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

Landlord:  HAYWARD POINT EDEN I LIMITED PARTNERSHIP

Tenant:    ARADIGM CORPORATION

Date:           January 28, 1998

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):

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")

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

Landlord:  BRITANNIA POINT EDEN, LLC

Tenant:    ARADIGM CORPORATION
Date:           January 28, 1998

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.

[rest of page intentionally left blank]
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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