($0.95/sq ft) 13-24
           5,544.00 ($0.99/sq ft) 25-36
           5,768.00 ($1.03/sq ft) 37-48
           5,992.00 ($1.07/sq ft) 49-60
           6,216.00 ($1.11/sq ft)
           
     2.   Early Termination Right.  Notwithstanding any other
provisions of the Lease or of this Second Amendment, if Tenant
relocates the uses presently conducted by Tenant in the
Premises into other leased premises occupied by Tenant from
time to time in the Center (including, but not limited to, any
such relocation into the new building constructed pursuant to
the Phase V Lease following completion of construction of such
building), then Tenant shall have the right to terminate this
Lease, without penalty and without liability for any
termination payment, by not less than six (6) months prior
written notice to Landlord.

     3.   No Further Improvements.  Tenant acknowledges that
it accepts the Premises in their presently existing condition,
"as is," for purposes of the extended term of the Lease under
this Second Amendment and that Landlord has no obligation,
under this Second Amendment or under the Lease, to further
improve the Premises for occupancy by Tenant.
     4.   Cross-Default.  Section 14.1 of the Lease is amended
by adding thereto, as an additional event of default, the
following:

          "(i) Cross-Default.  Any event of default by Tenant
     under (A) any other lease between Landlord and Tenant
     covering any other portion of the Property from time to
     time during the term of this Lease, or (B) the lease
     entered into substantially concurrently herewith by Tenant
     and Britannia Point Eden, LLC with respect to a new
     building to be constructed in Phase V of the Center, to
     the extent (under either of the foregoing clauses) such
     default continues beyond any applicable cure periods
     provided in the applicable lease, and to the extent
     Landlord therefore has (and exercises concurrently with
     any termination of this Lease) a right to terminate such
     other applicable lease; provided, however, that the
     default event set forth in this Section 14.1(i) shall not
     apply with respect to any default under a lease described
     herein to the extent Tenant has previously assigned or
     transferred all of its right, title and interest under the
     lease as to which such default then exists and, as a
     result of such transfer, the holder of the lessee's
     interest under the lease as to which such default then
     exists is not a person or entity which controls, is
     controlled by or is under common control with the person
     or entity which is then the holder of the lessee's
     interest under this Lease."
     
     5.   Brokers.  Landlord and Tenant each represents and
warrants to the other that no broker participated in the
consummation of this Second Amendment, and each agrees to
indemnify, defend and hold the other party harmless against any
liability, cost or expense, including, without limitation,
reasonable attorneys' fees, arising out of any claims for
brokerage commissions or other similar compensation in
connection with any conversations, prior negotiations or other
dealings by the indemnifying party with any such broker or
other claimant.

     6.   Operating Expenses.  The parties acknowledge that
under Section 5.1 of the Lease, Tenant's Operating Cost Share
is presently two and three hundredths percent (2.03%), based on
a square footage of 5,600 square feet for the Premises and a
square footage of 275,674 square feet for all buildings
presently owned by Landlord on the Property (as a result of a
6,000 square foot expansion of one building in 1997).

     7.   Assignment and Subleasing.  Section 11.1 of the
Lease is amended to provide that Landlord's consent to any
proposed sublease or assignment by Tenant will not be
unreasonably withheld or delayed.

     8.   Full Force and Effect.  Except as expressly set
forth herein, the Lease has not been modified or amended and
remains in full force and effect.

            [rest of page intentionally left blank]
    IN WITNESS WHEREOF, Landlord and Tenant have executed
this Second Amendment as of the date first set forth above.
          "Landlord"
          
HAYWARD POINT EDEN I LIMITED PARTNERSHIP, a Delaware limited
partnership
By:  BRITANNIA DEVELOPMENTS, INC., a California corporation,
     General Partner
     
     
     By:  ____________________
          T. J. Bristow
          President
          "Tenant"

ARADIGM CORPORATION, a California corporation



By:  _____________________
     Richard P. Thompson
     Its President

17025\3044\0004rv1
                          EXHIBIT 10.9B
                                
                    THIRD AMENDMENT TO LEASE
                                
                                
     THIS THIRD AMENDMENT TO LEASE ("Second Amendment") is
entered into as of January 28, 1998 between HAYWARD POINT EDEN I
LIMITED PARTNERSHIP, a Delaware limited partnership ("Landlord")
and ARADIGM CORPORATION, a California corporation ("Tenant")
previously known as Miris Medical Corporation, with reference to
the following facts:

     E.   Landlord and Tenant (then known as Miris Medical
Corporation) are parties to a Lease dated as of November 20,
1992, as amended by a First Amendment to Lease dated as of
November 29, 1994 and a Second Amendment to Lease dated as of
December 22, 1997 (as amended, the "Lease"), covering certain
premises consisting of approximately 5,600 square feet of space
in Building H of the Britannia Point Eden Business Park (the
"Center") and commonly known as 26219 Eden Landing Road,
Hayward, California 94545.

     F.   Concurrently with the execution of this Third
Amendment, Landlord and Tenant are entering into a new lease
covering portions of Building G in the Center (the "New Building
G Lease") and, in connection therewith, wish to amend certain
provisions of the Lease to conform to revised versions of such
provisions incorporated in the New Building G Lease.

     G.   Terms used herein as defined terms but not
specifically defined herein shall have the meanings assigned to
such terms in the Lease.

     NOW, THEREFORE, in consideration of the mutual agreements
set forth herein and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree as follows:

     9.   Operating Expenses.  Section 5.2 of the Lease is
amended to read in its entirety as follows:

          "5.2  Definition Of Operating Expenses.  Subject to
the exclusions and provisions hereinafter contained, the term
"Operating Expenses" shall mean the total costs and expenses
incurred by or allocable to Landlord for management, operation
and maintenance of the Building and the Property (and any
applicable adjacent property owned by Landlord and operated, for
common area purposes, on an integrated basis with the Property
as described above), including, without limitation, costs and
expenses of (i) insurance, property management, landscaping, and
operation, repair and maintenance of buildings and common areas;
(ii) all utilities and services; (iii) real and personal
property taxes and assessments or substitutes therefor,
including (but not limited to) any possessory interest, use,
business, license or other taxes or fees, any taxes imposed
directly on rents or services, any assessments or charges for
police or fire protection, housing, transit, open space, street
or sidewalk construction or maintenance or other similar
services from time to time by any governmental or quasi-
governmental entity, and any other new taxes on landlords in
addition to taxes now in effect (but excluding corporate income
taxes); (iv) supplies, equipment, utilities and tools used in
management, operation and maintenance of the Property; (v)
capital improvements to the Property or the Building, amortized
over the useful life of such capital improvements, (aa) which
reduce or will cause future reduction of other items of
Operating Expenses for which Tenant is otherwise required to
contribute or (bb) which are required by law, ordinance,
regulation or order of any governmental authority or (cc) which
constitute repairs or replacements of existing improvements in
the Premises or common areas of the Property with items of
similar quality and function, as a result of obsolescence or
ordinary wear and tear, in order to maintain and preserve the
quality, safety and usefulness of the Property, to the extent
such repairs or replacements are treated as capital items under
generally accepted accounting principles; and (vi) any other
costs (including, but not limited to, any parking or utilities
fees or surcharges) allocable to or paid by Landlord, as owner
of the Property or Building, pursuant to any applicable laws,
ordinances, regulations or orders of any governmental or quasi
governmental authority or pursuant to the terms of any
declarations of covenants, conditions and restrictions now or
hereafter affecting the Property (or any applicable adjacent
property owned by Landlord as described above).  Operating
Expenses shall not include any costs attributable to increasing
the size of or otherwise expanding the Building or the costs of
the work for which Landlord is required to pay under Section 2.4
or Exhibit C.  The distinction between items of ordinary
operating maintenance and repair and items of a capital nature
shall be made in accordance with generally accepted accounting
principles applied on a consistent basis. Notwithstanding
anything to the contrary contained in this Section 5.2, the
following shall not be included in Operating Expenses under this
Lease:

          (A)  Leasing commissions, attorneys' fees, costs,
     disbursements and other expenses incurred in connection
     with negotiations or disputes with tenants, or in
     connection with leasing, renovating or improving space for
     tenants or other occupants or prospective tenants or other
     occupants of the Building or of the land on which the
     Premises are located;
     
          (B)  The cost of any service sold to any tenant
     (including Tenant) or other occupant for which Landlord is
     entitled to be reimbursed as an additional charge or rental
     over and above the basic rent and escalations payable under
     Landlord's lease with that tenant;
     
             (C)  Any depreciation on the Building;
                                
     (D)  Costs of a capital nature, including but not
limited to capital improvements and alterations, capital
repairs, capital equipment and capital tools, as
determined in accordance with generally accepted
accounting principles consistently applied, except to the
extent expressly provided in clause (v) above;
     (E)  Expenses in connection with services or other
benefits of a type that are not offered to Tenant but that
are provided to another tenant or occupant of the Building
or land upon which the Premises are located;
     (F)  Overhead profit increments paid to Landlord's
subsidiaries or affiliates for management or other
services relating to the Building or the Property, or for
supplies or other materials, to the extent the cost of
such services, supplies or materials exceeds a reasonable
market rate for obtaining such services, supplies or
materials from unaffiliated parties;
     (G)  All interest, loan fees and other carrying costs
related to any mortgage or deed of trust or related to any
capital item, and all rental and other payments due under
any ground or underlying lease, or any lease for any
equipment ordinarily considered to be of a capital nature
(except janitorial equipment which is not affixed to the
Building);
     (H)  Any compensation paid to clerks, attendants or
other persons in commercial concessions operated by
Landlord;
      (I)  Advertising and promotional expenditures;
     (J)  Costs of repairs and other work occasioned by
fire, windstorm or other casualty of an insurable nature;
     (K)  Any costs, fines or penalties incurred due to
violations by Landlord of any governmental rule or
authority, this Lease or any other lease affecting the
Building or the land on which the Premises are located, or
due to Landlord's negligence or willful misconduct;
     (L)  Management costs, to the extent they exceed a
reasonable market rate for management services provided to
comparable projects in Hayward, California and surrounding
areas;
     (M)  Costs for sculpture, paintings or other objects
of art, including (but not limited to) any costs for
insurance thereon or extraordinary security in connection
therewith;
     (N)  Wages, salaries or other compensation paid to
any executive employee above the grade of building
manager;
     (O)  The cost of correcting any building code or
other violations of applicable law which, on the
Commencement Date, were existing violations of laws or
codes then in effect;

     (P)  The cost of containing, removing or otherwise
remediating any contamination of the Building or Property
(including the underlying land and groundwater) by any
toxic or hazardous materials (including, without
     limitation, asbestos and PCB's);
          (Q)  Any increase in real property taxes or
     assessments on the Property as a result of a change in
     ownership of the Property; provided, however, that the
     exclusion contained in this clause (Q) shall apply only in
     the determination of Operating Expenses with respect to
     periods prior to the third (3rd) anniversary of the
     Commencement Date, and shall not apply in the
     determination of Operating Expenses with respect to any
     subsequent periods during the term of this Lease; and
          (R)  Any other expense not specifically included or
     excluded above which, under generally accepted accounting
     principles and practices consistently applied, would not
     be considered a normal maintenance or operating expense."
     10.  Operating Expense Audits.  Section 5.4 of the Lease
is amended to read in its entirety as follows:
            "5.4  Final Accounting For Lease Year.
               (1)  Within ninety (90) days after the close of
each Lease Year, or as soon after such 90-day period as
practicable, Landlord shall deliver to Tenant a statement of
Tenant's Operating Cost Share of the Operating Expenses for
such Lease Year prepared by Landlord from Landlord's books and
records, which statement shall be final and binding on Landlord
and Tenant, subject to Tenant's audit right set forth below.
If on the basis of such statement Tenant owes an amount that is
more or less than the estimated payments for such calendar year
previously made by Tenant, Tenant or Landlord, as the case may
be, shall pay the deficiency to the other party within thirty
(30) days after delivery of the statement.  Failure or
inability of Landlord to deliver the annual statement within
such ninety (90) day period shall not impair or constitute a
waiver of Tenant's obligation to pay Operating Expenses, or
cause Landlord to incur any liability for damages.
          (2)  Notwithstanding any other provisions of this
Section 5.4, within one (1) year after receipt of a final
statement from Landlord setting forth actual Operating Expenses
and Tenant's Operating Cost Share for any period (a
"Statement"), Tenant shall have the right to audit or inspect
Landlord's books and records relating to Operating Expenses
(and to any other additional rent payable by Tenant under this
Lease) for the period covered by the Statement, provided that
such audit shall be conducted only during normal business
hours, on not less than ten (10) days prior written notice to
Landlord, at a location reasonably specified by Landlord, and
at Tenant's sole cost and expense, except as hereinafter
provided.  Landlord shall cooperate with Tenant in all
reasonable respects in the course of such audit, and Tenant and
its employees and agents shall be permitted to make photocopies
(at Tenant's expense) of any pertinent portions of Landlord's
books and records.  Landlord shall retain its books and records
for each Lease Year for a period of at least one (1) year after
delivery to Tenant of Landlord's Statement for the applicable
Lease Year.  To the extent that Tenant, on the basis of such
audit, disputes any item in the applicable Statement or in the
calculation of Tenant's obligations thereunder, Tenant shall
give Landlord written notice of the disputed items, in
reasonable detail and with reasonable supporting information,
within thirty (30) days after the earlier to occur of the
completion of Tenant's audit or the
expiration of Tenant's 1-year audit period.  If Landlord and
Tenant are not able to resolve such dispute by good faith
negotiations within thirty (30) days after Tenant notifies
Landlord in writing of the disputed items, then Tenant may, by
written notice to Landlord, request an independent audit of
such books and records.  The independent audit of the books and
records shall be conducted by a certified public accountant
acceptable to both Landlord and Tenant or, if the parties are
unable to agree, by a "Big Six" accounting firm designated by
Landlord and not then employed by Landlord or Tenant.  The
audit shall be limited to the determination of the amount of
Operating Expenses and of Tenant's share thereof for the Lease
Year covered by the Statement, and shall be based on generally
accepted accounting principles and tax accounting principles,
consistently applied, subject to any modifications or
limitations expressly set forth in
Section 5.2 hereof.  If it is determined, by mutual agreement
of Landlord and Tenant or by independent audit, that the amount
paid by Tenant for Operating Expenses for the period covered by
the Statement was incorrect, then the appropriate party shall
pay to the other party the deficiency or overpayment, as
applicable, within thirty (30) days after the final
determination of such deficiency or overpayment.  All costs and
expenses of the audit shall be paid by Tenant unless the audit
shows that Landlord overstated Operating Expenses for the
period covered by the Statement by more than four percent (4%),
in which event Landlord shall pay all costs and expenses of the
audit.  Each party agrees to maintain the confidentiality of
the findings of any audit in accordance with the provisions of
this Section 5.4.  The provisions of this Section 5.4 shall
survive the expiration or sooner termination of this Lease."

     11.  Liens.  Section 7.4 of the Lease is amended to read
in its entirety as follows:

          "7.4  No Liens.  Tenant shall at all times keep the
Premises free from all liens and claims of any contractors,
subcontractors, materialmen, suppliers or any other parties
employed either directly or indirectly by Tenant in
construction work on the Premises.  Tenant may contest any
claim of lien, but only if, prior to such contest, Tenant
either (i) posts security in the amount of the claim, plus
estimated costs and interest, or (ii) records a bond of a
responsible corporate surety in such amount as may be required
to release the lien from the Premises.  Tenant shall indemnify,
defend and hold Landlord harmless against any and all
liability, loss, damage, cost and other expenses, including,
without limitation, reasonable attorneys' fees, arising out of
claims of any lien for work performed or materials or supplies
furnished at the request of Tenant or persons claiming under
Tenant.  Nothing in this Section 7.4 shall be construed to
prevent Tenant from obtaining financing on Tenant's movable
furniture, equipment and trade fixtures or from granting a
security interest in such items to one or more lenders,
provided that Tenant shall not be entitled, pursuant to this
sentence or otherwise, to encumber any alterations, additions
or improvements that are the property of Landlord and that must
remain with the Premises upon termination of this Lease, as
provided in Sections 7.2 and 7.3 hereof. Without limiting the
generality of the preceding sentence, Landlord acknowledges
that it has been advised by Tenant that Tenant is presently a
party to agreements creating liens on some or all of Tenant's
existing and/or after-acquired equipment, furniture, trade
fixtures and other personal property in favor of (a)
Transamerica Business Credit and
(b) Comdisco; nothing in this sentence shall be construed,
however, as a waiver or release by Landlord with respect to
the proviso set forth in the preceding sentence regarding
limitations on the property that Tenant is entitled to
encumber."
     12.  Full Force and Effect.  Except as expressly set
forth herein, the Lease has not been modified or amended and
remains in full force and effect.
    IN WITNESS WHEREOF, Landlord and Tenant have executed
this Third Amendment as of the date first set forth above.

          "Landlord"
HAYWARD POINT EDEN I LIMITED PARTNERSHIP, a Delaware limited
partnership
By:  BRITANNIA DEVELOPMENTS, INC., a California corporation,
General Partner
By:  ____________________
T.   J. Bristow
President and Chief Financial Officer
          "Tenant"


ARADIGM CORPORATION, a California corporation



By:  _____________________
     Richard P. Thompson
     President


By:  _____________________
     Mark A. Olbert
     Chief Financial Officer


17025\3044\0023

EXHIBIT 10.10

                             LEASE

Landlord:  HAYWARD POINT EDEN I LIMITED PARTNERSHIP

Tenant:    ARADIGM CORPORATION

Date:           January 28, 1998





                         TABLE OF CONTENTS
                                 
                                 
                                 
                                 
1.  PREMISES                                                    1
     1.1. Premises                                             1
     1.2. Landlord's Reserved Rights                           1
     1.3. First Refusal Right                                  2
     
2.  TERM                                                        3
     2.1. Term                                                 3
     2.2. Early Possession                                     3
     2.3. Delay In Possession                                  3
     2.4. Construction                                         4
     2.5. Acknowledgment Of Final Completion Date              6
     2.6. Holding Over                                         6

3.  RENTAL                                                      6
     3.1. Minimum Rental                                       6
     3.2. Late Charge                                          9

4.  TAXES                                                       9
     4.1. Personal Property                                    9
     4.2. Real Property                                        9

5.  OPERATING EXPENSES                                         10
     5.1. Payment Of Operating Expenses                       10
     5.2. Definition Of Operating Expenses                    10
     5.3. Determination Of Operating Expenses                 12
     5.4. Final Accounting For Lease Year                     12
     5.5. Proration                                           13

6.  UTILITIES                                                  13
     6.1. Payment                                             13
     6.2. Interruption                                        13

7.  ALTERATIONS                                                14
     7.1. Right To Make Alterations                           14
     7.2. Title To Alterations                                14
     7.3. Tenant Fixtures                                     14
     7.4. No Liens                                            14

8.  MAINTENANCE AND REPAIRS                                    15
     8.1. Landlord's Work                                     15
     8.2. Tenant's Obligation For Maintenance                 15
          (a)  Good Order, Condition And Repair               15
          (b)  Landlord's Remedy                              15
          (c)  Condition Upon Surrender                       15

9.  USE OF PREMISES                                            16
     9.1. Permitted Use                                       16
     9.2. Requirement Of Continued Use                        16
     9.3. No Nuisance                                         16
     9.4. Compliance With Laws                                16
     9.5. Liquidation Sales                                   17
     9.6. Environmental Compliance                            17
     9.7. ADA/Title 24 Compliance                             18

10.  INSURANCE AND INDEMNITY                                   18
     10.1.Liability Insurance                                 18
     10.2.Quality Of Policies And Certificates                19
     10.3.Workers' Compensation                               19
     10.4.Waiver Of Subrogation                               19
     10.5.Increase In Premiums                                19
     10.6.Indemnification                                     20
     10.7.Blanket Policy                                      20

11.  SUBLEASE AND ASSIGNMENT                                   20
     11.1.Assignment And Sublease Of Premises                 20
     11.2.Rights Of Landlord                                  21

12.  RIGHT OF ENTRY AND QUIET ENJOYMENT                        21
     12.1.Right Of Entry                                      21
     12.2.Quiet Enjoyment                                     21

13.  CASUALTY AND TAKING                                       22
     13.1.Termination Or Reconstruction                       22
     13.2.Tenant's Rights                                     23
     13.3.Lease To Remain In Effect                           23
     13.4.Reservation Of Compensation                         23
     13.5.Restoration Of Fixtures                             23

14.  DEFAULT                                                   24
     14.1.Events Of Default                                   24
          (a)  Abandonment                                    24
          (b)  Nonpayment                                     24
          (c)  Other Obligations                              24
          (d)  General Assignment                             24
          (e)  Bankruptcy                                     24
          (f)  Receivership                                   24
          (g)  Attachment                                     24
          (h)  Insolvency                                     25
          (i)  Cross-Default                                  25
     14.2.Remedies Upon Tenant's Default                      25
     14.3.Remedies Cumulative                                 26

15.  SUBORDINATION, ATTORNMENT AND SALE                        26
     15.1.Subordination To Mortgage                           26
     15.2.Sale Of Landlord's Interest                         27
     15.3.Estoppel Certificates                               27
     15.4.Subordination to CC&R's                             27

16.  SECURITY                                                  28
     16.1.Deposit                                             28

17.  MISCELLANEOUS                                             29
     17.1.Notices                                             29
     17.2.Successors And Assigns                              29
     17.3.No Waiver                                           29
     17.4.Severability                                        30
     17.5.Litigation Between Parties                          30
     17.6.Surrender                                           30
     17.7.Interpretation                                      30
     17.8.Entire Agreement                                    30
     17.9.Governing Law                                       30
     17.10.                                       No Partnership 30
     17.11.                                Financial Information 30
     17.12.                                                Costs 31
     17.13.                                                 Time 31
     17.14.                                Rules And Regulations 31
     17.15.                                              Brokers 31
     17.16.                                  Memorandum Of Lease 31
     17.17.                                  Corporate Authority 31
     17.18.                               Execution and Delivery 31
     17.19.                                       Stock Warrants 32

EXHIBITS

A    Location of Premises

B    Real Property Description

C    Construction

D    Acknowledgment of Final Completion Date

E    Form of Non-Disturbance and Attornment Agreement






17025\3044\0002rv5
                             LEASE
                               
                               
            THIS LEASE is made and entered into as of the 28th
day  of  January, 1998, by and between HAYWARD  POINT  EDEN  I
LIMITED    PARTNERSHIP,   a   Delaware   limited   partnership
("Landlord") and ARADIGM CORPORATION, a California corporation
("Tenant").


                 THE PARTIES AGREE AS FOLLOWS:
                               
                               
                         1.  PREMISES
                               
     1.1.  Premises.

           (a)  Landlord leases to Tenant and Tenant hires and
leases  from Landlord, on the terms, covenants and  conditions
hereinafter   set   forth,  the  premises   (the   "Premises")
designated  in  Exhibit  A  attached hereto  and  incorporated
herein  by this reference, consisting of approximately  40,000
square   feet  of  space  located  within  Building   G   (the
"Building")  in  the Britannia Point Eden Business  Park  (the
"Center") in the City of Hayward, County of Alameda, State  of
California, commonly known as 26224 Executive Place,  Hayward,
California  94545  and  located  on  the  real  property  (the
"Property")  described  in  Exhibit  B  attached  hereto   and
incorporated  herein  by  this reference,  together  with  the
nonexclusive  right  to use any common areas  designated  from
time  to time in any Declaration of Covenants, Conditions  and
Restrictions or similar document affecting the Center.

            (b)   The  Premises  as designated  in  Exhibit  A
consist of the following subspaces:  (i) the "Existing Space,"
consisting  of  approximately  7,200  square  feet  of   space
presently occupied by Tenant pursuant to a Lease dated  as  of
November 29, 1994 between Landlord and Tenant, as amended (the
"Existing   Lease");   (ii)  the  "First  Additional   Space,"
consisting  of  approximately  8,640  square  feet  of   space
occupied   by   Tandy  Corporation  prior   to   approximately
December  30,  1997;  (iii)  the  "Second  Additional  Space,"
consisting  of  approximately  7,916  square  feet  of   space
occupied by Adastra Systems Corporation prior to approximately
January  5,  1998;  and  (iv)  the "Third  Additional  Space,"
consisting  of  a new addition of approximately 16,244  square
feet  to be constructed by Landlord on the South side  of  the
Building for occupancy by Tenant pursuant to this Lease.

            (c)   Effective  as of the Commencement  Date  (as
hereinafter  defined), the Existing Lease shall be  terminated
and  shall be of no further force or effect, except  that  the
provisions  thereof  shall be deemed to remain  in  effect  as
between   Landlord  and  Tenant  for  the  sole   purpose   of
establishing  their  respective rights  and  obligations  with
respect  to  matters  arising during  or  in  connection  with
Tenant's  occupancy  of  the Existing Space  pursuant  to  the
Existing  Lease  during the period prior to  the  Commencement
Date  (including,  but  not limited  to,  any  indemnification
obligations  with  respect  to third  party  claims  or  other
liabilities, and any necessary adjustment between the parties,
when  1997  year-end  figures  are  available,  for  estimated
Operating  Expense  payments  and  actual  Operating   Expense
obligations for the portion of calendar year 1997 prior to the
Commencement Date).
      1.2.  Landlord's Reserved Rights.  Landlord reserves the
right  from time to time to (i) install, use, maintain, repair
and  replace  pipes,  ducts, conduits, wires  and  appurtenant
meters  and  equipment  for service  to  other  parts  of  the
Building above the ceiling surfaces, below the floor surfaces,
within  the walls or leading through the Premises in locations
which will not materially interfere with Tenant's use thereof,
(ii)   relocate   any  pipes,  ducts,  conduits,   wires   and
appurtenant  meters  and equipment included  in  the  Premises
which  are  so  located  or  located  elsewhere  outside   the
Premises, (iii) make alterations or additions to the Building,
(iv)   construct,   alter  or  add  to  other   buildings   or
improvements  on  the  Property, (v) build  adjoining  to  the
Property,  and  (vi) lease any part of the  Property  for  the
construction  of  improvements  or  buildings.   Landlord  may
modify  or enlarge the common area, alter or relocate accesses
to  the  Premises,  or alter or relocate any common  facility.
Landlord shall not exercise rights reserved to it pursuant  to
this  Section  1.2  in such a manner as to  materially  impair
Tenant's  ability  to  conduct its activities  in  the  normal
manner; provided, however, that the foregoing shall not  limit
or   restrict   Landlord's  right  to   undertake   reasonable
construction  activity and Tenant's use of the Premises  shall
be  subject  to reasonable temporary disruption incidental  to
such activity diligently prosecuted.

     1.3.  First Refusal Right.

           (a)  Landlord shall not lease all or any portion of
the  Option Space designated in Exhibit A hereto (the  "Option
Space")  at any time during the term of this Lease, except  in
compliance  with  this  Section 1.3; provided,  however,  that
(i)  the  foregoing  restriction shall not  apply  during  any
period  in  which  Tenant is in uncured  default,  beyond  the
expiration  of any applicable cure period, under  this  Lease,
and  (ii) Tenant's rights under this Lease with respect to the
Option Space shall in all events be subject to and subordinate
to any and all other first refusal rights, first offer rights,
renewal  options and other similar rights existing as  of  the
date  hereof  in  favor of any other tenants  of  the  Center.
Landlord shall also use reasonable efforts to notify Tenant of
other vacancies or anticipated vacancies arising from time  to
time  in portions of the Center that are not technically  part
of  the Option Space, but Landlord shall have no obligation to
offer  or lease any such other vacant space to Tenant  (except
to  the  extent  Landlord  and  Tenant,  in  their  respective
discretion  and  without obligation to do so,  mutually  agree
upon  terms for such leasing), and Tenant shall have no  first
refusal  right  with respect to any such other  vacant  space.
Tenant's  rights  under  this Section 1.3  are  "personal"  to
Tenant  and shall expire and terminate upon any assignment  of
Tenant's  interest under this Lease; provided,  however,  that
the  foregoing restriction shall not apply in the case of, and
the  rights created in this Section 1.3 shall remain  in  full
force  and  effect following, either (x) a Permitted  Transfer
(as  defined in Section 11.1 hereof) or (y) any assignment  as
part of a bulk transfer or assignment, to a single transferee,
of  all  of  Tenant's then existing leasehold  rights  in  the
Center or any portion thereof.
            (b)   If Landlord intends during the term of  this
Lease to lease all or any portion of the Option Space, and  if
Tenant  is  not then in uncured default, beyond any applicable
cure  period,  under this Lease, Landlord shall  give  written
notice  of  such intention to Tenant, specifying the  material
terms on which Landlord proposes to lease the Option Space  or
portion  thereof  (the "Offered Space"), and  shall  offer  to
Tenant the opportunity to lease the Offered Space on the terms
specified  in Landlord's notice.  Tenant shall have seven  (7)
days  after  the date of giving of such notice by Landlord  in
which  to  accept  such offer by written notice  to  Landlord.
Upon  such  acceptance by Tenant, the Offered Space  shall  be
leased  to Tenant on the terms set forth in Landlord's  notice
and  on  the additional terms and provisions set forth  herein
(except to the extent inconsistent with the terms set forth in
Landlord's said notice) and the parties shall promptly execute
an  amendment  to this Lease adding the Offered Space  to  the
Premises  and making any appropriate amendments to  provisions
of  this Lease to reflect different rent and other obligations
applicable  to the Offered Space under the terms of Landlord's
said  notice.   If  Tenant  does not accept  Landlord's  offer
within  the allotted time, Landlord shall thereafter have  the
right to lease the Offered Space to a third party, at any time
within one hundred eighty (180) days after Tenant's failure to
accept  Landlord's  offer, at a minimum rental  and  on  other
terms and conditions not more favorable to the lessee than the
minimum rental and other terms offered to Tenant in Landlord's
said  notice; if Landlord wishes, during such 180-day  period,
to  lease  the  Offered  Space on terms  and  conditions  more
favorable  to  the  lessee than those  offered  to  Tenant  in
Landlord's said notice, then Landlord shall first be  required
to  give  Tenant a new notice specifying such  new  terms  and
conditions and the procedure set forth above in this paragraph
(b)  shall be re-initiated by such notice.  If Tenant does not
accept  Landlord's  offer  and Landlord  does  not  lease  the
Offered  Space to a third party within the applicable  180-day
period, this first refusal right shall reattach to that space.
            (c)   Substantially concurrently with the parties'
execution of this Lease, Tenant and Britannia Point Eden, LLC,
an affiliate of Landlord, are entering into a lease covering a
new  building  of  approximately  71,000  square  feet  to  be
constructed  in Phase V of the Britannia Point  Eden  Business
Park  (the  "Phase V Lease").  The Phase V Lease will  have  a
term several years longer than the term of this Lease.  If  at
any time during the term of this Lease the property covered by
the  Phase  V  Lease  comes under common  ownership  with  the
property subject to Tenant's first refusal right set forth  in
this  Section 1.3, the operation of this Section 1.3 shall  be
suspended   during   the  period  of  such  common   ownership
(recognizing  that  the  Phase V Lease contains  a  comparable
first  refusal  right covering the Option Space,  which  right
shall  become  applicable during any  such  period  of  common
ownership),  but  shall  again  become  fully  effective   and
exercisable  in  accordance with  its  terms  if  such  common
ownership thereafter ceases during the remaining term of  this
Lease.   (The  parties acknowledge that the  purpose  of  this
paragraph  (c)  is to coordinate the operation of  this  first
refusal  right and the first refusal right in Section  1.4  of
the Phase V Lease in such a manner that Tenant's first refusal
right  with  respect to the Option Space shall  exist  and  be
exercisable  under either the Phase V Lease or this  Lease  at
any  applicable time, during the respective terms  of  and  in
accordance with the respective provisions of such leases,  but
there shall be no period in which such first refusal right  is
simultaneously in effect and exercisable under both leases.)


                           2.  TERM
                               
     2.1.  Term.  The term of this Lease shall commence on the
date  of  mutual execution hereof by Landlord and Tenant  (the
"Commencement  Date"), which date shall be inserted  above  as
the  date  of this Lease, and shall end on the day immediately
preceding  the  date  fifteen  (15)  years  after  the   Final
Completion  Date  (as  hereinafter  defined),  unless   sooner
terminated   or   extended  (if  applicable)  as   hereinafter
provided.   Notwithstanding the preceding  sentence,  however,
Tenant's  rights  and obligations with respect  to  the  Third
Additional  Space shall not commence until the  date  Landlord
tenders  possession of the Third Additional  Space  to  Tenant
with  Landlord's work therein under Section 2.4 and Exhibit  C
having  been certified by Architect (as defined in  Exhibit  C
hereto) as being substantially complete, subject only  to  the
correction   of   "punch  list"  items  as   contemplated   in
Section  2.4 hereof which do not, in the aggregate, materially
interfere  with Tenant's ability to occupy and use  the  Third
Additional  Space  for the uses contemplated  hereunder.   For
purposes of this Lease, the term "Final Completion Date" shall
mean  the  earlier  of (a) January 1, 2000  or  (b)  the  date
construction of the Commercial Manufacturing Facility  in  the
Premises  under  Section 2.4 and Exhibit  C  is  substantially
complete (except for correction of "punch list" items which do
not,  in  the  aggregate, materially interfere  with  Tenant's
ability to use such Commercial Manufacturing Facility for  the
uses contemplated hereunder).

      2.2.   Early Possession.  If Landlord permits Tenant  to
occupy,  use or take possession of any portion of the Premises
other  than  the  Existing  Space  (which  Tenant  is  already
occupying pursuant to the Existing Lease) prior to the date on
which  Tenant's  rights and obligations with respect  to  such
portion   of   the   Premises  commence  in  accordance   with
Section  2.1, such occupancy shall be subject to and upon  all
the   terms  and  conditions  of  this  Lease,  excluding  the
obligation to pay rent and other charges, unless Landlord  and
Tenant  agree  otherwise; provided, however, that  such  early
possession   shall  not  advance  or  otherwise   affect   the
Commencement   Date,  Completion  Date  or  termination   date
determined  pursuant  to Section 2.1; provided  further,  that
Landlord  shall  in  all events permit Tenant  to  have  early
access  to  and possession of the Third Additional  Space,  at
reasonable times and under reasonable conditions, prior to the
completion of Landlord's work therein, solely for the  purpose
of  installing fixtures and equipment and other  similar  work
preparatory to Tenant's commencement of business in the  Third
Additional Space, and Tenant shall not be required to pay rent
or Operating Expenses by reason of such early possession until
the  date  Tenant's  obligations with  respect  to  the  Third
Additional  Space would otherwise commence under  Section  2.1
hereof;  and provided further, that Tenant shall not interfere
with  or delay Landlord's contractors by such early possession
and shall indemnify, defend and hold harmless Landlord and its
agents  and  employees from and against any  and  all  claims,
demands,  liabilities, actions, losses,  costs  and  expenses,
including  (but  not limited to) reasonable  attorneys'  fees,
arising out of or in connection with Tenant's early entry upon
such  portion of the Premises hereunder, excluding those which
arise  out of the negligence or willful misconduct of Landlord
or its agents.

      2.3.   Delay In Possession.  Landlord agrees to use  its
best  reasonable efforts to complete promptly  and  diligently
the  work described in Section 2.4 and Exhibit C with  respect
to  each  applicable portion of the Premises, subject  to  the
effects  of any delays caused by or attributable to Tenant  or
any  other circumstances beyond Landlord's reasonable  control
(excluding   any  financial  inability);  provided,   however,
Landlord  shall not be liable for any damages  caused  by  any
delay in the availability of any portion of the Premises or by
any delay in the completion of Landlord's work with respect to
any  such  portion of the Premises, nor shall any  such  delay
affect the validity of this Lease or the obligations of Tenant
hereunder.   Without limiting the generality of the foregoing,
the  parties acknowledge that Landlord's ability to  construct
and  improve  the  Third Additional Space in  accordance  with
Section  2.4 and Exhibit C will depend on, among other things,
approval by the City of Hayward of the street abandonment  and
building  expansion required for such construction to proceed.
The  parties agree to proceed diligently to pursue  such  City
approvals;  if,  despite such diligent efforts,  the  required
approvals  are unavailable, then the provisions of this  Lease
relating to the Third Additional Space shall be of no  further
force  or  effect but (i) all other provisions of  this  Lease
shall  remain  in full force and effect with  respect  to  the
Existing  Space, First Additional Space and Second  Additional
Space and (ii) Landlord shall be required to make available to
Tenant  alternative space within the Center, on  market  terms
mutually  and reasonably agreeable to Landlord and Tenant,  to
house  the Commercial Manufacturing Facility that is  intended
for  the  Third Additional Space, in which event Landlord  and
Tenant  shall  enter into a lease amendment or new  lease,  as
appropriate,  embodying  the terms  of  their  agreement  with
respect to such alternative space.  Landlord expressly  agrees
that  to  the extent the Third Additional Space never  becomes
available   and  the  Commercial  Manufacturing  Facility   is
therefore placed in alternative space as contemplated  in  the
preceding  sentence,  since  such alternative  placement  will
require  a substantial duplication of equipment and facilities
that  could  have been shared between the Pilot  Manufacturing
Facility  and  the Commercial Manufacturing Facility  if  both
were  located in the Building, Landlord shall bear as its sole
expense, without reimbursement from Tenant by rent adjustments
or  direct  reimbursements or otherwise, all reasonable  costs
associated  with the construction of duplicate facilities  and
systems in such alternative space that would have been  shared
between  the  Pilot Manufacturing Facility and the  Commercial
Manufacturing  Facility  if  both  had  been  located  in  the
Building.   If  the  Third Additional Space  does  not  become
available  and Landlord is not able to make alternative  space
in  the  Center  available  to  Tenant  within  a  time  frame
reasonably  consistent  with  Tenant's  business  needs,  then
Tenant  shall  have the right, at its election,  to  terminate
this Lease by written notice to Landlord.

     2.4.  Construction.
            (a)  The obligation of Landlord to perform work to
improve  the respective portions of the Premises for occupancy
by  Tenant hereunder is set forth in Exhibit C attached hereto
and  incorporated  herein  by this  reference.   As  indicated
therein, it is intended by the parties that the Premises  will
be  subdivided, for improvement purposes, into two phases:   a
"Pilot  Manufacturing Facility" to occupy part or all  of  the
Existing  Space, First Additional Space and Second  Additional
Space, and a "Commercial Manufacturing Facility" to occupy the
Third  Additional  Space  and any remaining  portions  of  the
Existing  Space, First Additional Space and Second  Additional
Space.   Since the rental provisions in Section  3.1  of  this
Lease  are  defined  with  reference  to  characterization  of
portions  of  the  Premises  as  part  of  either  the   Pilot
Manufacturing   Facility   or  the  Commercial   Manufacturing
Facility, Landlord and Tenant agree to cooperate and negotiate
diligently  and in good faith to ensure that at  all  relevant
times   hereunder,   the  space  identified   as   the   Pilot
Manufacturing  Facility  and  the  space  identified  as   the
Commercial  Manufacturing Facility, as such identification  is
agreed  upon  mutually in writing from time  to  time  by  the
parties, shall comprise the entire Premises and there shall be
no  part of the Premises which is not assigned to one  or  the
other  of  such two categories of space.  In implementing  the
preceding  sentence, it is the general intent of  the  parties
that  all of the space improved and made available for use  by
Tenant  prior to the Final Completion Date shall be considered
to  be part of the Pilot Manufacturing Facility from and after
the  date  such improved space is made available  for  use  by
Tenant,  and that only those portions of the space  which  are
improved  and  made  available  for  use  by  Tenant   on   or
substantially  concurrently with  the  Final  Completion  Date
shall be considered to be part of the Commercial Manufacturing
Facility.   Except as set forth in this Section 2.4 (including
paragraph (b) below) and in Exhibit C, Landlord shall have  no
responsibilities or obligations with respect to preparation of
the Premises for Tenant's occupancy.  Acceptance by Tenant  of
possession  of  the applicable portions of the  Premises  from
time  to  time,  after performance of such work  by  Landlord,
shall constitute acceptance by Tenant of such portions of  the
Premises  in  their then completed condition,  as  applicable,
subject  to the terms of this Section 2.4 (including paragraph
(b)  below), and Landlord shall have no further responsibility
of  any  kind or character for improvement of such  respective
portions  of  the  Premises or in connection with  such  work;
provided,  however, that within fifteen (15)  days  after  the
date  on  which Landlord tenders to Tenant possession  of  any
portion  of  the  Premises  in which  Landlord  has  performed
improvement work under Section 2.4 and Exhibit C,  Tenant  may
furnish  to Landlord a "punch list" identifying any  items  or
matters  in  such  portion  of  the  Premises  which  are  not
constructed  in  accordance with the plans and  specifications
approved  under  Exhibit C hereto and Landlord shall  promptly
and  diligently  correct all such matters within  thirty  (30)
days  after  receipt of such punch list at its sole  cost  and
expense.

            (b)   Notwithstanding the provisions of  paragraph
(a)  above, Landlord warrants to Tenant that on the  date  the
improvements  in  each respective phase of  the  Premises  are
tendered to Tenant for Tenant's possession and commencement of
business  therein, the Building systems serving such phase  of
the  Premises  shall  be  in  good operating  order,  and  the
Building  and the tenant improvements constructed by  Landlord
in  such  phase  (i)  shall be free from  material  structural
defects  and  (ii) shall comply with all applicable  covenants
and  restrictions  of  record,  statutes,  ordinances,  codes,
rules,  regulations, orders and requirements in effect on  the
date  of  such  tender, including Title 24 of  the  California
Administrative  Code and the Americans with Disabilities  Act;
provided,  however, that the foregoing warranty shall  not  be
construed  to  apply to any particular use which  Tenant  will
make  of the Premises, except to the extent such use has  been
expressly  disclosed  to  Landlord and  Architect  during  the
planning process for the applicable phase in such a manner and
in  such detail as to reasonably permit Landlord and Architect
to   take  such  use  into  consideration  in  designing   and
constructing the applicable improvements.  If it is determined
that  the foregoing warranty has been violated in any respect,
then it shall be the obligation of Landlord, after receipt  of
written notice from Tenant setting forth with specificity  the
nature of the violation, to promptly, at Landlord's sole  cost
and   expense,  correct  the  condition(s)  constituting  such
violation.  Landlord shall also protect, indemnify, defend and
hold  Tenant harmless from and against any and all  liability,
loss,  suits, claims, actions, costs and expenses  (including,
but  not limited to, reasonable attorneys' fees) arising  from
any  breach of the foregoing warranty.  The provisions of this
Section  2.4(b) shall survive the termination of  this  Lease.
With respect to the foregoing warranty regarding systems being
in good operating order, Tenant's failure to give such written
notice  to  Landlord within ninety (90) days after  tender  of
possession of the applicable phase to Tenant shall  give  rise
to  a  conclusive presumption that Landlord has complied  with
such  warranty  as  to such phase.  Tenant  acknowledges  that
neither  Landlord  nor  any agent of  Landlord  has  made  any
representation  or  warranty  as  to  the  present  or  future
suitability  of  the  Premises for  the  conduct  of  Tenant's
business or proposed business therein, except as expressly set
forth in this Lease.

            (c)   Notwithstanding any other provisions of this
Section  2.4  or of Exhibit C to the contrary, to  the  extent
Tenant,  by  mutual  agreement  of  Landlord  and  Tenant   as
contemplated in Exhibit C, enters into contracts directly with
the  architect  and/or contractor(s) for  any  of  the  tenant
improvement  work in the Premises, Landlord's sole  obligation
with respect to such work contracted for by Tenant shall be to
make  payments with respect thereto when and as required under
Exhibit  C  and to cooperate with Tenant with respect  to  any
approvals   or  other  actions  required  of  Landlord   under
Exhibit  C in connection with such work; Landlord's warranties
under  Section  2.4(b)  and  Landlord's  obligations  to  make
improvements   and   correct   "punch   list"   items    under
Section  2.4(a)  shall  not  apply  to  any  improvement  work
designed and/or constructed under direct contract with Tenant,
it  being  the  intention of the parties  that  Tenant's  sole
recourse  with  respect  to  any  such  work  designed  and/or
constructed under direct contracts with Tenant shall be solely
against  the  applicable contracting parties and  not  against
Landlord.

             (d)    TENANT  ACKNOWLEDGES  THAT  THE  FOREGOING
WARRANTIES  ARE  IN LIEU OF ALL OTHER WARRANTIES,  EXPRESS  OR
IMPLIED,  WITH  RESPECT  TO  THE  PHYSICAL  CONDITION  OF  THE
BUILDING  AND  IMPROVEMENTS TO BE CONSTRUCTED BY LANDLORD  AND
THAT  LANDLORD MAKES NO OTHER WARRANTIES EXCEPT  AS  EXPRESSLY
SET FORTH IN THIS LEASE.
      2.5.  Acknowledgment Of Final Completion Date.  Promptly
following the Final Completion Date, Landlord and Tenant shall
execute a written acknowledgment of the Final Completion Date,
date of termination and related matters, substantially in  the
form   attached   hereto  as  Exhibit  D   (with   appropriate
insertions),  which  acknowledgment  shall  be  deemed  to  be
incorporated  herein  by this reference.  Notwithstanding  the
foregoing requirements, the failure of one or both parties  to
execute  any such written acknowledgment shall not affect  the
determination   of  the  Final  Completion   Date,   date   of
termination,  square  footage  of  the  Premises  and  related
matters in accordance with the provisions of this Lease.

      2.6.   Holding Over.  If Tenant holds possession of  the
Premises after the term of this Lease with Landlord's  written
consent,  then except as otherwise specified in such  consent,
Tenant  shall  become  a tenant from month  to  month  at  one
hundred percent (100%) for the first thirty (30) days of  such
holding  over,  and at one hundred twenty-five percent  (125%)
thereafter, of the rental in effect for the period immediately
prior to such holding over and otherwise upon the terms herein
specified  for  the period immediately prior to  such  holding
over,  and shall continue in such status until the tenancy  is
terminated by either party upon not less than thirty (30) days
prior  written  notice.   If Tenant holds  possession  of  the
Premises  after  the  term  of this Lease  without  Landlord's
written  consent,  then Landlord in its  sole  discretion  may
elect  (by written notice to Tenant) to have Tenant  become  a
tenant  either from month to month or at will, at one  hundred
fifty  percent (150%) of the rental (prorated on a daily basis
for  an at-will tenancy, if applicable) and otherwise upon the
terms  herein  specified for the period immediately  prior  to
such  holding over, or may elect to pursue any and  all  legal
remedies  available  to  Landlord under  applicable  law  with
respect  to  such unconsented holding over by Tenant.   Tenant
shall  indemnify  and hold Landlord harmless  from  any  loss,
damage,   claim,   liability,  cost  or   expense   (including
reasonable attorneys' fees) resulting from any delay by Tenant
in  surrendering  the Premises (except with  Landlord's  prior
written consent), including but not limited to any claims made
by a succeeding tenant by reason of such delay.  Acceptance of
rent  by Landlord following expiration or termination of  this
Lease shall not constitute a renewal of this Lease.

                          3.  RENTAL
                               
     3.1.  Minimum Rental.
           (a)  Tenant shall pay to Landlord as minimum rental
for  the  Premises,  in  advance, without  deduction,  offset,
notice or demand, on or before the Commencement Date and on or
before the first day of each subsequent calendar month of  the
term of this Lease, the following amounts per month:
                (i)    During the period from the Commencement
     Date   until   the  date  construction   of   the   Pilot
     Manufacturing Facility under Section 2.4 and Exhibit C is
     certified  by  Architect as being substantially  complete
     (except  for  correction of "punch list" items  which  do
     not, in the aggregate, materially interfere with Tenant's
     ability   to  occupy  and  use  the  Pilot  Manufacturing
     Facility for the uses contemplated hereunder) (the "Pilot
     Facility Completion Date"), minimum monthly rental  shall
     be  payable at the rate of One Dollar ($1.00) per  square
     foot  per  month on the aggregate area of  the  Premises,
     which  shall  (for  this purpose) be  deemed  to  consist
     initially  of  the  Existing Space, the First  Additional
     Space and the Second Additional Space (23,756 square feet
     in  the aggregate), and to consist of the entire Premises
     (40,000 square feet) as soon as the construction  of  the
     Building   Shell  for  the  Third  Additional  Space   is
     certified by the architect selected by Landlord  for  the
     Building Shell as being substantially completed, if  such
     substantial completion occurs prior to the Pilot Facility
     Completion Date.
     
                 (ii)    Beginning  on  the   Pilot   Facility
     Completion Date, minimum monthly rental on the portion of
     the  Premises designated from time to time as  the  Pilot
     Manufacturing Facility shall be payable at the  following
     rates  (since the termination date for this Lease depends
     on  the  Final Completion Date and that date is presently
     uncertain,  the number of months reflected in such  table
     exceeds  the anticipated duration of the Lease; once  the
     actual  termination date has been established, any months
     reflected  in  the following table that fall  after  such
     termination date shall simply be disregarded):
                Months After Pilot
                 Facility  Completion Date     Minimum  Rental
Rate
                     001-012                   $ 1.25/sq ft
                     013-024                     1.30/sq ft
                     024-036                     1.35/sq ft
                     037-048                     1.41/sq ft
                     049-060                     1.46/sq ft
                     061-072                     1.52/sq ft
                     073-084                     1.58/sq ft
                     085-096                     1.64/sq ft
                     097-108                     1.71/sq ft
                     109-120                     1.78/sq ft
                     121-132                     1.85/sq ft
                     133-144                     1.92/sq ft
                     145-156                     2.00/sq ft
                     157-168                     2.08/sq ft
                     169-180                     2.16/sq ft
                     181-192                     2.25/sq ft
                     193-204                     2.34/sq ft


                 (iii)  During  the  period  from  the   Pilot
     Facility  Completion Date to the Final  Completion  Date,
     minimum monthly rental on the portion of the Premises  in
     which   construction  of  the  Commercial   Manufacturing
     Facility  is in progress shall continue to be payable  at
     the rate of One Dollar ($1.00) per square foot per month,
     and for purposes of that calculation the Third Additional
     Space  shall be deemed to become part of the Premises  on
     the  date the construction of the Building Shell for  the
     Third  Additional  Space is certified  by  the  architect
     selected  by  Landlord for the Building  Shell  as  being
     substantially completed.
     
                (iv)   Beginning on the Final Completion  Date
     and continuing through the expiration of the term of this
     Lease,  minimum  monthly rental for the  entire  Premises
     shall be payable at the applicable rates determined under
     the  table  set forth in Section 3.1(a)(ii)  above.   For
     purposes  of  applying such table, the "months"  for  the
     entire  Premises shall be counted from the Pilot Facility
     Completion  Date,  as  under  Section  3.1(a)(ii)  above,
     notwithstanding    the   fact   that    the    Commercial
     Manufacturing  Facility will not become  subject  to  the
     scheduled  rental  rates under the table  until  a  later
     date.
     
                (v)    If the obligation to pay minimum rental
     hereunder  commences on other than the  first  day  of  a
     calendar month or if the term of this Lease terminates on
     other  than the last day of a calendar month, the minimum
     rental  for such first or last month of the term of  this
     Lease, as the case may be, shall be prorated based on the
     number of days the term of this Lease is in effect during
     such  month.   If  an increase in minimum rental  becomes
     effective on a day other than the first day of a calendar
     month, the minimum rental for that month shall be the sum
     of  the  two  applicable  rates, each  prorated  for  the
     portion of the month during which such rate is in effect.
     
            (b)   In  determining the square  footage  of  the
Premises  or  of  relevant portions thereof  for  purposes  of
applying   the   rates   per  square   foot   set   forth   in
Section 3.1(a), square footages shall be as determined in good
faith by Landlord's architect on a basis consistent with  that
used  in  measuring other leased premises within  the  Center,
which  basis consists of measuring from the exterior faces  of
exterior  walls, from the dripline of overhangs  and  recessed
areas, and from the centerline of interior demising walls.

            (c)   The minimum rental amounts specified in this
Section 3.1 are based upon a base tenant improvement allowance
of  Thirty and No/100 Dollars ($30.00) per square foot, or  an
estimated total of One Million Two Hundred Thousand and No/100
Dollars  ($1,200,000.00) (the "Tenant Improvement Allowance"),
for the work to be performed by Landlord on the Premises under
Section 2.4 and Exhibit C.

                (i)   If Landlord's total direct costs of  its
     work under Section 2.4 and Exhibit C (including, but  not
     limited  to,  payments to contractors and  subcontractors
     for labor, materials and profits or overhead, permit fees
     and  charges, sales and use taxes, testing and inspection
     costs,  architects', engineers' and other consulting  and
     professional  fees,  costs  of  power,  water  and  other
     utilities  and of collection and removal of  debris,  and
     all  other related costs incurred in connection with  the
     design  and  construction  of  such  work)  (the  "Direct
     Costs") on the Pilot Manufacturing Facility exceed Thirty
     Dollars  ($30.00) per square foot times the area  of  the
     Pilot Manufacturing Facility (as determined in accordance
     with  Section 3.1(b) hereof), then during the period from
     the  Pilot  Facility  Completion  Date  until  the  Final
     Completion Date, Tenant shall pay additional monthly rent
     to  Landlord  in an amount equal, for each  month  during
     such  period, to one and eight hundredths percent (1.08%)
     of  the  amount by which such Direct Costs for the  Pilot
     Manufacturing Facility exceed Thirty Dollars ($30.00) per
     square  foot  times  the area of the Pilot  Manufacturing
     Facility as determined in accordance with Section  3.1(b)
     hereof.

                (ii)   Beginning on the Final Completion Date,
     if  and to the extent that Landlord's total Direct  Costs
     of its work under Section 2.4 and Exhibit C on the entire
     Premises (i.e., both the Pilot Manufacturing Facility and
     the  Commercial  Manufacturing Facility) exceed,  in  the
     aggregate, Thirty Dollars ($30.00) per square foot  times
     the  area  of  the Premises (as determined in  accordance
     with  Section 3.1(b) hereof), Tenant shall pay additional
     monthly rent to Landlord as follows:
     
                      (A)   If such Direct Costs exceed Thirty
          Dollars  ($30.00) per square foot but do not  exceed
          Fifty-Five  Dollars ($55.00) per square  foot,  then
          such  additional monthly rent during  the  next  144
          months of the term of this Lease (counting from  the
          Final  Completion Date, not from the Pilot  Facility
          Completion  Date as under Section 3.1(a)(ii)  above)
          shall  be  equal  to  the area of  the  Premises  as
          determined   under  Section  3.1(b)  multiplied   by
          $0.01375  per square foot per month for  each  $1.00
          per  square  foot by which such Direct Costs  exceed
          Thirty  Dollars ($30.00) per square  foot,  with  no
          further  additional  monthly  rent  due  under  this
          Section 3.1(c)(ii)(A) after such 144 months;

                      (B)   If such Direct Costs exceed Fifty
          Five  Dollars ($55.00) per square foot  but  do  not
          exceed  Eighty  Dollars ($80.00)  per  square  foot,
          then  such additional monthly rent during  the  next
          120  months of the term of this Lease (counting from
          the  Final  Completion  Date,  not  from  the  Pilot
          Facility      Completion     Date      as      under
          Section  3.1(a)(ii) above) shall  be  equal  to  the
          area  of  the  Premises as determined under  Section
          3.1(b)  multiplied  by  the sum  of  (I)  $0.34  per
          square  foot per month plus (II) $0.01493 per square
          foot  per  month for each $1.00 per square  foot  by
          which  such  Direct Costs exceed Fifty-Five  Dollars
          ($55.00)   per  square  foot,  and  such  additional
          monthly   rent   during  months  121   through   144
          (counting from the Final Completion Date,  not  from
          the   Pilot  Facility  Completion  Date   as   under
          Section  3.1(a)(ii) above) shall be equal  to  $0.34
          per  square  foot per month times the  area  of  the
          Premises  as  determined under Section 3.1(b),  with
          no  further  additional monthly rent due under  this
          Section 3.1(c)(ii)(B) after such 144 months; and
          
                      (C)   If such Direct Costs exceed Eighty
          Dollars   ($80.00)  per  square  foot,   then   such
          additional  monthly rent during the next  84  months
          of  the term of this Lease (counting from the  Final
          Completion   Date,  not  from  the  Pilot   Facility
          Completion  Date as under Section 3.1(a)(ii)  above)
          shall  be  equal  to  the area of  the  Premises  as
          determined  under Section 3.1(b) multiplied  by  the
          sum  of  (I)  $0.71 per square foot per  month  plus
          (II)  $0.01819  per square foot per month  for  each
          $1.00  per  square foot by which such  Direct  Costs
          exceed  Eighty  Dollars ($80.00)  per  square  foot,
          such  additional  monthly  rent  during  months   85
          through  120  (counting from  the  Final  Completion
          Date,  not  from the Pilot Facility Completion  Date
          as  under  Section 3.1(a)(ii) above) shall be  equal
          to  $0.71  per square foot per month times the  area
          of  the  Premises, and such additional monthly  rent
          during  months  121 through 144 (counting  from  the
          Final  Completion Date, not from the Pilot  Facility
          Completion  Date as under Section 3.1(a)(ii)  above)
          shall  be  equal to $0.34 per square foot per  month
          times  the  area  of the Premises, with  no  further
          additional  monthly  rent  due  under  this  Section
          3.1(c)(ii)(C) after such 144 months.
          
      3.2.   Late  Charge.  If Tenant fails to  pay  when  due
rental  or  other amounts due Landlord hereunder on or  before
the  fifth (5th) day after such rental or other amount is due,
such  unpaid  amounts shall bear interest for the  benefit  of
Landlord  at  a  rate equal to the lesser of  fifteen  percent
(15%) per annum or the maximum rate permitted by law, from the
date  due  to  the  date  of payment.   In  addition  to  such
interest,  Tenant shall pay to Landlord a late  charge  in  an
amount  equal  to  ten  percent (10%) of  any  installment  of
minimum rental and any other amounts due Landlord if not  paid
in  full on or before the fifth (5th) day after such rental or
other amount is due.  Tenant acknowledges that late payment by
Tenant  to  Landlord of rental or other amounts due  hereunder
will  cause Landlord to incur costs not contemplated  by  this
Lease,   including,   without   limitation,   processing   and
accounting  charges and late charges which may be  imposed  on
Landlord  by  the terms of any loan relating to the  Property.
Tenant further acknowledges that it is extremely difficult and
impractical to fix the exact amount of such costs and that the
late  charge set forth in this Section 3.2 represents  a  fair
and  reasonable  estimate thereof.   Acceptance  of  any  late
charge  by Landlord shall not constitute a waiver of  Tenant's
default  with respect to overdue rental or other amounts,  nor
shall  such  acceptance prevent Landlord from  exercising  any
other rights and remedies available to it.  Acceptance of rent
or other payments by Landlord shall not constitute a waiver of
late charges or interest accrued with respect to such rent  or
other  payments or any prior installments thereof, nor of  any
other defaults by Tenant, whether monetary or non-monetary  in
nature,  remaining uncured at the time of such  acceptance  of
rent or other payments.
                           4.  TAXES
                               
     4.1.  Personal Property.  Tenant shall be responsible for
and  shall  pay prior to delinquency all taxes and assessments
levied  against or by reason of all alterations and  additions
and all other items installed or paid for by Tenant under this
Lease,  and  the personal property, trade fixtures  and  other
property  placed  by  Tenant in or about the  Premises.   Upon
request  by  Landlord,  Tenant  shall  furnish  Landlord  with
satisfactory  evidence of payment thereof.   If  at  any  time
during  the  term  of  this  Lease any  of  said  alterations,
additions  or  personal property, whether or not belonging  to
Tenant,  shall  be taxed or assessed as part of the  Property,
then  such  tax  or  assessment shall be  paid  by  Tenant  to
Landlord  immediately upon presentation by Landlord of  copies
of  the  tax  bills  in which such taxes and  assessments  are
included and shall, for the purposes of this Lease, be  deemed
to  be  personal  property  taxes or  assessments  under  this
Section 4.1.
      4.2.   Real Property.  To the extent that real  property
taxes  and assessments on the Premises are assessed separately
from   the   remainder  of  the  Property,  Tenant  shall   be
responsible  for and shall pay prior to delinquency  all  such
taxes  and  assessments  levied against  the  Premises.   Upon
request  by  Landlord,  Tenant  shall  furnish  Landlord  with
satisfactory evidence of payment thereof.  To the  extent  the
Premises  are taxed or assessed as part of the Property,  such
real property taxes and assessments shall constitute Operating
Expenses  (as  that  term is defined in Section  5.2  of  this
Lease) and shall be paid in accordance with the provisions  of
Article 5 of this Lease.


                    5.  OPERATING EXPENSES
                               
     5.1.  Payment Of Operating Expenses.

            (a)  Tenant shall pay to Landlord, at the time and
in   the  manner  hereinafter  set  forth,  beginning  on  the
Commencement Date and continuing throughout the term  of  this
Lease, as additional rental, an amount equal to two and sixty
one  hundredths  percent  (2.61%)  ("Tenant's  Operating  Cost
Share") of the Operating Expenses defined in Section 5.2.
            (b)  Tenant's Operating Cost Share as specified in
paragraph (a) of this Section is based upon an estimated  area
of  7,200 square feet for the Premises (reflecting, initially,
only the size of the Existing Space) and an aggregate area  of
275,674 square feet for the buildings owned by Landlord on the
Property.   As the area of the Premises increases due  to  the
commencement of Tenant's obligations with respect to the First
Additional Space, Second Additional Space and Third Additional
Space,  respectively, and if and when the actual area  of  the
Premises  or  of  the  buildings  owned  by  Landlord  on  the
Property,  as determined in good faith by Landlord's architect
on a basis consistent with that used in measuring other leased
premises within the Center, differs from the estimated numbers
set  forth above, then Tenant's Operating Cost Share shall  be
adjusted to reflect the actual areas so determined.

           (c)  If Landlord constructs additional buildings on
the  Property (or on any adjacent property owned  by  Landlord
and operated, for common area purposes, on an integrated basis
with  the Property) from time to time, Tenant's Operating Cost
Share  shall  be  adjusted  to  be  equal  to  the  percentage
determined  by  dividing  the  gross  square  footage  of  the
Premises as they then exist by the gross square footage of all
buildings  located  on  portions  of  the  Property  owned  by
Landlord  (or  on  any applicable adjacent property  owned  by
Landlord as described above).  In determining said percentage,
a building shall be taken into account from and after the date
on  which costs and expenses attributable to such building are
first included in Operating Expenses under Section 5.2 hereof,
and  the  good faith determination of the gross square footage
of  any such building by Landlord's architects shall be  final
and binding upon the parties, absent manifest error.

      5.2.  Definition Of Operating Expenses.  Subject to  the
exclusions  and  provisions hereinafter  contained,  the  term
"Operating  Expenses" shall mean the total costs and  expenses
incurred by or allocable to Landlord for management, operation
and  maintenance  of the Building and the  Property  (and  any
applicable  adjacent property owned by Landlord and  operated,
for  common  area purposes, on an integrated  basis  with  the
Property  as  described above), including, without limitation,
costs  and  expenses  of (i) insurance,  property  management,
landscaping,   and  operation,  repair  and   maintenance   of
buildings  and common areas; (ii) all utilities and  services;
(iii)  real  and  personal property taxes and  assessments  or
substitutes  therefor,  including (but  not  limited  to)  any
possessory interest, use, business, license or other taxes  or
fees,  any  taxes imposed directly on rents or  services,  any
assessments or charges for police or fire protection, housing,
transit,  open  space,  street  or  sidewalk  construction  or
maintenance or other similar services from time to time by any
governmental or quasi-governmental entity, and any  other  new
taxes  on  landlords in addition to taxes now in  effect  (but
excluding  corporate income taxes); (iv) supplies,  equipment,
utilities   and  tools  used  in  management,  operation   and
maintenance of the Property; (v) capital improvements  to  the
Property  or the Building, amortized over the useful  life  of
such  capital  improvements, (aa) which reduce or  will  cause
future  reduction  of  other items of Operating  Expenses  for
which Tenant is otherwise required to contribute or (bb) which
are  required  by law, ordinance, regulation or order  of  any
governmental  authority or (cc) which  constitute  repairs  or
replacements  of  existing improvements  in  the  Premises  or
common areas of the Property with items of similar quality and
function,  as  a result of obsolescence or ordinary  wear  and
tear,  in  order to maintain and preserve the quality,  safety
and usefulness of the Property, to the extent such repairs  or
replacements  are  treated as capital  items  under  generally
accepted  accounting  principles; and  (vi)  any  other  costs
(including, but not limited to, any parking or utilities  fees
or  surcharges) allocable to or paid by Landlord, as owner  of
the  Property  or  Building, pursuant to any applicable  laws,
ordinances, regulations or orders of any governmental or quasi
governmental  authority  or  pursuant  to  the  terms  of  any
declarations of covenants, conditions and restrictions now  or
hereafter  affecting the Property (or any applicable  adjacent
property  owned  by  Landlord as described above).   Operating
Expenses   shall   not  include  any  costs  attributable   to
increasing the size of or otherwise expanding the Building  or
the  costs of the work for which Landlord is required  to  pay
under Section 2.4 or Exhibit C.  The distinction between items
of  ordinary operating maintenance and repair and items  of  a
capital  nature  shall  be made in accordance  with  generally
accepted accounting principles applied on a consistent  basis.
Notwithstanding  anything to the contrary  contained  in  this
Section  5.2, the following shall not be included in Operating
Expenses under this Lease:

           (A)   Leasing commissions, attorneys' fees,  costs,
     disbursements  and other expenses incurred in  connection
     with  negotiations  or  disputes  with  tenants,  or   in
     connection  with  leasing, renovating or improving  space
     for tenants or other occupants or prospective tenants  or
     other  occupants of the Building or of the land on  which
     the Premises are located;
     
           (B)   The  cost of any service sold to  any  tenant
     (including  Tenant) or other occupant for which  Landlord
     is  entitled to be reimbursed as an additional charge  or
     rental  over  and  above the basic rent  and  escalations
     payable under Landlord's lease with that tenant;
     
             (C)  Any depreciation on the Building;
                                
           (D)   Costs of a capital nature, including but  not
     limited  to capital improvements and alterations, capital
     repairs,   capital  equipment  and  capital   tools,   as
     determined   in   accordance  with   generally   accepted
     accounting principles consistently applied, except to the
     extent expressly provided in clause (v) above;
     
           (E)   Expenses in connection with services or other
     benefits  of  a type that are not offered to  Tenant  but
     that  are provided to another tenant or occupant  of  the
     Building or land upon which the Premises are located;
     
           (F)   Overhead profit increments paid to Landlord's
     subsidiaries  or  affiliates  for  management  or   other
     services relating to the Building or the Property, or for
     supplies  or other materials, to the extent the  cost  of
     such services, supplies or materials exceeds a reasonable
     market  rate  for  obtaining such services,  supplies  or
     materials from unaffiliated parties;
     
           (G)   All  interest, loan fees and  other  carrying
     costs related to any mortgage or deed of trust or related
     to  any  capital item, and all rental and other  payments
     due  under  any ground or underlying lease, or any  lease
     for  any  equipment  ordinarily considered  to  be  of  a
     capital nature (except janitorial equipment which is  not
     affixed to the Building);
     
           (H)  Any compensation paid to clerks, attendants or
     other  persons  in  commercial  concessions  operated  by
     Landlord;
     
          (I)  Advertising and promotional expenditures;
           (J)  Costs of repairs and other work occasioned  by
     fire, windstorm or other casualty of an insurable nature;
           (K)  Any costs, fines or penalties incurred due  to
     violations  by  Landlord  of  any  governmental  rule  or
     authority,  this Lease or any other lease  affecting  the
     Building  or the land on which the Premises are  located,
     or due to Landlord's negligence or willful misconduct;
           (L)  Management costs, to the extent they exceed  a
     reasonable  market rate for management services  provided
     to   comparable  projects  in  Hayward,  California   and
     surrounding areas;

            (M)   Costs  for  sculpture,  paintings  or  other
     objects of art, including (but not limited to) any  costs
     for  insurance  thereon  or  extraordinary  security   in
     connection therewith;

           (N)  Wages, salaries or other compensation paid  to
     any  executive  employee  above  the  grade  of  building
     manager;
     
           (O)   The cost of correcting any building  code  or
     other   violations  of  applicable  law  which,  on   the
     Commencement Date, were existing violations  of  laws  or
     codes then in effect;
     
           (P)   The cost of containing, removing or otherwise
     remediating any contamination of the Building or Property
     (including  the underlying land and groundwater)  by  any
     toxic   or   hazardous   materials  (including,   without
     limitation, asbestos and PCB's);

            (Q)   Any  increase  in  real  property  taxes  or
     assessments  on the Property as a result of a  change  in
     ownership  of the Property; provided, however,  that  the
     exclusion  contained in this clause (Q) shall apply  only
     in  the  determination of Operating Expenses with respect
     to  periods prior to the third (3rd) anniversary  of  the
     Commencement   Date,  and  shall   not   apply   in   the
     determination of Operating Expenses with respect  to  any
     subsequent periods during the term of this Lease; and
     
           (R)  Any other expense not specifically included or
     excluded above which, under generally accepted accounting
     principles and practices consistently applied, would  not
     be considered a normal maintenance or operating expense.
     
      5.3.  Determination Of Operating Expenses.  On or before
the  Commencement  Date  and during the  last  month  of  each
calendar year of the term of this Lease ("Lease Year"), or  as
soon  thereafter as practical, Landlord shall  provide  Tenant
notice  of  Landlord's estimate of the Operating Expenses  for
the  ensuing Lease Year or applicable portion thereof.  On  or
before  the  first day of each month during the ensuing  Lease
Year   or  applicable  portion  thereof,  beginning   on   the
Commencement  Date,  Tenant shall  pay  to  Landlord  Tenant's
Operating   Cost  Share  of  the  portion  of  such  estimated
Operating  Expenses  allocable (on a prorata  basis)  to  such
month; provided, however, that if such notice is not given  in
the  last month of a Lease Year, Tenant shall continue to  pay
on  the basis of the prior year's estimate, if any, until  the
month after such notice is given.  If at any time or times  it
appears  to  Landlord that the actual Operating Expenses  will
vary  from Landlord's estimate by more than five percent (5%),
Landlord  may,  by notice to Tenant, revise its  estimate  for
such  year  and  subsequent payments by Tenant for  such  year
shall be based upon such revised estimate.
     5.4.  Final Accounting For Lease Year.
            (a)   Within ninety (90) days after the  close  of
each  Lease  Year,  or  as soon after such  90-day  period  as
practicable,  Landlord shall deliver to Tenant a statement  of
Tenant's  Operating Cost Share of the Operating  Expenses  for
such Lease Year prepared by Landlord from Landlord's books and
records,  which  statement  shall  be  final  and  binding  on
Landlord and Tenant, subject to Tenant's audit right set forth
below.   If  on  the basis of such statement  Tenant  owes  an
amount  that  is more or less than the estimated payments  for
such  calendar  year  previously made  by  Tenant,  Tenant  or
Landlord, as the case may be, shall pay the deficiency to  the
other  party  within thirty (30) days after  delivery  of  the
statement.   Failure or inability of Landlord to  deliver  the
annual statement within such ninety (90) day period shall  not
impair  or constitute a waiver of Tenant's obligation  to  pay
Operating  Expenses, or cause Landlord to incur any  liability
for damages.
            (b)   Notwithstanding any other provisions of this
Section  5.4,  within one (1) year after receipt  of  a  final
statement   from  Landlord  setting  forth  actual   Operating
Expenses  and Tenant's Operating Cost Share for any period  (a
"Statement"), Tenant shall have the right to audit or  inspect
Landlord's  books  and records relating to Operating  Expenses
(and to any other additional rent payable by Tenant under this
Lease) for the period covered by the Statement, provided  that
such  audit  shall  be conducted only during  normal  business
hours, on not less than ten (10) days prior written notice  to
Landlord, at a location reasonably specified by Landlord,  and
at  Tenant's  sole  cost  and expense, except  as  hereinafter
provided.   Landlord  shall  cooperate  with  Tenant  in   all
reasonable  respects in the course of such audit,  and  Tenant
and  its  employees  and agents shall  be  permitted  to  make
photocopies (at Tenant's expense) of any pertinent portions of
Landlord's books and records.  Landlord shall retain its books
and  records for each Lease Year for a period of at least  one
(1)  year after delivery to Tenant of Landlord's Statement for
the  applicable Lease Year.  To the extent that Tenant, on the
basis  of  such  audit, disputes any item  in  the  applicable
Statement  or  in  the  calculation  of  Tenant's  obligations
thereunder, Tenant shall give Landlord written notice  of  the
disputed  items,  in  reasonable detail  and  with  reasonable
supporting  information, within thirty  (30)  days  after  the
earlier  to occur of the completion of Tenant's audit  or  the
expiration  of Tenant's 1-year audit period.  If Landlord  and
Tenant  are  not able to resolve such dispute  by  good  faith
negotiations  within  thirty (30) days after  Tenant  notifies
Landlord in writing of the disputed items, then Tenant may, by
written  notice to Landlord, request an independent  audit  of
such  books and records.  The independent audit of  the  books
and   records  shall  be  conducted  by  a  certified   public
accountant acceptable to both Landlord and Tenant or,  if  the
parties  are  unable to agree, by a "Big Six" accounting  firm
designated  by Landlord and not then employed by  Landlord  or
Tenant.   The  audit shall be limited to the determination  of
the amount of Operating Expenses and of Tenant's share thereof
for  the  Lease Year covered by the Statement,  and  shall  be
based  on  generally  accepted accounting principles  and  tax
accounting  principles, consistently applied, subject  to  any
modifications   or   limitations  expressly   set   forth   in
Section  5.2 hereof.  If it is determined, by mutual agreement
of  Landlord  and  Tenant or by independent  audit,  that  the
amount  paid by Tenant for Operating Expenses for  the  period
covered  by  the Statement was incorrect, then the appropriate
party  shall  pay  to  the  other  party  the  deficiency   or
overpayment, as applicable, within thirty (30) days after  the
final  determination of such deficiency or  overpayment.   All
costs and expenses of the audit shall be paid by Tenant unless
the  audit  shows that Landlord overstated Operating  Expenses
for  the  period  covered by the Statement by more  than  four
percent (4%), in which event Landlord shall pay all costs  and
expenses  of  the  audit.  Each party agrees to  maintain  the
confidentiality  of  the findings of any audit  in  accordance
with  the  provisions of this Section 5.4.  The provisions  of
this  Section  5.4  shall  survive the  expiration  or  sooner
termination of this Lease.

     5.5.  Proration.  If the Commencement Date falls on a day
other  than  the first day of a Lease Year or  if  this  Lease
terminates  on a day other than the last day of a Lease  Year,
the  amount of Tenant's Operating Cost Share payable by Tenant
applicable to such first and last partial Lease Year shall  be
prorated  on  the basis which the number of days  during  such
Lease Year in which this Lease is in effect bears to 365.  The
termination of this Lease shall not affect the obligations  of
Landlord  and  Tenant pursuant to Section 5.4 to be  performed
after such termination.


                         6.  UTILITIES
                               
     6.1.  Payment.  Commencing with the Commencement Date and
thereafter  throughout the term of this  Lease,  Tenant  shall
pay,  before  delinquency, all charges for water,  gas,  heat,
light,  electricity,  power, sewer, telephone,  alarm  system,
janitorial  and  other services or utilities  supplied  to  or
consumed in or upon the Premises, including any taxes on  such
services  and utilities.  It is the intention of  the  parties
that  all  such  services shall be separately metered  to  the
Premises.  In the event that any of such services supplied  to
the  Premises  are  not separately metered,  then  the  amount
thereof  shall be an item of Operating Expenses and  shall  be
paid as provided in Article 5.

      6.2.  Interruption.  There shall be no abatement of rent
or  other  charges required to be paid hereunder and  Landlord
shall  not  be liable in damages or otherwise for interruption
or  failure of any service or utility furnished to or used  in
the   Premises  because  of  accident,  making   of   repairs,
alterations  or  improvements, severe weather,  difficulty  or
inability   in   obtaining   services   or   supplies,   labor
difficulties or any other cause, excluding the negligence  and
willful misconduct and omissions of Landlord and its agents.


                        7.  ALTERATIONS
                               
      7.1.   Right To Make Alterations.  Tenant shall make  no
alterations, additions or improvements to the Premises,  other
than  interior  non-structural alterations costing  less  than
Five  Thousand  Dollars ($5,000.00) in each instance,  without
the  prior written consent of Landlord.  All such alterations,
additions  and  improvements  shall  be  completed  with   due
diligence   in  a  first-class  workmanlike  manner   and   in
compliance  with plans and specifications approved in  writing
by  Landlord  and all applicable laws, ordinances,  rules  and
regulations.
      7.2.   Title To Alterations.  All alterations, additions
and  improvements installed pursuant to this  Lease  shall  be
part  of  the  Building and the property of  Landlord,  unless
Landlord elects to require Tenant to remove the same upon  the
termination  of  this  Lease;  provided,  however,  that   the
foregoing  shall not apply to Tenant's movable  furniture  and
trade  fixtures  not  affixed  to  the  Property.   Under   no
circumstances, however, shall Tenant be required to remove any
alterations, additions or improvements installed  by  Landlord
as  part  of Landlord's work under Section 2.4 and Exhibit  C.
Moreover,  if Tenant, in connection with requesting Landlord's
approval for any alteration, addition or improvement, requests
in writing that Landlord specify whether Landlord will require
Tenant to remove such alteration, addition or improvement upon
termination of this Lease, then Landlord shall not be entitled
to  require such removal unless Landlord states its  intention
to  do  so in writing to Tenant concurrently with or prior  to
Landlord's  approval of the requested alteration, addition  or
improvement.

     7.3.  Tenant Fixtures.  Notwithstanding the provisions of
Sections 7.1 and 7.2, Tenant may install, remove and reinstall
trade  fixtures  without  Landlord's  prior  written  consent,
except that any fixtures which are affixed to the Premises  or
which  affect  the  exterior  or structural  portions  of  the
Building  shall  require  Landlord's  written  approval.   The
foregoing  shall apply to Tenant's signs, logos and  insignia,
all  of  which Tenant shall have the right to place and remove
and replace solely with Landlord's prior written consent as to
location,  size  and  composition.  Tenant  shall  immediately
repair  any  damage  caused  by installation  and  removal  of
fixtures under this Section 7.3.

      7.4.   No  Liens.  Tenant shall at all  times  keep  the
Premises  free  from all liens and claims of any  contractors,
subcontractors,  materialmen, suppliers or any  other  parties
employed   either  directly  or  indirectly   by   Tenant   in
construction  work on the Premises.  Tenant  may  contest  any
claim  of  lien,  but only if, prior to such  contest,  Tenant
either  (i)  posts security in the amount of the  claim,  plus
estimated  costs and interest, or (ii) records  a  bond  of  a
responsible corporate surety in such amount as may be required
to   release  the  lien  from  the  Premises.   Tenant   shall
indemnify, defend and hold Landlord harmless against  any  and
all   liability,  loss,  damage,  cost  and  other   expenses,
including,  without  limitation, reasonable  attorneys'  fees,
arising  out  of  claims  of any lien for  work  performed  or
materials  or supplies furnished at the request of  Tenant  or
persons  claiming under Tenant.  Nothing in this  Section  7.4
shall  be construed to prevent Tenant from obtaining financing
on Tenant's movable furniture, equipment and trade fixtures or
from granting a security interest in such items to one or more
lenders,  provided that Tenant shall not be entitled, pursuant
to  this  sentence or otherwise, to encumber any  alterations,
additions  or improvements that are the property  of  Landlord
and  that  must  remain with the Premises upon termination  of
this  Lease,  as  provided in Sections  7.2  and  7.3  hereof.
Without  limiting  the generality of the  preceding  sentence,
Landlord acknowledges that it has been advised by Tenant  that
Tenant  is presently a party to agreements creating  liens  on
some   or  all  of  Tenant's  existing  and/or  after-acquired
equipment,  furniture,  trade  fixtures  and  other   personal
property  in  favor  of (a) Transamerica Business  Credit  and
(b)  Comdisco;  nothing in this sentence shall  be  construed,
however,  as a waiver or release by Landlord with  respect  to
the  proviso  set  forth in the preceding  sentence  regarding
limitations  on  the  property  that  Tenant  is  entitled  to
encumber.
                  8.  MAINTENANCE AND REPAIRS
     8.1.  Landlord's Work.
           (a)  Landlord shall repair and maintain or cause to
be  repaired and maintained in a prompt and expeditious manner
those  portions of the Building outside of the  Premises,  the
common  areas  of  the  Property, and  the  roof,  foundation,
exterior  walls and other structural portions of the Building.
The  cost  of  all  work  performed  by  Landlord  under  this
Section 8.1 shall be an Operating Expense hereunder, except to
the extent such work (i) is required due to the negligence  of
Landlord  or  any  other tenant of the  Building,  (ii)  is  a
service  to  a specific tenant or tenants, other than  Tenant,
for  which  Landlord has received or has the right to  receive
full  reimbursement, (iii) is a capital expense not includible
as  an Operating Expense under Section 5.2 hereof, or (iv)  is
required due to the negligence or willful misconduct of Tenant
or  its  agents, employees or invitees (in which event  Tenant
shall  bear  the  full  cost  of such  work  pursuant  to  the
indemnification  provided  in Section  10.6  hereof).   Tenant
knowingly and voluntarily waives the right to make repairs  at
Landlord's  expense,  or to offset the  cost  thereof  against
rent,  under any law, statute, regulation or ordinance now  or
hereafter in effect.
            (b)   If Landlord fails to perform, within fifteen
(15)  days  after written request from Tenant (except  in  the
case  of conditions which cannot reasonably be repaired within
fifteen  (15)  days, in which event this paragraph  (b)  shall
apply  only  to  the  extent Landlord fails  to  commence  the
applicable maintenance or repair within such 15-day period  or
thereafter  fails  to  proceed  diligently  to  complete   the
applicable maintenance or repair), any maintenance  or  repair
obligation under Section 8.1(a) which relates specifically  to
the  Premises or the common areas immediately adjacent to  the
Premises and such failure creates (or permits to exist) a risk
of  material  harm to persons or property, then  Tenant  shall
have  the  right  to perform such maintenance  or  repair  and
Landlord  shall  be  obligated to  reimburse  Tenant  for  the
reasonable  cost thereof, together with interest at  the  rate
specified in the first sentence of Section 3.2 hereof from the
date  of  payment  by Tenant to the date of  reimbursement  by
Landlord,  within fifteen (15) days after written notice  from
Tenant of the completion and cost of such work, accompanied by
copies   of   invoices   or   other   appropriate   supporting
documentation.   Under no circumstances, however,  shall  this
paragraph (b) be construed to create any contractual right  of
Tenant  to  offset the cost of any such work against  rent  or
other charges falling due from time to time under this Lease.

     8.2.  Tenant's Obligation For Maintenance.
              (a)  Good  Order,  Condition  And  Repair.    By
accepting   possession  of  the  Premises,  and   subject   to
Section 2.4, Tenant acknowledges that the Premises are in good
and  sanitary order, condition and repair.  Except as provided
in  Section  8.1 hereof, Tenant at its sole cost  and  expense
shall  keep and maintain in good and sanitary order, condition
and  repair  the  Premises and every  part  thereof,  wherever
located, including but not limited to the signs, interior, the
face  of the ceiling over Tenant's floor space, HVAC equipment
and related mechanical systems serving the Premises (for which
equipment  and  systems  Tenant shall  enter  into  a  service
contract  with  a person or entity designated or  approved  by
Landlord,  such  approval not to be unreasonably  withheld  or
delayed),  all doors, door checks, windows, plate glass,  door
fronts,   exposed  plumbing  and  sewage  and  other   utility
facilities, fixtures, lighting, wall surfaces, floor  surfaces
and  ceiling surfaces and all other interior repairs, foreseen
and unforeseen, as required.

             (b)  Landlord's Remedy.  If Tenant, after  notice
from  Landlord, fails to make or perform promptly any  repairs
or  maintenance which are the obligation of Tenant  hereunder,
Landlord  shall have the right, but shall not be required,  to
enter  the  Premises  and  make the  repairs  or  perform  the
maintenance  necessary to restore the  Premises  to  good  and
sanitary  order, condition and repair.  Immediately on  demand
from  Landlord,  the cost of such repairs  shall  be  due  and
payable by Tenant to Landlord.
             (c)  Condition Upon Surrender.  At the expiration
or  sooner  termination of this Lease, Tenant shall  surrender
the   Premises,  including  any  additions,  alterations   and
improvements thereto not removed in accordance with the  terms
of  this  Lease,  broom  clean, in good  and  sanitary  order,
condition and repair, ordinary wear and tear excepted,  first,
however, removing all goods and effects of Tenant and any  and
all fixtures and items required to be removed or specified  to
be  removed at Landlord's election pursuant to this Lease, and
repairing any damage caused by such removal.  Tenant expressly
waives any and all interest in any personal property and trade
fixtures  not  removed  from the Premises  by  Tenant  at  the
expiration or termination of this Lease, agrees that any  such
personal  property  and  trade  fixtures  may,  at  Landlord's
election,  be  deemed to have been abandoned  by  Tenant,  and
authorizes Landlord (at its election and without prejudice  to
any  other remedies under this Lease or under applicable  law)
to remove and either retain, store or dispose of such property
at  Tenant's cost and expense (provided that before  incurring
any  such  charges for Tenant's account, Landlord shall  first
give  Tenant ten (10) days prior written notice of  Landlord's
intention  to  do so, so that Tenant may have  an  opportunity
first  to correct the situation on its own behalf), and Tenant
waives  all claims against Landlord for any damages  resulting
from  any such removal, storage, retention or disposal, except
to  the  extent  (if any) that such damages  result  from  the
negligence  or willful misconduct or omission of  Landlord  or
its agents.


                      9.  USE OF PREMISES
                               
      9.1.   Permitted  Use.  Tenant shall  use  the  Premises
solely for general office, sales, adminstrative marketing  and
the  design, development, testing and manufacturing of medical
equipment  and  pharmaceutical  products,  and  for  no  other
purpose.

      9.2.  Requirement Of Continued Use.  Tenant shall not at
any  time  abandon the Premises and shall continuously  during
the  term  of  this  Lease  (except  during  any  period  when
improvements   are   being  constructed  by   Landlord   under
Section  2.4  and  Exhibit  C and/or  when  the  Premises  are
unusable  by reason of events described in Article 13  hereof)
conduct  and  carry  on  in  the Premises  the  use  permitted
hereunder.

     9.3.  No Nuisance.  Tenant shall not use the Premises for
or  carry  on or permit upon the Premises or any part  thereof
any   offensive,   noisy   or   dangerous   trade,   business,
manufacture,  occupation, odor or fumes, or  any  nuisance  or
anything against public policy, nor interfere with the  rights
or  business  of  any  other tenants or  of  Landlord  in  the
Building  or the Property, nor commit or allow to be committed
any  waste  in, on or about the Premises, nor make  any  other
unreasonable  use of the Premises.  Tenant  shall  not  do  or
permit anything to be done in or about the Premises, nor bring
nor  keep  anything therein, which will in any way  cause  the
Premises  to  be  uninsurable with respect  to  the  insurance
required  by this Lease or with respect to standard  fire  and
extended coverage insurance with vandalism, malicious mischief
and riot endorsements.

      9.4.   Compliance With Laws.  Tenant shall not  use  the
Premises or permit the Premises to be used in whole or in part
for  any purpose or use that is in violation of any applicable
laws,  ordinances,  regulations or rules of  any  governmental
agency  or  public authority.  Tenant shall keep the  Premises
equipped with all safety appliances required by law, ordinance
or insurance on the Premises or any order or regulation of any
public  authority because of Tenant's particular  use  of  the
Premises.   Tenant  shall  procure all  licenses  and  permits
required  for use of the Premises, excluding building  permits
and  an  initial certificate of occupancy or reasonable  local
equivalent thereof for Landlord's work under Section  2.4  and
Exhibit C, both of which it shall be Landlord's responsibility
to   procure.   Tenant  shall  use  the  Premises  in   strict
accordance  with  all applicable ordinances, rules,  laws  and
regulations  and  shall comply with all  requirements  of  all
governmental  authorities now in force or which may  hereafter
be  in  force pertaining to the use of the Premises by Tenant,
including,  without  limitation,  regulations  applicable   to
noise,  water,  soil  and  air  pollution,  and  making   such
nonstructural  alterations and additions  thereto  as  may  be
required  from  time to time by such laws, ordinances,  rules,
regulations  and requirements of governmental  authorities  or
insurers   of   the  Premises  (collectively,  "Requirements")
because  of Tenant's construction of improvements in or  other
particular use of the Premises.  Any structural alterations or
additions   required   from  time  to   time   by   applicable
Requirements  because of Tenant's construction of improvements
in   or  other  particular  use  of  the  Premises  shall,  at
Landlord's election, either (i) be made by Tenant, at Tenant's
sole  cost and expense, in accordance with the procedures  and
standards set forth in Section 7.1 for alterations by  Tenant,
or (ii) be made by Landlord at Tenant's sole cost and expense,
in  which  event  Tenant shall pay to Landlord  as  additional
rent,  within  thirty (30) days after demand by  Landlord,  an
amount  equal to all reasonable costs incurred by Landlord  in
connection with such alterations or additions.  Any structural
alterations  or  additions  required  from  time  to  time  by
applicable  Requirements  for  any  other  reason   shall   be
Landlord's  sole  obligation  and  expense,  subject  to   the
possible   characterization  of  such  expenses  as  Operating
Expenses   in   accordance  with  Section   5.2   hereof   (if
applicable).   The judgment of any court, or the admission  by
Tenant  in  any  proceeding against Tenant,  that  Tenant  has
violated  any  law,  statute, ordinance or governmental  rule,
regulation  or  requirement  shall  be  conclusive   of   such
violation as between Landlord and Tenant.
      9.5.   Liquidation Sales.  Tenant shall not  conduct  or
permit   to   be  conducted  any  auction,  bankruptcy   sale,
liquidation sale, or going out of business sale, in,  upon  or
about  the  Premises or the Property, whether said auction  or
sale  be  voluntary, involuntary or pursuant to any assignment
for the benefit of creditors, or pursuant to any bankruptcy or
other insolvency proceeding.
     9.6.  Environmental Compliance.
            (a)   Landlord warrants and represents  to  Tenant
that  the Premises, Builidng and the Property presently comply
with  all  environmental laws and Landlord will use  its  best
efforts to ensure that the Premises, Building and the Property
remain  in  compliance with all environmental laws during  the
term   and   any  extended  term  hereof,  including   without
limitation   reasonably  monitoring  the  condition   of   the
Property,  Building and Premises and the activities  of  other
tenants.  Landlord's obligations under this Section 9.6(a) are
not  intended to impose a greater burden on Landlord than that
set forth in Section 9.6(d) herein or as otherwise required by
law,  regulation or statute, nor to relieve Tenant of  any  of
its express obligations under this Section 9.6.

            (b)   Without limiting the generality of  Tenant's
obligations set forth in Section 9.4 of this Lease:

                 (i)   Tenant  shall not cause or  permit  any
hazardous or toxic substance or hazardous waste (as defined in
any  federal,  state  or  local law, ordinance  or  regulation
applicable  to such substances or wastes) to be brought  upon,
kept,  stored  or  used on or about the Property  without  the
prior written consent of Landlord, which consent shall not  be
unreasonably withheld, except that Tenant, in connection  with
its  permitted use of the Property as provided in Section 9.1,
may  keep,  store and use materials that constitute  hazardous
materials which are customary for such permitted use, provided
such  hazardous  materials  are  kept,  stored  and  used   in
quantities which are customary for such permitted use and  are
kept, stored and used in full compliance with clauses (ii) and
(iii) immediately below;

                 (ii)  Tenant shall comply with all applicable
laws,  rules,  regulations,  orders,  permits,  licenses   and
operating plans of any governmental authority with respect  to
the   receipt,   use,  handling,  generation,  transportation,
storage,  treatment, release and/or disposal of  hazardous  or
toxic  substances or wastes in the course of or in  connection
with  the  conduct of Tenant's business on the  Property,  and
shall  provide  Landlord with copies of any and  all  permits,
licenses,  registrations  and  other  similar  documents  that
authorize  Tenant to conduct any such activities in connection
with Tenant's use of the Property from time to time;

                 (iii)   Tenant  shall not (A) operate  on  or
about  the  Property any facility required to be permitted  or
licensed  as  a hazardous waste facility or for which  interim
status as such is required, nor (B) store any hazardous wastes
on or about the Property for ninety (90) days or more, nor (C)
conduct  any  other activities on or about the  Property  that
could  result in the property being deemed to be a  "hazardous
waste facility" (including, but not limited to, any storage or
treatment  of  hazardous substances or hazardous wastes  which
could have such a result); and
                 (iv)   Tenant shall provide to Landlord  from
time to time, upon written request by Landlord, (A) a list  of
all  hazardous substances and/or wastes that Tenant  receives,
uses,  handles,  generates,  transports,  stores,  treats   or
disposes  of  from  time  to  time  in  connection  with   its
operations  on  the Property, and (B) copies of  any  Material
Safety  Data  Sheets,  hazardous  waste  manifests,  Hazardous
Materials  Management Plans, Contingency Plans  and  Emergency
Procedures,  hazardous  substance reports  to  the  California
Department of Health Services, indusrial wastewater  discharge
permits,  and  any  other  lists or inventories  of  hazardous
substances and/or wastes on or about the Property that  Tenant
is  otherwise required to prepare and file from time  to  time
with  any  governmental  or  regulatory  authority;  provided,
however,  that  nothing in this clause  (iv)  is  intended  to
require Tenant to prepare specially for Landlord any lists  or
other documents that Tenant does not otherwise prepare or have
available  in  the course of Tenant's business;  and  provided
further,  however, that if Tenant reasonably  determines  that
the  volume of any such materials requested by Landlord is  so
substantial  as  to make the furnishing of such  materials  to
Landlord  unreasonably  burdensome,  Tenant  may  instead,  by
written notice to Landlord, elect simply to maintain copies of
such  materials to such extent and for such periods as may  be
required  by  applicable  law and to permit  Landlord  or  its
representatives  to  inspect and copy (at Landlord's  expense)
such  materials during normal business hours at any  time  and
from time to time upon reasonable notice to Tenant.

           (c)  Tenant shall fully indemnify and hold harmless
Landlord, its successors and assigns against (i) any  damages,
claims,   liabilities,  demands,  losses,  costs  or  expenses
(including  reasonable attorneys' fees) arising from  (A)  any
violation  of  Section 9.6(b) herein, or (B)  any  release  of
hazardous  or  toxic  substances, or any  other  violation  of
environmental law with respect to the Premises or Property, to
the  extent  any such release or violation described  in  this
clause  (B)  is  caused  by Tenant or its  employees,  agents,
contractors or assigns, and (ii) any fines, penalty  payments,
reasonable attorneys' fees, sums paid in connection  with  any
judicial or administrative investigation or proceedings, costs
of  cleanup  assessed by a governmental or  quasi-governmental
agency,  and  similar expenditures, incurred by Landlord  that
relate  in  any  way  to  a  release  of  hazardous  or  toxic
substances,  or  to  any other violation of environmental  law
with  respect to the Premises or Property, to the  extent  any
such  release  or violation described in this clause  (ii)  is
caused  by  Tenant  or its agents, employees,  contractors  or
assigns.

            (d)   Landlord  shall  fully  indemnify  and  hold
harmless  Tenant, its successors and assigns against  (i)  any
damages,  claims,  liabilities,  demands,  losses,  costs   or
expenses  (including reasonable attorneys' fees) arising  from
any  violation  of  Section 9.6(a) herein,  including  without
limitation  any  condition  of the Premises,  Building  and/or
Property  existing at the Commencement Date; (ii) any damages,
claims,   liabilities,  demands,  losses,  costs  or  expenses
(including  reasonable  attorneys'  fees)  arising  from   any
release  of hazardous or toxic substances, or from  any  other
violation  of environmental law with respect to the  Property,
Building or Premises, to the extent the same is not caused  by
Tenant  or its employees, agents, contractors or assigns;  and
(iii) any fines, penalty payments, reasonable attorneys' fees,
sums  paid  in  connection with any judicial or administrative
investigation or proceedings, costs of cleanup assessed  by  a
governmental   or  quasi-governmental  agency,   and   similar
expenditures, incurred by Tenant that relate in any way  to  a
breach by Landlord of Section 9.6(a), to any condition of  the
Property,  Building or Premises existing on  the  Commencement
Date,  or  to any release of hazardous or toxic substances  or
other violation of environmental law caused by Landlord or its
employees, agents, contractors or assigns.

            (e)   The  provisions of this  Section  9.6  shall
survive the termination of this Lease.
      9.7.   ADA/Title 24 Compliance.  Landlord shall  deliver
and maintain the premises at its expense in compliance, as and
when  required  by  law, with the Americans with  Disabilities
Act,  California  Title  24  and any  and  all  other  related
governmental requirements.


                 10.  INSURANCE AND INDEMNITY
                               
     10.1. Liability Insurance.

            (a)   Tenant  shall procure and maintain  in  full
force  and effect at all times during the term of this  Lease,
at  Tenant's cost and expense, comprehensive public  liability
and property damage insurance to protect against any liability
to  the  public,  or  to any invitee of  Tenant  or  Landlord,
arising out of or related to the use of or resulting from  any
accident occurring in, upon or about the Premises, with limits
of  liability  of  not  less  than  (i)  One  Million  Dollars
($1,000,000.00)  for injury to or death of  one  person,  (ii)
Three  Million Dollars ($3,000,000.00) for personal injury  or
death, per occurrence, and (iii) Five Hundred Thousand Dollars
($500,000.00) for property damage, or a combined single  limit
of  public liability and property damage insurance of not less
than  Five  Million Dollars ($5,000,000.00).   Such  insurance
shall  name  Landlord  and its general partners  and  Managing
Agent  as additional insureds thereunder.  The amount of  such
insurance  shall  not be construed to limit any  liability  or
obligation of Tenant under this Lease.

            (b)   Landlord shall procure and maintain in  full
force  and effect at all times during the term of this  Lease,
at  Landlord's  cost  and  expense  (but  reimbursable  as  an
Operating  Expense under Section 5.2 hereof),  fire  and  "all
risk"  extended  coverage property damage  insurance  for  the
Building  and interior improvements that are the  property  of
Landlord and for the improvements in the common areas  of  the
Property,  on a full replacement cost basis, with rental  loss
insurance.  Such insurance may include earthquake and/or flood
coverage  to the extent Landlord in its discretion  elects  to
carry   such   coverage,  and  shall  have  such  commercially
reasonable  deductibles and other terms  as  Landlord  in  its
discretion determines to be appropriate.  Landlord shall  have
no  obligation  to  carry property damage  insurance  for  any
alterations,  additions,  improvements,  trade   fixtures   or
personal  property installed or maintained  by  Tenant  on  or
about the Premises.

     10.2. Quality Of Policies And Certificates.  All policies
of insurance required hereunder shall be issued by responsible
insurers  and  shall  be  written  as  primary  policies   not
contributing  with  and not in excess  of  any  coverage  that
Landlord  may carry.  Tenant shall deliver to Landlord  copies
of  policies  or certificates of insurance showing  that  said
policies  are  in  effect.   The  coverage  provided  by  such
policies  shall include the clause or endorsement referred  to
in  Section  10.4.   If Tenant fails to acquire,  maintain  or
renew any insurance required to be maintained by it under this
Article  10 or to pay the premium therefor, then Landlord,  at
its  option and in addition to its other remedies, but without
obligation so to do, may procure such insurance, and any  sums
expended  by it to procure any such insurance shall be  repaid
upon  demand, with interest as provided in Section 3.2 hereof.
Tenant  shall  obtain written undertakings from  each  insurer
under  policies required to be maintained by it to notify  all
insureds  thereunder  at  least  thirty  (30)  days  prior  to
cancellation, amendment or revision of coverage.

      10.3.  Workers' Compensation.  Tenant shall maintain  in
full  force and effect during the term of this Lease  workers'
compensation  insurance  covering all  of  Tenant's  employees
working on the Premises.

      10.4. Waiver Of Subrogation.  To the extent permitted by
law  and  without affecting the coverage provided by insurance
required to be maintained hereunder, Landlord and Tenant  each
waive  any right to recover against the other (i) damages  for
injury to or death of persons, (ii) damage to property,  (iii)
damage  to  the Premises or any part thereof, or  (iv)  claims
arising  by  reason of any of the foregoing, but only  to  the
extent  that  any  of the foregoing damages and  claims  under
subparts  (i)-(iv) hereof are covered, and only to the  extent
of  such  coverage, by casualty insurance actually carried  or
required to be carried hereunder by either Landlord or Tenant.
This provision is intended to waive fully, and for the benefit
of  each party, any rights and claims which might give rise to
a  right  of  subrogation in any casualty  insurance  carrier.
Each  party  shall  procure a clause  or  endorsement  on  any
casualty  insurance  policy required  under  this  Article  10
denying to the insurer rights of subrogation against the other
party  to  the extent rights have been waived by  the  insured
prior  to the occurrence of injury or loss.  Coverage provided
by  insurance  maintained by Tenant  or  Landlord  under  this
Article  10  shall  not be limited, reduced or  diminished  by
virtue of the subrogation waiver herein contained.

     10.5. Increase In Premiums.  Tenant shall do all acts and
pay all expenses necessary to insure that the Premises are not
used for purposes prohibited by any applicable fire insurance,
and  that  Tenant's  use  of the Premises  complies  with  all
requirements  necessary  to obtain  any  such  insurance.   If
Tenant  uses  or permits the Premises to be used in  a  manner
which  increases  the existing rate of any  insurance  on  the
Premises  carried by Landlord, Tenant shall pay the amount  of
the  increase in premium caused thereby, and Landlord's  costs
of  obtaining other replacement insurance policies,  including
any  increase  in premium, within ten (10) days  after  demand
therefor  by  Landlord, which demand shall be  accompanied  by
reasonably detailed documentation supporting such demand.

     10.6. Indemnification.

            (a)   Tenant  shall  indemnify,  defend  and  hold
Landlord,  its  partners, shareholders,  officers,  directors,
affiliates,  agents, employees and contractors, harmless  from
any and all liability for injury to or death of any person, or
loss  of  or  damage to the property of any  person,  and  all
actions,   claims,   demands,   costs   (including,    without
limitation,  reasonable attorneys' fees), damages or  expenses
of  any  kind arising therefrom which may be brought  or  made
against Landlord or which Landlord may pay or incur by  reason
of  the use, occupancy and enjoyment of the Premises by Tenant
or  any invitees, sublessees, licensees, assignees, employees,
agents  or  contractors  of Tenant  or  holding  under  Tenant
arising  during  the  term  of  this  Lease  from  any   cause
whatsoever  other  than  negligence or willful  misconduct  or
omission by Landlord, its agents or employees.  Landlord,  its
partners,   shareholders,  officers,  directors,   affiliates,
agents, employees and contractors shall not be liable for, and
Tenant  hereby  waives all claims against  such  persons  for,
damages  to  goods,  wares  and merchandise  in  or  upon  the
Premises,  or  for  injuries to Tenant, its  agents  or  third
persons  in or upon the Premises, arising during the  term  of
this Lease from any cause whatsoever other than negligence  or
willful  misconduct  or omission by Landlord,  its  agents  or
employees.  Tenant shall give prompt notice to Landlord of any
casualty or accident of a material nature in, on or about  the
Premises.

            (b)   Landlord  shall indemnify, defend  and  hold
Tenant,   its  partners,  shareholders,  officers,  directors,
affiliates,  agents, employees and contractors, harmless  from
any and all liability for injury to or death of any person  or
loss  of  or  damage to the property of any  person,  and  all
actions,   claims,   demands,   costs   (including,    without
limitation,  reasonable attorneys' fees), damages or  expenses
of  any  kind arising therefrom which may be brought  or  made
against Tenant or which Tenant may pay or incur, to the extent
such  liabilities or other matters arise by reason of (i)  any
negligence or willful misconduct or omission by Landlord,  its
agents  or employees, (ii) any breach by Landlord, its  agents
or employees of any term of this Lease and (iii) any causes of
action  or  obligations the due date of performance  of  which
arose prior to the Commencement Date.

       10.7.  Blanket  Policy.   Any  policy  required  to  be
maintained  hereunder  may  be maintained  under  a  so-called
"blanket policy" insuring other parties and other locations so
long  as  the  amount  of insurance required  to  be  provided
hereunder is not thereby diminished.


                 11.  SUBLEASE AND ASSIGNMENT
                               
      11.1. Assignment And Sublease Of Premises.  Tenant shall
not  have  the right or power to assign its interest  in  this
Lease,  or make any sublease, nor shall any interest of Tenant
under  this Lease be assignable involuntarily or by  operation
of  law,  without on each occasion obtaining the prior written
consent  of  Landlord, which consent shall not be unreasonably
withheld or delayed.  Any purported sublease or assignment  of
Tenant's  interest  in  this Lease requiring  but  not  having
received  Landlord's consent thereto shall be  void.   Without
limiting  the  generality  of  the  foregoing,  Landlord   may
withhold  consent  to  any proposed subletting  or  assignment
solely on the ground that the use by the proposed subtenant or
assignee   is  reasonably  likely  to  be  incompatible   with
Landlord's  use  of the balance of the Building  or  Property.
Notwithstanding the foregoing provisions, however, Tenant  may
assign  this  Lease  or sublet the Premises,  or  any  portion
thereof,  without  Landlord's  consent  (but  with  prior   or
substantially concurrent written notice to Landlord),  to  any
entity  which  controls, is controlled by, or is under  common
control with Tenant; to any entity which results from a merger
or consolidation with Tenant; to any entity engaged in a joint
venture   with  Tenant;  or  to  any  entity  which   acquires
substantially all of the stock or assets of Tenant, as a going
concern,  with respect to the business that is being conducted
in the Premises (hereinafter each a "Permitted Transfer").  In
addition, any sale or transfer of the capital stock of  Tenant
shall  be  deemed  a Permitted Transfer if (i)  such  sale  or
transfer occurs in connection with any bona fide financing  or
capitalization for the benefit of Tenant, or (ii) if such sale
or  transfer  occurs in connection with Tenant's status  as  a
publicly traded corporation.  Landlord shall have no right  to
terminate  this Lease in connection with, and  shall  have  no
right  to  any sums or other economic consideration  resulting
from,  any  Permitted Transfer.  In the event of  a  permitted
subleasing  of the Premises or any portion thereof by  Tenant,
Tenant  will retain all sublease profits net of its underlying
obligations  under  this Lease.  Landlord will  not  have  the
right  or  option under any circumstances, other than pursuant
to  the  default  provisions  of this  Lease  (to  the  extent
applicable),  to  recapture any space that Tenant  assigns  or
subleases during the initial Lease term.
      11.2. Rights Of Landlord.  Consent by Landlord to one or
more  assignments of this Lease, or to one or more sublettings
of  the  Premises, or collection of rent by Landlord from  any
assignee or sublessee, shall not operate to exhaust Landlord's
rights  under this Article 11, nor constitute consent  to  any
subsequent   assignment  or  subletting.   No  assignment   of
Tenant's interest in this Lease and no sublease shall  relieve
Tenant  of  its  obligations  hereunder,  notwithstanding  any
waiver  or  extension  of  time granted  by  Landlord  to  any
assignee  or sublessee, or the failure of Landlord  to  assert
its  rights  against any assignee or sublessee, and regardless
of  whether Landlord's consent thereto is given or required to
be  given  hereunder.   In  the event  of  a  default  by  any
assignee,  sublessee  or  other successor  of  Tenant  in  the
performance of any of the terms or obligations of Tenant under
this  Lease,  Landlord  may proceed  directly  against  Tenant
without the necessity of exhausting remedies against any  such
assignee,  sublessee or other successor.  In addition,  Tenant
immediately  and irrevocably assigns to Landlord, as  security
for  Tenant's obligations under this Lease, all rent from  any
subletting of all or a part of the Premises as permitted under
this  Lease,  and  Landlord,  as  Tenant's  assignee,  or  any
receiver  for Tenant appointed on Landlord's application,  may
collect  such  rent  and apply it toward Tenant's  obligations
under this Lease; except that, until the occurrence of an  act
of  default by Tenant, beyond the expiration of any applicable
grace  period,  Tenant shall have the right  to  collect  such
rent.


            12.  RIGHT OF ENTRY AND QUIET ENJOYMENT
                               
      12.1.  Right  Of  Entry.  Landlord  and  its  authorized
representatives shall have the right to enter the Premises  at
any  time during the term of this Lease during normal business
hours  and  upon  not less than twenty-four (24)  hours  prior
notice,  except  in the case of emergency (in which  event  no
notice  shall be required and entry may be made at any  time),
for the purpose of inspecting and determining the condition of
the  Premises  or  for  any  other proper  purpose  including,
without   limitation,   to  make  repairs,   replacements   or
improvements which Landlord may deem necessary,  to  show  the
Premises  to  prospective purchasers, to show the Premises  to
prospective tenants, and to post notices of nonresponsibility;
provided,  however,  that  notwithstanding  anything  to   the
contrary  contained in the preceding portion of this sentence,
Landlord  shall  not enter any portions of  Tenant's  facility
designated  by  Tenant as "secure" areas except on  reasonable
prior  notice  to  Tenant and except in  compliance  with  all
conditions  reasonably  imposed  by  Tenant  and/or   by   any
governmental  authority with respect  to  such  access  (which
conditions may, by way of example but not limitation,  include
a  requirement that any visitors to such areas be  accompanied
by  a  representative of Tenant at all times).  Landlord shall
not  be liable for inconvenience, annoyance, disturbance, loss
of business, quiet enjoyment or other damage or loss to Tenant
by  reason  of making any repairs or performing any work  upon
the  Premises unless such are the result of the negligence  or
willful  misconduct  of  Landlord  or  its  agents,  and   the
obligations  of Tenant under this Lease shall not  thereby  be
affected in any manner whatsoever, provided, however, Landlord
shall use reasonable efforts to minimize the inconvenience  to
Tenant's normal business operations caused thereby.

      12.2.  Quiet Enjoyment.  Landlord covenants that Tenant,
upon  paying the rent and performing its obligations hereunder
and  subject  to all the terms and conditions of  this  Lease,
shall peacefully and quietly have, hold and enjoy the Premises
throughout  the  term of this Lease, or until  this  Lease  is
terminated as provided by this Lease.


                   13.  CASUALTY AND TAKING
                               
      13.1. Termination Or Reconstruction.  If during the term
of  this  Lease  the Premises or Building, or any  substantial
part  of  either, (i) is damaged materially by fire  or  other
casualty  or  by  action  of  public  or  other  authority  in
consequence  thereof, (ii) is taken by eminent  domain  or  by
reason  of  any public improvement or condemnation proceeding,
or  in  any manner by exercise of the right of eminent  domain
(including  any  transfer in avoidance of an exercise  of  the
power of eminent domain), or (iii) receives irreparable damage
by  reason of anything lawfully done under color of public  or
other  authority, this Lease shall terminate as to the  entire
Premises at Landlord's or Tenant's election by written  notice
given  to  the other party within thirty (30) days  after  the
damage  or  taking has occurred; provided, however, that  with
respect to events of damage or destruction described in clause
(i)  above,  Landlord's termination right shall be exercisable
only if either (A) the time reasonably estimated by Landlord's
architect  or  contractor to be required  for  the  repair  or
restoration of the Building to the extent necessary to  permit
Tenant  to  resume  substantially all of its  normal  business
activities therein exceeds six (6) months from the date of the
damage  or  destruction in the case of damage  or  destruction
occurring prior to the last year of the term of this Lease, or
exceeds  sixty  (60)  days from the  date  of  the  damage  or
destruction  in  the  case of damage or destruction  occurring
during  the  last year of the term of this Lease, or  (B)  the
reasonably  estimated cost of such repair  or  restoration  is
more  than  one  hundred five percent (105%) of the  insurance
proceeds  reasonably available for such repair or  restoration
under  the  insurance  required to be maintained  by  Landlord
pursuant to Section 10.1(b) hereof (including, in the case  of
any  failure by Landlord to maintain such required  insurance,
any  proceeds  that would have been reasonably  available  for
such  repair  or  restoration if Landlord had maintained  such
required  insurance) and Landlord, in its reasonable and  good
faith  judgment,  determines that it is not  economically  and
commercially reasonable to use such proceeds for the repair or
restoration  of  the  Premises; provided  further,  that  with
respect to events of damage or destruction described in clause
(i)  above,  Tenant's termination right shall  be  exercisable
only if either (I) the time reasonably estimated by Landlord's
architect  or  contractor to be required  for  the  repair  or
restoration of the Building to the extent necessary to  permit
Tenant  to  resume  substantially all of its  normal  business
activities therein exceeds six (6) months from the date of the
damage  or  destruction in the case of damage  or  destruction
occurring prior to the last year of the term of this Lease, or
exceeds  sixty  (60)  days from the  date  of  the  damage  or
destruction  in  the  case of damage or destruction  occurring
during   the  last  year  of  the  term  of  this  Lease,   or
(II)  Landlord fails to complete the repair or restoration  of
the  Building  to  the extent necessary to  permit  Tenant  to
resume  substantially  all of its normal  business  activities
therein within six (6) months after the date of the damage  or
destruction  in  the  case of damage or destruction  occurring
prior  to  the last year of the term of this Lease  or  within
sixty (60) days from the date of the damage or destruction  in
the  case  of damage or destruction occurring during the  last
year  of  the term of this Lease (provided, however,  that  so
long  as Landlord is proceeding diligently and with reasonable
good  faith efforts, such periods shall be extended,  day  for
day, by a number of days equal to the number of days of actual
delay  in  Landlord's completion of such repair or restoration
that are caused by weather, acts of God, strikes, shortage  of
labor  or  materials or other circumstances beyond  Landlord's
reasonable control (excluding financial inability),  including
(but not limited to) acts or omissions of Tenant or its agents
or  employees), or (III) Landlord advises Tenant that Landlord
intends  to  perform  only a Partial Restoration  (as  defined
below)  and  Tenant determines reasonably and in  good  faith,
within  thirty (30) days after Tenant is advised of the nature
and  scope  of  the  proposed Partial  Restoration,  that  the
Premises   available   to   Tenant  following   such   Partial
Restoration will not be sufficient to permit Tenant to  resume
normal  business  operations in  the  Premises  for  the  uses
permitted  hereunder; and provided further, that with  respect
to  takings or damage described in clause (ii) or (iii) above,
Landlord's and Tenant's respective termination rights shall be
exercisable   only  if  Landlord  or  Tenant,  as  applicable,
determines  reasonably and in good faith that the  extent  and
nature  of  such  taking  or damage is  to  substantially  and
permanently impair Tenant's ability to conduct normal business
operations  in  the  balance  of the  Premises  for  the  uses
permitted hereunder.  If neither Landlord nor Tenant elects to
terminate  this Lease as hereinabove provided, Landlord  shall
repair any such damage and restore the Premises (to the extent
of  Landlord's work therein under Section 2.4 and  Exhibit  C)
and  the  Building  as nearly as reasonably  possible  to  the
condition  existing  before  the damage  or  taking,  with  an
equitable  abatement  of Tenant's rent and  Operating  Expense
obligations  pending completion of such repair or  restoration
as contemplated in Section 13.3 below; provided, however, that
in  the  case of any damage or destruction described in clause
(i) above, if the reasonably estimated cost of such repair  or
restoration  is more than one hundred five percent  (105%)  of
the  insurance proceeds (if any) reasonably available for such
repair  or  restoration  under the insurance  required  to  be
maintained  by  Landlord  pursuant to Section  10.1(b)  hereof
(including, in the case of any failure by Landlord to maintain
such  required  insurance, any proceeds that would  have  been
reasonably  available  for  such  repair  or  restoration   if
Landlord had maintained such required insurance), Landlord may
elect to perform such repair or restoration (to the extent  of
Landlord's work under Section 2.4 and Exhibit C) only  to  the
extent  of  such  insurance proceeds that are (or  would  have
been)   available  (a  "Partial  Restoration");  and  provided
further,  that  upon  completion of such Partial  Restoration,
Tenant's   minimum   monthly  rental  and  Operating   Expense
obligations shall be permanently adjusted, for the balance  of
the  remaining  term  of this Lease, in a fair  and  equitable
manner   reflecting   any  decrease   in   the   size   and/or
functionality of the partially restored Premises for the  uses
contemplated  hereunder.  In the event of any  termination  of
this Lease by Tenant or Landlord pursuant to this Section 13.1
or  Section  13.2,  Landlord agrees that  to  the  extent  any
portion  of  the Premises can still be lawfully  occupied  and
used by Tenant, Tenant shall have the right, at its option, to
remain in and continue to use such portion of the Premises  on
a  month-to-month holdover basis, terminable  by  Landlord  or
Tenant at any time on thirty (30) days' written notice (except
that  no such termination by Landlord may be effective  sooner
than  six (6) months after the date of the damage, destruction
or  taking  pursuant  to  which such termination  arose),  and
Tenant's   minimum   monthly  rental  and  Operating   Expense
obligations  shall  be  adjusted, for  the  duration  of  such
holdover  occupancy, in a fair and equitable manner reflecting
any decrease in the size and/or functionality of the remaining
Premises  for the uses contemplated hereunder.  The provisions
of  the  preceding  sentence shall supersede any  inconsistent
provisions in Section 2.6 of this Lease.

     13.2. Tenant's Rights.  If any portion of the Premises is
so  taken by condemnation, Tenant may elect to terminate  this
Lease  if the portion of the Premises taken is of such  extent
and nature as substantially to handicap, impede or permanently
impair  Tenant's  use of the balance of the Premises.   Tenant
must  exercise  its  right to terminate by  giving  notice  to
Landlord  within thirty (30) days after the nature and  extent
of  the taking have been finally determined.  If Tenant elects
to  terminate this Lease, Tenant shall also notify Landlord of
the  date of termination, which date shall not be earlier than
thirty  (30) days nor later than ninety (90) days after Tenant
has  notified  Landlord of its election to  terminate,  except
that  this Lease shall terminate on the date of taking if  the
date  of  taking  falls  on  any  date  before  the  date   of
termination designated by Tenant.

     13.3. Lease To Remain In Effect.  If neither Landlord nor
Tenant  terminates  this Lease as hereinabove  provided,  this
Lease  shall  continue in full force and effect,  except  that
minimum   monthly   rental  and  Tenant's  Operating   Expense
obligations  shall  abate to the extent Tenant's  use  of  the
Premises  is impaired for any period that any portion  of  the
Premises is unusable or inaccessible because of a casualty  or
taking   hereinabove  described.   Each   party   waives   the
provisions  of  Code  of  Civil  Procedure  Section  1265.130,
allowing  either  party  to petition  the  Superior  Court  to
terminate this Lease in the event of a partial condemnation of
the Premises.

      13.4.  Reservation Of Compensation.  Landlord  reserves,
and  Tenant waives and assigns to Landlord, all rights to  any
award  or  compensation for damage to the Premises,  Building,
Property and the leasehold estate created hereby, accruing  by
reason  of  any taking in any public improvement, condemnation
or  eminent  domain  proceeding or  in  any  other  manner  by
exercise  of  the  right  of eminent  domain  or  of  anything
lawfully done by public authority, except that Tenant shall be
entitled to any and all compensation or damages paid for or on
account   of   Tenant's  moving  expenses,   trade   fixtures,
equipment, personal property and any leasehold improvements in
the  Premises, the cost of which was borne by Tenant, but only
to  the extent of the then remaining unamortized value of such
improvements computed on a straight-line basis over  the  term
of  this  Lease.   Tenant covenants to  deliver  such  further
assignments of the foregoing as Landlord may from time to time
reasonably request.
      13.5.  Restoration Of Fixtures.  If Landlord repairs  or
causes  repair  of the Premises after such damage  or  taking,
Tenant  at its sole expense shall repair and replace  promptly
all  fixtures, equipment and other property of Tenant  located
at, in or upon the Premises and all additions, alterations and
improvements  and all other items installed  or  paid  for  by
Tenant under this Lease that were damaged or taken, so  as  to
restore the same to a condition reasonably consistent with the
conduct  of  the  permitted uses contemplated in  Section  9.1
hereof.  Tenant shall have the right to make modifications  to
the  Premises, fixtures and improvements, subject to the prior
written  approval  of Landlord, which approval  shall  not  be
unreasonably withheld or delayed.  In its review  of  Tenant's
plans and specifications, Landlord may take into consideration
the  effect  of  the proposed modifications  on  the  exterior
appearance,  the structural integrity and the  mechanical  and
other operating systems of the Building.


                         14.  DEFAULT
                               
      14.1.  Events Of Default.  The occurrence of any of  the
following shall constitute an event of default on the part  of
Tenant:

             (a)  Abandonment.  Abandonment of  the  Premises.
Tenant  waives  any  right Tenant may  have  to  notice  under
Section 1951.3 of the California Civil Code, the terms of this
subsection (a) being deemed such notice to Tenant as  required
by said Section 1951.3;
             (b)  Nonpayment.  Failure to pay, when  due,  any
amount  payable to Landlord hereunder, such failure continuing
for  a  period of five (5) days after written notice  of  such
failure; provided, however, that any such notice shall  be  in
lieu  of,  and  not in addition to, any notice required  under
California  Code of Civil Procedure Section 1161 et  seq.,  as
amended from time to time;
             (c)  Other  Obligations.  Failure to perform  any
obligation, agreement or covenant under this Lease other  than
those matters specified in subsection (b) hereof, such failure
continuing for fifteen (15) days after written notice of  such
failure, or, if it is not possible to cure such default within
fifteen  (15)  days,  failure to  commence  cure  within  said
fifteen  (15) day period and thereafter to proceed  diligently
to  complete  cure; provided, however, that  any  such  notice
shall  be  in  lieu  of, and not in addition  to,  any  notice
required under California Code of Civil Procedure Section 1161
et seq., as amended from time to time;
             (d) General Assignment.  A general assignment  by
Tenant for the benefit of creditors;
             (e)  Bankruptcy.   The filing  of  any  voluntary
petition  in  bankruptcy  by  Tenant,  or  the  filing  of  an
involuntary  petition by Tenant's creditors, which involuntary
petition  remains  undischarged for a period  of  thirty  (30)
days.   In the event that under applicable law the trustee  in
bankruptcy  or Tenant has the right to affirm this  Lease  and
continue to perform the obligations of Tenant hereunder,  such
trustee  or  Tenant  shall, in such  time  period  as  may  be
permitted  by  the bankruptcy court having jurisdiction,  cure
all defaults of Tenant hereunder outstanding as of the date of
the  affirmance  of this Lease and provide  to  Landlord  such
adequate  assurances as may be reasonably necessary to  ensure
Landlord  of the continued performance of Tenant's obligations
under  this  Lease.   Specifically, but without  limiting  the
generality  of  the foregoing, such adequate  assurances  must
include  assurances that the Premises continue to be  operated
only  for the use permitted hereunder.  The provisions  hereof
are  to  assure that the basic understandings between Landlord
and  Tenant  with respect to Tenant's use of the Premises  and
the  benefits to Landlord therefrom are preserved,  consistent
with the purpose and intent of applicable bankruptcy laws;
             (f)  Receivership.  The employment of a  receiver
appointed  by  court order to take possession of substantially
all  of  Tenant's assets or the Premises, if such receivership
remains undissolved for a period of thirty (30) days;
             (g)  Attachment.   The attachment,  execution  or
other judicial seizure of all or substantially all of Tenant's
assets  or  the Premises, if such attachment or other  seizure
remains  undismissed or undischarged for a  period  of  thirty
(30) days after the levy thereof;
             (h)  Insolvency.   The  admission  by  Tenant  in
writing of its inability to pay its debts as they become  due,
the  filing by Tenant of a petition seeking any reorganization
or   arrangement,   composition,  readjustment,   liquidation,
dissolution  or  similar relief under any  present  or  future
statute, law or regulation, the filing by Tenant of an  answer
admitting  or failing timely to contest a material  allegation
of  a petition filed against Tenant in any such proceeding or,
if  within  thirty  (30) days after the  commencement  of  any
proceeding  against  Tenant  seeking  any  reorganization   or
arrangement,     composition,    readjustment,    liquidation,
dissolution  or  similar relief under any  present  or  future
statute,  law  or regulation, such proceeding shall  not  have
been dismissed; or

            (i) Cross-Default.  Any event of default by Tenant
under (A) any other lease between Landlord and Tenant covering
any other portion of the Property from time to time during the
term   of   this   Lease,  or  (B)  the  lease  entered   into
substantially  concurrently herewith by Tenant  and  Britannia
Point  Eden,  LLC  with  respect  to  a  new  building  to  be
constructed  in  Phase V of the Center, to the  extent  (under
either of the foregoing clauses) such default continues beyond
any  applicable cure periods provided in the applicable lease,
and  to  the  extent  Landlord therefore  has  (and  exercises
concurrently with any termination of this Lease)  a  right  to
terminate such other applicable lease; provided, however, that
the  default event set forth in this Section 14.1(i) shall not
apply  with  respect to any default under  a  lease  described
herein  to  the  extent  Tenant  has  previously  assigned  or
transferred  all  of its right, title and interest  under  the
lease as to which such default then exists and, as a result of
such  transfer, the holder of the lessee's interest under  the
lease as to which such default then exists is not a person  or
entity  which  controls, is controlled by or is  under  common
control with the person or entity which is then the holder  of
the lessee's interest under this Lease.
     14.2. Remedies Upon Tenant's Default.
            (a)   Upon the occurrence of any event of  default
described in Section 14.1 hereof, Landlord, in addition to and
without prejudice to any other rights or remedies it may have,
shall have the immediate right to re-enter the Premises or any
part  thereof  and repossess the same, expelling and  removing
therefrom  all  persons and property (which  property  may  be
stored in a public warehouse or elsewhere at the cost and risk
of  and for the account of Tenant), using such force as may be
lawful  and reasonably necessary to do so (as to which  Tenant
hereby  waives any claim for loss or damage that  may  thereby
occur,  except  for any such loss or damage arising  from  the
negligence  or willful misconduct or omission of  Landlord  or
its  agents).  In addition to or in lieu of such re-entry, and
without prejudice to any other rights or remedies it may have,
Landlord  shall  have the right either (i) to  terminate  this
Lease and recover from Tenant all damages incurred by Landlord
as  a result of Tenant's default, as hereinafter provided,  or
(ii)  to  continue this Lease in effect and recover  rent  and
other charges and amounts as they become due.
            (b)   Even  if Tenant has breached this  Lease  or
abandoned  the Premises, this Lease shall continue  in  effect
for  so long as Landlord does not terminate Tenant's right  to
possession  under  subsection  (a)  hereof  and  Landlord  may
enforce  all  of  its rights and remedies  under  this  Lease,
including  the  right to recover rent as it becomes  due,  and
Landlord, without terminating this Lease, may exercise all  of
the  rights  and  remedies of a lessor under California  Civil
Code Section 1951.4 (lessor may continue lease in effect after
lessee's breach and abandonment and recover rent as it becomes
due, if lessee has right to sublet or assign, subject only  to
reasonable limitations), or any successor Code section.   Acts
of  maintenance, preservation or efforts to relet the Premises
or  the appointment of a receiver upon application of Landlord
to  protect  Landlord's interests under this Lease  shall  not
constitute a termination of Tenant's right to possession.
            (c)  If Landlord terminates this Lease pursuant to
this  Section 14.2, Landlord shall have all of the rights  and
remedies of a landlord provided by Section 1951.2 of the Civil
Code  of  the  State  of  California, or  any  successor  Code
section,  which remedies include Landlord's right  to  recover
from  Tenant (i) the worth at the time of award of the  unpaid
rent and additional rent which had been earned at the time  of
termination, (ii) the worth at the time of award of the amount
by  which the unpaid rent and additional rent which would have
been  earned after termination until the time of award exceeds
the  amount of such rental loss that Tenant proves could  have
been  reasonably avoided, (iii) the worth at the time of award
of the amount by which the unpaid rent and additional rent for
the  balance  of the term after the time of award exceeds  the
amount  of  such  rental  loss that  Tenant  proves  could  be
reasonably  avoided,  and (iv) any other amount  necessary  to
compensate  Landlord for all the detriment proximately  caused
by  Tenant's  failure  to perform its obligations  under  this
Lease  or  which  in the ordinary course of  things  would  be
likely to result therefrom, including, but not limited to, the
cost  of  recovering possession of the Premises,  expenses  of
reletting,   including   necessary  repair,   renovation   and
alteration of the Premises (provided that the cost of any such
renovation  or  alteration shall be recoverable  only  to  the
extent reasonably necessary to make the Premises suitable  for
use  and  occupancy by the new tenant and shall  be  allocated
reasonably between the unexpired portion of the term  of  this
Lease  at the date of termination thereof and the balance,  if
any, of the term of such new tenant's lease falling after  the
scheduled  expiration  date  of  the  term  of  this   Lease),
reasonable  attorneys' fees, and other reasonable costs.   The
"worth  at  the time of award" of the amounts referred  to  in
clauses  (i)  and  (ii)  above shall be computed  by  allowing
interest  at  ten percent (10%) per annum from the  date  such
amounts accrued to Landlord.  The "worth at the time of award"
of  the  amounts  referred to in clause (iii) above  shall  be
computed  by  discounting such amount at one percentage  point
above  the  discount rate of the Federal Reserve Bank  of  San
Francisco at the time of award.

      14.3.  Remedies Cumulative.  All rights, privileges  and
elections or remedies of Landlord contained in this Article 14
are cumulative and not alternative to the extent permitted  by
law and except as otherwise provided herein.


            15.  SUBORDINATION, ATTORNMENT AND SALE
                               
     15.1. Subordination To Mortgage.

            (a)  This Lease, and any sublease entered into  by
Tenant  under the provisions of this Lease, shall  be  subject
and  subordinate to any ground lease, mortgage, deed of trust,
sale/leaseback  transaction  or any  other  hypothecation  for
security  now  or  hereafter placed  upon  the  Building,  the
Property, or both, and the rights of any assignee of  Landlord
or  of  any ground lessor, mortgagee, trustee, beneficiary  or
leaseback  lessor under any of the foregoing, and to  any  and
all advances made on the security thereof and to all renewals,
modifications,  consolidations,  replacements  and  extensions
thereof.   If  any  mortgagee,  trustee,  beneficiary,  ground
lessor, sale/leaseback lessor or assignee elects to have  this
Lease be an encumbrance upon the Property prior to the lien of
its  mortgage, deed of trust, ground lease or leaseback  lease
or  other  security  arrangement and gives notice  thereof  to
Tenant, this Lease shall be deemed prior thereto, whether this
Lease is dated prior or subsequent to the date thereof or  the
date  of recording thereof.  Tenant, and any sublessee,  shall
execute such documents as may reasonably be requested  by  any
mortgagee, trustee, beneficiary, ground lessor, sale/leaseback
lessor  or  assignee to evidence the subordination herein  set
forth or to make this Lease prior to the lien of any mortgage,
deed of trust, ground lease, leaseback lease or other security
arrangement, as the case may be.  Upon any default by Landlord
in the performance of its obligations under any mortgage, deed
of  trust, ground lease, leaseback lease or assignment, Tenant
(and  any  sublessee) shall attorn to the mortgagee,  trustee,
beneficiary,  ground  lessor,  leaseback  lessor  or  assignee
thereunder  upon  demand  and shall execute  and  deliver  any
instrument  or  instruments confirming the  attornment  herein
provided  for.  Landlord shall obtain and deliver  to  Tenant,
within  ninety (90) days after mutual execution of this Lease,
a  written  nondisturbance agreement from Northwestern  Mutual
Life  Insurance  Company (the beneficiary under  the  existing
deed  of trust on the Property) providing that Tenant's  right
to  quiet possession of the Premises shall not be disturbed so
long as Tenant is not in default beyond the expiration of  any
applicable  cure  period and performs all of  its  obligations
under  this  Lease, unless this Lease is otherwise  terminated
pursuant  to its terms; such written nondisturbance  agreement
shall  either be substantially in the form attached hereto  as
Exhibit  E,  but with such modifications as Tenant  reasonably
requests  (and Landlord hereby agrees to use its best  efforts
to  cause Northwestern Mutual Life Insurance Company to  agree
to  all such modifications reasonably requested by Tenant)  or
be  substantially in the form attached hereto as Exhibit E and
be accompanied by a side letter agreement between Landlord and
Tenant  addressing, to Tenant's reasonable  satisfaction,  the
subject  matter of the modifications requested by  Tenant  and
not  agreed to by Northwestern Mutual Life Insurance  Company.
If  Landlord fails to deliver such agreement or agreement  and
side  letter,  as  applicable, to Tenant within  the  required
time,  Tenant shall have the right to terminate this Lease  by
written  notice  to Landlord at any time prior  to  Landlord's
subsequent  delivery  (if  any) of an  executed  agreement  or
agreement  and  side  letter,  as  applicable,  meeting   such
requirements.

            (b)   Landlord specifically agrees that (i) Tenant
may  conclusively rely upon any written notice Tenant receives
from  any  mortgagee,  trustee,  beneficiary,  ground  lessor,
sale/leaseback    lessor    or    assignee    ("Beneficiary"),
notwithstanding any claim by Landlord contesting the  validity
of  any  term or condition of such notice, including, but  not
limited  to,  any default by such Beneficiary or  any  default
claimed   by   Landlord  to  have  been  committed   by   such
Beneficiary, and (ii) Landlord shall not make any claim of any
kind  against  Tenant  or  Tenant's  leasehold  interest  with
respect  to amounts paid to any such Beneficiary by Tenant  or
any  acts performed by Tenant pursuant to such written  notice
from any Beneficiary.

            (c)   Notwithstanding  anything  to  the  contrary
contained  in  this  Lease, Tenant shall not  be  required  to
subordinate  its  interest under this Lease  unless  (i)  such
subordination   does   not   materially   increase    Tenant's
obligations  or  materially decrease  its  rights  under  this
Lease,  and  (ii) Landlord first obtains from the  Beneficiary
requesting   such  subordination  a  written  agreement   that
provides  that  Tenant's  right to  quiet  possession  of  the
Premises  shall not be disturbed so long as Tenant is  not  in
default  beyond the expiration of any applicable  cure  period
and  performs all of its obligations under this Lease,  unless
this Lease is otherwise terminated pursuant to its terms.

      15.2.  Sale Of Landlord's Interest.  Upon sale, transfer
or  assignment of Landlord's entire interest in  the  Building
and  Property,  Landlord shall be relieved of its  obligations
hereunder with respect to liabilities accruing from and  after
the date of such sale, transfer or assignment.

      15.3.  Estoppel Certificates.  Tenant shall at any  time
and  from  time  to time, within ten (10) days  after  written
request  by  Landlord,  execute, acknowledge  and  deliver  to
Landlord a certificate in writing stating: (i) that this Lease
is  unmodified and in full force and effect, or if there  have
been  any modifications, that this Lease is in full force  and
effect as modified and stating the date and the nature of each
modification; (ii) the date to which rental and all other sums
payable  hereunder  have  been paid; (iii)  that  to  Tenant's
actual knowledge Landlord is not in default in the performance
of  any  of its obligations under this Lease, that Tenant  has
given  no  notice of default to Landlord and that to  Tenant's
actual  knowledge, no event has occurred which,  but  for  the
expiration of the applicable time period, would constitute  an
event of default hereunder; and (iv) such other matters as may
reasonably  be  requested  by Landlord  or  any  institutional
lender,   mortgagee,  trustee,  beneficiary,  ground   lessor,
sale/leaseback   lessor  or  prospective  purchaser   of   the
Property.    Any   such   certificate  provided   under   this
Section  15.3  may  be relied upon by any  lender,  mortgagee,
trustee,  beneficiary, assignee or successor  in  interest  to
Landlord,  by  any prospective purchaser, by any purchaser  on
foreclosure or sale, or by any grantee under a deed in lieu of
foreclosure  of any mortgage or deed of trust on the  Property
or  Premises.   Failure  to  execute  and  return  within  the
required  time  any  estoppel certificate requested  hereunder
shall be deemed to be an admission of the truth of the matters
set  forth in the form of certificate submitted to Tenant  for
execution.

      15.4.  Subordination to CC&R's.   This  Lease,  and  any
permitted sublease entered into by Tenant under the provisions
of  this  Lease, shall be subject and subordinate (a)  to  any
declarations   of   covenants,  conditions  and   restrictions
recorded by Landlord with respect to the Property from time to
time,  provided  that  the  terms  of  such  declarations  are
reasonable and do not discriminate against Tenant relative  to
other  tenants occupying portions of the Property, and (b)  to
the  Declaration  of  Covenants, Conditions  and  Restrictions
dated June 20, 1979 and recorded on July 5, 1979 as Instrument
No. 79-130777, Alameda County Records, as amended from time to
time  (the  "Master  Declaration"), the  provisions  of  which
Master Declaration are an integral part of this Lease.  Tenant
agrees  to  execute, upon request by Landlord,  any  documents
reasonably  required  from  time  to  time  to  evidence   the
subordination provided in this Section 15.4.


                         16.  SECURITY
                               
     16.1. Deposit.
            (a)   Concurrently with Tenant's execution of this
Lease,  Tenant shall deposit with Landlord the  sum  of  Fifty
Thousand  and  No/100  Dollars ($50,000.00),  which  sum  (the
"Security Deposit") shall be held by Landlord as security  for
the  faithful performance of all of the terms, covenants,  and
conditions  of this Lease to be kept and performed  by  Tenant
during  the  term  hereof.   If Tenant  defaults,  beyond  the
expiration of any applicable grace period, with respect to any
provision  of  this Lease, including, without limitation,  the
provisions  relating to the payment of rental and  other  sums
due hereunder, Landlord shall have the right, but shall not be
required,  to  use, apply or retain all or  any  part  of  the
Security Deposit for the payment of rental or any other amount
which  Landlord  may  spend or become obligated  to  spend  by
reason  of Tenant's default or to compensate Landlord for  any
other  loss or damage which Landlord may suffer by  reason  of
Tenant's  default.  If any portion of the Security Deposit  is
so  used  or  applied, Tenant shall, within thirty  (30)  days
after  written demand therefor, deposit cash with Landlord  in
an  amount sufficient to restore the Security Deposit  to  its
original  amount  and Tenant's failure to do  so  shall  be  a
material breach of this Lease.  Landlord shall not be required
to   keep  any  deposit  under  this  Section  separate   from
Landlord's general funds, and Tenant shall not be entitled  to
interest  thereon.   If Tenant fully and  faithfully  performs
every  provision  of  this Lease to be performed  by  it,  the
Security Deposit, or any balance thereof, shall be returned to
Tenant  or,  at  Tenant's direction, to the last  assignee  of
Tenant's interest hereunder, at the expiration of the term  of
this  Lease and within ten (10) days after Tenant has  vacated
the  Premises.   In  the  event of termination  of  Landlord's
interest  in this Lease, Landlord shall transfer all  deposits
then  held  by  Landlord  under  this  Section  to  Landlord's
successor  in  interest, whereupon Tenant  agrees  to  release
Landlord from all liability for the return of such deposit  or
the accounting thereof.
            (b)  In  lieu of the Security Deposit, Tenant  may
deliver to Landlord at any time, and shall thereafter maintain
in  full  force and effect during the remaining term  of  this
Lease,  an irrevocable standby letter of credit in the  amount
of  the required Security Deposit, issued in favor of Landlord
by  a commercial bank or trust company approved in writing  by
Landlord (which approval shall not be unreasonably withheld or
delayed),  in  form reasonably satisfactory to  Landlord  (the
"Letter  of  Credit"), to be held by Landlord as security  for
the  faithful  performance of all the payment  obligations  of
Tenant  under  this  Lease  during the  initial  term  hereof,
subject  to  the  following  terms and  conditions  (and  upon
delivery  of any such Letter of Credit by Tenant, if  Landlord
is  then  already holding a cash Security Deposit from Tenant,
Landlord  shall promptly return such cash Security Deposit  to
Tenant):
                (i)  Landlord shall be entitled (but shall not
be  required) to draw against the Letter of Credit and receive
and retain proceeds thereof upon any default by Tenant, beyond
the  expiration of any applicable cure periods, in the payment
of  any  rent or other amounts required to be paid  by  Tenant
under  this  Lease (a "monetary default") or  upon  any  other
default, beyond the expiration of any applicable cure periods,
in  Tenant's  obligations under this  Lease  (a  "non-monetary
default").  The amount of any such draw shall be, with respect
to a monetary default, the amount due from Tenant to Landlord,
and,  in  the  event  of  a non-monetary  default,  an  amount
estimated by Landlord, in its reasonable discretion, to be the
amount  necessary  to cure such default.  Within  thirty  (30)
days  following  any draw by Landlord against  the  Letter  of
Credit, Tenant shall cause the amount of the Letter of  Credit
to  be  restored  to the full amount of the required  Security
Deposit   pursuant   to  paragraph  (a)   above.    Landlord's
entitlement  to  draw against the Letter of Credit  shall  not
limit  or  impair  in  any  way Landlord's  other  rights  and
remedies,  following any default by Tenant,  under  any  other
applicable provision of this Lease or under applicable law.

                  (ii)   Notwithstanding  any  provisions   of
subparagraph  (i) above, Landlord shall also be entitled  (but
shall  not  be  required) to draw against the  then  remaining
balance  of  the Letter of Credit in full and to  receive  the
entire  proceeds  of such draw if the Letter  of  Credit  will
expire  as  of a date prior to the expiration of  the  initial
term of this Lease and Tenant fails to provide to Landlord  an
extension or replacement of such Letter of Credit, in at least
the  amount of the required Security Deposit, at least  thirty
(30)  days  prior  to the scheduled expiration  date  of  such
existing Letter of Credit.
                  (iii)   Any  amount  drawn  or  received  by
Landlord pursuant to a draw under the Letter of Credit that is
not  immediately  used  or applied by  Landlord  to  remedy  a
default  by  Tenant shall be retained by Landlord  as  a  cash
Security  Deposit  on  the terms set forth  in  paragraph  (a)
above.


                      17.  MISCELLANEOUS
      17.1. Notices.  All notices, consents, waivers and other
communications  which this Lease requires  or  permits  either
party  to  give to the other shall be in writing and shall  be
deemed given when delivered personally (including delivery  by
private courier or express delivery service) or four (4)  days
after  deposit  in  the  United  States  mail,  registered  or
certified  mail, postage prepaid, addressed to the parties  at
their respective addresses as follows:
     To Tenant:       Aradigm Corporation
                      26219 Eden Landing Road
                      Hayward, CA  94545
                      Attn: Richard P. Thompson
                             President and C.E.O.
                             
                             
      with  copy to:         Mark A. Olbert, Vice President  &
CFO
                      Aradigm Corporation
                      26219 Eden Landing Road
                      Hayward, CA  94545
                               
                               
      To  Landlord:           Hayward  Point  Eden  I  Limited
Partnership
                      c/o Britannia Developments, Inc.
                      1939 Harrison Street, Suite 412
                      Park Plaza Building
                      Oakland, CA  94612
                      Attn: T. J. Bristow

     with copy to:         Folger Levin & Kahn LLP
                      Embarcadero Center West
                      275 Battery Street, 23rd Floor
                      San Francisco, CA 94111 Attn:
                      Donald E. Kelley, Jr.
                      
or  to  such other address as may be contained in a notice  at
least  fifteen  (15)  days prior to the  address  change  from
either  party  to  the other given pursuant to  this  Section.
Rental  payments and other sums required by this Lease  to  be
paid  by  Tenant shall be delivered to Landlord at  Landlord's
address provided in this Section, or to such other address  as
Landlord  may from time to time specify in writing to  Tenant,
and shall be deemed to be paid only upon actual receipt.
      17.2.  Successors And Assigns.  The obligations of  this
Lease shall run with the land, and this Lease shall be binding
upon  and inure to the benefit of the parties hereto and their
respective  successors and assigns, except that  the  original
Landlord named herein and each successive Landlord under  this
Lease shall be liable only for obligations accruing during the
period of its ownership of the Property, which liability shall
survive, but future liability under the Lease shall then  pass
to the successor lessor.
      17.3.  No Waiver.  The failure of either party  to  seek
redress   for  violation,  or  to  insist  upon   the   strict
performance, of any covenant or condition of this Lease  shall
not  be  deemed  a  waiver  of such violation,  or  prevent  a
subsequent  act  which  would originally  have  constituted  a
violation from having all the force and effect of an  original
violation.
      17.4.  Severability.  If any provision of this Lease  or
the   application   thereof  is  held   to   be   invalid   or
unenforceable, the remainder of this Lease or the  application
of such provision to persons or circumstances other than those
as  to  which  it  is invalid or unenforceable  shall  not  be
affected  thereby, and each of the provisions  of  this  Lease
shall  be  valid and enforceable, unless enforcement  of  this
Lease  as  so  invalidated  would be unreasonable  or  grossly
inequitable  under all the circumstances or  would  materially
frustrate the purposes of this Lease.

      17.5.  Litigation Between Parties.  In the event of  any
litigation  between  the parties hereto growing  out  of  this
Lease,  the  prevailing  party shall  be  reimbursed  for  all
reasonable  costs, including, but not limited  to,  reasonable
accountants'  fees  and attorneys' fees.   "Prevailing  party"
within  the  meaning  of this Section shall  include,  without
limitation,  a  party  who dismisses an  action  for  recovery
hereunder  in exchange for payment of the sums allegedly  due,
performance  of covenants allegedly breached or  consideration
substantially equal to the relief sought in the action.

      17.6. Surrender.  A voluntary or other surrender of this
Lease  by  Tenant,  or  a mutual termination  thereof  between
Landlord  and Tenant, shall not result in a merger but  shall,
at  the option of Landlord, operate either as an assignment to
Landlord  of  any and all existing subleases and subtenancies,
or  a  termination  of  all  or  any  existing  subleases  and
subtenancies.  This provision shall be contained  in  any  and
all assignments or subleases made pursuant to this Lease.

     17.7. Interpretation.  The provisions of this Lease shall
be  construed  as a whole, according to their common  meaning,
and  not  strictly  for or against Landlord  or  Tenant.   The
captions  preceding  the text of each Section  and  subsection
hereof  are  included only for convenience  of  reference  and
shall be disregarded in the construction or interpretation  of
this Lease.

      17.8.  Entire  Agreement.  This written Lease,  together
with the exhibits hereto, contains all the representations and
the  entire  understanding between  the  parties  hereto  with
respect   to   the   subject   matter   hereof.    Any   prior
correspondence, memoranda or agreements are replaced in  total
by  this  Lease and the exhibits hereto.  This  Lease  may  be
modified only by an agreement in writing signed by each of the
parties.

      17.9. Governing Law.  This Lease and all exhibits hereto
shall  be construed and interpreted in accordance with and  be
governed  by  all the provisions of the laws of the  State  of
California.

      17.10.      No Partnership.  Nothing contained  in  this
Lease  shall  be construed as creating any type or  manner  of
partnership, joint venture or joint enterprise with or between
Landlord and Tenant.

      17.11.      Financial Information.  From  time  to  time
Tenant  shall promptly provide directly to prospective lenders
and  purchasers  of the Property designated by  Landlord  such
financial  information pertaining to the financial  status  of
Tenant  as  Landlord may reasonably request; provided,  Tenant
shall be permitted to provide such financial information in  a
manner which Tenant deems reasonably necessary to protect  the
confidentiality of such information.  In addition,  from  time
to  time,  Tenant shall provide Landlord with  such  financial
information  pertaining to the financial status of  Tenant  as
Landlord  may  reasonably request.  Landlord agrees  that  all
financial information supplied to Landlord by Tenant shall  be
treated   as   confidential  material,  and   shall   not   be
disseminated  to  any person or entity (including  any  entity
affiliated  with  Landlord,  except  as  otherwise   expressly
provided below) without Tenant's prior written consent, except
that  Landlord shall be entitled to provide such  information,
subject  to reasonable precautions to protect the confidential
nature  thereof,  (i) to Landlord's partners and  professional
advisors,   solely  for  use  in  connection  with  Landlord's
execution  and  enforcement  of  this  Lease,  and   (ii)   to
prospective lenders and/or purchasers of the Property,  solely
for use in connection with their bona fide consideration of  a
proposed financing or purchase of the Property, provided  that
such prospective lenders and/or purchasers are not engaged  in
businesses  directly competitive with the business then  being
conducted  by  Tenant.  For purposes of this Section,  without
limiting  the  generality of the obligations provided  herein,
(A)  it  shall  be deemed reasonable for Landlord  to  request
copies  of  Tenant's  most  recent  audited  annual  financial
statements, or, if audited statements have not been  prepared,
unaudited financial statements for Tenant's most recent fiscal
year, accompanied by a certificate of Tenant's chief financial
officer that such financial statements fairly present Tenant's
financial  condition  as  of the date(s)  indicated,  and  (B)
during  any  period when Tenant has a class of publicly-traded
securities  and  is a reporting company under  the  Securities
Exchange Act of 1934, it shall be deemed sufficient compliance
with  Tenant's  obligations under this Section for  Tenant  to
provide,  upon  Landlord's request, copies  of  Tenant's  most
recent  quarterly and annual filings (and any Form 8-K filings
since  the  most  recent of such quarterly or annual  filings)
with the Securities and Exchange Commission.

           Landlord and Tenant recognize the need of Tenant to
maintain  the  confidentiality of  information  regarding  its
financial  status and the need of Landlord to be informed  of,
and  to provide to its partners and to prospective lenders and
purchasers  of  the Property financial information  pertaining
to,  Tenant's financial status.  Landlord and Tenant agree  to
cooperate with each other in achieving these needs within  the
context of the obligations set forth in this Section.
      17.12.      Costs.   If Tenant requests the  consent  of
Landlord  under any provision of this Lease for any  act  that
Tenant   proposes   to   do  hereunder,   including,   without
limitation,  assignment or subletting of the Premises,  Tenant
shall, as a condition to doing any such act and the receipt of
such  consent,  reimburse Landlord promptly for  any  and  all
reasonable   costs  and  expenses  incurred  by  Landlord   in
connection    therewith,   including,   without    limitation,
reasonable attorneys' fees.

      17.13.     Time.  Time is of the essence of this  Lease,
and of every term and condition hereof.

      17.14.      Rules And Regulations.  Tenant shall observe
and obey such rules and regulations as Landlord may promulgate
from time to time for the safety, care, cleanliness, order and
use  of  the Premises, the Building and the Property, provided
that  any  such  rules and regulations shall not  unreasonably
interfere with Tenant's access to, or use of, the Premises.

      17.15.     Brokers.  Landlord shall pay a commission  to
Cornish  & Carey Commercial, in connection with and contingent
upon the mutual execution of this Lease, in accordance with  a
separate agreement between Landlord and such broker.  Landlord
and  Tenant each represents and warrants to the other that  no
other  broker participated in the consummation of this  Lease,
and  each agrees to indemnify, defend and hold the other party
harmless  against  any liability, cost or expense,  including,
without limitation, reasonable attorneys' fees, arising out of
any   claims  for  brokerage  commissions  or  other   similar
compensation  in  connection  with  any  conversations,  prior
negotiations or other dealings by the indemnifying party  with
any such other broker or other claimant.
      17.16.     Memorandum Of Lease.  At any time during  the
term  of this Lease, either party, at its sole expense,  shall
be  entitled  to  record a memorandum of this  Lease  and,  if
either party so elects, both parties agree to cooperate in the
preparation,  execution, acknowledgement  and  recordation  of
such document in reasonable form.
      17.17.      Corporate Authority.  Each  of  the  persons
signing   this  Lease  on  behalf  of  Landlord  and   Tenant,
respectively,  warrants that he or she is fully authorized  to
do  so  and,  by  so  doing, to bind Landlord  or  Tenant,  as
applicable.

      17.18.      Execution and Delivery.  Submission of  this
Lease  for  examination  or  signature  by  Tenant  does   not
constitute an agreement or reservation of or option for  lease
of  the  Premises.  This instrument shall not be effective  or
binding  upon  either  party, as a lease or  otherwise,  until
executed  and  delivered by both Landlord  and  Tenant.   This
Lease  may  be  executed in one or more  counterparts  and  by
separate  parties  on  separate counterparts,  but  each  such
counterpart  shall  constitute  an  original  and   all   such
counterparts  together  shall  constitute  one  and  the  same
instrument.

      17.19.     Stock Warrants.  As a material inducement  to
Landlord's  execution of this Lease, within thirty  (30)  days
after  mutual execution of this Lease Tenant shall deliver  to
Landlord, subject to compliance with all applicable securities
laws,  a  warrant or warrants, registered in  the  name(s)  of
Landlord  or  its designee(s) (provided that such  designee(s)
are  partners  of  Landlord  or are shareholders,  members  or
affiliates, directly or indirectly, of Landlord or of  one  or
more  of  its partners or are approved in writing  by  Tenant,
which  approval shall not be unreasonably withheld or delayed)
and in form and substance reasonably satisfactory to Landlord,
providing  for the purchase of an aggregate of Sixty  Thousand
(60,000) shares of Tenant's common stock.  Such warrants shall
have  an  exercise  price  equal to  one  hundred  twenty-five
percent (125%) of the closing market price of Tenant's  common
stock  on  the  date of mutual execution of this Lease,  shall
include   reasonable   registration  rights   and   shall   be
exercisable at any time up from the Initial Exercise Date  (as
defined below) until the seventh (7th) anniversary of the date
of  execution  of this Lease.  For purposes of  the  preceding
sentence, the "Initial Exercise Date" (to be defined  in  more
detail in the form of warrant itself) shall be the earlier  to
occur  of  (i)  the  date on which Landlord has  substantially
completed   the  construction  of  and/or  payment   for,   as
applicable, all improvements to be constructed or paid for  by
Landlord under this Lease and the landlord under the  Phase  V
Lease  has substantially completed the construction of  and/or
payment for, as applicable, all improvements to be constructed
or  paid  for  by such landlord under the Phase  V  Lease,  or
(ii) the later to occur of (A) January 1, 2000 or (B) the date
on which Landlord has substantially completed the construction
of  and/or payment for, as applicable, all improvements to  be
constructed  or paid for by Landlord under this  Lease  as  of
January  1,  2000 (but excluding any such obligations  to  the
extent   the  performance  thereof  has  been  delayed  beyond
January 1, 2000 by circumstances beyond the reasonable control
of   Landlord,   including  (but  not  limited  to)   weather,
casualties and other acts of God, labor disputes and  acts  or
omissions  of Tenant or its agents or employees, but excluding
any  financial  inability of Landlord) and the landlord  under
the Phase V Lease has substantially completed the construction
of  and/or payment for, as applicable, all improvements to  be
constructed  or paid for by such landlord under  the  Phase  V
Lease   as  of  January  1,  2000  (but  excluding  any   such
obligations  to  the extent the performance thereof  has  been
delayed  beyond  January 1, 2000 by circumstances  beyond  the
reasonable  control  of  such  landlord,  including  (but  not
limited  to) weather, casualties and other acts of God,  labor
disputes  and  acts or omissions of Tenant or  its  agents  or
employees,  but  excluding  any financial  inability  of  such
landlord).

             IN  WITNESS  WHEREOF,  the  parties  hereto  have
executed  this  Lease as of the day and year first  set  forth
above.
           "Landlord"

HAYWARD  POINT EDEN I LIMITED PARTNERSHIP, a Delaware  limited
partnership

By:  Britannia  Developments, Inc., a California  corporation,
     Its General Partner
     
     
     By: ____________________
           T.J. Bristow
           President and
           Chief Financial Officer

         "Tenant"

ARADIGM CORPORATION, a California corporation


By: __________________________
    Richard P. Thompson
     President


By: _________________________
     Mark A. Olbert
     Chief Financial Officer

17025\3044\0002rv5
                           EXHIBITS
                               
                               
                EXHIBIT A  Location of Premises
                               
                EXHIBIT B  Real Property Description
                EXHIBIT C  Construction
                 EXHIBIT D  Acknowledgment of Final Completion
Date
                  EXHIBIT  E   Form  of  Non-Disturbance   and
Attornment Agreement

                   REAL PROPERTY DESCRIPTION
                               
                               
Improved real property located in the City of Hayward,  County
of  Alameda, State of California, more particularly  described
as follows:

Lots  2,  3, 4, 5 and 7, Tract 4019, filed June 28, 1979,  Map
Book 110, Pages 97, 98 and 99, Alameda County Records.

Subject to easements, restrictions and other matters of record
affecting title.

                         CONSTRUCTION
                               
                               
      Landlord, at its sole cost and expense, shall  undertake
and  diligently complete, subject to delays for causes  beyond
its reasonable control, construction of (a) a structural shell
of  approximately 16,244 square feet for the Third  Additional
Space in accordance with the Building Shell Description at the
end  of  this  Exhibit C, and (b) tenant improvements  in  the
Existing  Space,  First  Additional Space,  Second  Additional
Space and Third Additional Space in accordance with plans  and
specifications to be mutually approved by Landlord and Tenant,
which  approval shall not be unreasonably withheld or delayed;
provided,  however, that the parties may by mutual  agreement,
as  contemplated  below and in Section 2.4(c)  of  the  Lease,
determine  instead that Tenant will contract  for  the  design
and/or  construction  of  the tenant improvements  subject  to
reimbursement by Landlord to the extent provided  below.   The
parties  contemplate  that  the  construction  of  the  tenant
improvements in the Premises will be performed in two separate
phases,   the  first  being  the  construction  of   a   Pilot
Manufacturing  Facility occupying approximately 23,756  square
feet of the Premises and the second being the construction  of
a Commercial Manufacturing Facility occupying the remainder of
the Premises.  The allocation of space in the Premises between
the   Pilot   Manufacturing  Facility   and   the   Commercial
Manufacturing Facility shall be determined by mutual agreement
of  Landlord  and Tenant, and shall be subject  to  change  by
their mutual agreement from time to time.

      All such work hereunder shall be performed in a neat and
workmanlike  manner  and  shall  conform  to  all   applicable
governmental codes, laws and regulations in force at the  time
such  work is completed.  Landlord and Tenant shall  both  use
their  best  endeavors  to develop,  review  and  approve  all
working drawings, final drawings, specifications, changes  (if
applicable) and other matters promptly, diligently and  within
such  time periods as may be reasonably requested by the other
party   or   by   the   architects,  contractors   and   other
professionals  engaged in the design and construction  of  the
work.

      Landlord has agreed to provide a base tenant improvement
allowance of up to Thirty Dollars ($30.00) per square foot, or
approximately   One  Million  Two  Hundred  Thousand   Dollars
($1,200,000)  in the aggregate for an estimated 40,000  square
feet  of  space  in the Premises, for the tenant  improvements
described  in  the initial paragraph hereof (the "Base  Tenant
Improvement Allowance").  Landlord has also agreed to  provide
an  additional tenant improvement allowance of up  to  Seventy
Dollars ($70.00) per square foot, or approximately Two Million
Eight  Hundred Thousand Dollars ($2,800,000) in the  aggregate
for  an estimated 40,000 square feet of space in the Premises,
for the tenant improvements described in the initial paragraph
hereof   (the   "Additional  Tenant  Improvement  Allowance").
Landlord's  total direct costs of design and  construction  of
the  tenant improvement work in the Premises under Section 2.4
and  this  Exhibit C (but not of the building  shell  for  the
Third  Additional  Space  or of any  exterior  work  involving
reconfiguration  of  streets,  sidewalks,  parking  areas  and
landscaping  to  accommodate the expansion  of  the  Building,
which  shell and exterior work shall be Landlord's  sole  cost
and  expense),  including, but not  limited  to,  payments  to
contractors or subcontractors for labor, materials and profits
or  overhead,  permit fees and charges, sales and  use  taxes,
testing  and  inspection  costs, architects',  engineers'  and
other  consulting and professional fees, costs of power, water
and  other utilities and of collection and removal of  debris,
and  all  other related costs incurred in connection with  the
design  and construction of the tenant improvement work  shall
be  chargeable  against the Base Tenant Improvement  Allowance
and,  to  the extent that allowance is exhausted, against  the
Additional Tenant Improvement Allowance.  Any amounts  charged
against  the  Additional  Tenant Improvement  Allowance  shall
result  in  a rental adjustment pursuant to Section 3.1(c)  of
the  Lease.   Any  such  costs of the tenant  improvements  in
excess  of the combined Base and Additional Tenant Improvement
Allowances  shall be payable solely by Tenant,  within  thirty
(30)  days  after written request by Landlord  accompanied  by
evidence  reasonably satisfactory to Tenant of the nature  and
amount  of  the  expense  or work for which  such  payment  is
requested;  provided,  however,  that  Tenant  shall  have  no
liability  for  excess  costs to the  extent  such  costs  are
attributable   to   changes  in   the   Approved   Plans   and
Specifications  (as  hereinafter defined) for  which  Tenant's
approval  was  required under this Exhibit C  and  which  were
nevertheless    implemented   without    Tenant's    approval.
Notwithstanding  any  contrary  provisions  contained  in  the
Lease, Landlord agrees that Tenant shall have no obligation to
remove,  at  the  expiration of the term  of  the  lease,  any
improvements   constructed  by  Landlord  pursuant   to   this
Exhibit C.

      The  general contractor for the building shell shall  be
Concrete  Shell  Structures, Inc., or any other  licensed  and
qualified  general  contractor  selected  by  Landlord.    The
architect  for  the  building shell shall be  Chamorro  Design
Group,  or any other licensed and qualified architect selected
by   Landlord.    The  general  contractor  for   the   tenant
improvements  shall  be  any licensed  and  qualified  general
contractor selected by Tenant, subject to written approval  by
Landlord (which approval shall not be unreasonably withheld or
delayed).    The   architect  for  the   tenant   improvements
("Architect")  shall  be any licensed and qualified  architect
selected  by  Tenant, subject to written approval by  Landlord
(which   approval  shall  not  be  unreasonably  withheld   or
delayed).  The costs and fees of Architect with respect to the
tenant improvements (but not any such fees with respect to the
building  shell  or  any  common area improvements)  shall  be
chargeable   against   the   Tenant  Improvement   Allowances.
Landlord  and  Tenant  shall  determine  by  mutual  agreement
whether   the  contracts  with  Architect,  with  the  general
contractor   for  the  tenant  improvements  and  with   other
consultants  or  professionals  with  respect  to  the  tenant
improvements shall be entered into by Landlord or Tenant.   If
such    contracts   are   entered   into   by   Tenant,   then
(i)  Section  2.4(c)  of  the Lease  shall  define  Landlord's
obligations  with  respect to the work  performed  under  such
contracts and (ii) to the extent Landlord is responsible under
this  Exhibit  C for the costs incurred under such  contracts,
Landlord  shall  make payments to Tenant or to the  applicable
parties  providing goods and services, as Landlord and  Tenant
may  agree,  on a monthly or other regular basis,  subject  to
receipt  of  such invoices, lien releases, certifications  and
other documentation as Landlord may reasonably require.

      Landlord  and  Tenant shall jointly cause  Architect  to
prepare initial plans and specifications for each phase of the
tenant   improvements  in  the  Premises,  which   plans   and
specifications shall be mutually approved (such  approval  not
to be unreasonably withheld or delayed) by Landlord and Tenant
(the  "Approved  Plans  and  Specifications").   Landlord  and
Tenant  shall then jointly cause Architect to produce detailed
working   drawings,   based  on   the   Approved   Plans   and
Specifications,  for  submission to the City  of  Hayward  for
building  permit  approval.   Any material  changes  from  the
Approved  Plans and Specifications shall be subject to  mutual
approval  (not unreasonably withheld or delayed)  by  Landlord
and  Tenant, provided, however, that any changes required from
time to time in the Approved Plans and Specifications, working
drawings and/or final plans and specifications as a result  of
applicable  law  or  governmental  requirements,  or  at   the
insistence  of  any other third party whose  approval  may  be
required with respect to such improvements, or as a result  of
unanticipated   conditions  encountered  in  the   course   of
construction,  may  be  implemented by  Landlord  after  prior
notice to Tenant (if Landlord is the contracting party who  is
responsible  for construction of the applicable improvements),
but shall not require Tenant's approval or consent.

      All  material  subcontracts for the tenant  improvements
shall  be  competitively  bid under  the  joint  direction  of
Landlord  and  Tenant,  except as otherwise  provided  herein.
Landlord  and Tenant shall consult with one another  regarding
all   design   and  cost  matters  relating  to   the   tenant
improvements,  including  (but  not  limited  to)  bidding  of
material  subcontracts as described in the preceding sentence,
and both parties shall have access on an "open book" basis  to
all   bids,   contracts  and  other  cost-related  information
regarding  the  tenant  improvements.   Without  limiting  the
generality  of  the  foregoing, cost aspects  of  any  changes
requested  by  Tenant from time to time in the Approved  Plans
and  Specifications, working drawings and/or final  plans  and
specifications shall be subject to mutual approval by Landlord
and Tenant; cost aspects of any changes required from time  to
time   in  the  Approved  Plans  and  Specifications,  working
drawings and/or final plans and specifications as a result  of
applicable  law  or  governmental  requirements,  or  at   the
insistence  of  any other third party whose  approval  may  be
required with respect to such improvements, or as a result  of
unanticipated   conditions  encountered  in  the   course   of
construction, shall not require Tenant's approval or  consent,
but  Tenant  shall at all times have access to the details  of
the  cost  aspects  of such changes (including  estimates  and
actual  expenses)  for information purposes.   Notwithstanding
any other provisions of this paragraph, however, to the extent
Tenant contracts directly with the general contractor for  any
of  the  tenant improvements, Tenant shall not be required  to
obtain Landlord's prior approval of or joint participation  in
the  bidding  of  material subcontracts to the  extent  Tenant
reasonably  determines  that  such  prior  approval  or  joint
participation  is impractical as a result of the  construction
timetable and timing requirements for the work contracted  for
by  Tenant;  but  Tenant shall nevertheless keep  Landlord  as
fully  informed  as  the circumstances reasonably  permit  and
shall  in  all events provide Landlord with full  "open  book"
access at all reasonable times, on request by Landlord, to all
bids,  contracts and other information relating to the  tenant
improvements contracted for by Tenant.
                  BUILDING SHELL DESCRIPTION
                               
The   building  structure  shall  be  a  conventional  tilt-up
concrete structure or such other kind of structure as Landlord
may reasonably select.  Supported on concrete spread footings,
the floor slab shall be 5" reinforced concrete over a membrane
and  engineered fill.  The roof shall be a panelized wood roof
supported  by  steel  columns, girders,  and  open  web  metal
joists.   The built-up roofing membrane shall utilize a  4-ply
system with a mineral surfaced cap sheet.  Notwithstanding the
foregoing  description of building shell characteristics,  any
of  such characteristics may be changed in whole or in part by
mutual agreement of Landlord and Tenant.

BUILDING SHELL shall include, but not be limited to:

     Building envelope
     Exterior concrete walks
     Parking areas
     Landscaping and irrigation
     Roof drains and drain lines-
     Roof top mechanical screen
     Fire sprinklers at roof elevation
     Trash enclosures
     Utilities:
     -     site lighting
     -     electric transformer
     -     underground electrical to building pull-section
     -     gas to exterior meter on building
     -     telephone conduit to building
     -     site storm drain system
     -     main sanitary sewer line under ground floor slab



TENANT  IMPROVEMENTS  not constituting part  of  the  Building
Shell, and therefore chargeable against the Tenant Improvement
Allowances, shall include, but not be limited to:

     Toilet cores
     Interior partitioning
     Interior finishes
     Millwork
     Specialty items, such as skylights
     HVAC system
     Building exhaust system
     Thermal building insulation
     Fire sprinkler drops below roof elevation
     Utilities:
     -    all electrical beyond pull section, including
          electrical main disconnect and distribution panels
     -    gas piping beyond main gas meter
     -    telephone conduit beyond utility co.  termination
          point
      -   sanitary  sewer lines to main line  under  ground
          floor
     -     lab gas piping for all lab utilities, i.e. natural
gas, compressed air, vacuum, etc.
      -      utility connection fees based on items  that  are
part of tenant improvements

            ACKNOWLEDGMENT OF FINAL COMPLETION DATE
                               
                               
      This Acknowledgment is executed as of _________________,
19___, by HAYWARD POINT EDEN I LIMITED PARTNERSHIP, a Delaware
limited partnership ("Landlord"), and  ARADIGM CORPORATION,  a
California corporation ("Tenant"), pursuant to Section 2.5  of
the  Lease dated January ___, 1998 between Landlord and Tenant
(the  "Lease")  covering premises located at  26224  Executive
Place, Hayward, CA 94545 (the "Premises").

      Landlord  and  Tenant hereby acknowledge  and  agree  as
follows:

      1.   The  Final  Completion  Date  under  the  Lease  is
__________________, 19___.

      2.   The  termination  date under  the  Lease  shall  be
_________________, 20___, subject to any applicable provisions
of the Lease for any extension or early termination thereof.

      3.  The square footage of the Premises as completed, for
purposes   of   calculating  minimum  monthly   rental   under
Section 3.1(a) of the Lease, is ___________ square feet.
      4.   The  final cost of the tenant improvements for  the
Premises   is                 .   Based  on  that  cost,   the
applicable rental adjustment (if any) and/or payment (if  any)
required  under the Lease is as follows (if none,  so  state):
 .

      5.   Tenant  accepts the Premises and  acknowledges  the
satisfactory completion of all improvements therein  (if  any)
required  to  be  made  by  Landlord,  subject  only  to   any
applicable  "punch  list"  or similar procedures  specifically
provided under the Lease.

     EXECUTED as of the date first set forth above.


           "Landlord"

HAYWARD  POINT EDEN I LIMITED PARTNERSHIP, a Delaware  limited
partnership

By:  Britannia  Developments, Inc., a California  corporation,
     Its General Partner
     
     
     By: ____________________
           T.J. Bristow
           President and
           Chief Financial Officer

         "Tenant"

ARADIGM CORPORATION, a California corporation

By: __________________________
     Mark A. Olbert
     Vice President and
     Chief Financial Officer

17025\3044\0002rv5


EXHIBIT 10.11A
                    First Amendment to Lease
This  First Amendment to Lease ("First Amendment") is executed
this  10th  day  of  June 1996 between Hayward  Point  Eden  I
Limited  Partnership ("Landlord"), and Aradigm  Corporation  a
California  Corporation  ("Tenant")  with  reference  to   the
following facts:

     A.   Landlord and Tenant are parties to a Lease dated as of
February 21, 1996 (the "Lease"), covering approximately  9,286
sq.  ft.  of  space  commonly known as 3930  Point  Eden  Way,
Hayward, California (the "Premises").

     B.    Landlord and Tenant wish to enter into  this  First
Amendment  to  confirm the revised minimum rental  and  Tenant
improvement allowance.


      Now, Therefore, in consideration of the mutual covenants
and obligations contained herein, Landlord and Tenant agree as
follows:
     1.   Clause 3.1(c) is amended such that in addition to the
tenant   improvement  allowance  of  $5.00  per  sq.  ft.   or
$46,430.00  stated  in this Clause, Landlord  will  provide  a
further  $100,000.00  towards the total  cost  of  the  Tenant
improvements.

     2.   Clause 3.1(c) Minimum Rental is amended as follows:

               Months                        Minimum Rental
                                              0-12           $
          10,275.50
                                              13-24          $
          10,554.08
                                              25-36          $
          10,843.80
                                          Clause  3.1.(d)   is
          unchanged.
     3.   The following is added to Clause 2.1.
               "In the event that Tenant exercises its Termination
Rights  under  this Clause Tenant shall pay on or  before  the
Termination  Date the unamortized portion (assuming  straightline
amortization  over  a  period  of  36  months  from  the
Commencement   Date)  of  the  $100,000.00   additional   T.I.
allowance:

     4.   Subject only to the provisions of this First Amendment,
the Lease has not been modified or amended and remains in full force
and effect.
      In  Witness  Whereof, Landlord and Tenant  have  executed
this First Amendment as of the date set forth above.


"Landlord                          "Tenant"
Hayward Point Eden I Partnership   Aradigm Corporation
A Delaware Limited Partnership


By:                                                              By
     T.J. Bristow, President            Richard Thompson Britannia
     Developments, Inc.            President
     
Its:  Managing Partner



EXHIBIT 10.11B
                      SECOND AMENDMENT TO LEASE
                                  
                                  
       THIS SECOND AMENDMENT TO LEASE ("Second Amendment") is
entered into as of December 22, 1997 between HAYWARD POINT
EDEN I LIMITED PARTNERSHIP, a Delaware limited partnership
("Landlord") and ARADIGM CORPORATION, a California corporation
("Tenant"), with reference to the following facts:

     A.   Landlord and Tenant are parties to a Lease dated as
of February 21, 1996, as amended by a First Amendment to Lease
dated as of June 10, 1996 (as amended, the "Lease"), covering
certain premises consisting of approximately 9,286 square feet
of space in Building E of the Britannia Point Eden Business
Park (the "Center") and commonly known as 3930 Point Eden Way,
Hayward, California 94545 (the "Original Space").  The location
of the Original Space in the Building is as designated in
Exhibit A attached hereto and incorporated herein by this
reference.

      B.   Concurrently with the execution of this Second
Amendment, Landlord and Tenant are negotiating over a new lease
covering portions of Building G in the Center, a new lease
covering a new building of approximately 80,000 square feet to
be constructed by Landlord or an affiliate in or adjacent to
the Center (the "Phase V Lease"), and amendments of two
existing leases between Landlord and Tenant affecting portions
of Building H in the Center.

     C.   In connection with the negotiation and execution of
the leases and amendments described in the preceding paragraph,
Landlord and Tenant wish to bring additional premises in
Building E under the Lease and to make various other changes in
the Lease as more particularly set forth herein.

     D.   Terms used herein as defined terms but not
specifically defined herein shall have the meanings assigned to
such terms in the Lease.

     NOW, THEREFORE, in consideration of the mutual agreements
set forth herein and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree as follows, effective immediately
upon the date of mutual execution hereof as specified above
(the "Effective Date"):
     1.   Additional Space.  In addition to the Original Space
as defined above, the Premises governed by the Lease shall
include, subject to the terms of this Second Amendment and of
the Lease as amended hereby, an additional 13,564 square feet
of space in the Building designated as "Additional Space" in
Exhibit A attached hereto and incorporated herein by this
reference (the "Additional Space").  Landlord lease to Tenant
and Tenant hires and leases from Landlord the Additional Space,
subject to all the terms and conditions of the Lease as amended
by this Second Amendment.

     2.   Term.  Section 2.1 of the Lease is amended to
provide that the term of the Lease shall expire on June 30,
1999 with respect to the Original Space and on December 31,
2000 with respect to the Additional Space, unless sooner
terminated (as to either or both of such spaces) in accordance
with its terms or unless extended (as to the Original Space
only) in accordance with its terms.  Section 2.1 of the Lease
is also amended to delete all previously existing provisions
for an early termination right by Tenant.  Section 2.1 of the
Lease is further amended to add the following at the end
thereof:

    "Notwithstanding any other provisions of this Lease to
     the contrary:

          (A)  If Tenant relocates the uses presently conducted
     by Tenant in the Original Space into either (i) the space
     to be occupied by Tenant in Building G in the Center or
     (ii) the new building to be constructed pursuant to the
     Phase V Lease (following completion of construction of
     such building), then Tenant shall have the right to
     terminate this Lease as to the Original Space, without
     penalty and without liability for any termination payment,
     by delivering to Landlord not less than six (6) months'
     prior written notice.  The termination payment described
     in Section 2.1(C) of this Lease (relating to payment of
     the unamortized portion of certain tenant improvement
     costs) shall have no application to any termination by
     Tenant under the circumstances described in the preceding
     sentence.
     
          (B)  Tenant shall have the right to terminate this
     Lease as to the Additional Space at any time, without
     penalty and without liability for any termination payment,
     by delivering to Landlord not less than three (3) months'
     prior written notice.
     
          (C)  If Tenant duly elects to extend the term of this
     Lease by an additional 10-year period with respect to the
     Original Space pursuant to Section 2.7(b) of this Lease,
     then Tenant shall have the right to terminate such
     extended term, effective as of the end of the seventh
     (7th) year thereof, by giving not less than six (6)
     months' prior written notice to Landlord; provided, that
     Tenant's exercise of such early termination right shall be
     conditioned upon Tenant's payment to Landlord in cash, on
     or before the effective date of such early termination, of
     a termination payment in an amount equal to the sum of (i)
     three (3) months' worth of minimum
     monthly rent at the rate that would have been in effect
     for the three (3) months immediately following the
     effective date of such early termination, plus (ii) an
     amount equal to the unamortized portion of any tenant
     improvement costs incurred by Landlord for additional
     tenant improvements (if any) to the Original Space under
     Paragraph 5 of the Second Amendment to this Lease in
     connection with Tenant's exercise of its option for the
     extended 10-year term (such unamortized portion to be
     calculated on the basis of a straight-line amortization of
     such improvement costs over the period from the date such
     additional tenant improvements are completed and tendered
     for occupancy and use by Tenant, subject only to "punch
     list" items not materially impairing Tenant's ability to
     use such additional tenant improvements for their intended
     purpose, to the originally scheduled expiration date of
     the extended 10-year term)."
     3.   Options to Extend Term.  Section 2.7 of the Lease is
amended to read in its entirety as follows:

          "2.7.  Options to Extend Term.

               (a)  Tenant shall have the option to extend the
     term of this Lease with respect to the Original Space
     only, at the minimum rental set forth in Section 3.1(d)
     and otherwise upon all the terms and provisions set forth
     herein with respect to the initial term of this Lease, for
     up to two (2) additional periods of one (1) year each,
     commencing upon expiration of the initial term hereof.
     Exercise of the first such option shall be by written
     notice to Landlord at least six (6) months prior to the
     expiration of the initial term hereof with respect to the
     Original Space; exercise of the second such option, if the
     first such option is duly and timely exercised by Tenant,
     shall be by written notice to Landlord at least six (6)
     months prior to the expiration of the first extended term
     hereof with respect to the Original Space.  If Tenant is
     in default hereunder (beyond the expiration of any
     applicable cure period) on the date of such notice, then
     the option and Tenant's attempted exercise thereof shall
     be of no force or effect, the extended term shall not
     commence and this Lease shall expire as to the Original
     Space at the end of the then current term hereof (or at
     such earlier time as Landlord may elect pursuant to the
     default provisions of this Lease).
               (b)  Tenant shall also have an option to extend
     the term of this Lease with respect to the Original Space
     only, at the minimum rental set forth in Section 3.1(d)
     and otherwise upon all the terms and provisions set forth
     herein with respect to the initial term of this Lease, for
     one (1) additional term of ten (10) years, commencing upon
     delivery of Tenant's notice of exercise of such option and
     expiring on the day immediately preceding the tenth
     anniversary of such date of delivery (subject to possible
     exercise of Tenant's early termination right under Section
     2.1(C) of this Lease).  Exercise of such option shall be
     by written notice to Landlord at least six (6) months
     prior to expiration of the initial term of this Lease with
     respect to the Original Space or, in the event either or
     both of the 1-year extensions under Section 2.7(a) is duly
     and timely exercised by Tenant with respect to the
     Original Space, by written notice to Landlord at least six
     (6) months prior to expiration of
     the then current extended term of this Lease with respect
     to the Original Space.  If Tenant is in default hereunder
     (beyond the expiration of any applicable cure period) on
     the date of such notice, then the option and Tenant's
     attempted exercise thereof shall be of no force or effect,
     the extended term shall not commence and this Lease shall
     expire with respect to the Original Space at the end of
     the then current term hereof (or at such earlier time as
     Landlord may elect pursuant to the default provisions of
     this Lease).  If Tenant duly and timely exercises its
     extension option under this Section 2.7(b), any remaining
     portion of the initial term of this Lease with respect to
     the Original Space or of any extended term duly elected
     under Section 2.7(a) hereof with respect to the Original
     Space shall be superseded and terminated as of the
     commencement of such 10-year extended term, and any
     remaining unexercised extension options under Section
     2.7(a) with respect to the Original Space shall expire and
     be of no further force or effect.
               (c)  Except as expressly set forth in this
     Section 2.7, Tenant shall have no right to extend the term
     of this Lease beyond its prescribed term."
     4.   Improvement of Additional Space.  Landlord shall
have no obligation to construct or perform any tenant
improvements in the Original Space in connection with the
execution of this Second Amendment, it being the intention of
the parties that Tenant shall continue to occupy such Original
Space on an "as is" basis, except as otherwise provided in
Paragraph 5 hereof (if applicable).  Landlord shall make
available a tenant improvement allowance of Ten Dollars
($10.00) per square foot (total of $135,640.00 based on an area
of 13,564 square feet) for the construction of improvements by
Landlord in the Additional Space in one or more phases (as
Landlord and Tenant may mutually agree), in accordance with
plans and specifications to be developed by Landlord (in
consultation with Tenant) and mutually approved by Landlord and
Tenant, which approval shall not be unreasonably withheld or
delayed.  Following such mutual approval of plans and
specifications, Landlord shall undertake and diligently
complete, subject to delays for causes beyond its reasonable
control, construction of such improvements in the Additional
Space in accordance with the approved plans and specifications.
Such work shall be performed in a neat and workmanlike manner
and shall conform to all applicable governmental codes, laws
and regulations in force at the time such work is completed.
Such work shall be at Landlord's sole cost and expense, up to
the maximum tenant improvement allowance specified above; any
direct costs of such work (including, but not limited to,
payments to contractors and subcontractors for labor and
materials, permit fees and charges, sales and use taxes,
testing and inspection costs, architects', engineers' and other
consulting and professional fees, costs of power, water and
other utilities and of collection and removal of debris, and
all other related costs incurred in connection with the design
and construction of the work) in excess of such maximum tenant
improvement allowance shall be Tenant's sole responsibility,
cost and expense and shall be paid by Tenant to Landlord in
cash within thirty (30) days after written request by Landlord
to Tenant, accompanied by invoices and other supporting
documentation reasonably evidencing the costs for which such
payment or reimbursement is requested.  Landlord agrees to
consult with Tenant regarding all design and cost matters
relating to the tenant
improvements, including (but not limited to) bidding of
subcontracts where appropriate, and to give Tenant access on an
"open book" basis to all bids, contracts and other costrelated
information regarding the tenant improvements. Notwithstanding
any contrary provisions contained in the Lease, Landlord agrees
that Tenant shall have no obligation to remove, at the
expiration of the term of the Lease, any improvements
constructed pursuant to this Paragraph 4, unless (and then only
to the extent that) Landlord advises Tenant of such requirement
in writing prior to construction of the applicable improvement.
     5.   Improvements in Connection with Ten-Year Term.  If
Tenant duly and timely exercises its option for an extended 10
year term with respect to the Original Space under
Section 2.7(b) of the Lease (as amended by this Second
Amendment), Tenant and Landlord shall negotiate in good faith
over any additional tenant improvements that Tenant may wish to
have constructed in the Original Space, over the amount of any
tenant improvement allowance that Landlord may be willing to
make available for such additional tenant improvements in the
Original Space, and over the manner in which any such tenant
improvement allowance will be amortized in the form of
additional rent over such extended term.  To the extent Landlord
and Tenant reach mutual agreement upon any such improvements and
allowance with respect to the Original Space, they shall enter
into a further Lease amendment reflecting the terms of such
agreement and Landlord shall proceed to design and construct the
agreed-upon improvements in accordance with the procedure set
forth in Paragraph 4 of this Second Amendment, subject to any
modifications of such procedure that may be agreed upon by
Landlord and Tenant as part of their agreement regarding the
additional improvements.

     6.   Revised Minimum Monthly Rental.

          (a)  Section 3.1(a) of the Lease is amended to provide
that the minimum monthly rental for the Original Space,
beginning on the Effective Date, shall be as follows:

           Months              Minimum Monthly Rental
                                
          001-012             $  9,286.00 ($1.00/sq ft) 013-
          6/30/99            9,657.00 ($1.04/sq ft)
          
Section 3.1(a) of the Lease is further amended to provide that
the minimum monthly rental for the Additional Space, beginning
on the Effective Date, shall be as follows:

           Months              Minimum Monthly Rental
                                
          001-012             $ 13,564.00 ($1.00/sq ft) 013-024
          14,107.00 ($1.04/sq ft) 025-12/31/00
          14,649.00 ($1.08/sq ft)
          
          (b)  Section 3.1(d) of the Lease is amended to provide
that if Tenant duly and timely exercises any of its options to
extend the term of the Lease under Section 2.7 thereof (as
amended hereby) with respect to the Original Space, the minimum
monthly rental payable for the Original Space during such
extended term(s) shall be as follows (all indicated numbers of
months are to be counted from the Effective Date, and any months
extending beyond the actual extended term of the Lease as
determined pursuant to the applicable provisions of this Second
Amendment shall be disregarded):

           Months              Minimum Monthly Rental
                                
       7/1/99-024             $  9,657.00 ($1.04/sq ft) 025-036
          10,029.00 ($1.08/sq ft)
          037-048               10,400.00 ($1.12/sq ft)
          049-060               10,865.00 ($1.17/sq ft)
          061-072               11,329.00 ($1.22/sq ft)
          073-084               11,793.00 ($1.27/sq ft)
          085-096               12,258.00 ($1.32/sq ft)
          097-108               12,722.00 ($1.37/sq ft)
          109-120               13,186.00 ($1.42/sq ft)
          121-132               13,743.00 ($1.48/sq ft)
          133-144               14,300.00 ($1.54/sq ft)
          145-156               14,858.00 ($1.60/sq ft)
          157-168               15,508.00 ($1.67/sq ft)

     7.   Operating Expenses.  Tenant's Operating Cost Share
under Section 5.1 of the Lease is changed to eight and twenty
nine hundredths percent (8.29%), reflecting a combined area of
22,850 square feet for the Original Space and Additional Space
and a total area of 275,674 square feet for the buildings owned
by Landlord on the Property.  If the size of the Premises
changes due to termination of this Lease with respect to either
(but not both) of the Original Space and the Additional Space,
or if the total area of the buildings owned by Landlord on the
Property changes, Tenant's Operating Cost Share shall be further
adjusted in strict proportion to such changes in size or area.

     8.   Cross-Default.  Section 14.1 of the Lease is amended
by adding thereto, as an additional event of default, the
following:

          "(i) Cross-Default.  Any event of default by Tenant
     under (A) any other lease between Landlord and Tenant
     covering any other portion of the Property from time to
     time during the term of this Lease, or (B) the lease
     entered into substantially concurrently herewith by Tenant
     and Britannia Point Eden, LLC with respect to a new
     building to be constructed in Phase V of the Center, to the
     extent (under either of the foregoing clauses) such default
     continues beyond any applicable cure periods provided in
     the applicable lease, and to the extent Landlord therefore
     has (and exercises concurrently with any termination of
     this Lease) a right to terminate such other applicable
     lease; provided, however, that the default event set forth
     in this Section 14.1(i) shall not apply with respect to any
     default under a lease described herein to the extent Tenant
     has previously assigned or transferred all of its right,
     title and interest under the lease as to which such default
     then exists and, as a result of such transfer, the holder
     of the lessee's interest under the lease as to which such
     default then exists is not a person or entity which
     controls, is controlled by or is under common control with
     the person or entity which is then the holder of the
     lessee's interest under this Lease."
     
     9.   Brokers.  Landlord and Tenant each represents and
warrants to the other that no broker participated in the
consummation of this Second Amendment, and each agrees to
indemnify, defend and hold the other party harmless against any
liability, cost or expense, including, without limitation,
reasonable attorneys' fees, arising out of any claims for
brokerage commissions or other similar compensation in
connection with any conversations, prior negotiations or other
dealings by the indemnifying party with any such broker or other
claimant.
     10.  Full Force and Effect.  Except as expressly set forth
herein, the Lease has not been modified or amended and remains
in full force and effect.
      IN WITNESS WHEREOF, Landlord and Tenant have executed
this Second Amendment as of the date first set forth above.


          "Landlord"
HAYWARD POINT EDEN I LIMITED PARTNERSHIP, a Delaware limited
partnership
By:  BRITANNIA DEVELOPMENTS, INC., a California corporation,
     General Partner
     
     
     By:  ____________________
          T. J. Bristow
          President
          "Tenant"

ARADIGM CORPORATION, a California corporation



By:  _____________________
     Richard P. Thompson
     Its President

17025\3044\0005rv2


EXHIBIT 10.11C
                    THIRD AMENDMENT TO LEASE
                                
                                
     THIS THIRD AMENDMENT TO LEASE ("Third Amendment") is
entered into as of January 28, 1998 between HAYWARD POINT EDEN I
LIMITED PARTNERSHIP, a Delaware limited partnership ("Landlord")
and ARADIGM CORPORATION, a California corporation ("Tenant"),
with reference to the following facts:

     A.   Landlord and Tenant are parties to a Lease dated as
of February 21, 1996, as amended by a First Amendment to Lease
dated as of June 10, 1996 and a Second Amendment to Lease dated
as of December 22, 1997 (as amended, the "Lease"), covering
certain premises consisting of approximately 9,286 square feet
of space in Building E of the Britannia Point Eden Business Park
(the "Center") and commonly known as 3930 Point Eden Way,
Hayward, California 94545.

     B.   Concurrently with the execution of this Third
Amendment, Landlord and Tenant are entering into a new lease
covering portions of Building G in the Center (the "New Building
G Lease") and, in connection therewith, wish to amend certain
provisions of the Lease to conform to revised versions of such
provisions incorporated in the New Building G Lease.

     C.   Terms used herein as defined terms but not
specifically defined herein shall have the meanings assigned to
such terms in the Lease.

     NOW, THEREFORE, in consideration of the mutual agreements
set forth herein and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree as follows:

     6.   Operating Expenses.  Section 5.2 of the Lease is
amended to read in its entirety as follows:

          "5.2  Definition Of Operating Expenses.  Subject to
the exclusions and provisions hereinafter contained, the term
"Operating Expenses" shall mean the total costs and expenses
incurred by or allocable to Landlord for management, operation
and maintenance of the Building and the Property (and any
applicable adjacent property owned by Landlord and operated, for
common area purposes, on an integrated basis with the Property
as described above), including, without limitation, costs and
expenses of (i) insurance, property management, landscaping, and
operation, repair and maintenance of buildings and common areas;
(ii) all utilities and services; (iii) real and personal
property taxes and assessments or substitutes therefor,
including (but not limited to) any possessory interest, use,
business, license or other taxes or fees, any taxes imposed
directly on rents or services, any assessments or charges for
police or fire protection, housing, transit, open space, street
or sidewalk construction or maintenance or other similar
services from time to time by any governmental or quasi-
governmental entity, and any other new taxes on landlords in
addition to taxes now in effect (but excluding corporate income
taxes); (iv) supplies, equipment, utilities and tools used in
management, operation and maintenance of the Property; (v)
capital improvements to the Property or the Building, amortized
over the useful life of such capital improvements, (aa) which
reduce or will cause future reduction of other items of
Operating Expenses for which Tenant is otherwise required to
contribute or (bb) which are required by law, ordinance,
regulation or order of any governmental authority or (cc) which
constitute repairs or replacements of existing improvements in
the Premises or common areas of the Property with items of
similar quality and function, as a result of obsolescence or
ordinary wear and tear, in order to maintain and preserve the
quality, safety and usefulness of the Property, to the extent
such repairs or replacements are treated as capital items under
generally accepted accounting principles; and (vi) any other
costs (including, but not limited to, any parking or utilities
fees or surcharges) allocable to or paid by Landlord, as owner
of the Property or Building, pursuant to any applicable laws,
ordinances, regulations or orders of any governmental or quasi
governmental authority or pursuant to the terms of any
declarations of covenants, conditions and restrictions now or
hereafter affecting the Property (or any applicable adjacent
property owned by Landlord as described above).  Operating
Expenses shall not include any costs attributable to increasing
the size of or otherwise expanding the Building or the costs of
the work for which Landlord is required to pay under Section 2.4
or Exhibit C.  The distinction between items of ordinary
operating maintenance and repair and items of a capital nature
shall be made in accordance with generally accepted accounting
principles applied on a consistent basis. Notwithstanding
anything to the contrary contained in this Section 5.2, the
following shall not be included in Operating Expenses under this
Lease:

     (A)  Leasing commissions, attorneys' fees, costs,
disbursements and other expenses incurred in connection
with negotiations or disputes with tenants, or in
connection with leasing, renovating or improving space for
tenants or other occupants or prospective tenants or other
occupants of the Building or of the land on which the
Premises are located;

     (B)  The cost of any service sold to any tenant
(including Tenant) or other occupant for which Landlord is
entitled to be reimbursed as an additional charge or
rental over and above the basic rent and escalations
payable under Landlord's lease with that tenant;
     (C)  Any depreciation on the Building;
     (D)  Costs of a capital nature, including but not
limited to capital improvements and alterations, capital
repairs, capital equipment and capital tools, as
determined in accordance with generally accepted
accounting principles consistently applied, except to the
extent expressly provided in clause (v) above;
     (E)  Expenses in connection with services or other
benefits of a type that are not offered to Tenant but that
are provided to another tenant or occupant of the Building
or land upon which the Premises are located;
     (F)  Overhead profit increments paid to Landlord's
subsidiaries or affiliates for management or other
services relating to the Building or the Property, or for
supplies or other materials, to the extent the cost of
such services, supplies or materials exceeds a reasonable
market rate for obtaining such services, supplies or
materials from unaffiliated parties;
     (G)  All interest, loan fees and other carrying costs
related to any mortgage or deed of trust or related to any
capital item, and all rental and other payments due under
any ground or underlying lease, or any lease for any
equipment ordinarily considered to be of a capital nature
(except janitorial equipment which is not affixed to the
Building);
     (H)  Any compensation paid to clerks, attendants or
other persons in commercial concessions operated by
Landlord;
      (I)  Advertising and promotional expenditures;
     (J)  Costs of repairs and other work occasioned by
fire, windstorm or other casualty of an insurable nature;
     (K)  Any costs, fines or penalties incurred due to
violations by Landlord of any governmental rule or
authority, this Lease or any other lease affecting the
Building or the land on which the Premises are located, or
due to Landlord's negligence or willful misconduct;
     (L)  Management costs, to the extent they exceed a
reasonable market rate for management services provided to
comparable projects in Hayward, California and surrounding
areas;
     (M)  Costs for sculpture, paintings or other objects
of art, including (but not limited to) any costs for
     insurance thereon or extraordinary security in connection
     therewith;
          (N)  Wages, salaries or other compensation paid to
     any executive employee above the grade of building
     manager;
          (O)  The cost of correcting any building code or
     other violations of applicable law which, on the
     Commencement Date, were existing violations of laws or
     codes then in effect;
          (P)  The cost of containing, removing or otherwise
     remediating any contamination of the Building or Property
     (including the underlying land and groundwater) by any
     toxic or hazardous materials (including, without
     limitation, asbestos and PCB's);
          (Q)  Any increase in real property taxes or
     assessments on the Property as a result of a change in
     ownership of the Property; provided, however, that the
     exclusion contained in this clause (Q) shall apply only in
     the determination of Operating Expenses with respect to
     periods prior to the third (3rd) anniversary of the
     Commencement Date, and shall not apply in the
     determination of Operating Expenses with respect to any
     subsequent periods during the term of this Lease; and
          (R)  Any other expense not specifically included or
     excluded above which, under generally accepted accounting
     principles and practices consistently applied, would not
     be considered a normal maintenance or operating expense."
     7.   Operating Expense Audits.  Section 5.4 of the Lease
is amended to read in its entirety as follows:

            "5.4  Final Accounting For Lease Year.
                               
               (1)  Within ninety (90) days after the close of
each Lease Year, or as soon after such 90-day period as
practicable, Landlord shall deliver to Tenant a statement of
Tenant's Operating Cost Share of the Operating Expenses for
such Lease Year prepared by Landlord from Landlord's books and
records, which statement shall be final and binding on Landlord
and Tenant, subject to Tenant's audit right set forth below.
If on the basis of such statement Tenant owes an amount that is
more or less than the estimated payments for such calendar year
previously made by Tenant, Tenant or Landlord, as the case may
be, shall pay the deficiency to the other party within thirty
(30) days after delivery of the statement.  Failure or
inability of Landlord to deliver the annual statement within
such ninety (90) day period shall not impair or constitute a
waiver of Tenant's obligation to pay Operating Expenses, or
cause Landlord to incur any liability for damages.
          (2)  Notwithstanding any other provisions of this
Section 5.4, within one (1) year after receipt of a final
statement from Landlord setting forth actual Operating Expenses
and Tenant's Operating Cost Share for any period (a
"Statement"), Tenant shall have the right to audit or inspect
Landlord's books and records relating to Operating Expenses
(and to any other additional rent payable by Tenant under this
Lease) for the period covered by the Statement, provided that
such audit shall be conducted only during normal business
hours, on not less than ten (10) days prior written notice to
Landlord, at a location reasonably specified by Landlord, and
at Tenant's sole cost and expense, except as hereinafter
provided.  Landlord shall cooperate with Tenant in all
reasonable respects in the course of such audit, and Tenant and
its employees and agents shall be permitted to make photocopies
(at Tenant's expense) of any pertinent portions of Landlord's
books and records.  Landlord shall retain its books and records
for each Lease Year for a period of at least one (1) year after
delivery to Tenant of Landlord's Statement for the applicable
Lease Year.  To the extent that Tenant, on the basis of such
audit, disputes any item in the applicable Statement or in the
calculation of Tenant's obligations thereunder, Tenant shall
give Landlord written notice of the disputed items, in
reasonable detail and with reasonable supporting information,
within thirty (30) days after the earlier to occur of the
completion of Tenant's audit or the expiration of Tenant's 1-
year audit period.  If Landlord and Tenant are not able to
resolve such dispute by good faith negotiations within thirty
(30) days after Tenant notifies Landlord in writing of the
disputed items, then Tenant may, by written notice to Landlord,
request an independent audit of such books and records.  The
independent audit of the books and records shall be conducted
by a certified public accountant acceptable to both Landlord
and Tenant or, if the parties are unable to agree, by a "Big
Six" accounting firm designated by Landlord and not then
employed by Landlord or Tenant.  The audit shall be limited to
the determination of the amount of Operating Expenses and of
Tenant's share thereof for the Lease Year covered by the
Statement, and shall be based on generally accepted accounting
principles and tax accounting principles, consistently applied,
subject to any modifications or limitations expressly set forth
in
Section 5.2 hereof.  If it is determined, by mutual agreement
of Landlord and Tenant or by independent audit, that the amount
paid by Tenant for Operating Expenses for the period covered by
the Statement was incorrect, then the appropriate party shall
pay to the other party the deficiency or overpayment, as
applicable, within thirty (30) days after the final
determination of such deficiency or overpayment.  All costs and
expenses of the audit shall be paid by Tenant unless the audit
shows that Landlord overstated Operating Expenses for the
period covered by the Statement by more than four percent (4%),
in which event Landlord shall pay all costs and expenses of the
audit.  Each party agrees to maintain the confidentiality of
the findings of any audit in accordance with the provisions of
this Section 5.4.  The provisions of this Section 5.4 shall
survive the expiration or sooner termination of this Lease."

     8.   Liens.  Section 7.4 of the Lease is amended to read
in its entirety as follows:

          "7.4  No Liens.  Tenant shall at all times keep the
Premises free from all liens and claims of any contractors,
subcontractors, materialmen, suppliers or any other parties
employed either directly or indirectly by Tenant in
construction work on the Premises.  Tenant may contest any
claim of lien, but only if, prior to such contest, Tenant
either (i) posts security in the amount of the claim, plus
estimated costs and interest, or (ii) records a bond of a
responsible corporate surety in such amount as may be required
to release the lien from the Premises.  Tenant shall indemnify,
defend and hold Landlord harmless against any and all
liability, loss, damage, cost and other expenses, including,
without limitation, reasonable attorneys' fees, arising out of
claims of any lien for work performed or
materials or supplies furnished at the request of Tenant or
persons claiming under Tenant.  Nothing in this Section 7.4
shall be construed to prevent Tenant from obtaining financing
on Tenant's movable furniture, equipment and trade fixtures or
from granting a security interest in such items to one or more
lenders, provided that Tenant shall not be entitled, pursuant
to this sentence or otherwise, to encumber any alterations,
additions or improvements that are the property of Landlord and
that must remain with the Premises upon termination of this
Lease, as provided in Sections 7.2 and 7.3 hereof. Without
limiting the generality of the preceding sentence, Landlord
acknowledges that it has been advised by Tenant that Tenant is
presently a party to agreements creating liens on some or all
of Tenant's existing and/or after-acquired equipment,
furniture, trade fixtures and other personal property in favor
of (a) Transamerica Business Credit and (b) Comdisco; nothing
in this sentence shall be construed, however, as a waiver or
release by Landlord with respect to the proviso set forth in
the preceding sentence regarding limitations on the property
that Tenant is entitled to encumber."
     9.   Full Force and Effect.  Except as expressly set
forth herein, the Lease has not been modified or amended and
remains in full force and effect.


     IN WITNESS WHEREOF, Landlord and Tenant have executed
this Third Amendment as of the date first set forth above.


          "Landlord"

HAYWARD POINT EDEN I LIMITED PARTNERSHIP, a Delaware limited
partnership

By:  BRITANNIA DEVELOPMENTS, INC., a California corporation,
     General Partner
     
     
     By:  ____________________
          T. J. Bristow
               President and Chief Financial Officer "Tenant"
ARADIGM CORPORATION, a California corporation



By:  _____________________
     Richard P. Thompson
     President


By:  _____________________
     Mark A. Olbert
     Chief Financial Officer


17025\3044\0021
EXHIBIT 10.20
                             LEASE
                               
                      BETWEEN
     HAYWARD POINT EDEN I LIMITED PARTNERSHIP
                   ("Landlord")
                        and
                ARADIGM CORPORATION ("Tenant")
                    
                    
                 TABLE OF CONTENTS



1    PREMISES                                1
     1.1  Premises                           1
     1.2  Landlord's Reserved Rights         1

2    TERM                                    1
     2.1  Term                                    1
     2.2  Early Possession                   2
     2.3  Delay in Possession                2
     2.4  Construction                       2
     2.5  Acknowledgement of Lease Commencement   2
     2.6  Holding Over                       2
     2.7  Option to extend Term              2

3    RENTAL                                  3
     3.1. Minimum Rental                     3
     3.2. Late Charge                        4

4    TAXES                                   4
     4. 1.     Personal Property             4
     4.2. Real Property                      4

5    OPERATING EXPENSES                      4
     5.1. Payment of Operating Expenses      4
     5.2. Definition of Operating Expenses   4
     5.3. Determination of Operating Expenses     5
     5.4. Final Accounting for Lease Year    5
     5.5. Proration                          5

6    UTILITIES                                    5
     6.1. Payment                            5
     6.2. Interruption                       6

7    ALTERATIONS                             6
     7. l.     Right to Make Alterations     6
     7.2. Title to Alterations               6
     7.3. Tenant Fixtures                    6
     7.4. No Liens                           6

8    MAINTENANCE AND REPAIRS                 6
     8.1. Landlord's Work                    6
     8.2. Tenant's Obligation for Maintenance     6
          (a)  Good Order, Condition and Repair   6
          (b)  Landlord's Remedy             7
          (c)  Condition Upon Surrender      7

9    USE OF PREMISES                         7
9.1. Permitted Use                                7
9.2. Requirement of Continued Use            7
9.3. No Nuisance                                  7
9.4. Compliance with Laws                    7
9.5. Liquidation Sales                       8
9.6. Environmental Compliance                8
9.7. ADA / Title 24 Compliance               8

10   INSURANCE AND INDEMNITY                 8
     10.1.     Liability Insurance           8
     10.2.     Quality of Policies and Certificates    9
     10.3.     Workers' Compensation         9
     10.4.     Waiver of Subrogation         9
     10.5.     Increase in Premiums          9
     10.6.     Indemnification               9
     10.7.     Blanket Policy               10

11   SUBLEASE AND ASSIGNMENT                10
     11.1.     Assignment and Sublease of Premises     10
     11.2.     Rights of Landlord           10

12   RIGHT OF ENTRY AND QUIET ENJOYMENT     11
     12.1.     Right of Entry               11
     12.2.     Quiet Enjoyment              11

13   CASUALTY AND TAKING                    11
     13.1.     Termination or Reconstruction      11
     13.2.     Tenant's Rights              11
     13.3 Lease to remain in Effect         11
     13.4.     Reservation of Compensation  12
     13.5.     Restoration of Fixtures      12

14   DEFAULT   13
     14.1.     Events of Default            12
          (a)  Abandonment                  12
          (b)  Nonpayment                   13
          (c)  Other Obligations .....      13
          (d)  General Assignment           13
          (e)  Bankruptcy                   13
          (f)  Receivership                 14
          (g)  Attachment                   14
          (h)  Insolvency                   14
     14.2.     Remedies Upon Tenant's Default     14
     14.3.     Remedies Cumulative          14

15   SUBORDINATION, ATTORNMENT AND SALE     15
     15.1.     Subordination to Mortgage    15
     15.2.     Sale of Landlord's Interest  15
     15.3.     Estoppel Certificates        15
     15.4.     Subordination to CC&R's      16

16   SECURITY                               16
     16.1. Deposit                           16

17   MISCELLANEOUS                          16
     17.1.     Notices                      16
     17.2.     Successors and Assigns       17
     17.3.     No Waiver                    17
     17.4.     Severability                 17
     17.5.     Litigation Between Parties   18
     17.6.     Surrender                    18
     17.7.     Construction                 18
     17.8.     Entire Agreement             18
     17.9.     Governing Law                18
     17.10.    No Partnership               18
     17.l1.    Financial Information        18
     17.12.    Costs                         18
     17.13.    Time                          19
     17.14.    Rules and Regulations        19
     17.15.    Memorandum of Lease          19
     17.16.    Corporate Authority          19

EXHIBITS

A    Location of Premises
B    Real Property Description
C    Construction
D    Acknowledgment of Lease Commencement

                             LEASE
                               
     THIS LEASE is made and entered into as of the 17th day of
March,  1997,  by  and between HAYWARD POINT  EDEN  I  LIMITED
PARTNERSHIP, a DELAWARE LIMITED PARTNERSHIP hereinafter called
"Landlord", and ARADIGM CORPORATION, a CALIFORNIA CORPORATION,
hereinafter called "Tenant."



                 THE PARTIES AGREE AS FOLLOWS:
                               
                               
                         1.  PREMISES
                               
     1.1. Premises. Landlord leases to Tenant and Tenant hires
and   leases  from  Landlord  on  the  terms,  covenants   and
conditions   hereinafter   set  forth,   the   premises   (the
"Premises")  designated  in  Exhibit  A  attached  hereto  and
incorporated   herein   by  this  reference,   consisting   of
approximately  9,660  square  feet  of  space  located  within
Building  H  (the  "Building") in  the  Britannia  Point  Eden
Business Park (the "Center") in the City of Hayward, County of
Alameda,  State of California, commonly known  as  3911  Trust
Way,  Hayward, CA 94545 and located on the real property  (the
"Property")  described  in  Exhibit  B  attached  hereto   and
incorporated  herein  by  this reference,  together  with  the
nonexclusive  right  to use any common areas  designated  from
time  to time in any Declaration of Covenants, Conditions  and
Restrictions or similar document affecting the Center.


     1.2.  Landlord's Reserved Rights. Landlord  reserves  the
right  from time to time to (i) install, use, maintain, repair
and  replace  pipes,  ducts, conduits, wires  and  appurtenant
meters  and  equipment  for service  to  other  parts  of  the
Building above the ceiling surfaces, below the floor surfaces,
within  the walls or leading through the Premises in locations
which will not materially interfere with Tenant's use thereof,
(ii)   relocate   any  pipes,  ducts,  conduits,   wires   and
appurtenant  meters  and equipment included  in  the  Premises
which  are  so  located  or  located  elsewhere  outside   the
Premises, (iii) make alterations or additions to the Building,
(iv)   construct,   alter  or  add  to  other   buildings   or
improvements  on  the  Property, (v) build  adjoining  to  the
Property,  and  (vi) lease any part of the  Property  for  the
construction of improvements or buildings. Landlord may modify
or  enlarge the common area, alter or relocate accesses to the
Premises,  or alter or relocate any common facility.  Landlord
shall  not  exercise rights reserved to it  pursuant  to  this
Section  1.2 in such a manner as to materially impair Tenant's
ability  to  conduct  its activities  in  the  normal  manner;
provided,  however,  that the foregoing  shall  not  limit  or
restrict Landlord's right to undertake reasonable construction
activity and Tenant's use of the Premises shall be subject  to
reasonable  temporary disruption incidental to  such  activity
diligently prosecuted.


                           2.  TERM
                               
     2.1. Term.  The term of this Lease shall commence on  the
earlier to occur of (i) the date which is five (5) days  after
the   date  Landlord  notifies  Tenant  that  Landlord's  work
pursuant  to  Section  2.4  and  Exhibit  C  is  substantially
complete, or (ii) the date Tenant takes occupancy of  part  of
the  Premises  (except as otherwise provided in Section  2.2),
the   earlier   of   such  dates  being  herein   called   the
"Commencement  Date,"  and shall end on  the  day  immediately
preceding  the  date  36  months  thereafter,  unless   sooner
terminated   or   extended  (if  applicable)  as   hereinafter
provided.


     However, in the event that Tenant moves into larger space
at  Britannia  Point Eden or any other Britannia  Developments
project during the term of this lease, then this lease may  be
terminated by Tenant with no penalty to Tenant.


     However   in   the  event  that  Tenant   exercises   its
Termination Rights under this Clause Tenant shall  pay  on  or
before  the Termination Date the unamortized portion (assuming
straight-line amortization over a period of 36 months from the
Commencement   Date)  of  the  $150,000.00   additional   T.I.
allowance  described  in Section 3.1  (c)  which  is  actually
expended on tenant improvement work.


     2.2.  Early  Possession. If Landlord  permits  Tenant  to
occupy or use the Premises prior to the Commencement Date  set
forth  in Section 2.1, such occupancy shall be subject to  and
upon all the terms and conditions of this Lease, excluding the
obligation to pay rent and other charges, unless Landlord  and
Tenant  agree  otherwise; provided, however, that  such  early
possession   shall  not  advance  or  otherwise   affect   the
termination  date  set  forth in  Section  2.1;  and  provided
further,  that  Tenant  shall  not  interfere  with  or  delay
Landlord's  contractors  by such early  possession  and  shall
indemnify,  defend and hold harmless Landlord and  its  agents
and  employees  from and against any and all claims,  demands,
liabilities,  actions, losses, costs and  expenses,  including
(but  not limited to) reasonable attorneys' fees, arising  out
of  or  in  connection  with Tenant's  early  entry  upon  the
Premises  hereunder, excluding those which arise  out  of  the
negligence or willful misconduct of Landlord or its agents.


     2.3. Delay in Possession. Landlord agrees to use its best
reasonable efforts to complete promptly the work described  in
Section  2.4 and Exhibit C; provided, however, Landlord  shall
not  be  liable  for any damages caused by any  delay  in  the
completion  of such work, nor shall any such delay affect  the
validity of this Lease or the obligations of Tenant hereunder.

     2.4. Construction.  The obligation of Landlord to perform
work  to  improve the Premises for occupancy is set  forth  in
Exhibit  C  attached hereto and incorporated  herein  by  this
reference.  Except as set forth in Exhibit C,  Landlord  shall
have  no  responsibilities  or  obligations  with  respect  to
preparation of the Premises for Tenant's occupancy. Acceptance
by  Tenant of possession of the Premises after performance  of
such work, if any, by Landlord shall constitute acceptance  by
Tenant of such work in its then completed condition subject to
the terms of this paragraph and Landlord shall have no further
responsibility of any kind or character for improvement of the
Premises  or in connection with such work; provided,  however,
that  within  fifteen (I 5) days after the Commencement  Date,
Tenant may furnish to Landlord a "punch list" identifying  any
items or matters in the Premises which are not constructed  in
accordance  with the plans and specifications  approved  under
Exhibit  C  hereto and Landlord shall promptly and  diligently
correct  all  such matters within 30 days of receipt  of  such
punch list at its sole cost and expense.
     2.5.   Acknowledgment   Of   Lease   Commencement.   Upon
commencement  of the term of this Lease, Landlord  and  Tenant
shall  execute  a  written acknowledgment of the  Commencement
Date,  date  of termination and related matters, substantially
in  the  form  attached hereto as Exhibit D (with  appropriate
insertions),  which  acknowledgment  shall  be  deemed  to  be
incorporated herein by this reference.

     2.6   Holding  Over.  If Tenant holds possession  of  the
Premises after the term of this Lease, with Landlord's written
consent,  then except as otherwise specified in such  consent,
Tenant  shall become a tenant from month to month at 125%  the
rental  and otherwise upon the terms herein specified for  the
period  immediately  prior  to such  holding  over  and  shall
continue  in  such status until the tenancy is  terminated  by
either party upon not less than thirty (30) days prior written
notice. Tenant shall indemnify and hold Landlord harmless from
any loss, damage, claim, liability, cost or expense (including
reasonable attorneys' fees) resulting from any delay by Tenant
in  surrendering  the Premises (except with  Landlord's  prior
written consent), including but not limited to any claims made
by  a succeeding tenant by reason of such delay. Acceptance of
rent  by Landlord following expiration or termination of  this
Lease shall not constitute a renewal of this Lease.

     2.7   Option To Extend Term. Tenant shall have the option
to  extend  the term of this Lease, at the minimum rental  set
forth  in Section 3.1(d) and otherwise upon all the terms  and
provisions  set forth herein with respect to the initial  term
of  this  Lease, for up to one additional period  of  two  (2)
years,  commencing upon expiration of the initial term hereof.
Exercise of such option shall be by written notice to Landlord
at  least  six (6) months and not more than eight  (8)  months
prior  to the expiration of the initial term hereof. If Tenant
is  in default hereunder on the date of such notice or on  the
date  any extended term is to commence, then the option  shall
be of no force or effect, the extended term shall not commence
and  this  Lease shall expire at the end of the  then  current
term  hereof  (or at such earlier time as Landlord  may  elect
pursuant  to the default provisions of this Lease). Except  as
expressly set forth in this Section 2.7, Tenant shall have  no
right  to  extend the term of this Lease beyond its prescribed
term.


                          3.  RENTAL
                               
                               
     3.1. Minimum Rental.

          (a)   Tenant shall pay to Landlord as minimum rental
for  the  Premises,  in  advance, without  deduction,  offset,
notice or demand, on or before the Commencement Date and on or
before the first day of each subsequent calendar month of  the
term of this Lease, the following amounts per month:

          Months                   Minimum Rental

          0-12                     $10,566.43 13-

          24                    $10,856.23 24-36

          $11,157.62

     If   the  obligation  to  pay  minimum  rental  hereunder
commences on other than the first day of a calendar  month  or
if  the  term of this Lease terminates on other than the  last
day of a calendar month, the minimum rental for such first  or
last  month  of the term of this Lease, as the  case  may  be,
shall be prorated based on the number of days the term of this
Lease  is  in  effect during such month.  If  an  increase  in
minimum rental becomes effective on a day other than the first
day  of  a  calendar month, the minimum rental for that  month
shall  be  the sum of the two applicable rates, each  prorated
for  the  portion of the month during which such  rate  is  in
effect.


     (b)   The minimum rental amount specified in this Section
3.1  is  based  upon  an area of 9,660  square  feet  for  the
Premises.


     (c)  The minimum rental amounts specified in this Section
3.1   are  based  upon  a  tenant  improvement  allowance   of
$140,000.00  (the  "Phase I Allowance") for  the  work  to  be
performed  by Landlord on the Premises under Section  2.4  and
Exhibit C. (This total Phase I Allowance is made up as  to  an
initial $40,000.00 plus $100,00.00 additional T.I.'s amortized
at  12%  over the term.) If landlord's total direct  costs  of
such  work (including, but not limited to, construction costs,
permit  fees  and charges, architects', engineers'  and  other
consulting  and professional fees and all other related  costs
incurred in connection with the design and construction of the
work)  (the  "Direct  Costs") are less than  $140,000.00  then
Tenant's  minimum monthly rental hereunder, beginning  on  the
Commencement  Date and continuing throughout the term  hereof,
shall  be  reduced, by $33.21 for each $1,000.00 reduction  in
Tenant  Improvement costs below the allowance of  $140,000.00.
In  addition to the Phase I Allowance, Landlord hereby  agrees
that,  at any time during the term of this Lease, Tenant shall
be entitled to request Landlord to construct additional tenant
improvements  (the  "Additional  Improvements"),   for   which
Landlord  shall provide additional financing, up to a  maximum
amount of $50,000.00 (the "Phase II Allowance"). Following the
completion  of  construction of the  Additional  Improvements,
Tenant's  then  minimum  monthly  rental  hereunder  shall  be
increased  in  such an amount as to amortize the total  Direct
Costs of the Additional Improvements at 12% over the remaining
term  of  this Lease. Landlord will not be obligated to  spend
more  than  $190,000.00, including both the Phase I  Allowance
and the Phase II allowance, on T.I.'s. Any such increase shall
be paid for by Tenant.

     Notwithstanding the above, Landlord will pay  for  repair
or  replacement of HVAC system in office section  of  Premises
i.e.  8,160 square feet including any necessary roof  repairs.
Such costs will not be part of the T.I. allowance.


     (d)  If Tenant properly exercises its right to extend the
term of this Lease pursuant to Section 2.7 hereof, the minimum

rental during the extended term shall be adjusted as to Clause

3.1 (a).

          Months                   Minimum Rental

          37-48                    $8,149.64

          49-60                    $8,475.62

     3.2.  Late  Charges.  If Tenant fails  to  pay  when  due
rental  or  other amounts due Landlord hereunder, such  unpaid
amounts shall bear interest for the benefits of Landlord at  a
rate equal to the lesser of fifteen percent (15%) per annum or
the  maximum rate permitted by law, from the date due  to  the
date  of  payment. In addition to such interest, Tenant  shall
pay  to  Landlord  a  late charge in an amount  equal  to  ten
percent  (10%)  of any installment of minimum rental  and  any
other  amounts due Landlord if not paid in full on  or  before
the  fifth (5th) day after such rental or other amount is due.
Tenant acknowledges that late payment by Tenant to Landlord of
rental  or other amounts due hereunder will cause Landlord  to
incur costs not contemplated by this Lease, including, without
limitation, processing and accounting charges and late charges
which  may  be imposed on Landlord by the terms  of  any  loan
relating to the Property. Tenant further acknowledges that  it
is extremely difficult and impractical to fix the exact amount
of  such  costs  and that the late charge set  forth  in  this
Section 3.2 represents a fair and reasonable estimate thereof.
Acceptance of any late charge by Landlord shall not constitute
a waiver of Tenant's default with respect to overdue rental or
other amounts, nor shall such acceptance prevent Landlord from
exercising  any  other rights and remedies  available  to  it.
Acceptance  of  rent or other payments by Landlord  shall  not
constitute  a waiver of late charges or interest accrued  with
respect   to  such  rent  or  other  payments  or  any   prior
installments  thereof, nor of any other  defaults  by  Tenant,
whether   monetary   or  non-monetary  in  nature,   remaining
unsecured  at  the time of such acceptance of  rent  or  other
payments.

                           4.  TAXES
                               
                               
     4.1   Personal Property. Tenant shall be responsible  for
and  shall  pay prior to delinquency all taxes and assessments
levied  against or by reason of all alterations and  additions
and all other items installed or paid for by Tenant under this
Lease,  and the personal property, trade fixtures and  all  of
the  property placed by Tenant in or about the Premises.  Upon
request  by  Landlord,  Tenant  shall  furnish  Landlord  with
satisfactory  evidence  of payment thereof.  If  at  any  time
during  the term of this Lease any said alterations, additions
or  personal  property, whether or not  belonging  to  Tenant,
shall be taxed or assessed as part of the Property, then  such
tax  or  assessment  shall  be  paid  by  Tenant  to  Landlord
immediately upon presentation by Landlord of copies of the tax
bills  in  which such taxes and assessments are  included  and
shall,  for  the  purposes of this  Lease,  be  deemed  to  be
personal property taxes or assessments under this Section 4.1.

     4.2.  Real  Property. To the extent  that  real  property
taxes  and assessments on the Premises are assessed separately
from   the   remainder  of  the  Property,  Tenant  shall   be
responsible  for and shall pay prior to delinquency  all  such
taxes  and  assessments  levied  against  the  Premises.  Upon
request  by  Landlord,  Tenant  shall  furnish  Landlord  with
satisfactory  evidence of payment thereof. To the  extent  the
Premises  and taxes or assessed as part of the Property,  such
real property taxes and assessments shall constitute Operating
Expenses (as that term is defined in
Section  5.2  of this Lease) and shall be paid  in  accordance
with provisions of Article 5 of this Lease.

                    5.  OPERATING EXPENSES
                               
                               
     5.1. Payment Of Operating Expenses.

          (a)   Tenant shall pay to Landlord, at the  time  in
the  manner  hereinafter set forth, as additional  rental,  an
amount  equal  to  three  point  five  eight  percent  (3.58%)
("Tenant's  Operating Cost Share") of the  Operating  Expenses
defined in Section 5.2.
          (b)   Tenant's Operating Cost Share as specified  in
paragraph  (a) of the Section is based upon an area  of  9,660
square  feet for the Premises and an aggregate area of 269,674
square  feet  for  the  buildings owned  by  Landlord  on  the
Property.


     5.2.  Definition Of Operating Expenses.  Subject  to  the
exclusions  and  provisions  hereinafter  contained,  the-term
"Operating  Expenses" shall mean the total costs and  expenses
incurred by or allocable to Landlord for management, operation
and  maintenance of the Building and the Property (or  on  any
applicable  adjacent  property owned by Landlord  as  describe
above), including, without limitation, (i) insurance, property
management, building maintenance, landscaping and common  area
maintenance; (ii) all utilities and services; (iii)  real  and
personal   property  taxes  and  assessments  or   substitutes
therefor  and new taxes on landlords in addition to taxes  now
in  effect; (iv) supplies, equipment, utilities and tools used
in   management,  operation  and  maintenance;   (v)   capital
improvements to the Building, amortized over the  useful  life
of  such  capital improvement (aa) which reduce or will  cause
future  reduction  of  other items of Operating  Expenses  for
which  Tenant is otherwise required to contribute or  (bb)  of
which  Tenant  has use or which benefit Tenant; and  (vi)  any
other costs allocable to or paid by Landlord, as owner of  the
Building,  pursuant  to  the  terms  of  any  declarations  of
covenants, conditions and restrictions affecting the  Property
(or  on any applicable adjacent property owned by Landlord  as
described  above). Capital improvements shall not include  any
costs   attributable  to  increasing  the  size  of  otherwise
expanding  the  Building or the costs of the  work  for  which
Landlord is required to pay under Section 2.4. The distinction
between items of ordinary operating maintenance and repair and
items  of  a  capital nature shall be made in accordance  with
generally   accepted  accounting  principles  applied   on   a
consistent basis.


     5.3.  Determination Of Operating Expenses. On  or  before
the  Commencement  Date  and during the  last  month  of  each
calendar year of the term of this Lease ("Lease Year"), or  as
soon  thereafter as practical, Landlord shall  provide  Tenant
notice  of  Landlord's estimate of the Operating Expenses  for
the  ensuing Lease Year or applicable portion thereof.  On  or
before  the  first day of each month during the ensuing  Lease
Year   or  applicable  portion  thereof,  beginning   on   the
Commencement  Date,  Tenant shall  pay  to  Landlord  Tenant's
Operating   Cost  Share  of  the  portion  of  such  estimated
Operating  Expenses allocable (on a pro rata  basis)  to  such
month;  provided, however, that if such notice is not give  in
the  last month of a Lease year, Tenant shall continue to  pay
on  the basis of the prior year's estimate, if any, until  the
month  after such notice is given. If at any time or times  it
appears  to  Landlord that the actual Operating Expenses  will
vary  from Landlord's estimate by more than five percent (5%),
Landlord  may,  by notice to Tenant, revise its  estimate  for
such  year  and  subsequent payments by Tenant for  such  year
shall be based upon such revised estimate.

     5.4.     Final  Accounting For Lease Year. Within  ninety
(90) days after the close of each Lease Year, or as soon after
such  90-day period as practicable, Landlord shall deliver  to
Tenant  a  statement of Tenant's Operating Cost Share  of  the
Operating  Expenses for such Lease Year prepared  by  Landlord
from  Landlord's books and records, which statement  shall  be
final  and binding on Landlord and Tenant. If on the basis  of
such statement Tenant owes an amount that is more or less than
the  estimated payments for such calendar year previously made
by  Tenant, Tenant or Landlord, as the case may be, shall  pay
the  deficiency  to the other party within  thirty  (30)  days
after  delivery  of  the statement. Failure  or  inability  of
Landlord  to  deliver the annual statement within such  ninety
(90)  day  period shall not impair or constitute a  waiver  of
Tenant's  obligation  to  pay  Operating  Expenses,  or  cause
Landlord to incur any liability for damages.

     5.5.  Proration. If the Commencement Date falls on a  day
other  than  the first day of a Lease Year or  if  this  Lease
terminates  on a day other than the last day of a Lease  Year,
the  amount of Tenant's Operating Cost Share payable by Tenant
applicable to such first and last partial Lease Year shall  be
prorated  on  the basis which the number of days  during  such
Lease Year in which this Lease is in effect bears to 365.  The
termination of this Lease shall not affect the obligations  of
Landlord  and  Tenant pursuant to Section 5.4 to be  performed
after such termination.

                         6.  UTILITIES
                               
                               
     6.1.  Payment. Commencing with the Commencement Date  and
thereafter  throughout the term of this  Lease,  Tenant  shall
pay,  before  delinquency, all charges for water,  gas,  heat,
light,  electricity,  power, sewer, telephone,  alarm  system,
janitorial  and  other services or utilities  supplied  to  or
consumed in or upon the Premises, including any taxes on  such
service and utilities It is the intention of the parties  that
all such services shall be separately metered to the Premises.
In  the  event  that  any  of such services  supplied  to  the
Premises  are not separately metered, then the amount  thereof
shall  be an item of Operating Expenses and shall be  paid  as
provided in Article 5.

     6.2  Interruption. There shall be no abatement of rent or
other charges required to be paid hereunder and Landlord shall
not  be  liable  in damages or otherwise for  interruption  or
failure of any service or utility furnished to or used in  the
Premises  because of accident, making of repairs,  alterations
or  improvements, severe weather, difficulty or  inability  in
obtaining  services  or supplies, labor  difficulties  or  any
other  cause, excluding the negligence and willful  misconduct
and omissions of Landlord and its agents.
                        7.  ALTERATIONS
                               
                               
     7.1.  Right  To  Make Alterations. Tenant shall  make  no
alterations, additions or improvements to the Premises,  other
than  interior  non-structural alterations costing  less  than
Five  Thousand  Dollars ($5,000.00) in each instance,  without
the  prior  written consent of Landlord. All such alterations,
additions  and  improvements  shall  be  completed  with   due
diligence   in  a  first-class  workmanlike  manner   and   in
compliance  with plans and specifications approved in  writing
by  Landlord  and all applicable laws, ordinances,  rules  mid
regulations.

     7.2. Title To Alterations. All alterations, additions and
improvements installed pursuant to this Lease shall be part of
the  Building and property of Landlord, unless Landlord elects
to  require Tenant to remove the same upon the termination  of
this  Lease; provided, however, that the foregoing  shall  not
apply  to  Tenant's movable furniture and trade  fixtures  not
affixed to the Property.

     7.3.  Tenant  Fixtures.  Notwithstanding  the  foregoing,
Tenant  may  install,  remove  and  reinstall  trade  fixtures
without  Landlord's  prior written consent,  except  that  any
fixtures which are affixed to the Premises or which affect the
exterior or structural portions of the Building shall  require
Landlord's  written  approval. The foregoing  shall  apply  to
Tenant's signs, logos and insignia, all of which Tenant  shall
have  the  right to place and remove and replace  solely  with
Landlord's  prior  written consent as to  location,  size  and
composition. Tenant shall immediately repair any damage caused
by installation and remove of fixtures under this Section 7.3.
     7.4.  No  Liens.  Tenant  shall at  all  times  keep  the
Premises  free  from all liens and claims of any  contractors,
subcontractors,  vendors,  suppliers  or  any  other   parties
employed   either  directly  or  indirectly   by   Tenant   in
construction  work  on the Premises. Tenant  may  contest  any
claim  of  lien,  but only if, prior to such  contest,  Tenant
either  (i)  posts security in the amount of the  claim,  plus
estimated  costs and interest, or (ii) records  a  bond  of  a
responsible corporate surety in such amount as may be required
to release the lien from the Premises. Tenant shall indemnify,
defend  and  hold  Landlord harmless against liability,  loss,
damage,  cost  and  all  other  expenses,  including,  without
limitation, reasonable attorneys' fees arising out  of  claims
of  any  lien  for  work perforated or materials  or  supplies
furnished  at the request of Tenant or persons claiming  under
Tenant.

                  8.  MAINTENANCE AND REPAIRS
                               
                               
     8.1.  Landlord's Work. Landlord shall repair and maintain
or  cause  to  be  repaired and maintained  in  a  prompt  and
expeditious manner those portions of the Building  outside  of
the  Premises, the common areas of the Property, and the roof,
exterior  walls and other structural portions of the Building,
The  cost of all work performed by Landlord under this Section
8.1 shall be Operating Expense hereunder, except to the extent
such work (i) is required due to the negligence of Landlord or
any  other  tenant of the Building, (ii) is  a  service  to  a
specific  tenant  or  tenants, other than  Tenant,  for  which
Landlord  has  received  or  has the  right  to  receive  full
reimbursement, (iii) is a capital expense not to  be  included
as  Operating  Expense under Section 5.2 hereof,  or  (iv)  is
required due to the negligence or willful misconduct of Tenant
or  its  agents, employees or invitees (in which event  Tenant
shall  bear  the  full  cost  of such  work  pursuant  to  the
indemnification provided in Section 10.6 hereof).
     8.2. Tenant's Obligation for Maintenance.


          (a)   Good Order. Condition and Repair. By accepting
possession of the Premises, and subject to Section 2.4, Tenant
acknowledges that the Premises are in good and sanitary order,
condition  and  repair.  Except as  provided  in  Section  8.1
hereof,  Tenant  at its sole cost and expense shall  keep  and
maintain  in good and sanitary order, condition and repair  of
the   Premises  and  every  part  thereof,  wherever  located,
including but not limited to the signs, interior, the face  of
the  ceiling  over  Tenant's floor space, HVAC  equipment  and
related  mechanical  systems service the Premises  (for  which
equipment  and  systems  Tenant shall  enter  into  a  service
contract  with  a person or entity designated or  approved  by
Landlord, such approval not to be unreasonably withheld),  all
doors, door checks, windows, plate glass, door fronts, exposed
plumbing  and  sewage and other utility facilities,  fixtures,
lighting,  wall surfaces, floor surfaces and ceiling  surfaces
and  all  other interior repairs, foreseen and unforeseen,  as
required.
          (b)  Landlord's Remedy. If Tenant, after notice from
Landlord,  fails to make or perform promptly  any  repairs  or
maintenance  which  are the obligation  of  Tenant  hereunder,
Landlord  shall have the right, but shall not be required,  to
enter  the  Premises  and  make the  repairs  or  perform  the
maintenance  necessary to restore the  Premises  to  good  and
sanitary  order, condition and repair. Immediately  on  demand
from the Landlord, the cost of such, repairs shall be due  and
payable by Tenant to Landlord.
          (c)  Condition Upon Surrender. At the expiration  or
sooner  termination of this Lease, Tenant shall surrender  the
Premises, including any additions, alterations and improvement
not  removed  in  accordance with the terms  hereof,  thereto,
broom clean, in good and sanitary order, condition and repair,
ordinary Wear and tear excepted, first, however, removing  all
goods  and  effects  of  Tenant and  all  fixtures  and  items
required  to  be  removed  or  specified  to  be  removed   at
Landlord's election pursuant to this Lease, and repairing  any
damage cause by such removal. Tenant shall not have the flight
to  remove  fixtures  or equipment if  Tenant  is  in  default
hereunder  unless Landlord specifically waives this  provision
in writing.


                      9.  USE OF PREMISES
                               
                               
     9.1.  Permitted Use. Tenant shall use the Premises solely
for  general office, sales, administrative marketing  and  the
design,  development,  testing and  manufacturing  of  medical
equipment  and  pharmaceutical  products,  and  for  no  other
purpose.
     9.2.  Requirement Of Continued Use. Tenant shall  not  at
any  time  abandon the Premises and shall continuously  during
the  term  of this Lease (except during any period  where  the
Premises are unusable by reason of events described in Article
13  hereof)  conduct  and carry on in  the  Premises  the  use
permitted hereunder.
     9.3.  No Nuisance. Tenant shall not use the Premises  for
or  carry  on or permit upon the Premises or any part  thereof
any   offensive,   noisy   or   dangerous   trade,   business,
manufacture, it occupation, odor or fumes, or any nuisance  or
anything against public policy, nor interfere with the  rights
or  business  of  any  other tenants or  of  Landlord  in  the
Building, nor make any other unreasonable use of the Premises.
Tenant shall not do or permit anything to be done in or  about
the  Premises, not bring nor keep anything therein, which will
in  any  way cause the Premises to be uninsurable with respect
to  the  insurance required by this Lease or with  respect  to
standard  fire and extended coverage insurance with vandalism,
malicious mischief and riot endorsements.
     9.4.  Compliance  With Laws. Tenant  shall  not  use  the
Premises or permit the Premises to be used in whole or in part
for  any purpose or use that is in violation of any applicable
laws,  ordinances,  regulations or rules of  any  governmental
agency  or  public authority. Tenant shall keep  the  Premises
equipped with all safety appliances required by law, ordinance
or  insurance  on the Premises or any order or  regulation  of
public  authority because of Tenant's particular  use  of  the
Premises.  Tenant  shall  procure  all  licenses  and  permits
required  for  use  of  the Premises.  Tenant  shall  use  the
Premises  in strict accordance with all applicable ordinances,
rules,  laws  and  regulations  and  shall  comply  with   all
requirements of all governmental authorities now in  force  or
which  may hereafter be in force pertaining to the use of  the
Premises by Tenant, including, without limitation, regulations
applicable to noise, water, soil and air pollution, and making
such nonstructural alterations and additions thereto as may be
required  from  time to time by such laws, ordinances,  rules,
regulations  and requirements of governmental  authorities  or
insurers   of   the  Premises  (collectively,  "Requirements")
because  of Tenant's construction of improvements in or  other
particular use of the Premises.

     9.5.  Liquidation  Sales. Tenant  shall  not  conduct  or
permit to be conducted any bankruptcy sale, liquidation  sale,
or  going out of business sale, in, upon or about the Premises
whether  said  auction  or sale be voluntary,  involuntary  or
pursuant  to  any assignment for the benefit of creditors,  or
pursuant to any bankruptcy or other insolvency proceeding.

     9.6. Environmental Compliance.

          (a)  Landlord warrants and represents to Tenant that
the  Premises, Building and the Property presently comply with
all  environmental laws and Landlord will use its best efforts
to  ensure that the Premises, Building and the Property remain
in  compliance with all environmental laws during the term and
extended  term hereof, including without limitation reasonably
monitoring  the  condition  of  the  Property,  Building   and
Premises  and  the  activities of  other  tenants.  Landlord's
obligations  under  this Section 9.6.(a) is  not  intended  to
impose a greater burden on the Landlord than that set forth in
Section  9.6.(c)  herein  or  as otherwise  required  by  law,
regulation or statute;
          (b)   Tenant shall fully indemnify and hold harmless
Landlord, its successors and assigns against (i) any  damages,
claims,   liabilities,  demands,  losses,  costs  or  expenses
(including  reasonable  attorneys'  fees)  arising  from   any
Hazardous Substance Releases or violation of environmental law
with  respect  to  the  Premises  caused  by  Tenant,  or  its
employees, agents, contractors or assigns) and (ii) any fines,
penalty  payments, reasonable attorneys' fees,  sums  paid  in
connection  with any judicial or administrative  investigation
or proceedings, costs of cleanup assessed by a governmental or
quasi-governmental agency, and similar expenditures,  incurred
by  landlord  that relate in any way to a Hazardous  Substance
Release(s) by Tenant or violation of environmental law  caused
by Tenant;

     (c)   Landlord  shall fully indemnify and  hold  harmless
Tenant,  its  successors and assigns against (i) any  damages,
claims,   liabilities,  demands,  losses,  costs  or  expenses
(including  reasonable  attorneys'  fees)  arising  from   any
violation  of  Section  9.6.  (a)  herein,  including  without
limitation  any  condition  of the Premises,  Building  and/or
Property  existing at the Commencement Date; (ii) any damages,
claims,   liabilities,  demands,  losses,  costs  or  expenses
(including  reasonable  attorneys'  fees)  arising  from   any
Hazardous Substance Releases or violation of environmental law
with respect to the Property, Building or Premises that is not
caused  by  Tenant or its employees, agents,  contractors,  or
assigns,  and  (iii)  any fines, penalty payments,  reasonable
attorneys' fees, sums paid in connection with any judicial  or
administrative investigation or proceedings, costs of  cleanup
assessed  by a governmental or quasi-governmental agency,  and
similar  expenditures, incurred by Tenant that relate  in  any
way  to  breach  by  Landlord  of the  warranties  in  Section
9.6.(a),  to  any  condition  of the  Property,  Building,  or
Premises  existing  on  the  Commencement  Date,  or  to   any
Hazardous  Substance Release(s) or violations or environmental
law caused by landlord, as provided above.

     9.7. ADA/Title 24 Compliance. Landlord shall deliver  and
maintain the Premises at its expense and in compliance, as and
when  required  by  law, with the Americans with  Disabilities
Act,  California  Title  24  and any  and  all  other  related
government requirements.

                 10.  INSURANCE AND INDEMNITY
                               
                               
     10.1.     Liability Insurance.

     (a)   Tenant shall procure and maintain in full force and
effect at all times during the term on this Lease, at Tenant's
cost  and  expense comprehensive public liability and property
damage  insurance  to  protect against any  liability  to  the
public,  or to any invitee of Tenant or Landlord, arising  out
of  or  related  to  the use of or result  from  any  accident
occurring  in, upon or about the Premises, with limits  to  or
death  of  one person, (i) One Million Dollars ($1,000,000.00)
for  injury or death of one person, (ii) Three Million Dollars
($3,000,000.00)  for  personal  injury  to   or   death,   per
occurrence,   and   (iii)   Five  Hundred   Thousand   Dollars
($500,000.00) for property damage, or a combined single  limit
of  public liability and property damage insurance of not less
than  Five  Million  Dollars ($5,000,000.00).  Such  insurance
shall  name  Landlord  and its general partners  and  Managing
Agent as additional insured thereunder.
     (b)   Landlord shall procure and maintain in  full  force
and  effect  at  all times during the term of this  Lease,  at
Landlord's cost and expense (but reimbursable as an  Operating
Expense  under  Section  5.2  hereof),  fire  and  "all  risk"
extended  coverage property damage insurance for the  Building
and  interior improvements that are the property  of  Landlord
and  for the improvements in the common areas of the Property,
on  a full replacement cost basis, with rental loss insurance.
Such insurance may include earthquake and/or flood coverage to
the  extent  Landlord in its discretion elects to  carry  such
coverage,   and   shall  have  such  commercially   reasonable
deductibles  and  other terms as Landlord  in  its  discretion
determines   to  be  appropriate.  Landlord  shall   have   no
obligation  to  carry  property  damage  insurance   for   any
alterations,  additions,  improvements,  trade   fixtures   or
personal  property installed or maintained  by  Tenant  on  or
about the Premises.

     10.2.     Quality  Of  Policies  and  Certificates.   All
policies  of insurance required hereunder shall be  issued  by
responsible insurers and shall be written as primary  policies
not  contributing with and not in excess of any coverage  that
Landlord may carry. Tenant shall deliver to Landlord copies of
policies  or  certificates  of  insurance  showing  that  said
policies are in effect. The coverage provided by such policies
shall include the clause or endorsement referred to in Section
10.4  If  Tenant  fails  to acquire,  maintain  or  renew  any
insurance  required to be maintained by it under this  Article
10 or to pay the premium thereof, then Landlord, at its option
and  in addition to its other remedies, but without obligation
so to do, may procure such insurance, and any sums expended by
it  to procure any such insurance shall be repaid upon demand,
with  interest as provided in Section 3.2 hereof. Tenant shall
obtain  written undertakings from each insurer under  policies
required  to  be  maintained  by  it  to  notify  all  insured
thereunder  at  least thirty (30) days prior to  cancellation,
amendment or revision of coverage.


     10.3.     Worker's Compensation. Tenant shall maintain in
full  force and effect during the term of this Lease  worker's
compensation  insurance  covering all  of  Tenant's  employees
working on the Premises.


     10.4.      Waiver of Subrogation. To the extent permitted
by   law  and  without  affecting  the  coverage  provided  by
insurance  required to be maintained hereunder,  Landlord  and
Tenant each, waive any right to recover against the other  (i)
damages  for  injury to or death of persons,  (ii)  damage  to
property, (iii) damage to the Premises or any past thereof, or
(iv)  claims  arising by reason of any of the  foregoing,  but
only  to  the  extent  that any of the foregoing  damages  and
claims under subparts (i)-(iv) hereof are covered, and only to
the extent of such coverage, by insurance actually carried  or
required to be carried hereunder by either Landlord or Tenant.
This provision is intended to waive fully, and for the benefit
of  each party, any rights and claims which might give rise to
a  right  of subrogation in any insurance carrier. Each  party
shall  procure a clause or endorsement on any policy  required
under  this  Article  10  denying to  the  insurer  rights  of
subrogation against the other party to the extent rights  have
been  waived by the insured prior to the occurrence of  injury
or  loss. Coverage provided by insurance maintained by  Tenant
under  this  Article  10  shall not  be  limited,  reduced  or
diminished   by  virtue  of  the  subrogation  waiver   herein
contained.


     10.5.     Increase In Premiums. Tenant shall do all  acts
and pay all expenses necessary to insure that the Premises are
not  used  for  purposes  prohibited by  any  applicable  fire
insurance, and that Tenant's use of the Premises complies with
all  requirements necessary to obtain any such  insurance.  If
Tenant  uses  or permits the Premises to be used in  a  manner
which  increases  the existing rate of any  insurance  on  the
Premises  carried by Landlord, Tenant shall pay the amount  of
the increase in premium caused thereby, and Landlord's cost of
obtaining other replacement insurance policies, including  any
increase  in  premium,  within  ten  (10)  days  after  demand
therefor by Landlord.
     10.6.     Indemnification.
     (a)   Tenant  shall indemnify, defend and hold  Landlord,
its  partners, shareholders, officers, directors,  affiliates,
agents,  employees and contractors, harmless from any and  all
liability for injury to or death of any person, or loss of  or
damage to the property of any person, and all actions, claims,
demands,  costs  (including,  without  limitation,  reasonable
attorneys'  fees),  damages or expenses of  any  kind  arising
therefrom  which  may be brought or made against  Landlord  or
which  Landlord  may  pay  or incur  by  reason  of  the  use,
occupancy  and  enjoyment of the Premises  by  Tenant  or  any
invitees, sublessees, licensees, assignees, employees,  agents
or  contractors  of Tenant or holding under  Tenant  from  any
cause  whatsoever other than negligence or willful  misconduct
or  omission  by Landlord, its agents or employees.  Landlord,
its  partners, shareholders, officers, directors,  affiliates,
agents, employees and contractors shall not be liable for, and
Tenant  hereby  waives  all claims against  such  persons  for
damages  to  goods,  wares  and merchandise  in  or  upon  the
Premises,  or  for  injuries to Tenant, its  agents  or  third
persons  in  or  upon the Premises, from any cause  whatsoever
other  than  negligence or willful misconduct or  omission  by
Landlord,  its agents or employees. Tenant shall  give  prompt
notice  to Landlord of any casualty or accident of a  material
nature in, on or about the Premises.


     (b)   Landlord  shall indemnify, defend and hold  Tenant,
its  partners, shareholders, officers, directors,  affiliates,
agents,  employees and contractors, harmless from any and  all
liability for injury to or death of any person or loss  of  or
damage to the property of any person, and all actions, claims,
demands,  costs  (including,  without  limitation,  reasonable
attorneys'  fees),  damages or expenses of  any  kind  arising
therefrom which may be brought or made against Tenant or which
Tenant  may  pay  or incur to the extent such  liabilities  or
other matters arise by reason of (i) any negligence or willful
misconduct  or omission by landlord, its agents or  employees,
(ii)  any breach by Landlord, its agents or employees  of  any
term  of  this  Lease  and  (iii)  any  causes  of  action  or
obligations  the due date of performance of which arose  prior
to the Commencement Date.

     10.7.      Blanket  Policy.  Any policy  required  to  be
maintained  hereunder  may  be maintained  under  a  so-called
"blanket-policy" insuring other parties and other locations so
long  as  the  amount  of insurance required  to  be  provided
hereunder is not thereby diminished.
                 11.  SUBLEASE AND ASSIGNMENT
     11.1.      Assignment  And Sublease Of  Premises.  Tenant
shall  not  have the right or power to assign its interest  in
this  Lease,  or make any sublease, nor shall any interest  of
Tenant  under  this  Lease be assignable involuntarily  or  by
operation  of law, without on each occasion obtain  the  prior
written  consent  of  Landlord, which  consent  shall  not  be
unreasonably withheld. Any purported sublease or assignment of
Tenant's  interest  in  this Lease requiring  but  not  having
received  Landlord's consent thereto shall  be  void.  Without
limiting  the  generality  of  the  foregoing,  Landlord   may
withhold  consent  to  any proposed subletting  or  assignment
solely on the ground that the use by the proposed subtenant or
assignee   is  reasonably  likely  to  be  incompatible   with
Landlord's use of the balance of the Building or Property.

     Tenant  may assign this Lease or sublet the Premises,  or
any portion thereof, without Landlord's consent, to any entity
which  controls, is controlled by, or is under common  control
with  Tenant;  to any entity which results from  a  merger  or
consolidation with Tenant; to any entity engaged  in  a  joint
venture   with  Tenant;  or  to  any  entity  which   acquires
substantially all of the stock or assets of Tenant, as a going
concern,  with respect to the business that is being conducted
in  the Premises (hereinafter each a "Permitted Transfer"). In
addition, any sale or transfer of the capital stock of  Tenant
shall  be  deemed  a Permitted Transfer if (i)  such  sale  or
transfer occurs in connection with any bona fide financing  or
capitalization for the benefit of Tenant, or (ii) if such sale
or  transfer  occurs in connection with Tenant's status  as  a
publicly  traded corporation. Landlord shall have no right  to
terminate  the  Lease in connection with, and  shall  have  no
right  to  any sums or other economic consideration  resulting
from, any Permitted Transfer.

     Tenant  will  retain  all sublease  profits  net  of  its
underlying lease.

     Landlord  will  not  have  any  right  to  or  option  to
recapture  any  space that Tenant assigns or subleases  during
the initial sublease term.


11.2.  Rights Of Landlord. Consent by Landlord to one or  more
assignments of this Lease or to one or more sublettings of the
Premises, or collection of rent by Landlord from any  assignee
or  sublessee, shall not operate to exhaust Landlord's  rights
under  Article  II, nor constitute consent to  any  subsequent
assignment  or subletting. No assignment of Tenant's  interest
in  this  Lease  and no sublease shall relieve Tenant  of  its
obligations hereunder, notwithstanding any waiver or extension
of  time granted by Landlord to any assignee or sublessee,  or
the  failure  of  Landlord to assert its  rights  against  any
assignee  or  sublessee, and regardless of whether  Landlord's
consent thereto is given or required to be give hereunder.  In
the  event  of  default by any assignee,  sublessee  or  other
successor of Tenant in the performance of any of the terms  or
obligations  of Tenant under this Lease, Landlord may  proceed
directly  against Tenant without the necessity  of  exhausting
remedies  against  any  such  assignee,  sublessee  or   other
successor.  In  addition  Tenant immediately  and  irrevocably
assigns to Landlord as security for Tenant's obligations under
this  Lease, all rent from any subletting of all or a part  of
the  Premises as permitted under this Lease, and Landlord,  as
Tenant's  assignee  for  Tenant, or any  receiver  for  Tenant
appointed on Landlord's application, may collect such rent and
apply  it toward Tenant's obligation under this Lease;  except
that,  until  the occurrence of an act of default  by  Tenant,
beyond  the expiration of any applicable grace period,  Tenant
shall have the right to collect such rent.

           12.  RIGHT OF ENTRY AND QUIET ENJOYMENT
     12.1.      Right  of Entry.  Landlord and its  authorized
representatives shall have the right to enter the Premises  at
any  reasonable  time  during the term of  this  Lease  during
normal business hours and upon not less than twenty-four  (24)
hours' prior notice, except in the case of emergency, for  the
purpose  of  inspecting and determining the condition  of  the
Premises  or  for  any  other proper purpose  including,  with
limitation,  to  make  repairs, replacements  or  improvements
which  Landlord  may deem necessary, to show the  Premises  to
prospective  Purchasers, to show the premises  to  prospective
tenants,  and to post notices of non-responsibility.  Landlord
shall not be liable for inconvenience, annoyance, disturbance,
loss  of business, quiet enjoyment or other damage or loss  to
Tenant by reason of making any repairs or performing any  work
upon the Premises unless such are the result of the negligence
or  willful  misconduct of Landlord or  its  agents,  and  the
obligations  of Tenant under this Lease shall not  thereby  be
affected in any manner whatsoever, provided, however, Landlord
shall use reasonable efforts to minimize the inconvenience  to
Tenant's normal business operations cause thereby.

     12.2.       Quiet  Enjoyment.  Landlord  covenants   that
Tenant,  upon  paying the rent and performing its  obligations
hereunder and subject to all the terms and conditions of  this
Lease,  shall peacefully and quietly have, hold and enjoy  the
Premises  throughout  the term of this Lease,  or  until  this
Lease is terminated as provided by this Lease.

                   13.  CASUALTY AND TAKING
                               
     13.1.      Termination Or Reconstruction. If  during  the
term   of  this  Lease  the  Premises  or  Building,  or   any
substantial part of either, (i) is damaged materially by  fire
or other casualty or by action of public or other authority in
consequence  thereof, (ii) is taken by eminent  domain  or  by
reason  of  any public improvement or condemnation proceeding,
or in any manner by an exercise of the right of eminent domain
(including any transfer in avoidance of exercise of the  power
of  eminent domain), or (iii) receives irreparable  damage  by
reason  of  anything lawfully done under color  of  public  or
other  authority, this Lease shall terminate as to the  entire
Premises  at  Landlord's election by written notice  given  to
Tenant  within sixty (60) days after the damage or taking  has
occurred.  If Landlord does not elect to terminate this  Lease
as hereinabove provided, Landlord shall repair any such damage
and  restore  the  Premises  and the  Building  as  nearly  as
reasonably  possible  to  the condition  existing  before  the
damage or taking within six (6) months.

     13.2.     Tenant's Rights. If any portion of the Premises
is so taken by condemnation, the Tenant may elect to terminate
this  Lease  if the portion of the Premises taken is  of  such
extent  and  nature  as substantially to handicap,  impede  or
permanently  impair  Tenant's  use  of  the  balance  of   the
Premises.  Tenant  must  exercise its right  to  terminate  by
giving  notice to Landlord within thirty (30) days  after  the
nature  and extent of the taking have been finally determined.
If  Tenant  elects to terminate this Lease, Tenant shall  also
notify  Landlord of the date of termination, which date  shall
not  be  earlier than thirty (30) days nor later  than  ninety
(90)  days after Tenant has notified Landlord of its  election
to  terminate, except that this Lease shall terminate  on  the
date  of taking if the date of taking falls on any date before
the date of termination designated by Tenant.
     13.3.      Lease To Remain In Effect. If neither Landlord
nor Tenant terminates this Lease as hereinabove provided, this
Lease  shall  continue in full force and effect,  except  that
minimum monthly rental and Tenant's Operating Cost Share shall
abate  to  the extent Tenant's use of the Premises is impaired
for any period that any portion of the Premises is unusable or
inaccessible  because  of  a casualty  or  taking  hereinabove
described. Each party waives the provisions of Code  of  Civil
Procedure Section 1265.130, allowing either party to  petition
the  Superior Court to terminate this Lease in the event of  a
partial condemnation of the Premises.
     13.4.     Reservation Of Compensation. Landlord reserves,
and  Tenant waives and assigns to Landlord, all rights to  any
award  or  compensation for damage to the Premises,  Building,
Property and the leasehold estate created hereby, accruing  by
reason  of  any taking in public improvement, condemnation  or
eminent  domain proceeding or in any other manner by  exercise
of the right of eminent domain or of anything lawfully done by
public authority, except that Tenant shall be entitled to  any
and  all  compensation or damages paid for or  on  account  of
Tenant's  moving expenses, trade fixtures, equipment, personal
property  and any leasehold improvements in the Premises,  the
cost  of which was borne by Tenant, but only to the extent  of
the  then  remaining  unamortized value of  such  improvements
computed on a straight-line basis over the term of this Lease.
Tenant  covenants to deliver such further assignments  of  the
foregoing  as  Landlord  may  from  time  to  time  reasonably
request.
     13.5.     Restoration of Fixtures. If Landlord repairs or
causes  repair  of the Premises after such damage  or  taking,
Tenant  at its sole expense shall repair and replace  promptly
all  fixtures, equipment and other property of Tenant  located
at, in or upon the Premises and all additions, alterations and
improvements  and all other items installed  or  paid  for  by
Tenant under this Lease that were damaged or taken, so  as  to
restore  the  same  as nearly as reasonably  possible  to  the
condition existing immediately prior to the damage or  taking.
Tenant  shall  have  the right to make  modifications  to  the
Premises,  fixtures  and improvements, subject  to  the  prior
written approval of Landlord. In its review of Tenant's  plans
and  specifications, Landlord may take into consideration  the
effect   of   the  proposed  modifications  on  the   exterior
appearance,  the structural integrity and the  mechanical  and
other operating systems of the Building.
                         14.  DEFAULT
     14.1.     Events Of Default. The occurrence of any of the
following shall constitute an event of default on the part  of
Tenant:
          (a)    Abandonment.  Abandonment  of  the  Premises.
Tenant  waives  any  right Tenant may  have  to  notice  under
Section 1951.3 of the California Civil Code, the terms of this
subsection (a) being deemed such notice to Tenant as  required
by said Section 1951.3;
          (b)   Nonpayment.  Failure to  pay,  when  due,  any
amount  payable to Landlord hereunder, such failure continuing
for a period of five (5) days after receipt of written, notice
of such failure;

          (c)   Other  Obligations.  Failure  to  perform  any
obligation, agreement or covenant under this Lease, other than
those matters specified in subsection (b) hereof, such failure
continuing for fifteen (15) days after written notice of  such
failure.  If  is  not  possible to cure  such  default  within
fifteen  (15)  days. Tenant shall commence  cure  within  said
fifteen  (15)  day  period  and shall  proceed  diligently  to
complete cure;

          (d)   General  Assignment. A general  assignment  by
Tenant for the benefit of creditors;

          (e)    Bankruptcy.  The  filing  of  any   voluntary
petition  in  bankruptcy  by  Tenant  or  the  filing  of   an
involuntary  petition by Tenant's creditors, which involuntary
petition  remains  undischarged for a period  of  thirty  (30)
days.   In the event that under applicable law the trustee  in
bankruptcy  or Tenant has the right to affirm this  Lease  and
continue to perform the obligations of Tenant hereunder,  such
trustee  or  Tenant  shall, in such  time  period  as  may  be
permitted  by  the bankruptcy court having jurisdiction,  cure
all defaults of Tenant hereunder outstanding as of the date of
the  affirmance  of this Lease and provide  to  Landlord  such
adequate  assurances as may be reasonably necessary to  ensure
Landlord  of the continued performance of Tenant's obligations
under  this  Lease.  specifically, but  without  limiting  the
generality  of  the foregoing, such adequate  assurances  must
include  assurances that the Premises continue to be  operated
only  for  the use permitted hereunder. The provisions  hereof
are  to  assure that the basic understandings between Landlord
and  Tenant  with respect to Tenant's use of the Premises  and
the  benefits to Landlord therefrom are preserved,  consistent
with the purpose and intent of applicable bankruptcy laws;

          (f)   Receivership.  The employment  of  a  receiver
appointed  by  court order to take possession of substantially
all  of  the  Tenant's  assets or  the  Premises,  if  such  a
receivership remains undissolved for a period of  thirty  (30)
days;

          (g)   Attachment. The attachment, execution or other
judicial  seizure  of  all or substantially  all  of  Tenant's
assets  or  the Premises, if such attachment or other  seizure
remains  undismissed or undischarged for a  period  of  thirty
(30) days after levy thereof; or

          (h)   Insolvency. The admission by Tenant in writing
of  its  inability to pay its debts as they  become  due,  the
filing  by Tenant of a petition seeking any reorganization  or
arrangement,     composition,    readjustment,    liquidation,
dissolution  or  similar relief under any  present  or  future
statute, law or regulation, the filing by Tenant of an  answer
admitting  or failing timely to contest a material  allegation
of  a petition filed against Tenant in any such proceeding or,
if  within  thirty  (30) days after the  commencement  of  any
proceeding  against  Tenant  seeking  any  reorganization   or
arrangement,     composition,    readjustment,    liquidation,
dissolution  or  similar relief under any  present  or  future
statute,  law  or regulation, such proceeding shall  not  have
been dismissed.
     14.2.     Remedies Upon Tenant's Default.
          (a)   Upon  the occurrence or any event  of  default
described in Section 14.1 hereof, Landlord, in addition to and
without prejudice to any other rights or remedies it may have,
shall have the immediate right to re-enter the Premises or any
part  thereof  and repossess the same, expelling and  removing
therefrom  all  persons and property (which  property  may  be
stored in a public warehouse or elsewhere at the cost and risk
of  and for the account of Tenant), using such force as may be
necessary to do so (as to which Tenant hereby waives any claim
for loss or damage that may thereby occur). In addition to  or
in  lieu  of such re-entry and without prejudice to any  other
rights or remedies it may have, Landlord shall have the  right
either (i) to terminate this Lease and recover from Tenant all
damages  incurred by Landlord as results of Tenant's  default,
as  hereinafter provided, or (ii) to continue  this  Lease  in
effect and recover rent and other charges and amounts as  they
become due.
          (b)   Even  if  Tenant has breached  this  Lease  or
abandoned  the Premises, this Lease shall continue  in  effect
for  so long as Landlord does not terminate Tenant's right  to
possession  under  subsection  (a)  hereof  and  Landlord  may
enforce  all  of  its rights and remedies  under  this  Lease,
including  the  right to recover rent as it becomes  due,  and
Landlord, without terminating this Lease, may exercise all  of
the  rights  and  remedies of a lessor under California  Civil
Code Section 1951.4 (lessor may continue lease in effect after
lessee's breach and abandonment and recover rent as it becomes
due, if lessee has right to sublet or assign, subject only  to
reasonable  limitations), or any successor Code section.  Acts
of maintenance, preservation or efforts to relate the Premises
or  the appointment of a receiver upon application of Landlord
to  protect  Landlord's interest under this  Lease  shall  not
constitute a termination of Tenant's right to possession.
          (c)   If Landlord terminates this Lease pursuant  to
this  Section  14.2, Landlord shall have all  the  rights  and
remedies of a landlord provided by Section 1951.2 of the Civil
Code  of  the  State  of  California, or  any  successor  Code
section.
     14.3.     Remedies Cumulative. All rights, privileges and
elections or remedies of Landlord contained in this Article 14
are cumulative and not alternative to the extent permitted  by
law and except as otherwise provided herein.
            15.  SUBORDINATION, ATTORNMENT AND SALE
     15.1.     Subordination to Mortgage. This Lease, and  any
sublease entered into by Tenant under the provisions  of  this
Lease,  shall be subject and subordinate to any ground  lease,
mortgage,  deed  of trust, sale/leaseback transaction  or  any
other or any other hypothecation for security now or hereafter
placed  upon  the  Building, the Property, or  both,  and  the
rights  of  any  assignee of Landlord or  mortgagee,  trustee,
beneficiary,  landlord or leaseback lessor under  any  of  the
foregoing,  and to any and all advances made on  the  security
thereof  and  to  all renewals, modifications, consolidations,
replacements  and  extensions  thereof.   If  any   mortgagee,
trustee, beneficiary, ground lessor, sale/leaseback lessor  or
assignee elects to have this Lease be an encumbrance upon  the
Property  prior  to the lien of its mortgage, deed  of  trust,
ground  lease or leaseback lease or other security arrangement
and gives notice thereof to Tenant, this Lease shall be deemed
prior thereto, whether this Lease is dated prior or subsequent
to  the  date thereof or the date of recording thereof Tenant,
and  any  sublessee,  shall execute  such  documents  as  many
reasonably   be   requested   by   any   mortgagee,   trustee,
beneficiary, ground lessor, sale/leaseback lessor or  assignee
to evidence the subordination herein set forth or to make this
Lease prior to the lien of any mortgage, deed of trust, ground
lease,  leaseback lease or other security arrangement, as  the
case  may be, and if Tenant fails to do so within fifteen (15)
days  after  demand  from  Landlord,  Tenant  constitutes  and
appoints Landlord as Tenant's attorney-in-fact and in Tenant's
name,  place and stead to do so. Upon any default by  Landlord
in the performance of its obligations under any mortgage, deed
of  trust, ground lease, leaseback lease or assignment, Tenant
(and  any  sublessee) shall attorn to the mortgagee,  trustee,
beneficiary,  ground  lessor,  leaseback  lessor  or  assignee
thereunder  upon  demand  and shall execute  and  deliver  any
instrument  or  instruments confirming the  attornment  herein
provided for.

     Landlord   specifically  agrees  that  (i)   Tenant   may
conclusively rely upon any written notice Tenant receives from
any    mortgagee,   trustee,   beneficiary,   ground   lessor,
sale/leaseback    lessor    or    assignee    ("Beneficiary"),
notwithstanding any claim by Landlord contesting the  validity
of  any  term or condition of such notice, including, but  not
limited  to,  any  default claimed by  lender  and  (ii)  that
Landlord  shall not make any claim of any kind against  Tenant
or Tenant's leasehold interest with respect to amounts paid to
lender  by Tenant or any acts performed by Tenant pursuant  to
such written notice.

     Notwithstanding  anything to the  contrary  contained  in
this  Lease,  Tenant shall not be required to subordinate  its
interest  under this Lease unless (i) such subordination  does
not  materially  increase Tenant's obligations  or  materially
decrease its rights under this Lease, and (ii) Landlord  first
obtains  from  the  mortgagee,  trustee,  beneficiary,  ground
lessor,   leaseback   lessor  or  assignee   requesting   said
subordination a written agreement that provides that  Tenant's
right  to  quiet  possession  of the  Premises  shall  not  be
disturbed so long as Tenant is not in default and performs all
of  its  obligations under this Lease, unless  this  Lease  is
otherwise terminated pursuant to its terms.


     15.2.       Sale  of  Landlord's  Interest.  Upon   sale,
transfer  or assignment of Landlord's entire interest  in  the
Building  and  Property, Landlord shall  be  relieved  of  its
obligations  hereunder  with respect to  liabilities  accruing
from and after the date of such sale, transfer or assignment.

     15.3.   Estoppel Certificates. Tenant shall at  any  time
and  from  time  to time, within ten (10) days  after  written
request  by  Landlord,  execute, acknowledge  and  deliver  to
Landlord  a  certificate in writing, stating:  (i)  that  this
Lease  is unmodified and in full force and effect, or if there
have  been any modifications, that this Lease is in full force
and effect as modified and stating the date and the nature  of
each modification; (ii) the date to which rental and all other
sums  payable hereunder have been paid; (iii) that to  Tenants
actual knowledge Landlord is not in default in the performance
of  any obligations under this Lease, that Tenant has given no
notice of default to the Landlord and that, to Tenant's actual
knowledge  no event has occurred which, but for the expiration
of  the  applicable time period, would constitute an event  of
default  hereunder;  and  (iv)  such  other  matters  as   may
reasonably  be  requested  by Landlord  or  any  institutional
lender,   mortgagee,  trustee,  beneficiary,  ground   lessor,
sale/leaseback   lessor  or  prospective  purchaser   of   the
Property.  Any  such certificate provided under  this  Section
15.3  may  be  relied upon by any lender, mortgagee,  trustee,
beneficiary,  assignee  or  successor  in  interest   to   the
Landlord,  by  any prospective purchaser, by any purchaser  on
foreclosure or sale, or upon any grant of a deed  in  lieu  of
foreclosure  of any mortgage or deed of trust on the  Property
or  premises, or by any other third party. Failure to  execute
and  return  within the required time any estoppel certificate
requested hereunder shall be deemed to be an admission of  the
truth  of  the  matters set forth in the form  of  certificate
submitted to Tenant for execution.

     15.4.      Subordination to CC&R'S. This Lease,  and  any
permitted sublease entered into by Tenant under the provisions
of  this  Lease, shall be subject and subordinate (a)  to  any
declarations   of   covenants,  conditions  and   restrictions
recorded by Landlord with respect to the Property from time to
time,  provided  that  the  terms  of  such  declarations  are
reasonable and do not discriminate against Tenant relative  to
other  tenants occupying portions of the Property, and (b)  to
the  Declaration  of  Covenants, Conditions  and  Restrictions
dated June 20, 1979 and recorded on July 5, 1979 as Instrument
No. 79-130777, Alameda County Records, as amended from time to
time  (the  "Master  Declaration"), the  provisions  of  which
Master  Declaration are an integral part of this Lease. Tenant
agrees  to  execute, upon request by Landlord,  any  documents
reasonably  required  from  time  to  time  to  evidence   the
subordination provided in this Section 15.4.

                         16.  SECURITY
                               
     16.1.      Deposit.  Concurrently with Tenant's execution
of  this Lease, Tenant shall deposit with Landlord the sum  of
Ten  Thousand, Five Hundred Sixty Six Dollars and Forty  Three
Cents  ($10,566.43), which sum (the "Security Deposit")  shall
be  held  by Landlord as security for the faithful performance
of  all the terms, covenants, and conditions of this Lease  to
be  kept  and performed by Tenant during the term  hereof.  If
Tenant defaults beyond the expiration of any applicable  grace
period,   with  respect  to  any  provision  of  this   Lease,
including, without limitation, the provisions relating to  the
payment of rental and other sums due hereunder, Landlord shall
have  the  right, but shall not be required, to use, apply  or
retain all or any part of the Security Deposit for the payment
of  rental or any other amount which Landlord may spend or may
become obligated to spend by reason of Tenant's default or  to
compensate  Landlord  for  any  other  loss  or  damage  which
Landlord  may  suffer by reason of Tenant's  default.  If  any
portion of the Security Deposit is so used or applied,  Tenant
shall,  within  ten (10) days after written  demand  therefor,
deposit  cash with Landlord in a sufficient amount to  restore
the  Security  Deposit  to its original  amount  and  Tenant's
failure  to  do so shall be a material breach of  this  Lease.
Landlord shall not be required to keep any deposit under  this
Section  separate  from Landlord's general funds,  and  Tenant
shall not be entitled to interest thereon. If Tenant fully and
faithfully  performs  every provision  of  this  Lease  to  be
performed by it, the Security Deposit, or any balance thereof,
shall be returned to Tenant or, at Tenant s direction, to  the
last   assignee  of  Tenant's  interest  hereunder,   at   the
expiration of the term of this Lease and within ten (10)  days
after  Tenant  has  vacated  the Premises.  In  the  event  of
termination  of  Landlord's interest in this  Lease,  Landlord
shall  transfer all deposits then held by Landlord under  this
Section to Landlord's successor in interest, whereupon  Tenant
agrees  to release Landlord from all liability for the  return
of such deposit or the accounting thereof.
                       17. MISCELLANEOUS
     17.1.      Notices.  All notices, consents,  waivers  and
other  communications  which this Lease  requires  or  permits
either  party  to give to the other shall be  in  writing  and
shall  be  deemed  given when delivered personally  (including
delivery  by  private courier or express delivery service)  or
four  (4)  days  after  deposit in  the  United  States  mail,
registered  or certified mail, postage prepaid,  addressed  to
the parties at their respective addresses as follows:
     To Tenant:               Aradigm Corporation
                         26219 Eden Landing Road
                         Hayward, CA 94545
                         Attn:     Richard P. Thompson
                              President and C. E. O.
                              
                          (after  Commencement Date,  same  as
above)

     with copy to:       Mark A. Olbert, Vice President & CFO
                         Aradigm Corporation
                         26219 Eden Landing Road
                         Hayward, CA 94545

       To   Landlord:         Hayward  Point  Eden  I  Limited
Partnership
                         c/o Britannia Developments, Inc. 1939
                         Harrison Street, Suite 412 Park Plaza
                         Building
                         Oakland, CA 94612
                         Attn:     T. J. Bristow


     with copy to:       Folger, Levin & Kahn
                         Embarcadero Center West
                         275 Battery Street, 23rd Floor
                         San Francisco, CA 94111
                         Attn:     Donald E. Kelley, Jr.

or  to  such other address as may be contained in a notice  at
least  fifteen  (15)  days prior to the  address  change  from
either  party  to  the other given pursuant to  this  Section.
Rental  payments and other sums required by this Lease  to  be
paid  by  Tenant shall be delivered to Landlord at  Landlord's
address provided in this Section, or to such other address  as
Landlord  may from time to time specify in writing to  Tenant,
and shall be deemed to be paid only upon actual receipts.

     17.2.     Successors And Assigns. The obligations of this
Lease shall run with the land, and this Lease shall be binding
upon  and inure to the benefit of the parties hereto and their
respective  successors and assigns, except that  the  original
Landlord named herein and each successive Landlord under  this
Lease shall be liable only for obligations accruing during the
period of its ownership of the Property, which liability shall
survive, but future liability under the Lease shall then  pass
to the successor lessor.
     17.3.      No  Waiver.  The failure of Landlord  to  seek
redress   for  violation,  or  to  insist  upon   the   strict
performance, of any covenant or condition of this Lease  shall
not  be  deemed  a  waiver  of such violation,  or  prevent  a
subsequent  act  which  would originally  have  constituted  a
violation from having all the force and effect of an  original
violation.

     17.4.     Severability. If any provision of this Lease or
the   application   thereof  is  held   to   be   invalid   or
unenforceable, the remainder of this Lease or the  application
of such provision to persons or circumstances other than those
as  to  which  it  is invalid or unenforceable  shall  not  be
affected  thereby, and each of the provisions  of  this  Lease
shall  be  valid and enforceable, unless enforcement  of  this
Lease  as  so  invalidated  would be unreasonable  or  grossly
inequitable  under all the circumstances or  would  materially
frustrate the purposes of this Lease.

     17.5.     Litigation Between Parties. In the event of any
litigation  between  the parties hereto growing  out  of  this
Lease,  the  prevailing  party shall  be  reimbursed  for  all
reasonable  costs, including, but not limited  to,  reasonable
accountants'  fees  and  attorneys' fees.  "Prevailing  Party"
within  the  meaning  of this Section shall  include,  without
limitation,  a  party  who dismisses all action  for  recovery
hereunder  in exchange for payment of the sums allegedly  due,
performance  of covenants allegedly breached or  consideration
substantially equal to the relief sought in the action.

     17.6.      Surrender. A voluntary or other  surrender  of
this  Lease by Tenant, or a mutual termination thereof between
Landlord  and Tenant, shall not result in a merger but  shall,
at  the option of Landlord, operate either as an assignment to
Landlord  of  any and all existing subleases and subtenancies,
or  a  termination  of  all  or  any  existing  subleases  and
subtenancies. This provision shall be contained in any and all
assignments or subleases made pursuant to this Lease.

     17.7.      Construction.  The provisions  of  this  Lease
shall  be  construed  as  a whole according  to  their  common
meaning  and not strictly for or against Landlord  or  Tenant.
The captions preceding the text of each Section and subsection
hereof  are  included only for convenience  of  reference  and
shall be disregarded in the construction or interpretation  of
this Lease.

     17.8.      Entire Agreement. This written Lease, together
with the exhibits hereto, contains all the representations and
the  entire  understandings between the  parties  hereto  with
respect   to   the   subject   matter   hereof.   Any    prior
correspondence, memoranda or agreements are replaced in  total
by  this  Lease  and the exhibits hereto. This  Lease  may  be
modified  only by all agreement in writing signed by  each  of
the parties.

     17.9.      Governing  Law. This Lease  and  all  exhibits
hereto  shall be construed and interpreted in accordance  with
and be governed by all the provisions of the laws of the State
of California.

     17.10.    No Partnership. Nothing contained in this Lease
shall  be  construed  as  creating  any  type  or  manner   of
partnership, joint venture or joint enterprise with or between
Landlord and Tenant.
     17.11.    Financial Information. From time to time Tenant
shall  promptly  provide directly to prospective  lenders  and
purchasers  of  the  Premises  designated  by  Landlord   such
financial  information pertaining to the financial  status  of
Tenant  as  Landlord may reasonably request; provided,  Tenant
shall be permitted to provide such financial information in  a
manner which Tenant deems reasonably necessary to protect  the
confidentiality  of  such information. In  addition,  from  to
time,  Tenant  shall  provide  Landlord  with  such  financial
information  pertaining to the financial status of  Tenant  as
Landlord  may  reasonably request. Landlord  agrees  that  all
financial information supplied to Landlord by Tenant shall  be
treated   as   confidential  material,  and   shall   not   be
disseminated  to  any  party or entity (including  any  entity
affiliated  with  Landlord)  without  Tenant's  prior  written
consent.  For  purposes of this Section, without limiting  the
generality  of the obligations provided herein,  it  shall  be
deemed  reasonable for Landlord to request copies of  Tenant's
most  recent  audited  annual  financial  statements,  or,  if
audited statements have not been prepared, unaudited financial
statements  for Tenant's most recent fiscal year,  accompanied
by a certificate of Tenant's chief financial officer that such
financial   statements  fairly  present   Tenant's   financial
condition as of the date(s) indicated.

     Landlord  and  Tenant recognize the  need  of  Tenant  to
maintain  the  confidentiality of  information  regarding  its
financial  status and the need of Landlord to be informed  of,
and  to  provide to prospective lenders and purchasers of  the
Premises,   financial  information  pertaining   to   Tenant's
financial status. Landlord and Tenant agree to cooperate  with
each other in achieving these needs within the context of  the
obligations set forth in this Section.

     17.12.     Costs.  If  Tenant  requests  the  consent  of
Landlord  under any provisions of this Lease for any act  that
Tenant   proposes   to   do  hereunder,   including,   without
limitation,  assignment or subletting of the Premises,  Tenant
shall, as a condition to doing any such act and the receipt of
such  consent,  reimburse Landlord promptly for  any  and  all
reasonable   costs  and  expenses  incurred  by  Landlord   in
connection    therewith,   including,   without    limitation,
reasonable attorneys' fees.

     7.13.      Time.  Time is of the essence for this  Lease,
and of every term and condition hereof.

     17.14.    Rules and Regulations. Tenant shall observe and
obey  such  rules and regulations as Landlord  may  promulgate
from time to time for the safety, care, cleanliness, order and
use  of the Premises and the Building, provided that any  such
rules  and  regulations shall not unreasonably interfere  with
Tenant's access to, or use of, the Premises.

     17.15.     Memorandum Of Lease. At any  time  during  the
term  of this Lease, either party, at its sole expense,  shall
be  entitled  to  record a memorandum of this  Lease  and,  if
either party so elects, both parties agree to cooperate in the
preparation, execution, acknowledgment and recordation of such
document in reasonable form.

     17.16.     Corporate Authority. The person  signing  this
Lease  on  behalf of Tenant warrants that he or she  is  fully
authorized to do so and, by so doing, to bind Tenant.
          In Witness Whereof, the parties hereto have executed
this Lease as of the day and year first set forth above.
"Landlord                          "Tenant"
Hayward Point Eden I               Aradigm Corporation
Limited Partnership,               a California Corporation
A Delaware Limited Partnership


By:                           Britannia Developments,                 By
        Inc.,  a  California  corporation                Richard
Thompson
     Its Managing Partner.              Its President


By:
     T.J. Bristow
     President

                          Exhibit A

                    LOCATION OF PREMISES





                          Exhibit B

                  REAL PROPERTY DESCRIPTION




     Real  property located in the City of Hayward, County  of Alameda,
State of California, more particularly described  as follows;

     Lots 1,2, 3, 4, 5 and 7, Tract 4019, filed June 28, 1979,
Map Book 110, Pages 97, 98 and 99, Alameda County Records.

     Subject  to easements, restrictions and other matters  of
record affecting title.



                          Exhibit C

                        CONSTRUCTION


     Landlord,  at its sole cost and expense, shall  undertake
and  diligently complete, subject to delays for causes  beyond
its  reasonable control, leasehold improvements in  accordance
with  plans  and  specifications to be prepared  by  Landlord,
subject  to  approval by Tenant, which approval shall  not  be
unreasonably withheld or delayed. Such work shall be performed
in  a  neat  and workmanlike manner and shall conform  to  all
applicable governmental codes, laws and regulations  in  force
at the time such work is completed.

     The Tenant Improvements include, but are not limited to:

     1.   Replacement of the carpeting in the office area with
          upgraded carpeting and in the side are with tile.

     2.   Replacement  of the countertop and cabinets  in  the
          kitchen  area to include new countertop and cabinets
          as well as dishwasher and garbage disposal.
          
     3.   Replacement  of the acoustical tiles in  the  office
          area and damaged tiles elsewhere.
     4.   Creating large conference room in front office area.
     5.   Addition  of  new  countertop and cabinets  in  copy
          room.

     6.   Running  l"  compressed air and  vacuum  lines  from
          utility room to the side area.

     7.   Building L-shaped wall and reception area.



     However,  Landlord will be solely responsible for:  (i.e.
          not part of T.I. allowance).
          
     1.   Repair  or  replacement  of HVAC  system  in  office
          section of Premises.

     2.   Renovation of the restrooms to bring up to  building
          code   and  appropriate  appearance.  This  includes
          replacement of the tank toilets and inlet water line
          to  meet ADA requirements, replacement of the  stall
          partitions due to rust, replacement of the  flooring
          due  to lifting, replacement of the countertops  due
          to  delamination, replacement of the  sinks  due  to
          cracks and improvement in the lighting.
          
          
          
                           Exhibit D
                               
             ACKNOWLEDGMENT OF LEASE COMMENCEMENT
                               
                               
     This     Acknowledgment     is     executed     as     of
__________________,19___,  by HAYWARD  POINT  EDEN  1  LIMITED
PARTNERSHIP, a DELAWARE LIMITED PARTNERSHIP ("Landlord"),  and
_____________________________________________________________,
a  ________________________ ("Tenant"),  pursuant  to  Section
2.5.  of  the  Lease dated __________________, 19   ,  between
Landlord and Tenant (the "Lease") covering premises located at
____________________________________________________________,
Hayward, CA 94545 (the "Premises")

     Landlord  and  Tenant  hereby acknowledge  and  agree  as
follows:

     1.     The   Commencement  Date  under   the   Lease   is
_________________,19___.

     2.    The  termination  date under  the  Lease  shall  be
___________________,   19___,  subject   to   any   applicable
[provisions   of  the  Lease  for  any  extension   or   early
termination thereof].

     3.    The  final cost of the Tenant improvements for  the
Premises  is ____________.  Based on that cost, the applicable
rental  adjustment (if any) and/or payment (if  any)  required
under the Lease is as follows (if none, so state):
     4.    Tenant  accepts the Premises and  acknowledges  the
satisfactory completion of all improvements therein  (if  any)
required  to  be  made  by  Landlord,  subject  only  to   any
applicable  "punch  list"  or similar procedures  specifically
provided under the Lease.

          EXECUTED as of the date first set forth above.


"Landlord                          "Tenant"
Hayward Point Eden I
Limited Partnership,
a Delaware Limited Partnership     a


By:                           Britannia Developments,                 By
     Inc., a California corporation
     Its Managing Partner.         Its:


By:
     T.J. Bristow
     President


EXHIBIT 10.20A
                    FIRST AMENDMENT TO LEASE
     THIS FIRST AMENDMENT TO LEASE ("Amendment") is entered
into as of December 22, 1997 between HAYWARD POINT EDEN I
LIMITED PARTNERSHIP, a Delaware limited partnership
("Landlord") and ARADIGM CORPORATION, a California corporation
("Tenant"), with reference to the following facts:

     D.   Landlord and Tenant are parties to a Lease dated
March 17, 1997 (the "Lease"), covering certain premises
consisting of approximately 9,660 square feet of space in
Building H of the Britannia Point Eden Business Park (the
"Center") and commonly known as 3911 Trust Way, Hayward,
California 94545 (the "Premises").

     E.   Concurrently with the execution of this Amendment,
Landlord and Tenant are negotiating over a new lease covering
portions of Building G in the Center, a new lease covering a
new building of approximately 80,000 square feet to be
constructed by Landlord or an affiliate in or adjacent to the
Center (the "Phase V Lease"), and amendments of two other
existing leases between Landlord and Tenant affecting portions
of Buildings E and H in the Center.

     F.   In connection with the negotiation and execution of
the leases and amendments described in the preceding paragraph,
Landlord and Tenant wish to make certain changes in the Lease
as more particularly set forth herein.

     G.   Terms used herein as defined terms but not
specifically defined herein shall have the meanings assigned to
such terms in the Lease.

     NOW, THEREFORE, in consideration of the mutual agreements
set forth herein and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree as follows:

     10.  Early Termination Right.  Notwithstanding the
provisions of Section 2.1 of the Lease, if Tenant relocates the
uses presently conducted by Tenant in the Premises into the new
building constructed pursuant to the Phase V Lease (following
completion of construction of such building), then Tenant shall
have the right to terminate the Lease, without penalty and
without liability for any termination payment, by delivering to
Landlord not less than six (6) months' prior written notice.
The termination payment described in the last paragraph of
Section 2.1 of the Lease (relating to payment of the
unamortized portion of certain tenant improvement costs) shall
have no application to any termination by Tenant under the
circumstances described in the preceding sentence.

     11.  Cross-Default.  Section 14.1 of the Lease is amended
by adding thereto, as an additional event of default, the
following:

          "(i) Cross-Default.  Any event of default by Tenant
     under (A) any other lease between Landlord and Tenant
     covering any other portion of the Property from time to
     time during the term of this Lease, or (B) the lease
     entered into substantially concurrently herewith by Tenant
     and Britannia Point Eden, LLC with respect to a new
     building to be constructed in Phase V of the Center, to
     the extent (under either of the foregoing clauses) such
     default continues beyond any applicable cure periods
     provided in the applicable lease, and to the extent
     Landlord therefore has (and exercises concurrently with
     any termination of this Lease) a right to terminate such
     other applicable lease; provided, however, that the
     default event set forth in this Section 14.1(i) shall not
     apply with respect to any default under a lease described
     herein to the extent Tenant has previously assigned or
     transferred all of its right, title and interest under the
     lease as to which such default then exists and, as a
     result of such transfer, the holder of the lessee's
     interest under the lease as to which such default then
     exists is not a person or entity which controls, is
     controlled by or is under common control with the person
     or entity which is then the holder of the lessee's
     interest under this Lease."
     
    12.  Brokers.  Landlord and Tenant each represents and
warrants to the other that no broker participated in the
consummation of this Amendment, and each agrees to indemnify,
defend and hold the other party harmless against any liability,
cost or expense, including, without limitation, reasonable
attorneys' fees, arising out of any claims for brokerage
commissions or other similar compensation in connection with
any conversations, prior negotiations or other dealings by the
indemnifying party with any such broker or other claimant.

     13.  Operating Expenses.  The parties acknowledge that
under Section 5.1 of the Lease, Tenant's Operating Cost Share
is presently three and fifty hundredths percent (3.50%), based
on a square footage of 9,660 square feet for the Premises and
a square footage of 275,674 square feet for all buildings
presently owned by Landlord on the Property (as a result of a
6,000 square foot expansion of one building in 1997).
     14.  Full Force and Effect.  Except as expressly set
forth herein, the Lease has not been modified or amended and
remains in full force and effect.
     IN WITNESS WHEREOF, Landlord and Tenant have executed
this Amendment as of the date first set forth above.

          "Landlord"
HAYWARD POINT EDEN I LIMITED PARTNERSHIP, a Delaware limited
partnership
By:  BRITANNIA DEVELOPMENTS, INC., a California corporation,
     General Partner
     
     
     By:  ____________________
          T. J. Bristow
          President
          "Tenant"

ARADIGM CORPORATION, a California corporation



By:  _____________________
     Richard P. Thompson
     Its President

17025\3044\0003rv1
EXHIBIT 10.20B
                    SECOND AMENDMENT TO LEASE
                                
                                
     THIS SECOND AMENDMENT TO LEASE ("Amendment") is entered
into as of January 28, 1998 between HAYWARD POINT EDEN I LIMITED
PARTNERSHIP, a Delaware limited partnership ("Landlord") and
ARADIGM CORPORATION, a California corporation ("Tenant"), with
reference to the following facts:

     H.   Landlord and Tenant are parties to a Lease dated
March 17, 1997, as amended by a First Amendment to Lease dated
as of December 22, 1997 (as amended, the "Lease"), covering
certain premises consisting of approximately 9,660 square feet
of space in Building H of the Britannia Point Eden Business Park
(the "Center") and commonly known as 3911 Trust Way, Hayward,
California 94545.

     I.   Concurrently with the execution of this Amendment,
Landlord and Tenant are entering into a new lease covering
portions of Building G in the Center (the "New Building G
Lease") and, in connection therewith, wish to amend certain
provisions of the Lease to conform to revised versions of such
provisions incorporated in the New Building G Lease.

     J.   Terms used herein as defined terms but not
specifically defined herein shall have the meanings assigned to
such terms in the Lease.

     NOW, THEREFORE, in consideration of the mutual agreements
set forth herein and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree as follows:

      15.  Operating Expenses.  Section 5.2 of the Lease is
amended to read in its entirety as follows:

          "5.2  Definition Of Operating Expenses.  Subject to
the exclusions and provisions hereinafter contained, the term
"Operating Expenses" shall mean the total costs and expenses
incurred by or allocable to Landlord for management, operation
and maintenance of the Building and the Property (and any
applicable adjacent property owned by Landlord and operated, for
common area purposes, on an integrated basis with the Property
as described above), including, without limitation, costs and
expenses of (i) insurance, property management, landscaping, and
operation, repair and maintenance of buildings and common areas;
(ii) all utilities and services; (iii) real and personal
property taxes and assessments or substitutes therefor,
including (but not limited to) any possessory interest, use,
business, license or other taxes or fees, any taxes imposed
directly on rents or services, any assessments or charges for
police or fire protection, housing, transit, open space, street
or sidewalk construction or maintenance or other similar
services from time to time by any governmental or quasi-
governmental entity, and any other new taxes on landlords in
addition to taxes now in effect (but excluding corporate income
taxes); (iv) supplies, equipment, utilities and tools used in
management, operation and maintenance of the Property; (v)
capital improvements to the Property or the Building, amortized
over the useful life of such capital improvements, (aa) which
reduce or will cause future reduction of other items of
Operating Expenses for which Tenant is otherwise required to
contribute or (bb) which are required by law, ordinance,
regulation or order of any governmental authority or (cc) which
constitute repairs or replacements of existing improvements in
the Premises or common areas of the Property with items of
similar quality and function, as a result of obsolescence or
ordinary wear and tear, in order to maintain and preserve the
quality, safety and usefulness of the Property, to the extent
such repairs or replacements are treated as capital items under
generally accepted accounting principles; and (vi) any other
costs (including, but not limited to, any parking or utilities
fees or surcharges) allocable to or paid by Landlord, as owner
of the Property or Building, pursuant to any applicable laws,
ordinances, regulations or orders of any governmental or quasi
governmental authority or pursuant to the terms of any
declarations of covenants, conditions and restrictions now or
hereafter affecting the Property (or any applicable adjacent
property owned by Landlord as described above).  Operating
Expenses shall not include any costs attributable to increasing
the size of or otherwise expanding the Building or the costs of
the work for which Landlord is required to pay under Section 2.4
or Exhibit C.  The distinction between items of ordinary
operating maintenance and repair and items of a capital nature
shall be made in accordance with generally accepted accounting
principles applied on a consistent basis. Notwithstanding
anything to the contrary contained in this Section 5.2, the
following shall not be included in Operating Expenses under this
Lease:

          (A)  Leasing commissions, attorneys' fees, costs,
     disbursements and other expenses incurred in connection
     with negotiations or disputes with tenants, or in
     connection with leasing, renovating or improving space
for tenants or other occupants or prospective tenants or
other occupants of the Building or of the land on which
the Premises are located;
     (B)  The cost of any service sold to any tenant
(including Tenant) or other occupant for which Landlord is
entitled to be reimbursed as an additional charge or
rental over and above the basic rent and escalations
payable under Landlord's lease with that tenant;
     (C)  Any depreciation on the Building;
     (D)  Costs of a capital nature, including but not
limited to capital improvements and alterations, capital
repairs, capital equipment and capital tools, as
determined in accordance with generally accepted
accounting principles consistently applied, except to the
extent expressly provided in clause (v) above;
     (E)  Expenses in connection with services or other
benefits of a type that are not offered to Tenant but that
are provided to another tenant or occupant of the Building
or land upon which the Premises are located;
     (F)  Overhead profit increments paid to Landlord's
subsidiaries or affiliates for management or other
services relating to the Building or the Property, or for
supplies or other materials, to the extent the cost of
such services, supplies or materials exceeds a reasonable
market rate for obtaining such services, supplies or
materials from unaffiliated parties;
     (G)  All interest, loan fees and other carrying costs
related to any mortgage or deed of trust or related to any
capital item, and all rental and other payments due under
any ground or underlying lease, or any lease for any
equipment ordinarily considered to be of a capital nature
(except janitorial equipment which is not affixed to the
Building);
     (H)  Any compensation paid to clerks, attendants or
other persons in commercial concessions operated by
Landlord;
      (I)  Advertising and promotional expenditures;
     (J)  Costs of repairs and other work occasioned by
fire, windstorm or other casualty of an insurable nature;
     (K)  Any costs, fines or penalties incurred due to
violations by Landlord of any governmental rule or
authority, this Lease or any other lease affecting the
Building or the land on which the Premises are located, or
due to Landlord's negligence or willful misconduct;
     (L)  Management costs, to the extent they exceed a
reasonable market rate for management services provided to
comparable projects in Hayward, California and surrounding
areas;
     (M)  Costs for sculpture, paintings or other objects
of art, including (but not limited to) any costs for
insurance thereon or extraordinary security in connection
therewith;
     (N)  Wages, salaries or other compensation paid to
      any executive employee above the grade of building
     manager;
          (O)  The cost of correcting any building code or
     other violations of applicable law which, on the
     Commencement Date, were existing violations of laws or
     codes then in effect;
          (P)  The cost of containing, removing or otherwise
     remediating any contamination of the Building or Property
     (including the underlying land and groundwater) by any
     toxic or hazardous materials (including, without
     limitation, asbestos and PCB's);
          (Q)  Any increase in real property taxes or
     assessments on the Property as a result of a change in
     ownership of the Property; provided, however, that the
     exclusion contained in this clause (Q) shall apply only in
     the determination of Operating Expenses with respect to
     periods prior to the third (3rd) anniversary of the
     Commencement Date, and shall not apply in the
     determination of Operating Expenses with respect to any
     subsequent periods during the term of this Lease; and
          (R)  Any other expense not specifically included or
     excluded above which, under generally accepted accounting
     principles and practices consistently applied, would not
     be considered a normal maintenance or operating expense."
     16.  Operating Expense Audits.  Section 5.4 of the Lease
is amended to read in its entirety as follows:
            "5.4  Final Accounting For Lease Year.
               (1)  Within ninety (90) days after the close of
each Lease Year, or as soon after such 90-day period as
practicable, Landlord shall deliver to Tenant a statement of
Tenant's Operating Cost Share of the Operating Expenses for
such Lease Year prepared by Landlord from Landlord's books and
records, which statement shall be final and binding on Landlord
and Tenant, subject to Tenant's audit right set forth below.
If on the basis of such statement Tenant owes an amount that is
more or less than the estimated payments for such calendar year
previously made by Tenant, Tenant or Landlord, as the case may
be, shall pay the deficiency to the other party within thirty
(30) days after delivery of the statement.  Failure or
inability of Landlord to deliver the annual statement within
such ninety (90) day period shall not impair or constitute a
waiver of Tenant's obligation to pay Operating Expenses, or
cause Landlord to incur any liability for damages.
          (2)  Notwithstanding any other provisions of this
Section 5.4, within one (1) year after receipt of a final
statement from Landlord setting forth actual Operating Expenses
and Tenant's Operating Cost Share for any period (a
"Statement"), Tenant shall have the right to audit or inspect
Landlord's books and records relating to Operating Expenses
(and to any other additional rent payable by Tenant under this
Lease) for the period covered by the Statement, provided that
such audit shall be conducted only during normal business
hours, on not less than ten (10) days prior written notice to
Landlord, at a location reasonably specified by Landlord, and
at Tenant's sole cost and expense, except as hereinafter
provided.  Landlord shall cooperate with Tenant in all
reasonable respects in the course of such audit, and Tenant
and its employees and agents shall be permitted to make
photocopies (at Tenant's expense) of any pertinent portions of
Landlord's books and records.  Landlord shall retain its books
and records for each Lease Year for a period of at least one
(1) year after delivery to Tenant of Landlord's Statement for
the applicable Lease Year.  To the extent that Tenant, on the
basis of such audit, disputes any item in the applicable
Statement or in the calculation of Tenant's obligations
thereunder, Tenant shall give Landlord written notice of the
disputed items, in reasonable detail and with reasonable
supporting information, within thirty (30) days after the
earlier to occur of the completion of Tenant's audit or the
expiration of Tenant's 1-year audit period.  If Landlord and
Tenant are not able to resolve such dispute by good faith
negotiations within thirty (30) days after Tenant notifies
Landlord in writing of the disputed items, then Tenant may, by
written notice to Landlord, request an independent audit of
such books and records.  The independent audit of the books and
records shall be conducted by a certified public accountant
acceptable to both Landlord and Tenant or, if the parties are
unable to agree, by a "Big Six" accounting firm designated by
Landlord and not then employed by Landlord or Tenant.  The
audit shall be limited to the determination of the amount of
Operating Expenses and of Tenant's share thereof for the Lease
Year covered by the Statement, and shall be based on generally
accepted accounting principles and tax accounting principles,
consistently applied, subject to any modifications or
limitations expressly set forth in
Section 5.2 hereof.  If it is determined, by mutual agreement
of Landlord and Tenant or by independent audit, that the amount
paid by Tenant for Operating Expenses for the period covered by
the Statement was incorrect, then the appropriate party shall
pay to the other party the deficiency or overpayment, as
applicable, within thirty (30) days after the final
determination of such deficiency or overpayment.  All costs and
expenses of the audit shall be paid by Tenant unless the audit
shows that Landlord overstated Operating Expenses for the
period covered by the Statement by more than four percent (4%),
in which event Landlord shall pay all costs and expenses of the
audit.  Each party agrees to maintain the confidentiality of
the findings of any audit in accordance with the provisions of
this Section 5.4.  The provisions of this Section 5.4 shall
survive the expiration or sooner termination of this Lease."

     17.  Liens.  Section 7.4 of the Lease is amended to read
in its entirety as follows:

          "7.4  No Liens.  Tenant shall at all times keep the
Premises free from all liens and claims of any contractors,
subcontractors, materialmen, suppliers or any other parties
employed either directly or indirectly by Tenant in
construction work on the Premises.  Tenant may contest any
claim of lien, but only if, prior to such contest, Tenant
either (i) posts security in the amount of the claim, plus
estimated costs and interest, or (ii) records a bond of a
responsible corporate surety in such amount as may be required
to release the lien from the Premises.  Tenant shall indemnify,
defend and hold Landlord harmless against any and all
liability, loss, damage, cost and other expenses, including,
without limitation, reasonable attorneys' fees, arising out of
claims of any lien for work performed or materials or supplies
furnished at the request of Tenant or persons claiming under
Tenant.  Nothing in this Section 7.4 shall be construed to
prevent Tenant from obtaining financing on Tenant's movable
furniture, equipment and trade fixtures or
from granting a security interest in such items to one or more
lenders, provided that Tenant shall not be entitled, pursuant
to this sentence or otherwise, to encumber any alterations,
additions or improvements that are the property of Landlord and
that must remain with the Premises upon termination of this
Lease, as provided in Sections 7.2 and 7.3 hereof. Without
limiting the generality of the preceding sentence, Landlord
acknowledges that it has been advised by Tenant that Tenant is
presently a party to agreements creating liens on some or all
of Tenant's existing and/or after-acquired equipment,
furniture, trade fixtures and other personal property in favor
of (a) Transamerica Business Credit and (b) Comdisco; nothing
in this sentence shall be construed, however, as a waiver or
release by Landlord with respect to the proviso set forth in
the preceding sentence regarding limitations on the property
that Tenant is entitled to encumber."
     18.  Full Force and Effect.  Except as expressly set forth
herein, the Lease has not been modified or amended and remains
in full force and effect.
     IN WITNESS WHEREOF, Landlord and Tenant have executed
this Second Amendment as of the date first set forth above.


          "Landlord"
HAYWARD POINT EDEN I LIMITED PARTNERSHIP, a Delaware limited
partnership
By:  BRITANNIA DEVELOPMENTS, INC., a California corporation,
     General Partner
     
     
     By:  ____________________
          T. J. Bristow
               President and Chief Financial Officer "Tenant"

ARADIGM CORPORATION, a California corporation





By:  _____________________
     Richard P. Thompson
     President


By:  _____________________
     Mark A. Olbert
     Chief Financial Officer



17025\3044\0022
EXHIBIT 10.21

                             LEASE

                               

                               

Landlord:  BRITANNIA POINT EDEN, LLC

Tenant:    ARADIGM CORPORATION
Date:           January 28, 1998
                         TABLE OF CONTENTS
                                 
                                 
1.  PREMISES                                                    1
     1.1. Premises                                             1
     1.2. Landlord's Reserved Rights                           1
     1.3. First Refusal Right                                  1
     1.4. Additional First Refusal Right                       2

2.  TERM                                                        3
     2.1. Term                                                 3
     2.2. Early Possession                                     3
     2.3. Delay In Possession                                  4
     2.4. Construction                                         4
     2.5. Acknowledgment Of Lease Commencement                 5
     2.6. Holding Over                                         5

3.  RENTAL                                                      6
     3.1. Minimum Rental                                       6
     3.2. Late Charge                                          7

4.  TAXES                                                       7
     4.1. Personal Property                                    7
     4.2. Real Property                                        7

5.  OPERATING EXPENSES                                          8
     5.1. Payment Of Operating Expenses                        8
     5.2. Definition Of Operating Expenses                     8
     5.3. Determination Of Operating Expenses                 10
     5.4. Final Accounting For Lease Year                     11
     5.5. Proration                                           11

6.  UTILITIES                                                  12
     6.1. Payment                                             12
     6.2. Interruption                                        12

7.  ALTERATIONS                                                12
     7.1. Right To Make Alterations                           12
     7.2. Title To Alterations                                12
     7.3. Tenant Fixtures                                     12
     7.4. No Liens                                            12

8.  MAINTENANCE AND REPAIRS                                    13
     8.1. Landlord's Work                                     13
     8.2. Tenant's Obligation For Maintenance                 13
          (a)  Good Order, Condition And Repair               13
          (b)  Landlord's Remedy                              14
          (c)  Condition Upon Surrender                       14

9.  USE OF PREMISES                                            14
     9.1. Permitted Use                                       14
     9.2. Requirement Of Continued Use                        14
     9.3. No Nuisance                                         14
     9.4. Compliance With Laws                                14
     9.5. Liquidation Sales                                   15
     9.6. Environmental Compliance                            15
     9.7. ADA/Title 24 Compliance                             17

10.  INSURANCE AND INDEMNITY                                   17
     10.1.Liability Insurance                                 17
     10.2.Quality Of Policies And Certificates                17
     10.3.Workers' Compensation                               17
     10.4.Waiver Of Subrogation                               17
     10.5.Increase In Premiums                                18
     10.6.Indemnification                                     18
     10.7.Blanket Policy                                      18

11.  SUBLEASE AND ASSIGNMENT                                   18
     11.1.Assignment And Sublease Of Premises                 18
     11.2.Rights Of Landlord                                  19

12.  RIGHT OF ENTRY AND QUIET ENJOYMENT                        19
     12.1.Right Of Entry                                      19
     12.2.Quiet Enjoyment                                     20

13.  CASUALTY AND TAKING                                       20
     13.1.Termination Or Reconstruction                       20
     13.2.Tenant's Rights                                     21
     13.3.Lease To Remain In Effect                           21
     13.4.Reservation Of Compensation                         21
     13.5.Restoration Of Fixtures                             22

14.  DEFAULT                                                   22
     14.1.Events Of Default                                   22
          (a)  Abandonment                                    22
          (b)  Nonpayment                                     22
          (c)  Other Obligations                              22
          (d)  General Assignment                             22
          (e)  Bankruptcy                                     22
          (f)  Receivership                                   23
          (g)  Attachment                                     23
          (h)  Insolvency                                     23
          (i)  Cross-Default                                  23
     14.2.Remedies Upon Tenant's Default                      23
     14.3.Remedies Cumulative                                 24

15.  SUBORDINATION, ATTORNMENT AND SALE                        24
     15.1.Subordination To Mortgage                           24
     15.2.Sale Of Landlord's Interest                         25
     15.3.Estoppel Certificates                               25
     15.4.Subordination to CC&R's                             25

16.  SECURITY                                                  26
     16.1.Deposit                                             26

17.  MISCELLANEOUS                                             27
     17.1.Notices                                             27
     17.2.Successors And Assigns                              27
     17.3.No Waiver                                           27
     17.4.Severability                                        28
     17.5.Litigation Between Parties                          28
     17.6.Surrender                                           28
     17.7.Interpretation                                      28
     17.8.Entire Agreement                                    28
     17.9.Governing Law                                       28
     17.10.                                       No Partnership 28
     17.11.                                Financial Information 28
     17.12.                                                Costs 29
     17.13.                                                 Time 29
     17.14.                                Rules And Regulations 29
     17.15.                                              Brokers 29
     17.16.                                  Memorandum Of Lease 29
     17.17.                                  Corporate Authority 29
     17.18.                               Execution and Delivery 29
     17.19.                                              Signage 30


EXHIBITS

A    Location of Premises

B    Real Property Description

C    Construction

D    Acknowledgment of Lease Commencement





                             LEASE
                               
                               
                               
                               
           THIS LEASE is made and entered into as of the _____
day  of  January, 1998, by and between BRITANNIA  POINT  EDEN,
LLC,  a California limited liability company ("Landlord")  and
ARADIGM CORPORATION, a California corporation ("Tenant").
                 THE PARTIES AGREE AS FOLLOWS:
                         1.  PREMISES
                               
      1.1.   Premises.  Landlord leases to Tenant  and  Tenant
hires  and  leases from Landlord, on the terms, covenants  and
conditions   hereinafter   set  forth,   the   premises   (the
"Premises")  designated  in  Exhibit  A  attached  hereto  and
incorporated herein by this reference, consisting  of  a  two
story  (or  mixed-level)  biotech  building  of  approximately
71,000  square  feet  (the "Building") to  be  constructed  by
Landlord in Phase V of the Britannia Point Eden Business  Park
(the  "Center")  in  the City of Hayward, County  of  Alameda,
State  of California.  The real property on which the Building
is  to  be  constructed (the "Property") is more  particularly
described in Exhibit B attached hereto and incorporated herein
by  this  reference.  Landlord also grants to Tenant, pursuant
to  this  Lease  and throughout the term of  this  Lease,  the
nonexclusive  right to use any common areas  in  the  Property
designated  from time to time in any Declaration of Covenants,
Conditions and Restrictions or similar document affecting  the
Center.

      1.2.  Landlord's Reserved Rights.  Landlord reserves the
right  from time to time to (i) install, use, maintain, repair
and  replace  pipes,  ducts, conduits, wires  and  appurtenant
meters  and  equipment  for service  to  other  parts  of  the
Building above the ceiling surfaces, below the floor surfaces,
within  the walls or leading through the Premises in locations
which will not materially interfere with Tenant's use thereof,
(ii)   relocate   any  pipes,  ducts,  conduits,   wires   and
appurtenant  meters  and equipment included  in  the  Premises
which  are  so  located  or  located  elsewhere  outside   the
Premises, (iii) make alterations or additions to the Building,
(iv)   construct,   alter  or  add  to  other   buildings   or
improvements  on  the  Property, (v) build  adjoining  to  the
Property,  and  (vi) lease any part of the  Property  for  the
construction  of  improvements  or  buildings.   Landlord  may
modify  or enlarge the common area, alter or relocate accesses
to  the  Premises,  or alter or relocate any common  facility.
Landlord shall not exercise rights reserved to it pursuant  to
this  Section  1.2  in such a manner as to  materially  impair
Tenant's  ability  to  conduct its activities  in  the  normal
manner; provided, however, that the foregoing shall not  limit
or   restrict   Landlord's  right  to   undertake   reasonable
construction  activity and Tenant's use of the Premises  shall
be  subject  to reasonable temporary disruption incidental  to
such activity diligently prosecuted.

     1.3.  First Refusal Right.

           (a)  Landlord shall not lease all or any portion of
the  Option Space designated in Exhibit A hereto (the  "Option
Space")  at any time during the term of this Lease, except  in
compliance  with  this  Section 1.3; provided,  however,  that
(i)  the  foregoing  restriction shall not  apply  during  any
period  in  which  Tenant is in uncured  default,  beyond  the
expiration  of any applicable cure period, under  this  Lease,
and  (ii) Tenant's rights under this Lease with respect to the
Option Space shall in all events be subject to and subordinate
to any and all other first refusal rights, first offer rights,
renewal  options and other similar rights existing as  of  the
date  hereof  in  favor of any other tenants  of  the  Center.
Tenant's  rights  under  this Section 1.3  are  "personal"  to
Tenant  and shall expire and terminate upon any assignment  of
Tenant's  interest under this Lease; provided,  however,  that
the  foregoing restriction shall not apply in the case of, and
the  rights created in this Section 1.3 shall remain  in  full
force  and  effect following, either (x) a Permitted  Transfer
(as  defined in Section 11.1 hereof) or (y) any assignment  as
part of a bulk transfer or assignment, to a single transferee,
of  all  of  Tenant's then existing leasehold  rights  in  the
Center or any portion thereof.
            (b)   If Landlord intends during the term of  this
Lease to lease all or any portion of the Option Space, and  if
Tenant  is  not then in uncured default, beyond any applicable
cure  period,  under this Lease, Landlord shall  give  written
notice  of  such intention to Tenant, specifying the  material
terms on which Landlord proposes to lease the Option Space  or
portion  thereof  (the "Offered Space"), and  shall  offer  to
Tenant the opportunity to lease the Offered Space on the terms
specified  in Landlord's notice.  Tenant shall have seven  (7)
days  after  the date of giving of such notice by Landlord  in
which  to  accept  such offer by written notice  to  Landlord.
Upon  such  acceptance by Tenant, the Offered Space  shall  be
leased  to Tenant on the terms set forth in Landlord's  notice
and  on  the additional terms and provisions set forth  herein
(except to the extent inconsistent with the terms set forth in
Landlord's said notice) and the parties shall promptly execute
an  amendment  to this Lease adding the Offered Space  to  the
Premises  and making any appropriate amendments to  provisions
of  this Lease to reflect different rent and other obligations
applicable  to the Offered Space under the terms of Landlord's
said  notice.   If  Tenant  does not accept  Landlord's  offer
within  the allotted time, Landlord shall thereafter have  the
right to lease the Offered Space to a third party, at any time
within one hundred eighty (180) days after Tenant's failure to
accept  Landlord's  offer, at a minimum rental  and  on  other
terms and conditions not more favorable to the lessee than the
minimum rental and other terms offered to Tenant in Landlord's
said  notice; if Landlord wishes, during such 180-day  period,
to  lease  the  Offered  Space on terms  and  conditions  more
favorable  to  the  lessee than those  offered  to  Tenant  in
Landlord's said notice, then Landlord shall first be  required
to  give  Tenant a new notice specifying such  new  terms  and
conditions and the procedure set forth above in this paragraph
(b)  shall be re-initiated by such notice.  If Tenant does not
accept  Landlord's  offer  and Landlord  does  not  lease  the
Offered  Space to a third party within the applicable  180-day
period, this first refusal right shall reattach to that space.

     1.4.  Additional First Refusal Right.
           (a)  Landlord shall not lease all or any portion of
the  Additional  Option Space designated in Exhibit  A  hereto
(the "Additional Option Space") at any time during the term of
this  Lease,  except  in  compliance with  this  Section  1.4;
provided,  however, that (i) the foregoing  restriction  shall
not  apply  during any period in which Tenant  is  in  uncured
default, beyond the expiration of any applicable cure  period,
under  this Lease, (ii) Tenant's rights under this Lease  with
respect to the Option Space shall in all events be subject  to
and  subordinate  to any and all other first  refusal  rights,
first  offer rights, renewal options and other similar  rights
existing  as of the date hereof in favor of any other  tenants
of  the  Center, and (iii) the provisions of this Section  1.4
shall  become  applicable only at such time (if  any)  as  the
property on which the Additional Option Space is located comes
under common ownership with the Property, and shall remain  in
effect  only  for so long as such common ownership  continues.
(The  parties acknowledge that substantially concurrently with
the  execution of this Lease, Tenant and Hayward Point Eden  I
Limited  Partnership, an affiliate of Landlord which  is  also
the  present  owner  of the property on which  the  Additional
Option  Space  is located, are entering into a Lease  covering
certain  premises  commonly known as  26224  Executive  Place,
Hayward,  California  (the  "Building  G  Lease");  that   the
Building  G Lease contains a first refusal right substantially
identical  to  this  Section  1.4 and  likewise  covering  the
Additional Option Space; and that the purpose of clause  (iii)
of  the  preceding sentence is to coordinate the operation  of
such  counterpart  first refusal right provisions  in  such  a
manner  that Tenant's first refusal right with respect to  the
Additional  Option Space shall exist and be exercisable  under
either  the  Building G Lease or this Lease at any  applicable
time,  during  the respective terms of and in accordance  with
the  respective provisions of such leases, but there shall  be
no  period in which such first refusal right is simultaneously
in  effect and exercisable under both leases.)  Landlord shall
also   use  reasonable  efforts  to  notify  Tenant  of  other
vacancies or anticipated vacancies arising from time  to  time
in portions of the Center that are not technically part of the
Option  Space, but Landlord shall have no obligation to  offer
or  lease any such other vacant space to Tenant (except to the
extent Landlord and Tenant, in their respective discretion and
without  obligation to do so, mutually agree  upon  terms  for
such  leasing), and Tenant shall have no first  refusal  right
with  respect to any such other vacant space.  Tenant's rights
under  this  Section 1.4 are "personal" to  Tenant  and  shall
expire  and terminate upon any assignment of Tenant's interest
under  this  Lease;  provided,  however,  that  the  foregoing
restriction  shall not apply in the case of,  and  the  rights
created  in  this Section 1.4 shall remain in full  force  and
effect  following, either (x) a Permitted Transfer (as defined
in  Section 11.1 hereof) or (y) any assignment as  part  of  a
bulk transfer or assignment, to a single transferee, of all of
Tenant's then existing leasehold rights in the Center  or  any
portion thereof.

            (b)   If Landlord intends, during the term of this
Lease  and  during  any period when this  Section  1.4  is  in
effect,  to lease all or any portion of the Additional  Option
Space,  and  if Tenant is not then in uncured default,  beyond
any  applicable cure period, under this Lease, Landlord  shall
give  written  notice of such intention to Tenant,  specifying
the  material  terms on which Landlord proposes to  lease  the
Additional  Option Space or portion thereof  (the  "Additional
Offered Space"), and shall offer to Tenant the opportunity  to
lease  the Additional Offered Space on the terms specified  in
Landlord's notice.  Tenant shall have seven (7) days after the
date  of giving of such notice by Landlord in which to  accept
such   offer  by  written  notice  to  Landlord.   Upon   such
acceptance  by Tenant, the Additional Offered Space  shall  be
leased  to Tenant on the terms set forth in Landlord's  notice
and  on  the additional terms and provisions set forth  herein
(except to the extent inconsistent with the terms set forth in
Landlord's said notice) and the parties shall promptly execute
an amendment to this Lease adding the Additional Offered Space
to  the  Premises  and  making any appropriate  amendments  to
provisions of this Lease to reflect different rent  and  other
obligations  applicable to the Additional Offered Space  under
the  terms  of  Landlord's said notice.  If  Tenant  does  not
accept  Landlord's  offer within the allotted  time,  Landlord
shall  thereafter  have  the right  to  lease  the  Additional
Offered Space to a third party, at any time within one hundred
eighty  (180) days after Tenant's failure to accept Landlord's
offer,  at  a minimum rental and on other terms and conditions
not  more favorable to the lessee than the minimum rental  and
other  terms offered to Tenant in Landlord's said  notice;  if
Landlord  wishes,  during such 180-day period,  to  lease  the
Additional   Offered  Space  on  terms  and  conditions   more
favorable  to  the  lessee than those  offered  to  Tenant  in
Landlord's said notice, then Landlord shall first be  required
to  give  Tenant a new notice specifying such  new  terms  and
conditions and the procedure set forth above in this paragraph
(b)  shall be re-initiated by such notice.  If Tenant does not
accept  Landlord's  offer  and Landlord  does  not  lease  the
Additional   Offered  Space  to  a  third  party  within   the
applicable  180-day  period, this first  refusal  right  shall
reattach to that space.
                           2.  TERM
                               
     2.1.  Term.  The term of this Lease shall commence on the
earlier to occur of (i) the date which is five (5) days  after
the   date  Landlord  notifies  Tenant  that  Landlord's  work
pursuant  to  Section 2.4 and Exhibit C on the Building  shell
and  core and on the first phase (approximately 36,000  square
feet) of interior improvements has been certified by Architect
(as  defined  in  Exhibit C) as being substantially  complete,
subject  only  to  the  completion of "punch  list"  items  as
contemplated  in  Section 2.4 hereof  which  do  not,  in  the
aggregate,  materially  interfere  with  Tenant's  ability  to
occupy  and use the first phase of such improvements  for  the
uses  contemplated  hereunder, or (ii) the date  Tenant  takes
occupancy  of  the Premises (except as otherwise  provided  in
Section  2.2)  for the purpose of commencing  the  conduct  of
Tenant's  business therein, the earlier of  such  dates  being
herein  called the "Commencement Date," and shall end  on  the
day  immediately  preceding  the  date  seventeen  (17)  years
thereafter,   unless  sooner  terminated   or   extended   (if
applicable) as hereinafter provided.
      2.2.   Early Possession.  If Landlord permits Tenant  to
occupy,  use or take possession of the Premises prior  to  the
Commencement   Date   determined  under  Section   2.1,   such
occupancy, use or possession shall be subject to and upon  all
the   terms  and  conditions  of  this  Lease,  excluding  the
obligation to pay rent and other charges, unless Landlord  and
Tenant  agree  otherwise; provided, however, that  such  early
possession   shall  not  advance  or  otherwise   affect   the
Commencement  Date  or the termination date  determined  under
Section  2.1;  provided further, that Landlord  shall  in  all
events permit Tenant to have early access to and possession of
the respective phases of the Premises, at reasonable times and
under  reasonable  conditions,  prior  to  the  completion  of
Landlord's  work therein, solely for the purpose of installing
fixtures  and equipment and other similar work preparatory  to
the commencement of business in the Premises, and Tenant shall
not  be  required to pay rent or increased rent by  reason  of
such  possession except to the extent such rent  or  increased
rent  is  otherwise required under Section 3.1 hereof  without
regard  to  Tenant's  early access to and  possession  of  the
applicable  phase for the limited purposes set forth  in  this
proviso; and provided further, that Tenant shall not interfere
with  or delay Landlord's contractors by such early possession
and shall indemnify, defend and hold harmless Landlord and its
agents  and  employees from and against any  and  all  claims,
demands,  liabilities, actions, losses,  costs  and  expenses,
including  (but  not limited to) reasonable  attorneys'  fees,
arising out of or in connection with Tenant's early entry upon
such  portion of the Premises hereunder, excluding those which
arise  out of the negligence or willful misconduct of Landlord
or its agents.

      2.3.   Delay In Possession.  Landlord agrees to use  its
best  reasonable efforts to complete promptly  and  diligently
the  work  described in Section 2.4 and Exhibit C, subject  to
the  effects of any delays caused by or attributable to Tenant
or   any  other  circumstances  beyond  Landlord's  reasonable
control   (excluding   any  financial  inability);   provided,
however, that except as set forth in the following sentence of
this Section 2.3, Landlord shall not be liable for any damages
caused by any delay in the completion of such work, nor  shall
any  such  delay  affect the validity of  this  Lease  or  the
obligations  of Tenant hereunder.  Notwithstanding  any  other
provisions of this Lease, however, if Landlord's work  on  the
Building  shell pursuant to Section 2.4 and Exhibit C  is  not
substantially  complete  by the date which  is  eighteen  (18)
months  after Landlord and Tenant have reached mutual  written
agreement  upon  the  general size and  configuration  of  the
Building  (which  subjects are still under discussion  by  the
parties  as of the date of this Lease), then Tenant  shall  be
entitled to terminate this Lease by written notice to Landlord
at any time prior to substantial completion of Landlord's work
on  the  Building  shell  under Section  2.4  and  Exhibit  C;
provided, however, that the 18-month period described in  this
sentence shall be extended, day for day, for a period of  time
equal  to  the  length  of  any actual  delay  in  substantial
completion of Landlord's Building shell work that is caused by
or  attributable to acts or omissions of Tenant or its  agents
or employees.

     2.4.  Construction.

            (a)   The obligation of Landlord to construct  the
Building  and to improve the Premises for occupancy by  Tenant
hereunder  is  set  forth in Exhibit  C  attached  hereto  and
incorporated   herein   by   this  reference.    The   parties
contemplate   that  Landlord  will  construct   the   interior
improvements  in the Premises in three phases,  delivering  to
Tenant the Building core and shell and first phase of interior
improvements  (approximately  36,000  square  feet)   on   the
Commencement  Date, the second phase of interior  improvements
(approximately  17,500  square feet) on  or  about  the  first
anniversary of the Commencement Date, and the third  phase  of
interior improvements (approximately 17,500 square feet) on or
about the second anniversary of the Commencement Date.  Except
as  set  forth  in this Section 2.4 (including  paragraph  (b)
below)   and   in   Exhibit   C,  Landlord   shall   have   no
responsibilities or obligations with respect to preparation of
the Premises for Tenant's occupancy.  Acceptance by Tenant  of
possession of the applicable phases of the Premises from  time
to  time,  after  performance of such work by Landlord,  shall
constitute  acceptance by Tenant of such phases in their  then
completed  condition, as applicable, subject to the  terms  of
this Section 2.4 (including paragraph (b) below), and Landlord
shall  have no further responsibility of any kind or character
for  improvement of such respective phases of the Premises  or
in  connection with such work; provided, however, that  within
fifteen (15) days after the date on which Landlord tenders  to
Tenant  possession  of  any  phase  of  improvements  in   the
Premises,  Tenant  may  furnish to  Landlord  a  "punch  list"
identifying any items or matters in such phase which  are  not
constructed  in  accordance with the plans and  specifications
approved  under  Exhibit C hereto and Landlord shall  promptly
and  diligently  correct all such matters within  thirty  (30)
days  after  receipt of such punch list at its sole  cost  and
expense.

            (b)   Notwithstanding the provisions of  paragraph
(a)  above, Landlord warrants to Tenant that on the  date  the
improvements  in  each respective phase of  the  Premises  are
tendered to Tenant for Tenant's possession and commencement of
business  therein, the Building systems serving such phase  of
the  Premises  shall  be  in  good operating  order,  and  the
Building  and the tenant improvements constructed by  Landlord
in  such  phase  (i)  shall be free from  material  structural
defects  and  (ii) shall comply with all applicable  covenants
and  restrictions  of  record,  statutes,  ordinances,  codes,
rules,  regulations, orders and requirements in effect on  the
date  of  such  tender, including Title 24 of  the  California
Administrative  Code and the Americans with Disabilities  Act;
provided,  however, that the foregoing warranty shall  not  be
construed  to  apply to any particular use which  Tenant  will
make  of the Premises, except to the extent such use has  been
expressly  disclosed  to  Landlord and  Architect  during  the
planning process for the applicable phase in such a manner and
in  such detail as to reasonably permit Landlord and Architect
to   take  such  use  into  consideration  in  designing   and
constructing the applicable improvements.  If it is determined
that  the foregoing warranty has been violated in any respect,
then it shall be the obligation of Landlord, after receipt  of
written notice from Tenant setting forth with specificity  the
nature of the violation, to promptly, at Landlord's sole  cost
and   expense,  correct  the  condition(s)  constituting  such
violation.  Landlord shall also protect, indemnify, defend and
hold  Tenant harmless from and against any and all  liability,
loss,  suits, claims, actions, costs and expenses  (including,
but  not limited to, reasonable attorneys' fees) arising  from
any  breach of the foregoing warranty.  The provisions of this
Section  2.4(b) shall survive the termination of  this  Lease.
With respect to the foregoing warranty regarding systems being
in good operating order, Tenant's failure to give such written
notice to Landlord within one hundred twenty (120) days  after
tender  of possession of the applicable phase to Tenant  shall
give  rise  to  a  conclusive presumption  that  Landlord  has
complied  with  such  warranty  as  to  such  phase.    Tenant
acknowledges that neither Landlord nor any agent  of  Landlord
has  made any representation or warranty as to the present  or
future suitability of the Premises for the conduct of Tenant's
business or proposed business therein, except as expressly set
forth in this Lease.
            (c)   Notwithstanding any other provisions of this
Section  2.4  or of Exhibit C to the contrary, to  the  extent
Tenant,  by  mutual  agreement  of  Landlord  and  Tenant   as
contemplated in Exhibit C, enters into contracts directly with
the  architect  and/or contractor(s) for  any  of  the  tenant
improvement  work in the Premises, Landlord's sole  obligation
with respect to such work contracted for by Tenant shall be to
make  payments with respect thereto when and as required under
Exhibit  C  and to cooperate with Tenant with respect  to  any
approvals   or  other  actions  required  of  Landlord   under
Exhibit  C in connection with such work; Landlord's warranties
under  Section  2.4(b)  and  Landlord's  obligations  to  make
improvements   and   correct   "punch   list"   items    under
Section  2.4(a)  shall  not  apply  to  any  improvement  work
designed and/or constructed under direct contract with Tenant,
it  being  the  intention of the parties  that  Tenant's  sole
recourse  with  respect  to  any  such  work  designed  and/or
constructed under direct contracts with Tenant shall be solely
against  the  applicable contracting parties and  not  against
Landlord.

             (d)    TENANT  ACKNOWLEDGES  THAT  THE  FOREGOING
WARRANTIES  ARE  IN LIEU OF ALL OTHER WARRANTIES,  EXPRESS  OR
IMPLIED,  WITH  RESPECT  TO  THE  PHYSICAL  CONDITION  OF  THE
BUILDING  AND  IMPROVEMENTS TO BE CONSTRUCTED BY LANDLORD  AND
THAT  LANDLORD MAKES NO OTHER WARRANTIES EXCEPT  AS  EXPRESSLY
SET FORTH IN THIS LEASE.

       2.5.   Acknowledgment  Of  Lease  Commencement.    Upon
commencement  of the term of this Lease, Landlord  and  Tenant
shall  execute  a  written acknowledgment of the  Commencement
Date,  date  of termination and related matters, substantially
in  the  form  attached hereto as Exhibit D (with  appropriate
insertions),  which  acknowledgment  shall  be  deemed  to  be
incorporated  herein  by this reference.  Notwithstanding  the
foregoing requirements, the failure of one or both parties  to
execute  such  written  acknowledgment shall  not  affect  the
determination  of the Commencement Date, date of  termination,
square  footage  of  the  Premises  and  related  matters   in
accordance with the provisions of this Lease.

      2.6.   Holding Over.  If Tenant holds possession of  the
Premises after the term of this Lease with Landlord's  written
consent,  then except as otherwise specified in such  consent,
Tenant  shall  become  a tenant from month  to  month  at  one
hundred percent (100%) for the first thirty (30) days of  such
holding  over,  and  one  hundred twenty-five  percent  (125%)
thereafter, of the rental in effect for the period immediately
prior to such holding over and otherwise upon the terms herein
specified  for  the period immediately prior to  such  holding
over,  and shall continue in such status until the tenancy  is
terminated by either party upon not less than thirty (30) days
prior  written  notice.   If Tenant holds  possession  of  the
Premises  after  the  term  of this Lease  without  Landlord's
written  consent,  then Landlord in its  sole  discretion  may
elect  (by written notice to Tenant) to have Tenant  become  a
tenant  either from month to month or at will, at one  hundred
fifty  percent (150%) of the rental (prorated on a daily basis
for  an at-will tenancy, if applicable) and otherwise upon the
terms  herein  specified for the period immediately  prior  to
such  holding over, or may elect to pursue any and  all  legal
remedies  available  to  Landlord under  applicable  law  with
respect  to  such unconsented holding over by Tenant.   Tenant
shall  indemnify  and hold Landlord harmless  from  any  loss,
damage,   claim,   liability,  cost  or   expense   (including
reasonable attorneys' fees) resulting from any delay by Tenant
in  surrendering  the Premises (except with  Landlord's  prior
written consent), including but not limited to any claims made
by a succeeding tenant by reason of such delay.  Acceptance of
rent  by Landlord following expiration or termination of  this
Lease shall not constitute a renewal of this Lease.


                          3.  RENTAL
                               
     3.1.  Minimum Rental.

           (a)  Tenant shall pay to Landlord as minimum rental
for  the  Premises,  in  advance, without  deduction,  offset,
notice or demand, on or before the Commencement Date and on or
before the first day of each subsequent calendar month of  the
term of this Lease, the following amounts per month:
             Months                Minimum Rental
                               
          001-012                $  43,200.00 ($1.20/sq ft) 013-
          024                       66,875.00 ($1.25/sq ft)
          024-036                   92,300.00 ($1.30/sq ft)
          037-048                   95,850.00 ($1.35/sq ft)
          049-060                   99,400.00 ($1.40/sq ft)
          061-072                  103,660.00 ($1.46/sq ft)
          073-084                  107,920.00 ($1.52/sq ft)
          085-096                  112,180.00 ($1.58/sq ft)
          097-108                  116,440.00 ($1.64/sq ft)
          109-120                  121,410.00 ($1.71/sq ft)
          121-132                  126,380.00 ($1.78/sq ft)
          133-144                  131,350.00 ($1.85/sq ft)
          145-156                  136,320.00 ($1.92/sq ft)
          157-168                  142,000.00 ($2.00/sq ft)
          169-180                  147,680.00 ($2.08/sq ft)
          181-192                  153,360.00 ($2.16/sq ft)
          193-204                  159,750.00 ($2.25/sq ft)

If the obligation to pay minimum rental hereunder commences on
other than the first day of a calendar month or if the term of
this Lease terminates on other than the last day of a calendar
month, the minimum rental for such first or last month of  the
term  of  this  Lease, as the case may be, shall  be  prorated
based  on  the  number of days the term of this  Lease  is  in
effect  during  such month.  If an increase in minimum  rental
becomes  effective  on a day other than the  first  day  of  a
calendar month, the minimum rental for that month shall be the
sum of the two applicable rates, each prorated for the portion
of the month during which such rate is in effect.

            (b)   The  minimum  rental  amounts  specified  in
Section  3.1(a) are based an estimated area of  36,000  square
feet  for  the  first  phase of interior  improvements  to  be
tendered  to Tenant on the Commencement Date, on an  estimated
area of 17,500 additional square feet for the second phase  of
interior improvements to be tendered to Tenant on or about the
first  anniversary  of  the Commencement  Date  (for  a  total
estimated  area  of 53,500 square feet), and on  an  estimated
area  of 17,500 additional square feet for the third phase  of
interior improvements to be tendered to Tenant on or about the
second  anniversary  of the Commencement  Date  (for  a  total
estimated area of 71,000 square feet upon full occupancy).  If
the  actual commencement dates for Tenant's occupancy  of  the
second and third phases of the improvements differ from  those
assumed  above or if the actual area of any of the  applicable
phases  of  the  improvements or of the Premises  as  a  whole
during  any  relevant period in the term  of  this  Lease,  as
determined  in good faith by Landlord's architect on  a  basis
consistent  with that used in measuring other leased  premises
within the Center (which basis consists of measuring from  the
exterior  faces  of  exterior  walls,  from  the  dripline  of
overhangs  and  recessed  areas, and from  the  centerline  of
interior demising walls), differs from the estimated areas set
forth  above  (due to expansion, at Tenant's request,  of  the
first  or  second phase of interior improvements, acceleration
of Tenant's occupancy of the second or third phase of interior
improvements, delay of Landlord's completion of the second  or
third  phase  of  interior  improvements,  or  for  any  other
reason), then the minimum rentals specified in Section  3.1(a)
for    the    appropriate   period(s)   shall   be    adjusted
proportionately to reflect the actual area of the Premises, as
so   determined  by  Landlord's  architect,  occupied  by   or
available  for  occupancy  by  Tenant  during  the  applicable
period.

      3.2.   Late  Charge.  If Tenant fails to  pay  when  due
rental  or  other amounts due Landlord hereunder on or  before
the  fifth (5th) day after such rental or other amount is due,
such  unpaid  amounts shall bear interest for the  benefit  of
Landlord  at  a  rate equal to the lesser of  fifteen  percent
(15%) per annum or the maximum rate permitted by law, from the
date  due  to  the  date  of payment.   In  addition  to  such
interest,  Tenant shall pay to Landlord a late  charge  in  an
amount  equal  to  ten  percent (10%) of  any  installment  of
minimum rental and any other amounts due Landlord if not  paid
in  full on or before the fifth (5th) day after such rental or
other amount is due.  Tenant acknowledges that late payment by
Tenant  to  Landlord of rental or other amounts due  hereunder
will  cause Landlord to incur costs not contemplated  by  this
Lease,   including,   without   limitation,   processing   and
accounting  charges and late charges which may be  imposed  on
Landlord  by  the terms of any loan relating to the  Property.
Tenant further acknowledges that it is extremely difficult and
impractical to fix the exact amount of such costs and that the
late  charge set forth in this Section 3.2 represents  a  fair
and  reasonable  estimate thereof.   Acceptance  of  any  late
charge  by Landlord shall not constitute a waiver of  Tenant's
default  with respect to overdue rental or other amounts,  nor
shall  such  acceptance prevent Landlord from  exercising  any
other rights and remedies available to it.  Acceptance of rent
or other payments by Landlord shall not constitute a waiver of
late charges or interest accrued with respect to such rent  or
other  payments or any prior installments thereof, nor of  any
other defaults by Tenant, whether monetary or non-monetary  in
nature,  remaining uncured at the time of such  acceptance  of
rent or other payments.


                           4.  TAXES
                               
     4.1.  Personal Property.  Tenant shall be responsible for
and  shall  pay prior to delinquency all taxes and assessments
levied  against or by reason of all alterations and  additions
and all other items installed or paid for by Tenant under this
Lease,  and  the personal property, trade fixtures  and  other
property  placed  by  Tenant in or about the  Premises.   Upon
request  by  Landlord,  Tenant  shall  furnish  Landlord  with
satisfactory  evidence of payment thereof.   If  at  any  time
during  the  term  of  this  Lease any  of  said  alterations,
additions  or  personal property, whether or not belonging  to
Tenant,  shall  be taxed or assessed as part of the  Property,
then  such  tax  or  assessment shall be  paid  by  Tenant  to
Landlord  immediately upon presentation by Landlord of  copies
of  the  tax  bills  in which such taxes and  assessments  are
included and shall, for the purposes of this Lease, be  deemed
to  be  personal  property  taxes or  assessments  under  this
Section 4.1.
      4.2.   Real Property.  To the extent that real  property
taxes  and assessments on the Premises are assessed separately
from   the   remainder  of  the  Property,  Tenant  shall   be
responsible  for and shall pay prior to delinquency  all  such
taxes  and  assessments  levied against  the  Premises.   Upon
request  by  Landlord,  Tenant  shall  furnish  Landlord  with
satisfactory evidence of payment thereof.  To the  extent  the
Premises  are taxed or assessed as part of the Property,  such
real property taxes and assessments shall constitute Operating
Expenses  (as  that  term is defined in Section  5.2  of  this
Lease) and shall be paid in accordance with the provisions  of
Article 5 of this Lease.


                    5.  OPERATING EXPENSES
                               
     5.1.  Payment Of Operating Expenses.

            (a)  Tenant shall pay to Landlord, at the time and
in  the manner hereinafter set forth, as additional rental, an
amount  equal  to fifty-one and eighty-two hundredths  percent
(51.82%)  ("Tenant's Operating Cost Share") of  the  Operating
Expenses defined in Section 5.2.
            (b)  Tenant's Operating Cost Share as specified in
paragraph (a) of this Section is based upon an estimated  area
of  71,000 square feet for the Premises and an aggregate  area
of  137,000 square feet for the buildings to be constructed by
Landlord on the Property.  The parties have explicitly  agreed
that  Tenant's  Operating  Cost  Share  from  and  after   the
Commencement Date shall be based upon the total  area  of  the
Building,  notwithstanding the fact that Tenant will  only  be
occupying a portion of the Building prior to completion of the
third  phase of interior improvements.  If the actual area  of
the  Premises (when fully completed) or of the buildings owned
by  Landlord on the Property, as determined in good  faith  by
Landlord's architect on a basis consistent with that  used  in
measuring  other  leased premises within the  Center,  differs
from  the  estimated  numbers set forth above,  then  Tenant's
Operating  Cost Share shall be adjusted to reflect the  actual
areas so determined.
           (c)  If Landlord constructs additional buildings on
the  Property (or on any adjacent property owned  by  Landlord
and operated, for common area purposes, on an integrated basis
with  the Property) from time to time, Tenant's Operating Cost
Share  shall  be  adjusted  to  be  equal  to  the  percentage
determined  by  dividing  the  gross  square  footage  of  the
Premises as they then exist by the gross square footage of all
buildings  located  on  portions  of  the  Property  owned  by
Landlord  (or  on  any applicable adjacent property  owned  by
Landlord as described above).  In determining said percentage,
a building shall be taken into account from and after the date
on  which costs and expenses attributable to such building are
first included in Operating Expenses under Section 5.2 hereof,
and  the  good faith determination of the gross square footage
of  any such building by Landlord's architects shall be  final
and   binding   upon  the  parties,  absent  manifest   error.
Notwithstanding  the foregoing provisions  of  this  paragraph
(c),  Landlord  represents  to Tenant  that  it  is  presently
Landlord's intention to account for Operating Expenses related
to  the  Property separately from operating expenses  for  the
adjacent property owned by an affiliate of Landlord (Britannia
Point  Eden  Business Park Phases I through IV, which  contain
several  premises  occupied by Tenant under separate  leases),
and to continue such separate accounting even if such adjacent
property  comes under common ownership with the Property.   If
such  intention changes in the future, however, and  operating
expenses from such adjacent property begin to be accounted for
on  a  consolidated  basis  with Operating  Expenses  for  the
Property  under  Section 5.2 hereof, then  Tenant's  Operating
Cost  Share shall be adjusted to reflect the inclusion of  the
gross  square  footage  of  the  buildings  on  such  adjacent
property, in the manner contemplated in this paragraph (c).

      5.2.  Definition Of Operating Expenses.  Subject to  the
exclusions  and  provisions hereinafter  contained,  the  term
"Operating  Expenses" shall mean the total costs and  expenses
incurred by or allocable to Landlord for management, operation
and  maintenance  of the Building and the  Property  (and  any
applicable  adjacent property owned by Landlord and  operated,
for  common  area purposes, on an integrated  basis  with  the
Property  as  described above), including, without limitation,
costs  and  expenses  of (i) insurance,  property  management,
landscaping,   and  operation,  repair  and   maintenance   of
buildings  and common areas; (ii) all utilities and  services;
(iii)  real  and  personal property taxes and  assessments  or
substitutes  therefor,  including (but  not  limited  to)  any
possessory interest, use, business, license or other taxes  or
fees,  any  taxes imposed directly on rents or  services,  any
assessments or charges for police or fire protection, housing,
transit,  open  space,  street  or  sidewalk  construction  or
maintenance or other similar services from time to time by any
governmental or quasi-governmental entity, and any  other  new
taxes  on  landlords in addition to taxes now in  effect  (but
excluding  corporate income taxes); (iv) supplies,  equipment,
utilities   and  tools  used  in  management,  operation   and
maintenance of the Property; (v) capital improvements  to  the
Property  or the Building, amortized over the useful  life  of
such  capital  improvements, (aa) which reduce or  will  cause
future  reduction  of  other items of Operating  Expenses  for
which Tenant is otherwise required to contribute or (bb) which
are  required  by law, ordinance, regulation or order  of  any
governmental  authority or (cc) which  constitute  repairs  or
replacements  of  existing improvements  in  the  Premises  or
common areas of the Property with items of similar quality and
function,  as  a result of obsolescence or ordinary  wear  and
tear,  in  order to maintain and preserve the quality,  safety
and usefulness of the Property, to the extent such repairs  or
replacements  are  treated as capital  items  under  generally
accepted  accounting  principles; and  (vi)  any  other  costs
(including, but not limited to, any parking or utilities  fees
or  surcharges) allocable to or paid by Landlord, as owner  of
the  Property  or  Building, pursuant to any applicable  laws,
ordinances, regulations or orders of any governmental or quasi
governmental  authority  or  pursuant  to  the  terms  of  any
declarations of covenants, conditions and restrictions now  or
hereafter  affecting the Property (or any applicable  adjacent
property  owned  by  Landlord as described above).   Operating
Expenses   shall   not  include  any  costs  attributable   to
increasing the size of or otherwise expanding the Building  or
the  costs of the work for which Landlord is required  to  pay
under Section 2.4 or Exhibit C.  The distinction between items
of  ordinary operating maintenance and repair and items  of  a
capital  nature  shall  be made in accordance  with  generally
accepted accounting principles applied on a consistent  basis.
Since  Tenant  will  be  the sole occupant  of  the  Building,
Landlord shall make available for review by Tenant on an "open
book"  basis  all  contracts, accounting records  and  similar
information  reasonably requested by Tenant  relating  to  the
Operating Expenses incurred with respect to the Building,  and
shall   consult  with  Tenant  regarding  any   questions   or
suggestions  or  requests by Tenant regarding the  nature  and
amount  of  such  Operating  Expenses  and  the  necessity  or
appropriateness  of  specific  components  thereof;  provided,
however, that in all events the final decision with respect to
the  nature, amount and necessity or appropriateness  of  such
Operating  Expenses and specific components thereof  shall  be
made    by   Landlord   alone,   in   its   sole   discretion.
Notwithstanding  anything to the contrary  contained  in  this
Section  5.2, the following shall not be included in Operating
Expenses under this Lease:

           (A)   Leasing commissions, attorneys' fees,  costs,
     disbursements  and other expenses incurred in  connection
     with  negotiations  or  disputes  with  tenants,  or   in
     connection  with  leasing, renovating or improving  space
     for tenants or other occupants or prospective tenants  or
     other  occupants of the Building or of the land on  which
     the Premises are located;
     
           (B)   The  cost of any service sold to  any  tenant
     (including  Tenant) or other occupant for which  Landlord
     is  entitled to be reimbursed as an additional charge  or
     rental  over  and  above the basic rent  and  escalations
     payable under Landlord's lease with that tenant;
     
            (C)  Any depreciation on the Building;
                               
           (D)   Costs of a capital nature, including but  not
     limited  to capital improvements and alterations, capital
     repairs,   capital  equipment  and  capital   tools,   as
     determined   in   accordance  with   generally   accepted
     accounting principles consistently applied, except to the
     extent expressly provided in clause (v) above;
     
           (E)   Expenses in connection with services or other
     benefits  of  a type that are not offered to  Tenant  but
     that  are provided to another tenant or occupant  of  the
     Building or land upon which the Premises are located;
     
           (F)   Overhead profit increments paid to Landlord's
     subsidiaries  or  affiliates  for  management  or   other
     services relating to the Building or the Property, or for
     supplies  or other materials, to the extent the  cost  of
     such services, supplies or materials exceeds a reasonable
     market  rate  for  obtaining such services,  supplies  or
     materials from unaffiliated parties;
     
           (G)   All  interest, loan fees and  other  carrying
     costs related to any mortgage or deed of trust or related
     to  any  capital item, and all rental and other  payments
     due  under  any ground or underlying lease, or any  lease
     for  any  equipment  ordinarily considered  to  be  of  a
     capital nature (except janitorial equipment which is  not
     affixed to the Building);
     
           (H)  Any compensation paid to clerks, attendants or
     other  persons  in  commercial  concessions  operated  by
     Landlord;
          (I)  Advertising and promotional expenditures;
           (J)  Costs of repairs and other work occasioned  by
     fire, windstorm or other casualty of an insurable nature;
           (K)  Any costs, fines or penalties incurred due  to
     violations  by  Landlord  of  any  governmental  rule  or
     authority,  this Lease or any other lease  affecting  the
     Building  or the land on which the Premises are  located,
     or due to Landlord's negligence or willful misconduct;
           (L)  Management costs, to the extent they exceed  a
     reasonable  market rate for management services  provided
     to   comparable  projects  in  Hayward,  California   and
     surrounding areas;

            (M)   Costs  for  sculpture,  paintings  or  other
     objects of art, including (but not limited to) any  costs
     for  insurance  thereon  or  extraordinary  security   in
     connection therewith;

           (N)  Wages, salaries or other compensation paid  to
     any  executive  employee  above  the  grade  of  building
     manager;
     
           (O)   The cost of correcting any building  code  or
     other   violations  of  applicable  law  which,  on   the
     Commencement Date, were existing violations  of  laws  or
     codes then in effect;
     
           (P)   The cost of containing, removing or otherwise
     remediating any contamination of the Building or Property
     (including  the underlying land and groundwater)  by  any
     toxic   or   hazardous   materials  (including,   without
     limitation, asbestos and PCB's);

            (Q)   Any  increase  in  real  property  taxes  or
     assessments  on the Property as a result of a  change  in
     ownership  of the Property; provided, however,  that  the
     exclusion  contained in this clause (Q) shall apply  only
     in  the  determination of Operating Expenses with respect
     to  periods prior to the third (3rd) anniversary  of  the
     Commencement   Date,  and  shall   not   apply   in   the
     determination of Operating Expenses with respect  to  any
     subsequent periods during the term of this Lease; and
     
           (R)  Any other expense not specifically included or
     excluded above which, under generally accepted accounting
     principles and practices consistently applied, would  not
     be considered a normal maintenance or operating expense.
     
      5.3.  Determination Of Operating Expenses.  On or before
the  Commencement  Date  and during the  last  month  of  each
calendar year of the term of this Lease ("Lease Year"), or  as
soon  thereafter as practical, Landlord shall  provide  Tenant
notice  of  Landlord's estimate of the Operating Expenses  for
the  ensuing Lease Year or applicable portion thereof.  On  or
before  the  first day of each month during the ensuing  Lease
Year   or  applicable  portion  thereof,  beginning   on   the
Commencement  Date,  Tenant shall  pay  to  Landlord  Tenant's
Operating   Cost  Share  of  the  portion  of  such  estimated
Operating  Expenses  allocable (on a prorata  basis)  to  such
month; provided, however, that if such notice is not given  in
the  last month of a Lease Year, Tenant shall continue to  pay
on  the basis of the prior year's estimate, if any, until  the
month after such notice is given.  If at any time or times  it
appears  to  Landlord that the actual Operating Expenses  will
vary  from Landlord's estimate by more than five percent (5%),
Landlord  may,  by notice to Tenant, revise its  estimate  for
such  year  and  subsequent payments by Tenant for  such  year
shall be based upon such revised estimate.
     5.4.  Final Accounting For Lease Year.
            (a)   Within ninety (90) days after the  close  of
each  Lease  Year,  or  as soon after such  90-day  period  as
practicable,  Landlord shall deliver to Tenant a statement  of
Tenant's  Operating Cost Share of the Operating  Expenses  for
such Lease Year prepared by Landlord from Landlord's books and
records,  which  statement  shall  be  final  and  binding  on
Landlord and Tenant, subject to Tenant's audit right set forth
below.   If  on  the basis of such statement  Tenant  owes  an
amount  that  is more or less than the estimated payments  for
such  calendar  year  previously made  by  Tenant,  Tenant  or
Landlord, as the case may be, shall pay the deficiency to  the
other  party  within thirty (30) days after  delivery  of  the
statement.   Failure or inability of Landlord to  deliver  the
annual statement within such ninety (90) day period shall  not
impair  or constitute a waiver of Tenant's obligation  to  pay
Operating  Expenses, or cause Landlord to incur any  liability
for damages.
            (b)   Notwithstanding any other provisions of this
Section  5.4,  within one (1) year after receipt  of  a  final
statement   from  Landlord  setting  forth  actual   Operating
Expenses  and Tenant's Operating Cost Share for any period  (a
"Statement"), Tenant shall have the right to audit or  inspect
Landlord's  books  and records relating to Operating  Expenses
(and to any other additional rent payable by Tenant under this
Lease) for the period covered by the Statement, provided  that
such  audit  shall  be conducted only during  normal  business
hours, on not less than ten (10) days prior written notice  to
Landlord, at a location reasonably specified by Landlord,  and
at  Tenant's  sole  cost  and expense, except  as  hereinafter
provided.   Landlord  shall  cooperate  with  Tenant  in   all
reasonable  respects in the course of such audit,  and  Tenant
and  its  employees  and agents shall  be  permitted  to  make
photocopies (at Tenant's expense) of any pertinent portions of
Landlord's books and records.  Landlord shall retain its books
and  records for each Lease Year for a period of at least  one
(1)  year after delivery to Tenant of Landlord's Statement for
the  applicable Lease Year.  To the extent that Tenant, on the
basis  of  such  audit, disputes any item  in  the  applicable
Statement  or  in  the  calculation  of  Tenant's  obligations
thereunder, Tenant shall give Landlord written notice  of  the
disputed  items,  in  reasonable detail  and  with  reasonable
supporting  information, within thirty  (30)  days  after  the
earlier  to occur of the completion of Tenant's audit  or  the
expiration  of Tenant's 1-year audit period.  If Landlord  and
Tenant  are  not able to resolve such dispute  by  good  faith
negotiations  within  thirty (30) days after  Tenant  notifies
Landlord in writing of the disputed items, then Tenant may, by
written  notice to Landlord, request an independent  audit  of
such  books and records.  The independent audit of  the  books
and   records  shall  be  conducted  by  a  certified   public
accountant acceptable to both Landlord and Tenant or,  if  the
parties  are  unable to agree, by a "Big Six" accounting  firm
designated  by Landlord and not then employed by  Landlord  or
Tenant.   The  audit shall be limited to the determination  of
the amount of Operating Expenses and of Tenant's share thereof
for  the  Lease Year covered by the Statement,  and  shall  be
based  on  generally  accepted accounting principles  and  tax
accounting  principles, consistently applied, subject  to  any
modifications   or   limitations  expressly   set   forth   in
Section  5.2 hereof.  If it is determined, by mutual agreement
of  Landlord  and  Tenant or by independent  audit,  that  the
amount  paid by Tenant for Operating Expenses for  the  period
covered  by  the Statement was incorrect, then the appropriate
party  shall  pay  to  the  other  party  the  deficiency   or
overpayment, as applicable, within thirty (30) days after  the
final  determination of such deficiency or  overpayment.   All
costs and expenses of the audit shall be paid by Tenant unless
the  audit  shows that Landlord overstated Operating  Expenses
for  the  period  covered by the Statement by more  than  four
percent (4%), in which event Landlord shall pay all costs  and
expenses  of  the  audit.  Each party agrees to  maintain  the
confidentiality  of  the findings of any audit  in  accordance
with  the  provisions of this Section 5.4.  The provisions  of
this  Section  5.4  shall  survive the  expiration  or  sooner
termination of this Lease.

     5.5.  Proration.  If the Commencement Date falls on a day
other  than  the first day of a Lease Year or  if  this  Lease
terminates  on a day other than the last day of a Lease  Year,
the  amount of Tenant's Operating Cost Share payable by Tenant
applicable to such first and last partial Lease Year shall  be
prorated  on  the basis which the number of days  during  such
Lease Year in which this Lease is in effect bears to 365.  The
termination of this Lease shall not affect the obligations  of
Landlord  and  Tenant pursuant to Section 5.4 to be  performed
after such termination.


                         6.  UTILITIES
                               
     6.1.  Payment.  Commencing with the Commencement Date and
thereafter  throughout the term of this  Lease,  Tenant  shall
pay,  before  delinquency, all charges for water,  gas,  heat,
light,  electricity,  power, sewer, telephone,  alarm  system,
janitorial  and  other services or utilities  supplied  to  or
consumed in or upon the Premises, including any taxes on  such
services  and utilities.  It is the intention of  the  parties
that  all  such  services shall be separately metered  to  the
Premises.  In the event that any of such services supplied  to
the  Premises  are  not separately metered,  then  the  amount
thereof  shall be an item of Operating Expenses and  shall  be
paid as provided in Article 5.

      6.2.  Interruption.  There shall be no abatement of rent
or  other  charges required to be paid hereunder and  Landlord
shall  not  be liable in damages or otherwise for interruption
or  failure of any service or utility furnished to or used  in
the   Premises  because  of  accident,  making   of   repairs,
alterations  or  improvements, severe weather,  difficulty  or
inability   in   obtaining   services   or   supplies,   labor
difficulties or any other cause, excluding the negligence  and
willful misconduct and omissions of Landlord and its agents.


                        7.  ALTERATIONS
                               
      7.1.   Right To Make Alterations.  Tenant shall make  no
alterations, additions or improvements to the Premises,  other
than  interior  non-structural alterations costing  less  than
Five  Thousand  Dollars ($5,000.00) in each instance,  without
the  prior written consent of Landlord.  All such alterations,
additions  and  improvements  shall  be  completed  with   due
diligence   in  a  first-class  workmanlike  manner   and   in
compliance  with plans and specifications approved in  writing
by  Landlord  and all applicable laws, ordinances,  rules  and
regulations.

      7.2.   Title To Alterations.  All alterations, additions
and  improvements installed pursuant to this  Lease  shall  be
part  of  the  Building and the property of  Landlord,  unless
Landlord elects to require Tenant to remove the same upon  the
termination  of  this  Lease;  provided,  however,  that   the
foregoing  shall not apply to Tenant's movable  furniture  and
trade  fixtures  not  affixed  to  the  Property.   Under   no
circumstances, however, shall Tenant be required to remove any
alterations, additions or improvements installed  by  Landlord
as  part  of Landlord's work under Section 2.4 and Exhibit  C.
Moreover,  if Tenant, in connection with requesting Landlord's
approval for any alteration, addition or improvement, requests
in writing that Landlord specify whether Landlord will require
Tenant to remove such alteration, addition or improvement upon
termination of this Lease, then Landlord shall not be entitled
to  require such removal unless Landlord states its  intention
to  do  so in writing to Tenant concurrently with or prior  to
Landlord's  approval of the requested alteration, addition  or
improvement.

     7.3.  Tenant Fixtures.  Notwithstanding the provisions of
Sections 7.1 and 7.2, Tenant may install, remove and reinstall
trade  fixtures  without  Landlord's  prior  written  consent,
except that any fixtures which are affixed to the Premises  or
which  affect  the  exterior  or structural  portions  of  the
Building  shall  require  Landlord's  written  approval.   The
foregoing  shall apply to Tenant's signs, logos and  insignia,
all  of  which Tenant shall have the right to place and remove
and replace solely with Landlord's prior written consent as to
location,  size  and  composition.  Tenant  shall  immediately
repair  any  damage  caused  by installation  and  removal  of
fixtures under this Section 7.3.

      7.4.   No  Liens.  Tenant shall at all  times  keep  the
Premises  free  from all liens and claims of any  contractors,
subcontractors,  materialmen, suppliers or any  other  parties
employed   either  directly  or  indirectly   by   Tenant   in
construction  work on the Premises.  Tenant  may  contest  any
claim  of  lien,  but only if, prior to such  contest,  Tenant
either  (i)  posts security in the amount of the  claim,  plus
estimated  costs and interest, or (ii) records  a  bond  of  a
responsible corporate surety in such amount as may be required
to   release  the  lien  from  the  Premises.   Tenant   shall
indemnify, defend and hold Landlord harmless against  any  and
all   liability,  loss,  damage,  cost  and  other   expenses,
including,  without  limitation, reasonable  attorneys'  fees,
arising  out  of  claims  of any lien for  work  performed  or
materials  or supplies furnished at the request of  Tenant  or
persons  claiming under Tenant.  Nothing in this  Section  7.4
shall  be construed to prevent Tenant from obtaining financing
on Tenant's movable furniture, equipment and trade fixtures or
from granting a security interest in such items to one or more
lenders,  provided that Tenant shall not be entitled, pursuant
to  this  sentence or otherwise, to encumber any  alterations,
additions  or improvements that are the property  of  Landlord
and  that  must  remain with the Premises upon termination  of
this  Lease,  as  provided in Sections  7.2  and  7.3  hereof.
Without  limiting  the generality of the  preceding  sentence,
Landlord acknowledges that it has been advised by Tenant  that
Tenant  is presently a party to agreements creating  liens  on
some   or  all  of  Tenant's  existing  and/or  after-acquired
equipment,  furniture,  trade  fixtures  and  other   personal
property  in  favor  of (a) Transamerica Business  Credit  and
(b)  Comdisco;  nothing in this sentence shall  be  construed,
however,  as a waiver or release by Landlord with  respect  to
the  proviso  set  forth in the preceding  sentence  regarding
limitations  on  the  property  that  Tenant  is  entitled  to
encumber.
                  8.  MAINTENANCE AND REPAIRS
     8.1.  Landlord's Work.
           (a)  Landlord shall repair and maintain or cause to
be  repaired and maintained in a prompt and expeditious manner
those  portions of the Building outside of the  Premises,  the
common  areas  of  the  Property, and  the  roof,  foundation,
exterior  walls and other structural portions of the Building.
The  cost  of  all  work  performed  by  Landlord  under  this
Section 8.1 shall be an Operating Expense hereunder, except to
the extent such work (i) is required due to the negligence  of
Landlord  or  any  other tenant of the  Building,  (ii)  is  a
service  to  a specific tenant or tenants, other than  Tenant,
for  which  Landlord has received or has the right to  receive
full  reimbursement, (iii) is a capital expense not includible
as  an Operating Expense under Section 5.2 hereof, or (iv)  is
required due to the negligence or willful misconduct of Tenant
or  its  agents, employees or invitees (in which event  Tenant
shall  bear  the  full  cost  of such  work  pursuant  to  the
indemnification  provided  in Section  10.6  hereof).   Tenant
knowingly and voluntarily waives the right to make repairs  at
Landlord's  expense,  or to offset the  cost  thereof  against
rent,  under any law, statute, regulation or ordinance now  or
hereafter in effect.
            (b)   If Landlord fails to perform, within fifteen
(15)  days  after written request from Tenant (except  in  the
case  of conditions which cannot reasonably be repaired within
fifteen  (15)  days, in which event this paragraph  (b)  shall
apply  only  to  the  extent Landlord fails  to  commence  the
applicable maintenance or repair within such 15-day period  or
thereafter  fails  to  proceed  diligently  to  complete   the
applicable maintenance or repair), any maintenance  or  repair
obligation under Section 8.1(a) which relates specifically  to
the  Premises or the common areas immediately adjacent to  the
Premises and such failure creates (or permits to exist) a risk
of  material  harm to persons or property, then  Tenant  shall
have  the  right  to perform such maintenance  or  repair  and
Landlord  shall  be  obligated to  reimburse  Tenant  for  the
reasonable  cost thereof, together with interest at  the  rate
specified in the first sentence of Section 3.2 hereof from the
date  of  payment  by Tenant to the date of  reimbursement  by
Landlord,  within fifteen (15) days after written notice  from
Tenant of the completion and cost of such work, accompanied by
copies   of   invoices   or   other   appropriate   supporting
documentation.   Under no circumstances, however,  shall  this
paragraph (b) be construed to create any contractual right  of
Tenant  to  offset the cost of any such work against  rent  or
other charges falling due from time to time under this Lease.

     8.2.  Tenant's Obligation For Maintenance.
              (a)  Good  Order,  Condition  And  Repair.    By
accepting   possession  of  the  Premises,  and   subject   to
Section 2.4, Tenant acknowledges that the Premises are in good
and  sanitary order, condition and repair.  Except as provided
in  Section  8.1 hereof, Tenant at its sole cost  and  expense
shall  keep and maintain in good and sanitary order, condition
and  repair  the  Premises and every  part  thereof,  wherever
located, including but not limited to the signs, interior, the
face  of the ceiling over Tenant's floor space, HVAC equipment
and related mechanical systems serving the Premises (for which
equipment  and  systems  Tenant shall  enter  into  a  service
contract  with  a person or entity designated or  approved  by
Landlord,  such  approval not to be unreasonably  withheld  or
delayed),  all doors, door checks, windows, plate glass,  door
fronts,   exposed  plumbing  and  sewage  and  other   utility
facilities, fixtures, lighting, wall surfaces, floor  surfaces
and  ceiling surfaces and all other interior repairs, foreseen
and unforeseen, as required.

             (b)  Landlord's Remedy.  If Tenant, after  notice
from  Landlord, fails to make or perform promptly any  repairs
or  maintenance which are the obligation of Tenant  hereunder,
Landlord  shall have the right, but shall not be required,  to
enter  the  Premises  and  make the  repairs  or  perform  the
maintenance  necessary to restore the  Premises  to  good  and
sanitary  order, condition and repair.  Immediately on  demand
from  Landlord,  the cost of such repairs  shall  be  due  and
payable by Tenant to Landlord.
             (c)  Condition Upon Surrender.  At the expiration
or  sooner  termination of this Lease, Tenant shall  surrender
the   Premises,  including  any  additions,  alterations   and
improvements thereto not removed in accordance with the  terms
of  this  Lease,  broom  clean, in good  and  sanitary  order,
condition and repair, ordinary wear and tear excepted,  first,
however, removing all goods and effects of Tenant and any  and
all fixtures and items required to be removed or specified  to
be  removed at Landlord's election pursuant to this Lease, and
repairing any damage caused by such removal.  Tenant expressly
waives any and all interest in any personal property and trade
fixtures  not  removed  from the Premises  by  Tenant  at  the
expiration or termination of this Lease, agrees that any  such
personal  property  and  trade  fixtures  may,  at  Landlord's
election,  be  deemed to have been abandoned  by  Tenant,  and
authorizes Landlord (at its election and without prejudice  to
any  other remedies under this Lease or under applicable  law)
to remove and either retain, store or dispose of such property
at  Tenant's cost and expense (provided that before  incurring
any  such  charges for Tenant's account, Landlord shall  first
give  Tenant ten (10) days prior written notice of  Landlord's
intention  to  do so, so that Tenant may have  an  opportunity
first  to correct the situation on its own behalf), and Tenant
waives  all claims against Landlord for any damages  resulting
from  any such removal, storage, retention or disposal, except
to  the  extent  (if any) that such damages  result  from  the
negligence  or willful misconduct or omission of  Landlord  or
its agents.


                      9.  USE OF PREMISES
                               
      9.1.   Permitted  Use.  Tenant shall  use  the  Premises
solely for general office, sales, adminstrative marketing  and
the  design, development, testing and manufacturing of medical
equipment  and  pharmaceutical  products,  and  for  no  other
purpose.

      9.2.  Requirement Of Continued Use.  Tenant shall not at
any  time  abandon the Premises and shall continuously  during
the  term  of  this Lease (except during any period  when  the
Premises  are  unusable  by  reason  of  events  described  in
Article  13  hereof) conduct and carry on in the Premises  the
use permitted hereunder.
     9.3.  No Nuisance.  Tenant shall not use the Premises for
or  carry  on or permit upon the Premises or any part  thereof
any   offensive,   noisy   or   dangerous   trade,   business,
manufacture,  occupation, odor or fumes, or  any  nuisance  or
anything against public policy, nor interfere with the  rights
or  business  of  any  other tenants or  of  Landlord  in  the
Building  or the Property, nor commit or allow to be committed
any  waste  in, on or about the Premises, nor make  any  other
unreasonable  use of the Premises.  Tenant  shall  not  do  or
permit anything to be done in or about the Premises, nor bring
nor  keep  anything therein, which will in any way  cause  the
Premises  to  be  uninsurable with respect  to  the  insurance
required  by this Lease or with respect to standard  fire  and
extended coverage insurance with vandalism, malicious mischief
and riot endorsements.

      9.4.   Compliance With Laws.  Tenant shall not  use  the
Premises or permit the Premises to be used in whole or in part
for  any purpose or use that is in violation of any applicable
laws,  ordinances,  regulations or rules of  any  governmental
agency  or  public authority.  Tenant shall keep the  Premises
equipped with all safety appliances required by law, ordinance
or insurance on the Premises or any order or regulation of any
public  authority because of Tenant's particular  use  of  the
Premises.   Tenant  shall  procure all  licenses  and  permits
required  for use of the Premises, excluding building  permits
and  an  initial certificate of occupancy or reasonable  local
equivalent thereof for Landlord's work under Section  2.4  and
Exhibit C, both of which it shall be Landlord's responsibility
to   procure.   Tenant  shall  use  the  Premises  in   strict
accordance  with  all applicable ordinances, rules,  laws  and
regulations  and  shall comply with all  requirements  of  all
governmental  authorities now in force or which may  hereafter
be  in  force pertaining to the use of the Premises by Tenant,
including,  without  limitation,  regulations  applicable   to
noise,  water,  soil  and  air  pollution,  and  making   such
nonstructural  alterations and additions  thereto  as  may  be
required  from  time to time by such laws, ordinances,  rules,
regulations  and requirements of governmental  authorities  or
insurers   of   the  Premises  (collectively,  "Requirements")
because  of Tenant's construction of improvements in or  other
particular use of the Premises.  Any structural alterations or
additions   required   from  time  to   time   by   applicable
Requirements  because of Tenant's construction of improvements
in   or  other  particular  use  of  the  Premises  shall,  at
Landlord's election, either (i) be made by Tenant, at Tenant's
sole  cost and expense, in accordance with the procedures  and
standards set forth in Section 7.1 for alterations by  Tenant,
or (ii) be made by Landlord at Tenant's sole cost and expense,
in  which  event  Tenant shall pay to Landlord  as  additional
rent,  within  thirty (30) days after demand by  Landlord,  an
amount  equal to all reasonable costs incurred by Landlord  in
connection with such alterations or additions.  Any structural
alterations  or  additions  required  from  time  to  time  by
applicable  Requirements  for  any  other  reason   shall   be
Landlord's  sole  obligation  and  expense,  subject  to   the
possible   characterization  of  such  expenses  as  Operating
Expenses   in   accordance  with  Section   5.2   hereof   (if
applicable).   The judgment of any court, or the admission  by
Tenant  in  any  proceeding against Tenant,  that  Tenant  has
violated  any  law,  statute, ordinance or governmental  rule,
regulation  or  requirement  shall  be  conclusive   of   such
violation as between Landlord and Tenant.
      9.5.   Liquidation Sales.  Tenant shall not  conduct  or
permit   to   be  conducted  any  auction,  bankruptcy   sale,
liquidation sale, or going out of business sale, in,  upon  or
about  the  Premises or the Property, whether said auction  or
sale  be  voluntary, involuntary or pursuant to any assignment
for the benefit of creditors, or pursuant to any bankruptcy or
other insolvency proceeding.
     9.6.  Environmental Compliance.
            (a)   Landlord warrants and represents  to  Tenant
that  the Premises, Builidng and the Property presently comply
with  all  environmental laws and Landlord will use  its  best
efforts to ensure that the Premises, Building and the Property
remain  in  compliance with all environmental laws during  the
term   and   any  extended  term  hereof,  including   without
limitation   reasonably  monitoring  the  condition   of   the
Property,  Building and Premises and the activities  of  other
tenants.  Landlord's obligations under this Section 9.6(a) are
not  intended to impose a greater burden on Landlord than that
set forth in Section 9.6(d) herein or as otherwise required by
law,  regulation or statute, nor to relieve Tenant of  any  of
its express obligations under this Section 9.6.

            (b)   Without limiting the generality of  Tenant's
obligations set forth in Section 9.4 of this Lease:

                 (i)   Tenant  shall not cause or  permit  any
hazardous or toxic substance or hazardous waste (as defined in
any  federal,  state  or  local law, ordinance  or  regulation
applicable  to such substances or wastes) to be brought  upon,
kept,  stored  or  used on or about the Property  without  the
prior written consent of Landlord, which consent shall not  be
unreasonably withheld, except that Tenant, in connection  with
its  permitted use of the Property as provided in Section 9.1,
may  keep,  store and use materials that constitute  hazardous
materials which are customary for such permitted use, provided
such  hazardous  materials  are  kept,  stored  and  used   in
quantities which are customary for such permitted use and  are
kept, stored and used in full compliance with clauses (ii) and
(iii) immediately below;

                 (ii)  Tenant shall comply with all applicable
laws,  rules,  regulations,  orders,  permits,  licenses   and
operating plans of any governmental authority with respect  to
the   receipt,   use,  handling,  generation,  transportation,
storage,  treatment, release and/or disposal of  hazardous  or
toxic  substances or wastes in the course of or in  connection
with  the  conduct of Tenant's business on the  Property,  and
shall  provide  Landlord with copies of any and  all  permits,
licenses,  registrations  and  other  similar  documents  that
authorize  Tenant to conduct any such activities in connection
with Tenant's use of the Property from time to time;

                 (iii)   Tenant  shall not (A) operate  on  or
about  the  Property any facility required to be permitted  or
licensed  as  a hazardous waste facility or for which  interim
status as such is required, nor (B) store any hazardous wastes
on or about the Property for ninety (90) days or more, nor (C)
conduct  any  other activities on or about the  Property  that
could  result in the property being deemed to be a  "hazardous
waste facility" (including, but not limited to, any storage or
treatment  of  hazardous substances or hazardous wastes  which
could have such a result); and
                 (iv)   Tenant shall provide to Landlord  from
time to time, upon written request by Landlord, (A) a list  of
all  hazardous substances and/or wastes that Tenant  receives,
uses,  handles,  generates,  transports,  stores,  treats   or
disposes  of  from  time  to  time  in  connection  with   its
operations  on  the Property, and (B) copies of  any  Material
Safety  Data  Sheets,  hazardous  waste  manifests,  Hazardous
Materials  Management Plans, Contingency Plans  and  Emergency
Procedures,  hazardous  substance reports  to  the  California
Department of Health Services, indusrial wastewater  discharge
permits,  and  any  other  lists or inventories  of  hazardous
substances and/or wastes on or about the Property that  Tenant
is  otherwise required to prepare and file from time  to  time
with  any  governmental  or  regulatory  authority;  provided,
however,  that  nothing in this clause  (iv)  is  intended  to
require Tenant to prepare specially for Landlord any lists  or
other documents that Tenant does not otherwise prepare or have
available  in  the course of Tenant's business;  and  provided
further,  however, that if Tenant reasonably  determines  that
the  volume of any such materials requested by Landlord is  so
substantial  as  to make the furnishing of such  materials  to
Landlord  unreasonably  burdensome,  Tenant  may  instead,  by
written notice to Landlord, elect simply to maintain copies of
such  materials to such extent and for such periods as may  be
required  by  applicable  law and to permit  Landlord  or  its
representatives  to  inspect and copy (at Landlord's  expense)
such  materials during normal business hours at any  time  and
from time to time upon reasonable notice to Tenant.

           (c)  Tenant shall fully indemnify and hold harmless
Landlord, its successors and assigns against (i) any  damages,
claims,   liabilities,  demands,  losses,  costs  or  expenses
(including  reasonable attorneys' fees) arising from  (A)  any
violation  of  Section 9.6(b) herein, or (B)  any  release  of
hazardous  or  toxic  substances, or any  other  violation  of
environmental law with respect to the Premises or Property, to
the  extent  any such release or other violation described  in
this  clause (B) is caused by Tenant or its employees, agents,
contractors or assigns, and (ii) any fines, penalty  payments,
reasonable attorneys' fees, sums paid in connection  with  any
judicial or administrative investigation or proceedings, costs
of  cleanup  assessed by a governmental or  quasi-governmental
agency,  and  similar expenditures, incurred by Landlord  that
relate  in  any  way  to  a  release  of  hazardous  or  toxic
substances,  or  to  any other violation of environmental  law
with  respect to the Premises or Property, to the  extent  any
such  release  or violation described in this clause  (ii)  is
caused  by  Tenant  or its agents, employees,  contractors  or
assigns.

            (d)   Landlord  shall  fully  indemnify  and  hold
harmless  Tenant, its successors and assigns against  (i)  any
damages,  claims,  liabilities,  demands,  losses,  costs   or
expenses  (including reasonable attorneys' fees) arising  from
any  violation  of  Section 9.6(a) herein,  including  without
limitation  any  condition  of the Premises,  Building  and/or
Property  existing at the Commencement Date; (ii) any damages,
claims,   liabilities,  demands,  losses,  costs  or  expenses
(including  reasonable  attorneys'  fees)  arising  from   any
release  of hazardous or toxic substances, or from  any  other
violation  of environmental law with respect to the  Property,
Building or Premises, to the extent the same is not caused  by
Tenant  or its employees, agents, contractors or assigns;  and
(iii) any fines, penalty payments, reasonable attorneys' fees,
sums  paid  in  connection with any judicial or administrative
investigation or proceedings, costs of cleanup assessed  by  a
governmental   or  quasi-governmental  agency,   and   similar
expenditures, incurred by Tenant that relate in any way  to  a
breach by Landlord of Section 9.6(a), to any condition of  the
Property,  Building or Premises existing on  the  Commencement
Date,  or  to any release of hazardous or toxic substances  or
other violation of environmental law caused by Landlord or its
employees, agents, contractors or assigns.

            (e)   The  provisions of this  Section  9.6  shall
survive the termination of this Lease.
      9.7.   ADA/Title 24 Compliance.  Landlord shall  deliver
and maintain the premises at its expense in compliance, as and
when  required  by  law, with the Americans with  Disabilities
Act,  California  Title  24  and any  and  all  other  related
governmental requirements.


                 10.  INSURANCE AND INDEMNITY
                               
     10.1. Liability Insurance.

            (a)   Tenant  shall procure and maintain  in  full
force  and effect at all times during the term of this  Lease,
at  Tenant's cost and expense, comprehensive public  liability
and property damage insurance to protect against any liability
to  the  public,  or  to any invitee of  Tenant  or  Landlord,
arising out of or related to the use of or resulting from  any
accident occurring in, upon or about the Premises, with limits
of  liability  of  not  less  than  (i)  One  Million  Dollars
($1,000,000.00)  for injury to or death of  one  person,  (ii)
Three  Million Dollars ($3,000,000.00) for personal injury  or
death, per occurrence, and (iii) Five Hundred Thousand Dollars
($500,000.00) for property damage, or a combined single  limit
of  public liability and property damage insurance of not less
than  Five  Million Dollars ($5,000,000.00).   Such  insurance
shall  name  Landlord  and its general partners  and  Managing
Agent  as additional insureds thereunder.  The amount of  such
insurance  shall  not be construed to limit any  liability  or
obligation of Tenant under this Lease.

            (b)   Landlord shall procure and maintain in  full
force  and effect at all times during the term of this  Lease,
at  Landlord's  cost  and  expense  (but  reimbursable  as  an
Operating  Expense under Section 5.2 hereof),  fire  and  "all
risk"  extended  coverage property damage  insurance  for  the
Building  and interior improvements that are the  property  of
Landlord and for the improvements in the common areas  of  the
Property,  on a full replacement cost basis, with rental  loss
insurance.  Such insurance may include earthquake and/or flood
coverage  to the extent Landlord in its discretion  elects  to
carry   such   coverage,  and  shall  have  such  commercially
reasonable  deductibles and other terms  as  Landlord  in  its
discretion determines to be appropriate.  Landlord shall  have
no  obligation  to  carry property damage  insurance  for  any
alterations,  additions,  improvements,  trade   fixtures   or
personal  property installed or maintained  by  Tenant  on  or
about the Premises.

     10.2. Quality Of Policies And Certificates.  All policies
of insurance required hereunder shall be issued by responsible
insurers  and  shall  be  written  as  primary  policies   not
contributing  with  and not in excess  of  any  coverage  that
Landlord  may carry.  Tenant shall deliver to Landlord  copies
of  policies  or certificates of insurance showing  that  said
policies  are  in  effect.   The  coverage  provided  by  such
policies  shall include the clause or endorsement referred  to
in  Section  10.4.   If Tenant fails to acquire,  maintain  or
renew any insurance required to be maintained by it under this
Article  10 or to pay the premium therefor, then Landlord,  at
its  option and in addition to its other remedies, but without
obligation so to do, may procure such insurance, and any  sums
expended  by it to procure any such insurance shall be  repaid
upon  demand, with interest as provided in Section 3.2 hereof.
Tenant  shall  obtain written undertakings from  each  insurer
under  policies required to be maintained by it to notify  all
insureds  thereunder  at  least  thirty  (30)  days  prior  to
cancellation, amendment or revision of coverage.

      10.3.  Workers' Compensation.  Tenant shall maintain  in
full  force and effect during the term of this Lease  workers'
compensation  insurance  covering all  of  Tenant's  employees
working on the Premises.

      10.4. Waiver Of Subrogation.  To the extent permitted by
law  and  without affecting the coverage provided by insurance
required to be maintained hereunder, Landlord and Tenant  each
waive  any right to recover against the other (i) damages  for
injury to or death of persons, (ii) damage to property,  (iii)
damage  to  the Premises or any part thereof, or  (iv)  claims
arising  by  reason of any of the foregoing, but only  to  the
extent  that  any  of the foregoing damages and  claims  under
subparts  (i)-(iv) hereof are covered, and only to the  extent
of  such  coverage, by casualty insurance actually carried  or
required to be carried hereunder by either Landlord or Tenant.
This provision is intended to waive fully, and for the benefit
of  each party, any rights and claims which might give rise to
a  right  of  subrogation in any casualty  insurance  carrier.
Each  party  shall  procure a clause  or  endorsement  on  any
casualty  insurance  policy required  under  this  Article  10
denying to the insurer rights of subrogation against the other
party  to  the extent rights have been waived by  the  insured
prior  to the occurrence of injury or loss.  Coverage provided
by  insurance  maintained by Tenant  or  Landlord  under  this
Article  10  shall  not be limited, reduced or  diminished  by
virtue of the subrogation waiver herein contained.

     10.5. Increase In Premiums.  Tenant shall do all acts and
pay all expenses necessary to insure that the Premises are not
used for purposes prohibited by any applicable fire insurance,
and  that  Tenant's  use  of the Premises  complies  with  all
requirements  necessary  to obtain  any  such  insurance.   If
Tenant  uses  or permits the Premises to be used in  a  manner
which  increases  the existing rate of any  insurance  on  the
Premises  carried by Landlord, Tenant shall pay the amount  of
the  increase in premium caused thereby, and Landlord's  costs
of  obtaining other replacement insurance policies,  including
any  increase  in premium, within ten (10) days  after  demand
therefor  by  Landlord, which demand shall be  accompanied  by
reasonably detailed documentation supporting such demand.

     10.6. Indemnification.

            (a)   Tenant  shall  indemnify,  defend  and  hold
Landlord,  its  partners, shareholders,  officers,  directors,
affiliates,  agents, employees and contractors, harmless  from
any and all liability for injury to or death of any person, or
loss  of  or  damage to the property of any  person,  and  all
actions,   claims,   demands,   costs   (including,    without
limitation,  reasonable attorneys' fees), damages or  expenses
of  any  kind arising therefrom which may be brought  or  made
against Landlord or which Landlord may pay or incur by  reason
of  the use, occupancy and enjoyment of the Premises by Tenant
or  any invitees, sublessees, licensees, assignees, employees,
agents  or  contractors  of Tenant  or  holding  under  Tenant
arising  during  the  term  of  this  Lease  from  any   cause
whatsoever  other  than  negligence or willful  misconduct  or
omission by Landlord, its agents or employees.  Landlord,  its
partners,   shareholders,  officers,  directors,   affiliates,
agents, employees and contractors shall not be liable for, and
Tenant  hereby  waives all claims against  such  persons  for,
damages  to  goods,  wares  and merchandise  in  or  upon  the
Premises,  or  for  injuries to Tenant, its  agents  or  third
persons  in or upon the Premises, arising during the  term  of
this Lease from any cause whatsoever other than negligence  or
willful  misconduct  or omission by Landlord,  its  agents  or
employees.  Tenant shall give prompt notice to Landlord of any
casualty or accident of a material nature in, on or about  the
Premises.

            (b)   Landlord  shall indemnify, defend  and  hold
Tenant,   its  partners,  shareholders,  officers,  directors,
affiliates,  agents, employees and contractors, harmless  from
any and all liability for injury to or death of any person  or
loss  of  or  damage to the property of any  person,  and  all
actions,   claims,   demands,   costs   (including,    without
limitation,  reasonable attorneys' fees), damages or  expenses
of  any  kind arising therefrom which may be brought  or  made
against Tenant or which Tenant may pay or incur, to the extent
such  liabilities or other matters arise by reason of (i)  any
negligence or willful misconduct or omission by Landlord,  its
agents  or employees, (ii) any breach by Landlord, its  agents
or employees of any term of this Lease and (iii) any causes of
action  or  obligations the due date of performance  of  which
arose prior to the Commencement Date.

       10.7.  Blanket  Policy.   Any  policy  required  to  be
maintained  hereunder  may  be maintained  under  a  so-called
"blanket policy" insuring other parties and other locations so
long  as  the  amount  of insurance required  to  be  provided
hereunder is not thereby diminished.


                 11.  SUBLEASE AND ASSIGNMENT
                               
      11.1. Assignment And Sublease Of Premises.  Tenant shall
not  have  the right or power to assign its interest  in  this
Lease,  or make any sublease, nor shall any interest of Tenant
under  this Lease be assignable involuntarily or by  operation
of  law,  without on each occasion obtaining the prior written
consent  of  Landlord, which consent shall not be unreasonably
withheld or delayed.  Any purported sublease or assignment  of
Tenant's  interest  in  this Lease requiring  but  not  having
received  Landlord's consent thereto shall be  void.   Without
limiting  the  generality  of  the  foregoing,  Landlord   may
withhold  consent  to  any proposed subletting  or  assignment
solely on the ground that the use by the proposed subtenant or
assignee   is  reasonably  likely  to  be  incompatible   with
Landlord's  use  of the balance of the Building  or  Property.
Notwithstanding the foregoing provisions, however, Tenant  may
assign  this  Lease  or sublet the Premises,  or  any  portion
thereof,  without  Landlord's  consent  (but  with  prior   or
substantially concurrent written notice to Landlord),  to  any
entity  which  controls, is controlled by, or is under  common
control with Tenant; to any entity which results from a merger
or consolidation with Tenant; to any entity engaged in a joint
venture   with  Tenant;  or  to  any  entity  which   acquires
substantially all of the stock or assets of Tenant, as a going
concern,  with respect to the business that is being conducted
in the Premises (hereinafter each a "Permitted Transfer").  In
addition, any sale or transfer of the capital stock of  Tenant
shall  be  deemed  a Permitted Transfer if (i)  such  sale  or
transfer occurs in connection with any bona fide financing  or
capitalization for the benefit of Tenant, or (ii) if such sale
or  transfer  occurs in connection with Tenant's status  as  a
publicly traded corporation.  Landlord shall have no right  to
terminate  this Lease in connection with, and  shall  have  no
right  to  any sums or other economic consideration  resulting
from,  any  Permitted Transfer.  In the event of  a  permitted
subleasing  of the Premises or any portion thereof by  Tenant,
Tenant  will retain all sublease profits net of its underlying
obligations  under  this Lease.  Landlord will  not  have  the
right  or  option under any circumstances, other than pursuant
to  the  default  provisions  of this  Lease  (to  the  extent
applicable),  to  recapture any space that Tenant  assigns  or
subleases during the initial Lease term.
      11.2. Rights Of Landlord.  Consent by Landlord to one or
more  assignments of this Lease, or to one or more sublettings
of  the  Premises, or collection of rent by Landlord from  any
assignee or sublessee, shall not operate to exhaust Landlord's
rights  under this Article 11, nor constitute consent  to  any
subsequent   assignment  or  subletting.   No  assignment   of
Tenant's interest in this Lease and no sublease shall  relieve
Tenant  of  its  obligations  hereunder,  notwithstanding  any
waiver  or  extension  of  time granted  by  Landlord  to  any
assignee  or sublessee, or the failure of Landlord  to  assert
its  rights  against any assignee or sublessee, and regardless
of  whether Landlord's consent thereto is given or required to
be  given  hereunder.   In  the event  of  a  default  by  any
assignee,  sublessee  or  other successor  of  Tenant  in  the
performance of any of the terms or obligations of Tenant under
this  Lease,  Landlord  may proceed  directly  against  Tenant
without the necessity of exhausting remedies against any  such
assignee,  sublessee or other successor.  In addition,  Tenant
immediately  and irrevocably assigns to Landlord, as  security
for  Tenant's obligations under this Lease, all rent from  any
subletting of all or a part of the Premises as permitted under
this  Lease,  and  Landlord,  as  Tenant's  assignee,  or  any
receiver  for Tenant appointed on Landlord's application,  may
collect  such  rent  and apply it toward Tenant's  obligations
under this Lease; except that, until the occurrence of an  act
of  default by Tenant, beyond the expiration of any applicable
grace  period,  Tenant shall have the right  to  collect  such
rent.


            12.  RIGHT OF ENTRY AND QUIET ENJOYMENT
                               
      12.1.  Right  Of  Entry.  Landlord  and  its  authorized
representatives shall have the right to enter the Premises  at
any  time during the term of this Lease during normal business
hours  and  upon  not less than twenty-four (24)  hours  prior
notice,  except  in the case of emergency (in which  event  no
notice  shall be required and entry may be made at any  time),
for the purpose of inspecting and determining the condition of
the  Premises  or  for  any  other proper  purpose  including,
without   limitation,   to  make  repairs,   replacements   or
improvements which Landlord may deem necessary,  to  show  the
Premises  to  prospective purchasers, to show the Premises  to
prospective tenants, and to post notices of nonresponsibility.
Landlord  shall  not  be liable for inconvenience,  annoyance,
disturbance, loss of business, quiet enjoyment or other damage
or  loss  to  Tenant  by  reason  of  making  any  repairs  or
performing  any  work upon the Premises unless  such  are  the
result of the negligence or willful misconduct of Landlord  or
its  agents,  and the obligations of Tenant under  this  Lease
shall  not  thereby  be  affected in  any  manner  whatsoever,
provided,  however, Landlord shall use reasonable  efforts  to
minimize   the  inconvenience  to  Tenant's  normal   business
operations caused thereby.
      12.2.  Quiet Enjoyment.  Landlord covenants that Tenant,
upon  paying the rent and performing its obligations hereunder
and  subject  to all the terms and conditions of  this  Lease,
shall peacefully and quietly have, hold and enjoy the Premises
throughout  the  term of this Lease, or until  this  Lease  is
terminated as provided by this Lease.


                   13.  CASUALTY AND TAKING
                               
      13.1. Termination Or Reconstruction.  If during the term
of  this  Lease  the Premises or Building, or any  substantial
part  of  either, (i) is damaged materially by fire  or  other
casualty  or  by  action  of  public  or  other  authority  in
consequence  thereof, (ii) is taken by eminent  domain  or  by
reason  of  any public improvement or condemnation proceeding,
or  in  any manner by exercise of the right of eminent  domain
(including  any  transfer in avoidance of an exercise  of  the
power of eminent domain), or (iii) receives irreparable damage
by  reason of anything lawfully done under color of public  or
other  authority, this Lease shall terminate as to the  entire
Premises at Landlord's or Tenant's election by written  notice
given  to  the other party within thirty (30) days  after  the
damage  or  taking has occurred; provided, however, that  with
respect to events of damage or destruction described in clause
(i)  above,  Landlord's termination right shall be exercisable
only if either (A) the time reasonably estimated by Landlord's
architect  or  contractor to be required  for  the  repair  or
restoration of the Building to the extent necessary to  permit
Tenant  to  resume  substantially all of its  normal  business
activities therein exceeds six (6) months from the date of the
damage  or  destruction in the case of damage  or  destruction
occurring prior to the last year of the term of this Lease, or
exceeds  sixty  (60)  days from the  date  of  the  damage  or
destruction  in  the  case of damage or destruction  occurring
during  the  last year of the term of this Lease, or  (B)  the
reasonably  estimated cost of such repair  or  restoration  is
more  than  one  hundred five percent (105%) of the  insurance
proceeds  reasonably available for such repair or  restoration
under  the  insurance  required to be maintained  by  Landlord
pursuant to Section 10.1(b) hereof (including, in the case  of
any  failure by Landlord to maintain such required  insurance,
any  proceeds  that would have been reasonably  available  for
such  repair  or  restoration if Landlord had maintained  such
required  insurance) and Landlord, in its reasonable and  good
faith  judgment,  determines that it is not  economically  and
commercially reasonable to use such proceeds for the repair or
restoration  of  the  Premises; provided  further,  that  with
respect to events of damage or destruction described in clause
(i)  above,  Tenant's termination right shall  be  exercisable
only if either (I) the time reasonably estimated by Landlord's
architect  or  contractor to be required  for  the  repair  or
restoration of the Building to the extent necessary to  permit
Tenant  to  resume  substantially all of its  normal  business
activities therein exceeds six (6) months from the date of the
damage  or  destruction in the case of damage  or  destruction
occurring prior to the last year of the term of this Lease, or
exceeds  sixty  (60)  days from the  date  of  the  damage  or
destruction  in  the  case of damage or destruction  occurring
during   the  last  year  of  the  term  of  this  Lease,   or
(II)  Landlord fails to complete the repair or restoration  of
the  Building  to  the extent necessary to  permit  Tenant  to
resume  substantially  all of its normal  business  activities
therein within six (6) months after the date of the damage  or
destruction  in  the  case of damage or destruction  occurring
prior  to  the last year of the term of this Lease  or  within
sixty (60) days from the date of the damage or destruction  in
the  case  of damage or destruction occurring during the  last
year  of  the term of this Lease (provided, however,  that  so
long  as Landlord is proceeding diligently and with reasonable
good  faith efforts, such periods shall be extended,  day  for
day, by a number of days equal to the number of days of actual
delay  in  Landlord's completion of such repair or restoration
that are caused by weather, acts of God, strikes, shortage  of
labor  or  materials or other circumstances beyond  Landlord's
reasonable control (excluding financial inability),  including
(but not limited to) acts or omissions of Tenant or its agents
or  employees), or (III) Landlord advises Tenant that Landlord
intends  to  perform  only a Partial Restoration  (as  defined
below)  and  Tenant determines reasonably and in  good  faith,
within  thirty (30) days after Tenant is advised of the nature
and  scope  of  the  proposed Partial  Restoration,  that  the
Premises   available   to   Tenant  following   such   Partial
Restoration will not be sufficient to permit Tenant to  resume
normal  business  operations in  the  Premises  for  the  uses
permitted  hereunder; and provided further, that with  respect
to  takings or damage described in clause (ii) or (iii) above,
Landlord's and Tenant's respective termination rights shall be
exercisable   only  if  Landlord  or  Tenant,  as  applicable,
determines  reasonably and in good faith that the  extent  and
nature  of  such  taking  or damage is  to  substantially  and
permanently impair Tenant's ability to conduct normal business
operations  in  the  balance  of the  Premises  for  the  uses
permitted hereunder.  If neither Landlord nor Tenant elects to
terminate  this Lease as hereinabove provided, Landlord  shall
repair any such damage and restore the Premises (to the extent
of  Landlord's work therein under Section 2.4 and  Exhibit  C)
and  the  Building  as nearly as reasonably  possible  to  the
condition  existing  before  the damage  or  taking,  with  an
equitable  abatement  of Tenant's rent and  Operating  Expense
obligations  pending completion of such repair or  restoration
as contemplated in Section 13.3 below; provided, however, that
in  the  case of any damage or destruction described in clause
(i) above, if the reasonably estimated cost of such repair  or
restoration  is more than one hundred five percent  (105%)  of
the  insurance proceeds (if any) reasonably available for such
repair  or  restoration  under the insurance  required  to  be
maintained  by  Landlord  pursuant to Section  10.1(b)  hereof
(including, in the case of any failure by Landlord to maintain
such  required  insurance, any proceeds that would  have  been
reasonably  available  for  such  repair  or  restoration   if
Landlord had maintained such required insurance), Landlord may
elect to perform such repair or restoration (to the extent  of
Landlord's work under Section 2.4 and Exhibit C) only  to  the
extent  of  such  insurance proceeds that are (or  would  have
been)   available  (a  "Partial  Restoration");  and  provided
further,  that  upon  completion of such Partial  Restoration,
Tenant's   minimum   monthly  rental  and  Operating   Expense
obligations shall be permanently adjusted, for the balance  of
the  remaining  term  of this Lease, in a fair  and  equitable
manner   reflecting   any  decrease   in   the   size   and/or
functionality of the partially restored Premises for the  uses
contemplated  hereunder.  In the event of any  termination  of
this Lease by Tenant or Landlord pursuant to this Section 13.1
or  Section  13.2,  Landlord agrees that  to  the  extent  any
portion  of  the Premises can still be lawfully  occupied  and
used by Tenant, Tenant shall have the right, at its option, to
remain in and continue to use such portion of the Premises  on
a  month-to-month holdover basis, terminable  by  Landlord  or
Tenant at any time on thirty (30) days' written notice (except
that  no such termination by Landlord may be effective  sooner
than  six (6) months after the date of the damage, destruction
or  taking  pursuant  to  which such termination  arose),  and
Tenant's   minimum   monthly  rental  and  Operating   Expense
obligations  shall  be  adjusted, for  the  duration  of  such
holdover  occupancy, in a fair and equitable manner reflecting
any decrease in the size and/or functionality of the remaining
Premises  for the uses contemplated hereunder.  The provisions
of  the  preceding  sentence shall supersede any  inconsistent
provisions in Section 2.6 of this Lease.
     13.2. Tenant's Rights.  If any portion of the Premises is
so  taken by condemnation, Tenant may elect to terminate  this
Lease  if the portion of the Premises taken is of such  extent
and nature as substantially to handicap, impede or permanently
impair  Tenant's  use of the balance of the Premises.   Tenant
must  exercise  its  right to terminate by  giving  notice  to
Landlord  within thirty (30) days after the nature and  extent
of  the taking have been finally determined.  If Tenant elects
to  terminate this Lease, Tenant shall also notify Landlord of
the  date of termination, which date shall not be earlier than
thirty  (30) days nor later than ninety (90) days after Tenant
has  notified  Landlord of its election to  terminate,  except
that  this Lease shall terminate on the date of taking if  the
date  of  taking  falls  on  any  date  before  the  date   of
termination designated by Tenant.

     13.3. Lease To Remain In Effect.  If neither Landlord nor
Tenant  terminates  this Lease as hereinabove  provided,  this
Lease  shall  continue in full force and effect,  except  that
minimum   monthly   rental  and  Tenant's  Operating   Expense
obligations  shall  abate to the extent Tenant's  use  of  the
Premises  is impaired for any period that any portion  of  the
Premises is unusable or inaccessible because of a casualty  or
taking   hereinabove  described.   Each   party   waives   the
provisions  of  Code  of  Civil  Procedure  Section  1265.130,
allowing  either  party  to petition  the  Superior  Court  to
terminate this Lease in the event of a partial condemnation of
the Premises.

      13.4.  Reservation Of Compensation.  Landlord  reserves,
and  Tenant waives and assigns to Landlord, all rights to  any
award  or  compensation for damage to the Premises,  Building,
Property and the leasehold estate created hereby, accruing  by
reason  of  any taking in any public improvement, condemnation
or  eminent  domain  proceeding or  in  any  other  manner  by
exercise  of  the  right  of eminent  domain  or  of  anything
lawfully done by public authority, except that Tenant shall be
entitled to any and all compensation or damages paid for or on
account   of   Tenant's  moving  expenses,   trade   fixtures,
equipment, personal property and any leasehold improvements in
the  Premises, the cost of which was borne by Tenant, but only
to  the extent of the then remaining unamortized value of such
improvements computed on a straight-line basis over  the  term
of  this  Lease.   Tenant covenants to  deliver  such  further
assignments of the foregoing as Landlord may from time to time
reasonably request.

      13.5.  Restoration Of Fixtures.  If Landlord repairs  or
causes  repair  of the Premises after such damage  or  taking,
Tenant  at its sole expense shall repair and replace  promptly
all  fixtures, equipment and other property of Tenant  located
at, in or upon the Premises and all additions, alterations and
improvements  and all other items installed  or  paid  for  by
Tenant under this Lease that were damaged or taken, so  as  to
restore the same to a condition reasonably consistent with the
conduct  of  the  permitted uses contemplated in  Section  9.1
hereof.  Tenant shall have the right to make modifications  to
the  Premises, fixtures and improvements, subject to the prior
written  approval  of Landlord, which approval  shall  not  be
unreasonably withheld or delayed.  In its review  of  Tenant's
plans and specifications, Landlord may take into consideration
the  effect  of  the proposed modifications  on  the  exterior
appearance,  the structural integrity and the  mechanical  and
other operating systems of the Building.


                         14.  DEFAULT
                               
      14.1.  Events Of Default.  The occurrence of any of  the
following shall constitute an event of default on the part  of
Tenant:

             (a)  Abandonment.  Abandonment of  the  Premises.
Tenant  waives  any  right Tenant may  have  to  notice  under
Section 1951.3 of the California Civil Code, the terms of this
subsection (a) being deemed such notice to Tenant as  required
by said Section 1951.3;
             (b)  Nonpayment.  Failure to pay, when  due,  any
amount  payable to Landlord hereunder, such failure continuing
for  a  period of five (5) days after written notice  of  such
failure; provided, however, that any such notice shall  be  in
lieu  of,  and  not in addition to, any notice required  under
California  Code of Civil Procedure Section 1161 et  seq.,  as
amended from time to time;
             (c)  Other  Obligations.  Failure to perform  any
obligation, agreement or covenant under this Lease other  than
those matters specified in subsection (b) hereof, such failure
continuing for fifteen (15) days after written notice of  such
failure, or, if it is not possible to cure such default within
fifteen  (15)  days,  failure to  commence  cure  within  said
fifteen  (15) day period and thereafter to proceed  diligently
to  complete  cure; provided, however, that  any  such  notice
shall  be  in  lieu  of, and not in addition  to,  any  notice
required under California Code of Civil Procedure Section 1161
et seq., as amended from time to time;
             (d) General Assignment.  A general assignment  by
Tenant for the benefit of creditors;
             (e)  Bankruptcy.   The filing  of  any  voluntary
petition  in  bankruptcy  by  Tenant,  or  the  filing  of  an
involuntary  petition by Tenant's creditors, which involuntary
petition  remains  undischarged for a period  of  thirty  (30)
days.   In the event that under applicable law the trustee  in
bankruptcy  or Tenant has the right to affirm this  Lease  and
continue to perform the obligations of Tenant hereunder,  such
trustee  or  Tenant  shall, in such  time  period  as  may  be
permitted  by  the bankruptcy court having jurisdiction,  cure
all defaults of Tenant hereunder outstanding as of the date of
the  affirmance  of this Lease and provide  to  Landlord  such
adequate  assurances as may be reasonably necessary to  ensure
Landlord  of the continued performance of Tenant's obligations
under  this  Lease.   Specifically, but without  limiting  the
generality  of  the foregoing, such adequate  assurances  must
include  assurances that the Premises continue to be  operated
only  for the use permitted hereunder.  The provisions  hereof
are  to  assure that the basic understandings between Landlord
and  Tenant  with respect to Tenant's use of the Premises  and
the  benefits to Landlord therefrom are preserved,  consistent
with the purpose and intent of applicable bankruptcy laws;
             (f)  Receivership.  The employment of a  receiver
appointed  by  court order to take possession of substantially
all  of  Tenant's assets or the Premises, if such receivership
remains undissolved for a period of thirty (30) days;
             (g)  Attachment.   The attachment,  execution  or
other judicial seizure of all or substantially all of Tenant's
assets  or  the Premises, if such attachment or other  seizure
remains  undismissed or undischarged for a  period  of  thirty
(30) days after the levy thereof;
             (h)  Insolvency.   The  admission  by  Tenant  in
writing of its inability to pay its debts as they become  due,
the  filing by Tenant of a petition seeking any reorganization
or   arrangement,   composition,  readjustment,   liquidation,
dissolution  or  similar relief under any  present  or  future
statute, law or regulation, the filing by Tenant of an  answer
admitting  or failing timely to contest a material  allegation
of  a petition filed against Tenant in any such proceeding or,
if  within  thirty  (30) days after the  commencement  of  any
proceeding  against  Tenant  seeking  any  reorganization   or
arrangement,     composition,    readjustment,    liquidation,
dissolution  or  similar relief under any  present  or  future
statute,  law  or regulation, such proceeding shall  not  have
been dismissed; or

            (i) Cross-Default.  Any event of default by Tenant
under (A) any other lease between Landlord and Tenant covering
any other portion of the Property from time to time during the
term  of  this Lease, or (B) any lease in effect from time  to
time   between  Tenant  and  Hayward  Point  Eden  I   Limited
Partnership or any other affiliate of Landlord with respect to
any  other building in the Britannia Point Eden Business Park,
to  the  extent  (under either of the foregoing clauses)  such
default  continues beyond any applicable cure periods provided
in  the  applicable  lease, and to the extent  the  applicable
landlord  therefore has (and exercises concurrently  with  any
termination  of  this Lease) a right to terminate  such  other
applicable  lease; provided, however, that the  default  event
set forth in this Section 14.1(i) shall not apply with respect
to  any  default under a lease described herein to the  extent
Tenant  has  previously  assigned or transferred  all  of  its
right,  title  and interest under the lease as to  which  such
default  then  exists and, as a result of such  transfer,  the
holder  of the lessee's interest under the lease as  to  which
such  default  then  exists is not a person  or  entity  which
controls, is controlled by or is under common control with the
person  or  entity which is then the holder  of  the  lessee's
interest under this Lease.

     14.2. Remedies Upon Tenant's Default.

            (a)   Upon the occurrence of any event of  default
described in Section 14.1 hereof, Landlord, in addition to and
without prejudice to any other rights or remedies it may have,
shall have the immediate right to re-enter the Premises or any
part  thereof  and repossess the same, expelling and  removing
therefrom  all  persons and property (which  property  may  be
stored in a public warehouse or elsewhere at the cost and risk
of  and for the account of Tenant), using such force as may be
lawful  and reasonably necessary to do so (as to which  Tenant
hereby  waives any claim for loss or damage that  may  thereby
occur,  except  for any such loss or damage arising  from  the
negligence  or willful misconduct or omission of  Landlord  or
its  agents).  In addition to or in lieu of such re-entry, and
without prejudice to any other rights or remedies it may have,
Landlord  shall  have the right either (i) to  terminate  this
Lease and recover from Tenant all damages incurred by Landlord
as  a result of Tenant's default, as hereinafter provided,  or
(ii)  to  continue this Lease in effect and recover  rent  and
other charges and amounts as they become due.
            (b)   Even  if Tenant has breached this  Lease  or
abandoned  the Premises, this Lease shall continue  in  effect
for  so long as Landlord does not terminate Tenant's right  to
possession  under  subsection  (a)  hereof  and  Landlord  may
enforce  all  of  its rights and remedies  under  this  Lease,
including  the  right to recover rent as it becomes  due,  and
Landlord, without terminating this Lease, may exercise all  of
the  rights  and  remedies of a lessor under California  Civil
Code Section 1951.4 (lessor may continue lease in effect after
lessee's breach and abandonment and recover rent as it becomes
due, if lessee has right to sublet or assign, subject only  to
reasonable limitations), or any successor Code section.   Acts
of  maintenance, preservation or efforts to relet the Premises
or  the appointment of a receiver upon application of Landlord
to  protect  Landlord's interests under this Lease  shall  not
constitute a termination of Tenant's right to possession.
            (c)  If Landlord terminates this Lease pursuant to
this  Section 14.2, Landlord shall have all of the rights  and
remedies of a landlord provided by Section 1951.2 of the Civil
Code  of  the  State  of  California, or  any  successor  Code
section,  which remedies include Landlord's right  to  recover
from  Tenant (i) the worth at the time of award of the  unpaid
rent and additional rent which had been earned at the time  of
termination, (ii) the worth at the time of award of the amount
by  which the unpaid rent and additional rent which would have
been  earned after termination until the time of award exceeds
the  amount of such rental loss that Tenant proves could  have
been  reasonably avoided, (iii) the worth at the time of award
of the amount by which the unpaid rent and additional rent for
the  balance  of the term after the time of award exceeds  the
amount  of  such  rental  loss that  Tenant  proves  could  be
reasonably  avoided,  and (iv) any other amount  necessary  to
compensate  Landlord for all the detriment proximately  caused
by  Tenant's  failure  to perform its obligations  under  this
Lease  or  which  in the ordinary course of  things  would  be
likely to result therefrom, including, but not limited to, the
cost  of  recovering possession of the Premises,  expenses  of
reletting,   including   necessary  repair,   renovation   and
alteration of the Premises (provided that the cost of any such
renovation  or  alteration shall be recoverable  only  to  the
extent reasonably necessary to make the Premises suitable  for
use  and  occupancy by the new tenant and shall  be  allocated
reasonably between the unexpired portion of the term  of  this
Lease  at the date of termination thereof and the balance,  if
any, of the term of such new tenant's lease falling after  the
scheduled  expiration  date  of  the  term  of  this   Lease),
reasonable  attorneys' fees, and other reasonable costs.   The
"worth  at  the time of award" of the amounts referred  to  in
clauses  (i)  and  (ii)  above shall be computed  by  allowing
interest  at  ten percent (10%) per annum from the  date  such
amounts accrued to Landlord.  The "worth at the time of award"
of  the  amounts  referred to in clause (iii) above  shall  be
computed  by  discounting such amount at one percentage  point
above  the  discount rate of the Federal Reserve Bank  of  San
Francisco at the time of award.
      14.3.  Remedies Cumulative.  All rights, privileges  and
elections or remedies of Landlord contained in this Article 14
are cumulative and not alternative to the extent permitted  by
law and except as otherwise provided herein.


            15.  SUBORDINATION, ATTORNMENT AND SALE
                               
     15.1. Subordination To Mortgage.

            (a)  This Lease, and any sublease entered into  by
Tenant  under the provisions of this Lease, shall  be  subject
and  subordinate to any ground lease, mortgage, deed of trust,
sale/leaseback  transaction  or any  other  hypothecation  for
security  now  or  hereafter placed  upon  the  Building,  the
Property, or both, and the rights of any assignee of  Landlord
or  of  any ground lessor, mortgagee, trustee, beneficiary  or
leaseback  lessor under any of the foregoing, and to  any  and
all advances made on the security thereof and to all renewals,
modifications,  consolidations,  replacements  and  extensions
thereof.   If  any  mortgagee,  trustee,  beneficiary,  ground
lessor, sale/leaseback lessor or assignee elects to have  this
Lease be an encumbrance upon the Property prior to the lien of
its  mortgage, deed of trust, ground lease or leaseback  lease
or  other  security  arrangement and gives notice  thereof  to
Tenant, this Lease shall be deemed prior thereto, whether this
Lease is dated prior or subsequent to the date thereof or  the
date  of recording thereof.  Tenant, and any sublessee,  shall
execute such documents as may reasonably be requested  by  any
mortgagee, trustee, beneficiary, ground lessor, sale/leaseback
lessor  or  assignee to evidence the subordination herein  set
forth or to make this Lease prior to the lien of any mortgage,
deed of trust, ground lease, leaseback lease or other security
arrangement, as the case may be.  Upon any default by Landlord
in the performance of its obligations under any mortgage, deed
of  trust, ground lease, leaseback lease or assignment, Tenant
(and  any  sublessee) shall attorn to the mortgagee,  trustee,
beneficiary,  ground  lessor,  leaseback  lessor  or  assignee
thereunder  upon  demand  and shall execute  and  deliver  any
instrument  or  instruments confirming the  attornment  herein
provided  for.  Landlord shall obtain and deliver  to  Tenant,
within  thirty (30) days after mutual execution of this Lease,
a   written   nondisturbance  agreement  from   Slough   Parks
Incorporated (the beneficiary under the existing deed of trust
on  the  Property), in form reasonably satisfactory to Tenant,
providing  that  Tenant's  right to quiet  possession  of  the
Premises  shall not be disturbed so long as Tenant is  not  in
default  beyond the expiration of any applicable  cure  period
and  performs all of its obligations under this Lease,  unless
this  Lease is otherwise terminated pursuant to its terms;  if
Landlord fails to deliver such agreement to Tenant within  the
required  time, Tenant shall have the right to terminate  this
Lease  by  written  notice to Landlord at any  time  prior  to
Landlord's  subsequent  delivery  (if  any)  of  an   executed
agreement meeting such requirements.

            (b)   Landlord specifically agrees that (i) Tenant
may  conclusively rely upon any written notice Tenant receives
from  any  mortgagee,  trustee,  beneficiary,  ground  lessor,
sale/leaseback    lessor    or    assignee    ("Beneficiary"),
notwithstanding any claim by Landlord contesting the  validity
of  any  term or condition of such notice, including, but  not
limited  to,  any default by such Beneficiary or  any  default
claimed   by   Landlord  to  have  been  committed   by   such
Beneficiary, and (ii) Landlord shall not make any claim of any
kind  against  Tenant  or  Tenant's  leasehold  interest  with
respect  to amounts paid to any such Beneficiary by Tenant  or
any  acts performed by Tenant pursuant to such written  notice
from any Beneficiary.

            (c)   Notwithstanding  anything  to  the  contrary
contained  in  this  Lease, Tenant shall not  be  required  to
subordinate  its  interest under this Lease  unless  (i)  such
subordination   does   not   materially   increase    Tenant's
obligations  or  materially decrease  its  rights  under  this
Lease,  and  (ii) Landlord first obtains from the  Beneficiary
requesting   such  subordination  a  written  agreement   that
provides  that  Tenant's  right to  quiet  possession  of  the
Premises  shall not be disturbed so long as Tenant is  not  in
default  beyond the expiration of any applicable  cure  period
and  performs all of its obligations under this Lease,  unless
this Lease is otherwise terminated pursuant to its terms.

      15.2.  Sale Of Landlord's Interest.  Upon sale, transfer
or  assignment of Landlord's entire interest in  the  Building
and  Property,  Landlord shall be relieved of its  obligations
hereunder with respect to liabilities accruing from and  after
the date of such sale, transfer or assignment.

      15.3.  Estoppel Certificates.  Tenant shall at any  time
and  from  time  to time, within ten (10) days  after  written
request  by  Landlord,  execute, acknowledge  and  deliver  to
Landlord a certificate in writing stating: (i) that this Lease
is  unmodified and in full force and effect, or if there  have
been  any modifications, that this Lease is in full force  and
effect as modified and stating the date and the nature of each
modification; (ii) the date to which rental and all other sums
payable  hereunder  have  been paid; (iii)  that  to  Tenant's
actual knowledge Landlord is not in default in the performance
of  any  of its obligations under this Lease, that Tenant  has
given  no  notice of default to Landlord and that to  Tenant's
actual  knowledge, no event has occurred which,  but  for  the
expiration of the applicable time period, would constitute  an
event of default hereunder; and (iv) such other matters as may
reasonably  be  requested  by Landlord  or  any  institutional
lender,   mortgagee,  trustee,  beneficiary,  ground   lessor,
sale/leaseback   lessor  or  prospective  purchaser   of   the
Property.    Any   such   certificate  provided   under   this
Section  15.3  may  be relied upon by any  lender,  mortgagee,
trustee,  beneficiary, assignee or successor  in  interest  to
Landlord,  by  any prospective purchaser, by any purchaser  on
foreclosure or sale, or by any grantee under a deed in lieu of
foreclosure  of any mortgage or deed of trust on the  Property
or  Premises.   Failure  to  execute  and  return  within  the
required  time  any  estoppel certificate requested  hereunder
shall be deemed to be an admission of the truth of the matters
set  forth in the form of certificate submitted to Tenant  for
execution.

      15.4.  Subordination to CC&R's.   This  Lease,  and  any
permitted sublease entered into by Tenant under the provisions
of  this  Lease, shall be subject and subordinate (a)  to  any
declarations   of   covenants,  conditions  and   restrictions
recorded by Landlord with respect to the Property from time to
time,  provided  that  the  terms  of  such  declarations  are
reasonable and do not discriminate against Tenant relative  to
other  tenants occupying portions of the Property, and (b)  to
the  Declaration  of  Covenants, Conditions  and  Restrictions
dated June 20, 1979 and recorded on July 5, 1979 as Instrument
No. 79-130777, Alameda County Records, as amended from time to
time  (the  "Master  Declaration"), the  provisions  of  which
Master Declaration are an integral part of this Lease.  Tenant
agrees  to  execute, upon request by Landlord,  any  documents
reasonably  required  from  time  to  time  to  evidence   the
subordination provided in this Section 15.4.


                         16.  SECURITY
                               
     16.1. Deposit.
            (a)   Concurrently with Tenant's execution of this
Lease,  Tenant shall deposit with Landlord the sum of  Ninety
Two  Thousand  Three Hundred and No/100 Dollars  ($92,300.00),
which  sum (the "Security Deposit") shall be held by  Landlord
as  security for the faithful performance of all of the terms,
covenants,  and  conditions  of this  Lease  to  be  kept  and
performed  by  Tenant  during  the  term  hereof.   If  Tenant
defaults,  beyond  the  expiration  of  any  applicable  grace
period,   with  respect  to  any  provision  of  this   Lease,
including, without limitation, the provisions relating to  the
payment of rental and other sums due hereunder, Landlord shall
have  the  right, but shall not be required, to use, apply  or
retain all or any part of the Security Deposit for the payment
of  rental  or  any other amount which Landlord may  spend  or
become obligated to spend by reason of Tenant's default or  to
compensate  Landlord  for  any  other  loss  or  damage  which
Landlord  may  suffer by reason of Tenant's default.   If  any
portion of the Security Deposit is so used or applied,  Tenant
shall,  within thirty (30) days after written demand therefor,
deposit  cash with Landlord in an amount sufficient to restore
the  Security  Deposit  to its original  amount  and  Tenant's
failure  to  do so shall be a material breach of  this  Lease.
Landlord shall not be required to keep any deposit under  this
Section  separate  from Landlord's general funds,  and  Tenant
shall  not  be entitled to interest thereon.  If Tenant  fully
and  faithfully performs every provision of this Lease  to  be
performed by it, the Security Deposit, or any balance thereof,
shall be returned to Tenant or, at Tenant's direction, to  the
last   assignee  of  Tenant's  interest  hereunder,   at   the
expiration of the term of this Lease and within ten (10)  days
after  Tenant  has  vacated the Premises.   In  the  event  of
termination  of  Landlord's interest in this  Lease,  Landlord
shall  transfer all deposits then held by Landlord under  this
Section to Landlord's successor in interest, whereupon  Tenant
agrees  to release Landlord from all liability for the  return
of such deposit or the accounting thereof.

            (b)  In  lieu of the Security Deposit, Tenant  may
deliver to Landlord at any time, and shall thereafter maintain
in  full  force and effect during the remaining term  of  this
Lease,  an irrevocable standby letter of credit in the  amount
of  the required Security Deposit, issued in favor of Landlord
by  a commercial bank or trust company approved in writing  by
Landlord (which approval shall not be unreasonably withheld or
delayed),  in  form reasonably satisfactory to  Landlord  (the
"Letter  of  Credit"), to be held by Landlord as security  for
the  faithful  performance of all the payment  obligations  of
Tenant  under  this  Lease  during the  initial  term  hereof,
subject  to  the  following  terms and  conditions  (and  upon
delivery  of any such Letter of Credit by Tenant, if  Landlord
is  then  already holding a cash Security Deposit from Tenant,
Landlord  shall promptly return such cash Security Deposit  to
Tenant):
                (i)  Landlord shall be entitled (but shall not
be  required) to draw against the Letter of Credit and receive
and retain proceeds thereof upon any default by Tenant, beyond
the  expiration of any applicable cure periods, in the payment
of  any  rent or other amounts required to be paid  by  Tenant
under  this  Lease (a "monetary default") or  upon  any  other
default, beyond the expiration of any applicable cure periods,
in  Tenant's  obligations under this  Lease  (a  "non-monetary
default").  The amount of any such draw shall be, with respect
to a monetary default, the amount due from Tenant to Landlord,
and,  in  the  event  of  a non-monetary  default,  an  amount
estimated by Landlord, in its reasonable discretion, to be the
amount  necessary  to cure such default.  Within  thirty  (30)
days  following  any draw by Landlord against  the  Letter  of
Credit, Tenant shall cause the amount of the Letter of  Credit
to  be  restored  to the full amount of the required  Security
Deposit   pursuant   to  paragraph  (a)   above.    Landlord's
entitlement  to  draw against the Letter of Credit  shall  not
limit  or  impair  in  any  way Landlord's  other  rights  and
remedies,  following any default by Tenant,  under  any  other
applicable provision of this Lease or under applicable law.

                  (ii)   Notwithstanding  any  provisions   of
subparagraph  (i) above, Landlord shall also be entitled  (but
shall  not  be  required) to draw against the  then  remaining
balance  of  the Letter of Credit in full and to  receive  the
entire  proceeds  of such draw if the Letter  of  Credit  will
expire  as  of a date prior to the expiration of  the  initial
term of this Lease and Tenant fails to provide to Landlord  an
extension or replacement of such Letter of Credit, in at least
the  amount of the required Security Deposit, at least  thirty
(30)  days  prior  to the scheduled expiration  date  of  such
existing Letter of Credit.

                  (iii)   Any  amount  drawn  or  received  by
Landlord pursuant to a draw under the Letter of Credit that is
not  immediately  used  or applied by  Landlord  to  remedy  a
default  by  Tenant shall be retained by Landlord  as  a  cash
Security  Deposit  on  the terms set forth  in  paragraph  (a)
above.


                      17.  MISCELLANEOUS
                               
      17.1. Notices.  All notices, consents, waivers and other
communications  which this Lease requires  or  permits  either
party  to  give to the other shall be in writing and shall  be
deemed given when delivered personally (including delivery  by
private courier or express delivery service) or four (4)  days
after  deposit  in  the  United  States  mail,  registered  or
certified  mail, postage prepaid, addressed to the parties  at
their respective addresses as follows:

     To Tenant:       Aradigm Corporation
                      26219 Eden Landing Road
                      Hayward, CA  94545
                      Attn: Richard P. Thompson
                             President and C.E.O.
                             
      with  copy to:         Mark A. Olbert, Vice President  &
CFO
                      Aradigm Corporation
                      26219 Eden Landing Road Hayward,
                      CA  94545
     To Landlord:          Britannia Point Eden, LLC
                      1939 Harrison Street, Suite 412
                      Park Plaza Building
                      Oakland, CA  94612
                      Attn: T. J. Bristow

     with copy to:         Folger Levin & Kahn LLP
                      Embarcadero Center West
                      275 Battery Street, 23rd Floor
                      San Francisco, CA 94111 Attn:
                      Donald E. Kelley, Jr.
                      
or  to  such other address as may be contained in a notice  at
least  fifteen  (15)  days prior to the  address  change  from
either  party  to  the other given pursuant to  this  Section.
Rental  payments and other sums required by this Lease  to  be
paid  by  Tenant shall be delivered to Landlord at  Landlord's
address provided in this Section, or to such other address  as
Landlord  may from time to time specify in writing to  Tenant,
and shall be deemed to be paid only upon actual receipt.
      17.2.  Successors And Assigns.  The obligations of  this
Lease shall run with the land, and this Lease shall be binding
upon  and inure to the benefit of the parties hereto and their
respective  successors and assigns, except that  the  original
Landlord named herein and each successive Landlord under  this
Lease shall be liable only for obligations accruing during the
period of its ownership of the Property, which liability shall
survive, but future liability under the Lease shall then  pass
to the successor lessor.

      17.3.  No Waiver.  The failure of either party  to  seek
redress   for  violation,  or  to  insist  upon   the   strict
performance, of any covenant or condition of this Lease  shall
not  be  deemed  a  waiver  of such violation,  or  prevent  a
subsequent  act  which  would originally  have  constituted  a
violation from having all the force and effect of an  original
violation.

      17.4.  Severability.  If any provision of this Lease  or
the   application   thereof  is  held   to   be   invalid   or
unenforceable, the remainder of this Lease or the  application
of such provision to persons or circumstances other than those
as  to  which  it  is invalid or unenforceable  shall  not  be
affected  thereby, and each of the provisions  of  this  Lease
shall  be  valid and enforceable, unless enforcement  of  this
Lease  as  so  invalidated  would be unreasonable  or  grossly
inequitable  under all the circumstances or  would  materially
frustrate the purposes of this Lease.

      17.5.  Litigation Between Parties.  In the event of  any
litigation  between  the parties hereto growing  out  of  this
Lease,  the  prevailing  party shall  be  reimbursed  for  all
reasonable  costs, including, but not limited  to,  reasonable
accountants'  fees  and attorneys' fees.   "Prevailing  party"
within  the  meaning  of this Section shall  include,  without
limitation,  a  party  who dismisses an  action  for  recovery
hereunder  in exchange for payment of the sums allegedly  due,
performance  of covenants allegedly breached or  consideration
substantially equal to the relief sought in the action.

      17.6. Surrender.  A voluntary or other surrender of this
Lease  by  Tenant,  or  a mutual termination  thereof  between
Landlord  and Tenant, shall not result in a merger but  shall,
at  the option of Landlord, operate either as an assignment to
Landlord  of  any and all existing subleases and subtenancies,
or  a  termination  of  all  or  any  existing  subleases  and
subtenancies.  This provision shall be contained  in  any  and
all assignments or subleases made pursuant to this Lease.
     17.7. Interpretation.  The provisions of this Lease shall
be  construed  as a whole, according to their common  meaning,
and  not  strictly  for or against Landlord  or  Tenant.   The
captions  preceding  the text of each Section  and  subsection
hereof  are  included only for convenience  of  reference  and
shall be disregarded in the construction or interpretation  of
this Lease.
      17.8.  Entire  Agreement.  This written Lease,  together
with the exhibits hereto, contains all the representations and
the  entire  understanding between  the  parties  hereto  with
respect   to   the   subject   matter   hereof.    Any   prior
correspondence, memoranda or agreements are replaced in  total
by  this  Lease and the exhibits hereto.  This  Lease  may  be
modified only by an agreement in writing signed by each of the
parties.

      17.9. Governing Law.  This Lease and all exhibits hereto
shall  be construed and interpreted in accordance with and  be
governed  by  all the provisions of the laws of the  State  of
California.

      17.10.      No Partnership.  Nothing contained  in  this
Lease  shall  be construed as creating any type or  manner  of
partnership, joint venture or joint enterprise with or between
Landlord and Tenant.

      17.11.      Financial Information.  From  time  to  time
Tenant  shall promptly provide directly to prospective lenders
and  purchasers  of the Property designated by  Landlord  such
financial  information pertaining to the financial  status  of
Tenant  as  Landlord may reasonably request; provided,  Tenant
shall be permitted to provide such financial information in  a
manner which Tenant deems reasonably necessary to protect  the
confidentiality of such information.  In addition,  from  time
to  time,  Tenant shall provide Landlord with  such  financial
information  pertaining to the financial status of  Tenant  as
Landlord  may  reasonably request.  Landlord agrees  that  all
financial information supplied to Landlord by Tenant shall  be
treated   as   confidential  material,  and   shall   not   be
disseminated  to  any person or entity (including  any  entity
affiliated  with  Landlord,  except  as  otherwise   expressly
provided below) without Tenant's prior written consent, except
that  Landlord shall be entitled to provide such  information,
subject  to reasonable precautions to protect the confidential
nature  thereof,  (i) to Landlord's partners and  professional
advisors,   solely  for  use  in  connection  with  Landlord's
execution  and  enforcement  of  this  Lease,  and   (ii)   to
prospective lenders and/or purchasers of the Property,  solely
for use in connection with their bona fide consideration of  a
proposed financing or purchase of the Property, provided  that
such prospective lenders and/or purchasers are not engaged  in
businesses  directly competitive with the business then  being
conducted  by  Tenant.  For purposes of this Section,  without
limiting  the  generality of the obligations provided  herein,
(A)  it  shall  be deemed reasonable for Landlord  to  request
copies  of  Tenant's  most  recent  audited  annual  financial
statements, or, if audited statements have not been  prepared,
unaudited financial statements for Tenant's most recent fiscal
year, accompanied by a certificate of Tenant's chief financial
officer that such financial statements fairly present Tenant's
financial  condition  as  of the date(s)  indicated,  and  (B)
during  any  period when Tenant has a class of publicly-traded
securities  and  is a reporting company under  the  Securities
Exchange Act of 1934, it shall be deemed sufficient compliance
with  Tenant's  obligations under this Section for  Tenant  to
provide,  upon  Landlord's request, copies  of  Tenant's  most
recent  quarterly and annual filings (and any Form 8-K filings
since  the  most  recent of such quarterly or annual  filings)
with the Securities and Exchange Commission.
           Landlord and Tenant recognize the need of Tenant to
maintain  the  confidentiality of  information  regarding  its
financial  status and the need of Landlord to be informed  of,
and  to provide to its partners and to prospective lenders and
purchasers  of  the Property financial information  pertaining
to,  Tenant's financial status.  Landlord and Tenant agree  to
cooperate with each other in achieving these needs within  the
context of the obligations set forth in this Section.
      17.12.      Costs.   If Tenant requests the  consent  of
Landlord  under any provision of this Lease for any  act  that
Tenant   proposes   to   do  hereunder,   including,   without
limitation,  assignment or subletting of the Premises,  Tenant
shall, as a condition to doing any such act and the receipt of
such  consent,  reimburse Landlord promptly for  any  and  all
reasonable   costs  and  expenses  incurred  by  Landlord   in
connection    therewith,   including,   without    limitation,
reasonable attorneys' fees.

      17.13.     Time.  Time is of the essence of this  Lease,
and of every term and condition hereof.

      17.14.      Rules And Regulations.  Tenant shall observe
and obey such rules and regulations as Landlord may promulgate
from time to time for the safety, care, cleanliness, order and
use  of  the Premises, the Building and the Property, provided
that  any  such  rules and regulations shall not  unreasonably
interfere with Tenant's access to, or use of, the Premises.

      17.15.     Brokers.  Landlord shall pay a commission  to
Cornish  & Carey Commercial, in connection with and contingent
upon the mutual execution of this Lease, in accordance with  a
separate agreement between Landlord and such broker.  Landlord
and  Tenant each represents and warrants to the other that  no
other  broker participated in the consummation of this  Lease,
and  each agrees to indemnify, defend and hold the other party
harmless  against  any liability, cost or expense,  including,
without limitation, reasonable attorneys' fees, arising out of
any   claims  for  brokerage  commissions  or  other   similar
compensation  in  connection  with  any  conversations,  prior
negotiations or other dealings by the indemnifying party  with
any such other broker or other claimant.

      17.16.     Memorandum Of Lease.  At any time during  the
term  of this Lease, either party, at its sole expense,  shall
be  entitled  to  record a memorandum of this  Lease  and,  if
either party so elects, both parties agree to cooperate in the
preparation,  execution, acknowledgement  and  recordation  of
such document in reasonable form.

      17.17.      Corporate Authority.  Each  of  the  persons
signing   this  Lease  on  behalf  of  Landlord  and   Tenant,
respectively,  warrants that he or she is fully authorized  to
do  so  and,  by  so  doing, to bind Landlord  or  Tenant,  as
applicable.
      17.18.      Execution and Delivery.  Submission of  this
Lease  for  examination  or  signature  by  Tenant  does   not
constitute an agreement or reservation of or option for  lease
of  the  Premises.  This instrument shall not be effective  or
binding  upon  either  party, as a lease or  otherwise,  until
executed  and  delivered by both Landlord  and  Tenant.   This
Lease  may  be  executed in one or more  counterparts  and  by
separate  parties  on  separate counterparts,  but  each  such
counterpart  shall  constitute  an  original  and   all   such
counterparts  together  shall  constitute  one  and  the  same
instrument.

      17.19.      Signage.   Tenant shall have  the  right  to
install, subject to Section 7.3 hereof and to compliance  with
applicable  laws  and  City  requirements,  with  the   Master
Declaration   and   with  any  other  covenants,   conditions,
restrictions and sign criteria applicable to the  Center,  and
subject  to Landlord's approval as to design, size, materials,
location  and other pertinent characteristics (which  approval
shall not be unreasonably withheld or delayed), up to two  (2)
exterior  signs  on  the  Building, in  addition  to  monument
signage rights consistent with those provided to other tenants
in the Center.


     IN WITNESS WHEREOF, the parties hereto have executed this
Lease as of the day and year first set forth above.


     "Landlord"

BRITANNIA  POINT  EDEN,  LLC, a California  limited  liability
company



By: ____________________
      T.J. Bristow
      President & Manager

         "Tenant"
ARADIGM CORPORATION, a California corporation


By: __________________________
     Richard P. Thompson
     President


By: __________________________
     Mark A. Olbert
     Chief Financial Officer
1             EXHIBITS

                EXHIBIT A  Location of Premises

                EXHIBIT B  Real Property Description

                EXHIBIT C  Construction

                   EXHIBIT   D    Acknowledgment   of    Lease
Commencement
                   REAL PROPERTY DESCRIPTION
Improved real property located in the City of Hayward,  County
of  Alameda, State of California, more particularly  described
as follows:

Lot  1,  Tract 4019, filed June 28, 1979, Map Book 110,  Pages
97, 98 and 99, Alameda County Records.

Subject to easements, restrictions and other matters of record
affecting title.

                      CONSTRUCTION
      Landlord,  at  its  sole  cost and  expense  (except  as
otherwise  expressly  provided herein),  shall  undertake  and
diligently  complete, subject to delays for causes beyond  its
reasonable control, construction of (a) a structural shell  of
approximately   71,000  square  feet  for  the   Building   in
accordance with the Building Shell Description at the  end  of
this  Exhibit C, the general configuration and size  of  which
building  shell  shall be mutually approved  by  Landlord  and
Tenant   and  shall  be  appropriate  for  the  biotech   uses
contemplated  by  Tenant  under  the  Lease,  and  (b)  tenant
improvements  in  the Building in accordance  with  plans  and
specifications to be mutually approved by Landlord and Tenant,
which  approval shall not be unreasonably withheld or delayed;
provided,  however, that the parties may by mutual  agreement,
as contemplated below, determine that Tenant will contract for
the  design  and/or  construction of the  tenant  improvements
subject  to  reimbursement by Landlord to the extent  provided
below.   All  such  work  shall be performed  in  a  neat  and
workmanlike  manner  and  shall  conform  to  all   applicable
governmental codes, laws and regulations in force at the  time
such  work is completed.  Landlord and Tenant shall  both  use
their  best  endeavors  to develop,  review  and  approve  all
working drawings, final drawings, specifications, changes  (if
applicable) and other matters promptly, diligently and  within
such  time periods as may be reasonably requested by the other
party   or   by   the   architects,  contractors   and   other
professionals  engaged in the design and construction  of  the
work.

      Landlord has agreed to provide a base tenant improvement
allowance of up to Thirty Dollars ($30.00) per square foot, or
approximately Two Million One Hundred Thirty Thousand  Dollars
($2,130,000)  in the aggregate for an estimated 71,000  square
feet  of  space  in the Building, for the tenant  improvements
described  in the preceding paragraph (the "Tenant Improvement
Allowance").   Landlord's total direct  costs  of  design  and
construction of the tenant improvement work under Section  2.4
and this Exhibit C (but not of the building shell and core  as
described  below,  which  shall be Landlord's  sole  cost  and
expense),   including,  but  not  limited  to,   payments   to
contractors or subcontractors for labor and materials,  permit
fees  and charges, sales and use taxes, testing and inspection
costs,  architects',  engineers'  and  other  consulting   and
professional  fees, costs of power, water and other  utilities
and of collection and removal of debris, and all other related
costs  incurred in connection with the design and construction
of  the  tenant improvement work, shall be chargeable  against
the  Tenant Improvement Allowance.  Any and all such costs  of
the  tenant  improvements in excess of the Tenant  Improvement
Allowance  shall  be payable solely by Tenant,  within  thirty
(30)  days  after written request by Landlord  accompanied  by
evidence  reasonably satisfactory to Tenant of the nature  and
amount  of  the  expense  or work for which  such  payment  is
requested;  provided,  however,  that  Tenant  shall  have  no
liability  for  excess  costs to the  extent  such  costs  are
attributable   to   changes  in   the   Approved   Plans   and
Specifications  (as  hereinafter defined) for  which  Tenant's
approval  was  required under this Exhibit C  and  which  were
nevertheless    implemented   without    Tenant's    approval.
Notwithstanding  any  contrary  provisions  contained  in  the
Lease, Landlord agrees that Tenant shall have no obligation to
remove,  at  the  expiration of the term  of  the  lease,  any
improvements   constructed  by  Landlord  pursuant   to   this
Exhibit C.

      The  general contractor for the building shell shall  be
Concrete  Shell  Structures, Inc., or any other  licensed  and
qualified   general  contractor  selected  by  Landlord;   the
architect  for  the  building shell shall be  Chamorro  Design
Group  or  any other licensed and qualified architect selected
by   Landlord.   The  general  contractor  and  the  architect
("Architect") for the tenant improvements shall be selected by
mutual  agreement of Landlord and Tenant.  The costs and  fees
of  Architect with respect to the tenant improvements (but  no
such  fees  with respect to the building shell or  any  common
area  improvements)  shall be chargeable  against  the  Tenant
Improvement Allowance.  Landlord and Tenant shall determine by
mutual  agreement whether the contracts with  Architect,  with
the  general contractor for the tenant improvements  and  with
other  consultants or professionals with respect to the tenant
improvements shall be entered into by Landlord or Tenant.   If
such  contracts are entered into by Tenant, then to the extent
Landlord  is  responsible under this Exhibit C for  the  costs
incurred under such contracts, Landlord shall make payments to
Tenant  or  to  the  applicable parties  providing  goods  and
services,  as Landlord and Tenant may agree, on a  monthly  or
other regular basis, subject to receipt of such invoices, lien
releases,  certifications and other documentation as  Landlord
may reasonably require.

      Landlord  and  Tenant shall jointly cause  Architect  to
prepare  initial  plans  and  specifications  for  the  tenant
improvements  in the Premises, which plans and  specifications
shall   be  mutually  approved  (such  approval  not   to   be
unreasonably withheld or delayed) by Landlord and Tenant  (the
"Approved  Plans  and Specifications").  Landlord  and  Tenant
shall then jointly cause Architect to produce detailed working
drawings, based on the Approved Plans and Specifications,  for
submission  to  the  City  of  Hayward  for  building   permit
approval.   Any material changes from the Approved  Plans  and
Specifications  shall  be  subject  to  mutual  approval  (not
unreasonably  withheld  or delayed) by  Landlord  and  Tenant,
provided, however, that any changes required from time to time
in  the  Approved  Plans and Specifications, working  drawings
and/or   final  plans  and  specifications  as  a  result   of
applicable  law  or  governmental  requirements,  or  at   the
insistence  of  any other third party whose  approval  may  be
required with respect to such improvements, or as a result  of
unanticipated   conditions  encountered  in  the   course   of
construction,  may  be  implemented by  Landlord  after  prior
notice to Tenant (if Landlord is the contracting party who  is
responsible  for construction of the applicable improvements),
but shall not require Tenant's approval or consent.

      All  material  subcontracts for the tenant  improvements
shall  be  competitively  bid under  the  joint  direction  of
Landlord,   Tenant,  Architect  and  the  general  contractor.
Landlord  and Tenant shall consult with one another  regarding
all   design   and  cost  matters  relating  to   the   tenant
improvements,  including  (but  not  limited  to)  bidding  of
material  subcontracts as described in the preceding sentence,
and both parties shall have access on an "open book" basis  to
all   bids,   contracts  and  other  cost-related  information
regarding  the  tenant  improvements.   Without  limiting  the
generality  of  the  foregoing, cost aspects  of  any  changes
requested  by  Tenant from time to time in the Approved  Plans
and  Specifications, working drawings and/or final  plans  and
specifications shall be subject to mutual approval by Landlord
and Tenant; cost aspects of any changes required from time  to
time   in  the  Approved  Plans  and  Specifications,  working
drawings and/or final plans and specifications as a result  of
applicable  law  or  governmental  requirements,  or  at   the
insistence  of  any other third party whose  approval  may  be
required with respect to such improvements, or as a result  of
unanticipated   conditions  encountered  in  the   course   of
construction, shall not require Tenant's approval or  consent,
but  Tenant  shall at all times have access to the details  of
the  cost  aspects  of such changes (including  estimates  and
actual expenses) for information purposes.

      The parties acknowledge that tenant improvements will be
constructed  and occupied on a phased basis,  with  the  first
phase  consisting of approximately 36,000 square feet and  the
second  and  third  phases  each consisting  of  approximately
17,500  square feet, and with the second phase to be completed
and  delivered  on  or  about the  first  anniversary  of  the
Commencement  Date  and the third phase to  be  completed  and
delivered   on  or  about  the  second  anniversary   of   the
Commencement Date.  Any material changes in the delivery time,
size   or  other  aspects  of  such  phasing  of  the   tenant
improvements shall be subject to mutual approval  by  Landlord
and Tenant.

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                  BUILDING SHELL DESCRIPTION
                               
The   building  structure  shall  be  a  conventional  tilt-up
concrete  structure.  Supported on concrete  spread  footings,
the floor slab shall be 5" reinforced concrete over a membrane
and  engineered fill.  The roof shall be a panelized wood roof
supported  by  steel  columns, girders,  and  open  web  metal
joists.   The built-up roofing membrane shall utilize a  4-ply
system with a mineral surfaced cap sheet.  Notwithstanding the
foregoing  description of building shell characteristics,  any
of  such characteristics may be changed in whole or in part by
mutual agreement of Landlord and Tenant.

BUILDING SHELL shall include, but not be limited to:

Building envelope
Exterior concrete walks
Parking areas
Landscaping and irrigation
Roof drains and drain lines
Roof top mechanical screen
Fire sprinklers at roof elevation
Trash enclosures
Utilities:
     -     site lighting
     -     electric transformer
     -     underground electrical to building pull-section
     -     gas to exterior meter on building
     -     telephone conduit to building
     -     site storm drain system
     -     main sanitary sewer line under ground floor slab


TENANT  IMPROVEMENTS  not constituting part  of  the  Building
Shell, and therefore chargeable against the Tenant Improvement
Allowance, shall include, but not be limited to:

     Toilet cores
     Interior partitioning
     Interior finishes
     Millwork
     Specialty items, such as skylights
     HVAC system
     Building exhaust system
     Thermal building insulation
     Fire sprinkler drops below roof elevation
     Utilities:
           -     all electrical beyond pull section, including
           electrical main disconnect and distribution panels
     -     gas piping beyond main gas meter
      -      telephone conduit beyond utility co.  termination
point
      -      sanitary  sewer lines to main line  under  ground
floor
      -     lab gas piping for all lab utilities, i.e. natural
gas, compressed air, vacuum, etc.
      -      utility connection fees based on items  that  are
part of tenant improvements


             ACKNOWLEDGMENT OF LEASE COMMENCEMENT
                               
                               
      This Acknowledgment is executed as of _________________,
19___,  by  BRITANNIA  POINT EDEN, LLC, a  California  limited
liability  company  ("Landlord"), and ARADIGM  CORPORATION,  a
California corporation ("Tenant"), pursuant to Section 2.5  of
the  Lease dated January ___, 1998 between Landlord and Tenant
(the  "Lease") covering premises located at ______ Point  Eden
Way, Hayward, CA 94545 (the "Premises").

      Landlord  and  Tenant hereby acknowledge  and  agree  as
follows:

       1.    The   Commencement  Date  under  the   Lease   is
__________________, 19___.

      2.   The  termination  date under  the  Lease  shall  be
_________________, 20___, subject to any applicable provisions
of the Lease for any extension or early termination thereof.

      3.   The  square footage of the Building, as  built,  is
________ square feet; the square footage of the first phase of
tenant  improvements  in the Premises  initially  occupied  by
Tenant is __________ square feet.

      4.   Tenant  accepts the Premises and  acknowledges  the
satisfactory  completion of the first  phase  of  improvements
therein  by  Landlord, subject only to any  applicable  "punch
list"  or  similar procedures specifically provided under  the
Lease.

     EXECUTED as of the date first set forth above.
           "Landlord"
BRITANNIA  POINT  EDEN,  LLC, a California  limited  liability
company



By: ____________________
      T.J. Bristow
      President & Manager
         "Tenant"

ARADIGM CORPORATION, a California corporation



By: __________________________
     Mark A. Olbert
     Vice President and
     Chief Financial Officer


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