Document:

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                                     LEASE
                                     -----

Landlord:   Britannia Pointe Grand Limited Partnership

Tenant:     Pain Therapeutics, Inc.

Date:       August 24, 1998,

                               TABLE OF CONTENTS
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<TABLE>
<S>            <C>                                                                                         <C>
 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

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

4.  TAXES..................................................................................................3
      4.1.     Personal Property...........................................................................3

5.  UTILITIES..............................................................................................3
      5.1.     Payment.....................................................................................3
      5.2.     Interruption................................................................................4

6.  ALTERATIONS............................................................................................4
      6.1.     Right To Make Alterations...................................................................4
      6.2.     Title To Alterations........................................................................4
      6.3.     Tenant Fixtures.............................................................................4
      6.4.     No Liens....................................................................................4

7.  MAINTENANCE AND REPAIRS................................................................................4
      7.1.     Landlord's Work.............................................................................4
      7.2.     Tenant's Obligation For Maintenance.........................................................5
               (a)   Good Order, Condition And Repair......................................................5
               (b)   Condition Upon Surrender..............................................................5

8.  USE OF PREMISES........................................................................................5
      8.1.     Permitted Use...............................................................................5
      8.2.     Requirement Of Continued Use................................................................5
      8.3.     No Nuisance.................................................................................5
      8.4.     Compliance With Laws........................................................................5
      8.5.     Liquidation Sales...........................................................................6
      8.6.     Environmental Matters.......................................................................6

8.  INSURANCE AND INDEMNITY................................................................................7

</TABLE>

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<TABLE>
<S>            <C>                                                                                         <C>
      9.1.     Liability Insurance.........................................................................7
      9.2.     Quality Of Policies and Certificates........................................................7
      9.3.     Workers' Compensation.......................................................................7
      9.4.     Waiver Of Subrogation.......................................................................7
      9.5.     Increase In Premiums........................................................................7
      9.6.     Indemnification.............................................................................7
      9.7.     Blanket Policy..............................................................................8

10. SUBLEASE AND ASSIGNMENT................................................................................8
      10.1.    Assignment And Sublease Of Premises.........................................................8
      10.2.    Rights Of Landlord..........................................................................8

11. RIGHT OF ENTRY AND QUIET ENJOYMENT.....................................................................9
      11.1.    Right Of Entry..............................................................................9
      11.2.    Quiet Enjoyment.............................................................................9

12. CASUALTY AND TAKING....................................................................................9
      12.1.    Termination Or Reconstruction...............................................................9
      12.2.    Tenant's Rights.............................................................................9
      12.3.    Lease To Remain In Effect..................................................................10
      12.4.    Reservation Of Compensation................................................................10
      12.5.    Restoration Of Fixtures....................................................................10

13. DEFAULT...............................................................................................10
      13.1.    Events Of Default..........................................................................10
               (a)   Abandonment..........................................................................10
               (b)   Nonpayment...........................................................................10
               (c)   Other Obligations....................................................................10
               (d)   General Assignment...................................................................10
               (e)   Bankruptcy...........................................................................10
               (f)   Receivership.........................................................................11
               (g)   Attachment...........................................................................11
               (h)   Insolvency...........................................................................11
      13.2.    Remedies Upon Tenant's Default.............................................................11
      13.3     Remedies Cumulative........................................................................12

14. SUBORDINATION, ATTORNMENT AND SALE....................................................................12
      14.1.    Subordination To Mortgage..................................................................12
      14.2.    Sale Of Landlord's Interest................................................................12
      14.3.    Estoppel Certificates......................................................................12
      14.4.    Subordination to CC&R's....................................................................13

15. RESERVED..............................................................................................13

16. MISCELLANEOUS.........................................................................................13
      16.1.    Notices....................................................................................13
      16.2.    Successors And Assigns.....................................................................14
      16.3.    No Waiver..................................................................................14
      16.4.    Severability...............................................................................14
      16.5.    Litigation Between Parties.................................................................14
      16.6.    Surrender..................................................................................14
      16.7.    Interpretation.............................................................................14
      16.8.    Entire Agreement...........................................................................14
      16.9.    Governing Law..............................................................................15
      16.10.   No Partnership.............................................................................15
      16.11.   Financial Information......................................................................15
      16.12.   Costs......................................................................................15
</TABLE>

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<TABLE>
<S>             <C>                                                                                         <C>
      16.13.    Time........................................................................................15
      16.14.    Rules And Regulations.......................................................................15
      16.15.    Brokers.....................................................................................15
      16.16.    Memorandum Of Lease.........................................................................15
      16.17.    Corporate Authority.........................................................................16
      16.18.    Execution and Delivery......................................................................16
      16.19.    Warrants....................................................................................16
      16.20.    Signage.....................................................................................16
      16.21.    Parking.....................................................................................16

EXHIBITS

A     Location of Premises

B     Real Property Description

C     Acknowledgement of Lease Commencement
</TABLE>

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                                     LEASE

               THIS LEASE is made and entered into as of the 25th day of
August, 1998, by and between BRITANNIA POINTE GRAND LIMITED PARTNERSHIP, a
Delaware limited partnership ("Landlord") and PAIN THERAPEUTICS, INC., a
Delaware 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 3,250 square feet of
space located within Building D (the "Building") in the Britannia Pointe Grand
Business Park (the "Center") in the City of South San Francisco, County of San
Mateo, State of California, commonly known as 250 East Grand Avenue, Suite 70,
South San Francisco, California 94080, which Premises are 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 building. 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 Landlord notifies Tenant in writing that
Landlord's work pursuant to Section 2.4 is substantially complete, or (ii) the
date Tenant takes occupancy 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 second (2nd)
anniversary of the Commencement Date, unless sooner terminated as hereinafter
provided. To the extent Tenant wishes (and is permitted by Landlord) to take
possession of the Premises and begin conducting Tenant's business in portions
of the Premises while Landlord is completing Landlord's work under Section 2.4
in the balance of the Premises, such possession shall trigger the occurrence of
the Commencement Date under this Section 2.1, regardless of the fact that less
than the entire Premises is then ready for occupancy by Tenant. Notwithstanding
any other provisions of this Lease, Tenant shall have the right to surrender
the Premises and terminate this Lease at any time prior to the termination date
specified above in this Section 2.1, but no such early termination or surrender
by Tenant shall entitle Tenant to any refund or adjustment with respect to the
annual rent prepaid by Tenant on or before the Commencement

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Date on or before the first anniversary of the Commencement Date as provided in
Section 3.1 hereof. Landlord currently estimates that the Commencement Date will
be September 21, 1998.

     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
of the terms and conditions of this Lease, including 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 termination date determined under Section 2.1; provided
further, that if Tenant takes early possession solely for the purpose of
installing fixtures and equipment and other similar work preparatory to the
commencement of business in the Premises, Tenant shall not be required to pay
rent and other charges by reason of such possession until the Commencement Date
otherwise occurs; 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.

     2.3  Delay In Possession.  Landlord agrees to use its best reasonable
efforts to complete promptly the work described in Section 2.4; 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 by Tenant is limited to the following, all of which
work shall be performed promptly and diligently (subject to delays for causes
beyond Landlord's reasonable control), in a neat and workmanlike manner, in
compliance with all applicable governmental codes, laws and regulations in force
at the time such work is completed, and at no expense to Tenant: Landlord shall
repaint the Premises and recarpet the rear portion of the Premises (as
designated on Exhibit A) with building-standard materials, colors to be approved
by Tenant (which approval shall not be unreasonably withheld or delayed), clean
the carpets in the remaining portions of the Premises, and shall replace
missing or damaged ceiling tiles. Landlord shall also ensure that the existing
improvements in the Premises (including, but not limited to, lighting, windows,
doors, partitions, HVAC system, and plumbing, electrical, water, gas (if
applicable) and other utility systems) are in clean condition and in good
working order, ordinary wear and tear excepted. Except as specifically set
forth in this Section 2.4, 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 by Landlord shall constitute acceptance by Tenant of such work in its then
completed condition 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 thirty (30) days after the Commencement
Date, Tenant may furnish to Landlord a "punch list" identifying any items or
matters in the Premises which are not in the condition required under this
Section 2.4 and Landlord shall promptly and diligently correct all such matters
at its sole cost and expense.

     2.5  Acknowledgement Of Lease Commencement.  Upon commencement of the term
of this Lease, Landlord and Tenant shall execute a written acknowledgement of
the Commencement Date, date of termination and related matters (if any),
substantially in the form attached hereto as Exhibit C (with appropriate
insertions), which acknowledgement shall be deemed to be incorporated herein by
this reference. Notwithstanding the foregoing requirement, the failure of one or
both parties to execute such a written acknowledgement shall not affect the
determination of the Commencement Date, date of termination and related matters
(if any) 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 and one-half the rental (determined on a monthly rather than an annual
basis) and otherwise upon the terms herein specified for a period immediately

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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 and one-half 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.  Rental. Tenant shall pay to Landlord as rental for the Premises, in
advance, without deduction, offset, notice or demand, (a) in one installment on
or before the Commencement Date, the sum of Thirty-Five Thousand and No/100
Dollars ($35,000.00), being the entire annual rent for first year of the term of
this Lease, and (b) in one installment on or before the one-year anniversary of
the Commencement Date the sum of Thirty-Five Thousand and No/100 Dollars
($35,000.00), being the entire annual rent for the second year of the term of
this Lease.

      3.2.  Late Charge. If Tenant fails to pay when due rental or other amounts
due Landlord hereunder, 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 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
any alterations and additions installed or paid for by Tenant under this Lease,
and the personal property, trade fixtures and other property (if any) 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 belong 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. Tenant shall have no liability with respect to

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personal property taxes or assessments attributable to the period before the
Commencement Date or with respect to personal property of the previous tenant
of the Premises.

                                  5. UTILITIES

      5.1.  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 Tenant shall pay to
Landlord an appropriate proportion of the amounts paid by Landlord for such
services, such appropriate proportion to be determined by mutual written
agreement of Landlord and Tenant, such agreement not to be unreasonably
withheld or delayed by either party.

      5.2.  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.

                                 6. ALTERATIONS

      6.1.  Right To Make Alterations. Tenant shall make no alterations,
additions or improvements to the Premises without the prior written consent of
Landlord, which consent shall not be unreasonably withheld or delayed, and
Landlord shall not charge Tenant an administrative fee to grant such consent.
Any 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.

      6.2.  Title To Alterations. Any and all alterations, additions and
improvements installed in, on or about the Premises 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, trade fixtures and
equipment.

      6.3.  Tenant Fixtures. Notwithstanding the provisions of Sections 6.1 and
6.2, 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 6.3.

      6.4   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.

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                         7.    MAINTENANCE AND REPAIRS

      7.1.  Landlord's Work. Landlord shall repair and maintain or cause to be
repaired and maintained 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. Landlord shall also maintain and repair in
good operating condition the improvements existing in the Premises at the date
possession of the Premises is tendered to Tenant, including the ceiling, doors,
windows, walls, partitions, signs, lighting, HVAC and other mechanical and
utility systems serving the premises, and all other interior improvements,
other than routine janitorial service (which shall be Tenant's responsibility
as provided in Section 6.1 hereof) and repairs which are expressly made
Tenant's responsibility under Section 7.2 hereof. The cost of all work
performed by Landlord under this Section 7.1 shall be Landlord's sole expense,
except to the extent such work 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 9.6 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.

      7.2.  Tenant's Obligation For Maintenance.

            (a)   Good Order, Condition And Repair. By accepting possession of
the Premises, Tenant acknowledges that the Premises are in good sanitary order,
condition and repair, subject to completion of any "punch list" items with
respect to Landlord's required work under Section 2.4. Tenant at its sole cost
and expense shall keep and maintain in good and sanitary order, condition and
repair all equipment, trade fixtures and personal property, if any, installed
by Tenant in or about the Premises.

            (b)   Condition Upon Surrender. At the expiration or sooner
termination of this Lease, Tenant shall surrender the Premises, including any
additions, alterations and improvements 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 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
shall not have the right to remove fixtures or equipment if Tenant is in
default hereunder unless Landlord specifically waives this provision in
writing. 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, and
Tenant waives all claims against Landlord for any damages resulting from any
such removal, storage, retention or disposal.

                             8.    USE OF PREMISES

      8.1.  Permitted Use. Tenant shall use the Premises solely for general
office use, biological laboratory research, and related purposes, and for no
other purpose.

      8.2.  Requirement Of Continued Use. Tenant shall not at any time leave
the Premises unoccupied or vacant, 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 12 hereof) conduct and carry on in the Premises
the use permitted hereunder.

      8.3.  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

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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.

     8.4. 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, other than a certificate of occupancy
(which Landlord represents has already been obtained and shall be in full force
and effect on the Commencement Date). 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 6.1 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 ten (10) days after demand by Landlord, an amount
equal to all costs incurred by Landlord in connection with such alterations or
additions. 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.

     8.5. 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.

     8.6. Environmental Matters. Without limiting the generality of Tenant's
obligations set forth in Section 8.4. of this Lease:

          (a)  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.

          (b)  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.

          (c)  Tenant shall indemnify, defend and hold Landlord harmless from
and against any and all claims, losses, damages, liabilities, costs, legal fees
and expenses of any sort arising out of or relating to (i) any failure by
Tenant to comply with any provisions of subparagraph (a) or (b) above, or (ii)
any receipt, use, handling, generation, transportation, storage, treatment,
release and/or disposal of any hazardous or toxic substances or wastes on or
about the Property in

                                      -6-
<PAGE>   10
connection with Tenant's use or occupancy of the Property or as a result of any
intentional or negligent acts or omissions of Tenant or of any agent or
employee of Tenant.

            (d)   Landlord shall indemnify, defend and hold Tenant harmless
from and against any and all claims, losses, damages, liabilities, costs, legal
fees and expenses of any sort arising out of or relating to (i) the presence on
the Property of any hazardous or toxic substances or wastes present on the
Property as of the Commencement Date (except to the extent their presence is
the result of any intentional or negligent acts or omissions of Tenant or of
any agent or employee of Tenant), and/or (ii) any unauthorized release into the
environment of hazardous or toxic substances or wastes to the extent they
result from the negligence of or willful misconduct or omission by Landlord or
its agents or employees.

            (e)   The provisions of this Section 8.6 shall survive the
termination of this Lease.

                           9. INSURANCE AND INDEMNITY

      9.1.  Liability Insurance. 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) One Million Dollars ($1,000,000.00) 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 One Million Dollars ($1,000,000.00). Such
insurance shall name Landlord and its general partners, lender(s) 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.
Tenant's obligation to maintain property damage insurance shall not be deemed
to require Tenant to maintain earthquake insurance.

      9.2.  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 9.4. If Tenant fails to acquire, maintain or renew any
insurance required to be maintained by it under this Article 9 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.

      9.3.  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.

      9.4.  Waiver Of Subrogation. To the extent permitted by the 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

                                      -7-
<PAGE>   11
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 9 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 9 shall not be limited, reduced or diminished by
virtue of the subrogation waiver herein contained.

        9.5     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.

        9.6     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 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 any negligence or willful
misconduct or omission by Landlord, its agents or employees.

        9.7     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.

                          10. SUBLEASE AND ASSIGNMENT

        10.1    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. 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

                                      -8-
<PAGE>   12

balance of the Building or Property. Any dissolution, consolidation, merger or
other reorganization of Tenant, or any sale or transfer of the stock of or
other interest in Tenant, or any series of one or more of such events, involving
in the aggregate a change of fifty percent (50%) or more in the beneficial
ownership of Tenant or its assets shall be deemed to be an assignment hereunder
and shall be void without the prior written consent of Landlord, not to be
unreasonably withheld, as required above, provided, however, that a sale of
equity interests in the company in a bona fide third party financing
(including, without limitation, venture capital financing) shall not be deemed
to be an assignment for purposes of this Section 10.1

     10.2.  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 10, 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 and as
attorney-in-fact for Tenant, 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, Tenant shall have the right to collect such rent.

               11. RIGHT OF ENTRY AND QUIET ENJOYMENT

     11.1.   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 damages or loss to
Tenant by reason of making any repairs or performing any work upon the
Premises, the Building or the Property, 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.

     11.2.  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.

               12. CASUALTY AND TAKING

     12.1.  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

                                      -9-
<PAGE>   13
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, and Tenant
shall be entitled to refund of a prorata portion of the rental paid to Landlord
pursuant to Section 3.1 representing the portion of the year for which rental
has been paid in advance following the termination. If Landlord does not elect
to terminate this Lease as hereinabove provided, Landlord shall, at Landlord's
expense, repair any such damage and restore the Premises (to the extent of
Landlord's work therein under Section 2.4 and the existing improvements
previously constructed by Landlord and located in the Premises on the
Commencement Date) and the Building as nearly as reasonably possible to the
condition existing before the damage or taking.

     12.2  Tenant's Rights.  If any portion of the Premises is to 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. If the material damage to the Premises by
fire or other casualty or by action of public or other authority in consequence
thereof is of such extent and nature as substantially to handicap or impede
Tenant's use of the balance of the Premises, and Landlord estimates that the
amount of time required to repair any such damage exceeds sixty (60) days, then
Tenant may terminate this Lease by giving notice to Landlord within thirty (30)
days after Landlord has notified Tenant of Landlord's estimate of the amount of
time that will be required to repair such damage; provided, however, that Tenant
shall not have such termination rights of the fire or casualty was caused by
Tenant or its agents. Following any termination of this Lease pursuant to this
Section 12.2, Tenant shall be entitled to a refund of a prorata portion of the
rental paid to Landlord pursuant to Section 3.1 representing the portion of the
year for which rental has been paid in advance following the termination.

     12.3  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, without any abatement or adjustment of the rental paid
in advance by Tenant for the term hereof. 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.

     12.4  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 and equipment. Tenant
covenants to deliver such further assignments of the foregoing as Landlord may
from time to time request.

     12.5  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 trade 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 by Tenant under this Lease that
were damaged or taken, so as to restore the same to a condition substantially
equal to that which existed immediately prior to the damage or taking.

                                      -10-

<PAGE>   14
                                  13. DEFAULT

        13.1.    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
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; 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.

                                      -11-
<PAGE>   15
     13.2. Remedies Upon Tenant's Default.

           (a) Upon the occurrence of any event of default described in Section
13.1 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 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 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)  Event 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 13.2,
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
addition 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, 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.

     13.3. Remedies Cumulative. All rights, privileges and elections or
remedies of Landlord contained in this Article 13 are cumulative and not
alternative to the extent permitted by law and except as otherwise provided
herein.

                     14. SUBORDINATION, ATTORNMENT AND SALE

     14.1. 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 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, mortgage, trustee, beneficiary or leaseback lessor under any of the
foregoing, and

                                      -12-

<PAGE>   16
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, and if Tenant fails to do so within
ten (10) 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, notwithstanding any subordination hereunder,
attorn to the mortgagee, trustee, beneficiary, ground lessor, leaseback lessor
or assignee thereunder upon demand and become the tenant of the successor in
interest to Landlord, at the option of such successor in interest, and shall
execute and deliver any instrument or instruments confirming the attornment
herein provided for.

     14.2. 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.

     14.3. 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 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 no event
has occurred which, but for the expiration of the applicable time period, would
constitute an event of default hereunder, or if Tenant alleges that any such
default, notice or event has occurred, specifying the same in reasonable
detail; 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 14.3 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, by any
grantee under 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.

     14.4. 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
affecting the Property from time to time, provided that the terms of such
declarations are reasonable and do not discriminate against Tenant relative to
other similarly situated tenants occupying portions of the Property, (b) to the
Declaration of Covenants, Conditions and Restrictions for Pointe Grand Business
Park dated November 4, 1991 and recorded on February 25, 1992 as Instrument No.
92025214, Official Records of San Mateo County, as amended from time to time
(the "Master Declaration"), the provisions of which Master Declaration are an
integral part of this Lease, (c) to the Declaration of Covenants, Conditions
and Restrictions dated November 23, 1987 and recorded on November 24, 1987 as
Instrument No. 87177987, Official Records of San Mateo County, which
declaration imposes certain covenants, conditions and restrictions on the
Property, and (d) to the Environmental Restriction and Covenant (Pointe Grand)
dated as of April 16, 1997 and recorded on April 16, 1997 as Instrument No.
97-043682, Official Records of San Mateo County, which declaration imposes
certain covenants, conditions and

                                      -13-

<PAGE>   17

restrictions on the Center. Tenant agrees to execute, upon request by
Landlord, any documents reasonably required from time to time to evidence the
subordination provided in this Section 14.4.

                                  15. RESERVED

                               16. MISCELLANEOUS

      16.1. 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:        (until Commencement Date)

                        Pain Therapeutics, Inc.
                        c/o Exelixis
                        260 Littlefield Avenue
                        South San Francisco, CA 94080
                        Attn: Remi Barbier, CEO

                        (after Commencement Date)

                        Pain Therapeutics, Inc.
                        250 East Grand Avenue, Suite 70
                        South San Francisco, CA 94080
                        Attn: Remi Barbier, CEO

      To Landlord:      Britannia Pointe Grand Limited Partnership
                        1939 Harrison Street, Suite 715
                        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.

      16.2. 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, said liability terminating upon termination of such ownership
and passing to the successor lessor.

      16.3. 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

                                      -14-

<PAGE>   18
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.

       16.4.  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.

       16.5.  Litigation Between Parties. In the event of any litigation or
other dispute resolution proceedings between the parties hereto arising out of
or in connection with this Lease, the prevailing party shall be reimbursed for
all reasonable costs, including, but not limited to, reasonable accountants'
fees and attorneys' fees, incurred in connection with such proceedings
(including, but not limited to, any appellate proceedings relating thereto) or
in connection with the enforcement of any judgment or award rendered in such
proceedings. "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.

       16.6.  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.

       16.7.  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.

       16.8.  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.

       16.9.  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.

       16.10. No Partnership. The relationship between Landlord and Tenant is
solely that of a lessor and lessee. 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.

       16.11. 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 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

                                      -15-
<PAGE>   19
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, 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 and operating 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.

       16.12. 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.

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

       16.14. Rules and Regulations. Tenant shall observe, comply with and
obey, and shall cause its employees, agents and, to the best of Tenant's
ability, invitees to observe, comply with 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.

       16.15. Brokers. Landlord and Tenant each represents and warrants to the
other that no broker participated in the consummation of this Leas and agrees
to indemnify, defend and hold the other party harmless against any liability,
cost or expense, including, without limitation, reasonable attorney's 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 broker, finder or other third party
claiming such compensation.

       16.16. 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.

       16.17. 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.

       16.18. 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.

       16.19. Warrants. Within thirty (30) days after execution of this Lease,
as a condition to Landlord's obligations hereunder, Tenant shall deliver to
Landlord or Landlord's designees (which may be any partners, shareholders or
affiliates of Landlord or any affiliates of any such partners, shareholders or
affiliates of Landlord) warrants registered in the name of Landlord or
Landlord's designees for the acquisition of an aggregate of seventy thousand
(70,000) shares of Tenant's common stock, which warrants shall be in form and
substance mutually and reasonably satisfactory

                                      -16-

<PAGE>   20

to Landlord and Tenant. The warrants shall have an exercise price of One Dollar
($1.00) per share and shall be exercisable for a period beginning on the
Commencement Date and ending on the fifth (5th) anniversary of the closing of
the initial public offering (if any) of Tenant's common stock.

      16.20. Signage. Tenant shall have the right to install, subject to Section
6.3 hereof and to compliance with applicable laws, with the Master Declaration
and with any other covenants, conditions, restrictions and sign criteria
applicable to the Center, a sign on the Building bearing Tenant's name and/or
logo or other similar identifying information. The costs associated with the
approval, design, construction and installation of such sign shall be borne
entirely by Tenant.

      16.21. Parking. Landlord represents that the Property, in conjunction with
the balance of the Center, shall include parking spaces available for use (on a
non-exclusive basis) by Tenant and its employees, agents and invitees at the
rate of at least 3.5 spaces per 1,000 square feet of building area.

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

      "Landlord"                                 "Tenant"

BRITANNIA POINTE GRAND LIMITED             PAIN THERAPEUTICS, INC.,
PARTNERSHIP, a Delaware Limited            a Delaware corporation
partnership

By: Britannia Pointe Grand, LLC, a               By:   /s/ REMI BARBIER
    California limited liability company,           ---------------------------
    Its General Partner                               Remi Barbier
                                                      Chief Executive Officer
    By:   /s/ T. J. BRISTOW
       --------------------------------               By:  Remi Barbier
          T.J. Bristow                                   ----------------------
          President, Chief Financial                  Its: President & CEO
          Officer and Manager                              --------------------

                                      -17-
<PAGE>   21
                                    EXHIBITS

              EXHIBIT A     Location of Premises

              EXHIBIT B     Real Property Description

              EXHIBIT C     Acknowledgement of Lease Commencement
<PAGE>   22
                                   EXHIBIT A

                              LOCATION OF PREMISES

                             [DIAGRAM OF PREMISES]

                                   EXHIBIT A
                                   ---------
                                 (page 1 of 3)
<PAGE>   23
                                   EXHIBIT A

                            [DIAGRAM OF FLOOR PLAN]

                                   EXHIBIT A
                                   ---------

                                 (page 2 of 3)
<PAGE>   24

                           REAL PROPERTY DESCRIPTION

Improved real property located in the City of South San Francisco, County of
San Mateo, State of California, more particularly described as follows:

Lots 1, 2, 3 and 4, inclusive, as shown on Parcel Map No. 91-284, "Being a
resubdivision of the parcels described in the deeds to Metal and Thermit
Corporation, recorded in Book 293, at Page 394 of Deeds; in Book 49, at Page
490, Official Records; in Book 77, at Page 415, Official Records; and except
that parcel described in Book 1352, at Page 373, Official Records," filed on
February 25, 1992, in Book 65 of Parcel Maps, in the Office of the Recorder of
the County of San Mateo, California.

                                   EXHIBIT B
<PAGE>   25
                     ACKNOWLEDGEMENT OF LEASE COMMENCEMENT

      This Acknowledgement is executed as of 9/21/, 1998, by BRITANNIA POINT
GRAND LIMITED PARTNERSHIP, a Delaware limited partnership ("Landlord"), and
PAIN THERAPEUTICS, INC., a Delaware corporation ("Tenant"), pursuant to Section
2.5 of the Lease dated 8/25, 1998 between Landlord and Tenant (the "Lease")
covering premises located at 250 East Grand Avenue, Suite 70, South San
Francisco, CA 94080 (the "Premises").

      Landlord and Tenant hereby acknowledge and agree as follows:

      1.      The Commencement Date under the Lease is 9/21, 1998.

      2.      The termination date under the Lease shall be 9/21, 2000, subject
to any applicable provisions of the Lease for early termination thereof.

      3.      Tenant accepts the Premises and acknowledges the satisfactory
completion of all improvements therein 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.

<TABLE>
<S>                                            <C>
           "Landlord"                                      "Tenant"

BRITANNIA POINTE GRAND LIMITED                 PAIN THERAPEUTICS, INC.,
PARTNERSHIP, a Delaware limited                a Delaware corporation
partnership

                                                    /s/ REMI BARBIER
By: Britiannia Pointe Grand, LLC, a            By:  ____________________________
    California limited liability company,           Remi Barbier
    Its General Partner                             Chief Executive Officer

        /s/ T. J. BRISTOW
    By: ____________________________           By:  ____________________________
        T. J. Bristow                          Its: ____________________________
        President, Chief Financial
        Officer and Manager
</TABLE>

                                   EXHIBIT C<PAGE>   1
                                                                    EXHIBIT 10.5

                            PAIN THERAPEUTICS, INC.

                                 1998 STOCK PLAN

        1. Purposes of the Plan. The purposes of this Stock Plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant. Stock Purchase
Rights may also be granted under the Plan.

        2. Definitions. As used herein, the following definitions shall apply:

                (a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan in accordance with Section 4 hereof.

                (b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any other country or jurisdiction where Options or Stock Purchase Rights are
granted under the Plan.

                (c) "Board" means the Board of Directors of the Company.

                (d) "Code" means the Internal Revenue Code of 1986, as amended.

                (e) "Committee" means a committee of Directors appointed by the
Board in accordance with Section 4 hereof.

                (f) "Common Stock" means the Common Stock of the Company.

                (g) "Company" means Pain Therapeutics, Inc., a Delaware
corporation.

                (h) "Consultant" means any person who is engaged by the Company
or any Parent or Subsidiary to render consulting or advisory services to such
entity.

                (i) "Director" means a member of the Board of Directors of the
Company.

                (j) "Disability" means total and permanent disability as defined
in Section 22(e)(3) of the Code.

                (k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless

<PAGE>   2

reemployment upon expiration of such leave is guaranteed by statute or contract.
If reemployment upon expiration of a leave of absence approved by the Company is
not so guaranteed, on the 181st day of such leave any Incentive Stock Option
held by the Optionee shall cease to be treated as an Incentive Stock Option and
shall be treated for tax purposes as a Nonstatutory Stock Option. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.

                (l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

                (m) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:

                        (i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;

                        (ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for the
Common Stock on the last market trading day prior to the day of determination;
or

                        (iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.

                (n) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.

                (o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.

                (p) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.

                (q) "Option" means a stock option granted pursuant to the Plan.

                (r) "Option Agreement" means a written or electronic agreement
between the Company and an Optionee evidencing the terms and conditions of an
individual Option grant. The Option Agreement is subject to the terms and
conditions of the Plan.

                (s) "Option Exchange Program" means a program whereby
outstanding Options are exchanged for Options with a lower exercise price.

                (t) "Optioned Stock" means the Common Stock subject to an Option
or a Stock Purchase Right.

                                     - 2 -
<PAGE>   3

                (u) "Optionee" means the holder of an outstanding Option or
Stock Purchase Right granted under the Plan.

                (v) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.

                (w) "Plan" means this 1998 Stock Plan.

                (x) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of a Stock Purchase Right under Section 11 below.

                (y) "Service Provider" means an Employee, Director or
Consultant.

                (z) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 below.

                (aa) "Stock Purchase Right" means a right to purchase Common
Stock pursuant to Section 11 below.

                (bb) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.

        3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of Shares which may be subject to option
and sold under the Plan is Three Million Two Hundred Thousand (3,200,000)
Shares. The Shares may be authorized but unissued, or reacquired Common Stock.

        If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). However, Shares that have actually been issued under the Plan, upon
exercise of either an Option or Stock Purchase Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.

        4. Administration of the Plan.

                (a) Administrator. The Plan shall be administered by the Board
or a Committee appointed by the Board, which Committee shall be constituted to
comply with Applicable Laws.

                (b) Powers of the Administrator. Subject to the provisions of
the Plan and, in the case of a Committee, the specific duties delegated by the
Board to such Committee, and subject to the approval of any relevant
authorities, the Administrator shall have the authority in its discretion:

                        (i) to determine the Fair Market Value;

                                     - 3 -
<PAGE>   4

                        (ii) to select the Service Providers to whom Options and
Stock Purchase Rights may from time to time be granted hereunder;

                        (iii) to determine the number of Shares to be covered by
each such award granted hereunder;

                        (iv) to approve forms of agreement for use under the
Plan;

                        (v) to determine the terms and conditions, of any Option
or Stock Purchase Right granted hereunder. Such terms and conditions include,
but are not limited to, the exercise price, the time or times when Options or
Stock Purchase Rights may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or Stock Purchase Right or
the Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;

                        (vi) to determine whether and under what circumstances
an Option may be settled in cash under subsection 9(e) instead of Common Stock;

                        (vii) to reduce the exercise price of any Option to the
then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option has declined since the date the Option was granted;

                        (viii) to initiate an Option Exchange Program;

                        (ix) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;

                        (x) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by Optionees
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable; and

                        (xi) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan.

                (c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees.

        5. Eligibility.

                (a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Service Providers. Incentive Stock Options may be granted only to
Employees.

                                     - 4 -
<PAGE>   5

                (b) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.

                (c) Neither the Plan nor any Option or Stock Purchase Right
shall confer upon any Optionee any right with respect to continuing the
Optionee's relationship as a Service Provider with the Company, nor shall it
interfere in any way with his or her right or the Company's right to terminate
such relationship at any time, with or without cause.

        6. Term of Plan. The Plan shall become effective upon its adoption by
the Board. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 14 of the Plan.

        7. Term of Option. The term of each Option shall be stated in the Option
Agreement; provided, however, that the term shall be no more than ten (10) years
from the date of grant thereof. In the case of an Incentive Stock Option granted
to an Optionee who, at the time the Option is granted, owns stock representing
more than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five (5)
years from the date of grant or such shorter term as may be provided in the
Option Agreement.

        8. Option Exercise Price and Consideration.

                (a) The per share exercise price for the Shares to be issued
upon exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:

                        (i) In the case of an Incentive Stock Option

                                (1) granted to an Employee who, at the time of
grant of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the exercise price shall be no less than 110% of the Fair Market Value per Share
on the date of grant.

                                (2) granted to any other Employee, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.

                        (ii) In the case of a Nonstatutory Stock Option

                                (1) granted to a Service Provider who, at the
time of grant of such Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the exercise price shall be no less than 110% of the Fair Market
Value per Share on the date of grant.

                                     - 5 -
<PAGE>   6

                                (2) granted to any other Service Provider, the
per Share exercise price shall be no less than 85% of the Fair Market Value per
Share on the date of grant.

                        (iii) Notwithstanding the foregoing, Options may be
granted with a per Share exercise price other than as required above pursuant to
a merger or other corporate transaction.

                (b) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) consideration received by the Company
under a cashless exercise program implemented by the Company in connection with
the Plan, or (6) any combination of the foregoing methods of payment. In making
its determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.

        9. Exercise of Option.

                (a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable according to the terms hereof at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement. Except in the case of Options granted to Officers,
Directors and Consultants, Options shall become exercisable at a rate of no less
than 20% per year over five (5) years from the date the Options are granted.
Unless the Administrator provides otherwise, vesting of Options granted
hereunder shall be tolled during any unpaid leave of absence. An Option may not
be exercised for a fraction of a Share.

        An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.

        Exercise of an Option in any manner shall result in a decrease in the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.

                                     - 6 -
<PAGE>   7

                (b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, such Optionee may exercise his or her
Option within such period of time as is specified in the Option Agreement (of at
least thirty (30) days) to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of the Option
as set forth in the Option Agreement). In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for three (3) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified by
the Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.

                (c) Disability of Optionee. If an Optionee ceases to be a
Service Provider as a result of the Optionee's Disability, the Optionee may
exercise his or her Option within such period of time as is specified in the
Option Agreement (of at least six (6) months) to the extent the Option is vested
on the date of termination (but in no event later than the expiration of the
term of such Option as set forth in the Option Agreement). In the absence of a
specified time in the Option Agreement, the Option shall remain exercisable for
twelve (12) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.

                (d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (of at least six (6) months) to the extent that the
Option is vested on the date of death (but in no event later than the expiration
of the term of such Option as set forth in the Option Agreement) by the
Optionee's estate or by a person who acquires the right to exercise the Option
by bequest or inheritance. In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
the Optionee's termination. If, at the time of death, the Optionee is not vested
as to the entire Option, the Shares covered by the unvested portion of the
Option shall immediately revert to the Plan. If the Option is not so exercised
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.

                (e) Buyout Provisions. The Administrator may at any time offer
to buy out for a payment in cash or Shares, an Option previously granted, based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.

        10. Non-Transferability of Options and Stock Purchase Rights. The
Options and Stock Purchase Rights may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or by
the laws of descent or distribution and may be exercised, during the lifetime of
the Optionee, only by the Optionee.

        11. Stock Purchase Rights.

                (a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside

                                     - 7 -
<PAGE>   8

of the Plan. After the Administrator determines that it will offer Stock
Purchase Rights under the Plan, it shall advise the offeree in writing or
electronically of the terms, conditions and restrictions related to the offer,
including the number of Shares that such person shall be entitled to purchase,
the price to be paid, and the time within which such person must accept such
offer. The terms of the offer shall comply in all respects with Section
260.140.42 of Title 10 of the California Code of Regulations. The offer shall be
accepted by execution of a Restricted Stock purchase agreement in the form
determined by the Administrator.

                (b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine. Except with respect to Shares purchased by
Officers, Directors and Consultants, the repurchase option shall in no case
lapse at a rate of less than 20% per year over five (5) years from the date of
purchase.

                (c) Other Provisions. The Restricted Stock purchase agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.

                (d) Rights as a Stockholder. Once the Stock Purchase Right is
exercised, the purchaser shall have rights equivalent to those of a stockholder
and shall be a stockholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 12 of
the Plan.

        12. Adjustments Upon Changes in Capitalization, Merger or Asset Sale.

                (a) Changes in Capitalization. Subject to any required action by
the stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company. The conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with

                                     - 8 -
<PAGE>   9

respect to, the number or price of shares of Common Stock subject to an Option
or Stock Purchase Right.

                (b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option or Stock Purchase Right until
fifteen (15) days prior to such transaction as to all of the Optioned Stock
covered thereby, including Shares as to which the Option or Stock Purchase Right
would not otherwise be exercisable. In addition, the Administrator may provide
that any Company repurchase option applicable to any Shares purchased upon
exercise of an Option or Stock Purchase Right shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option or Stock Purchase Right will terminate immediately prior to the
consummation of such proposed action.

                (c) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding Option and Stock Purchase Right
shall be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option or Stock Purchase
Right shall terminate upon the expiration of such period. For the purposes of
this paragraph, the Option or Stock Purchase Right shall be considered assumed
if, following the merger or sale of assets, the option or right confers the
right to purchase or receive, for each Share of Optioned Stock subject to the
Option or Stock Purchase Right immediately prior to the merger or sale of
assets, the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.

        13. Time of Granting Options and Stock Purchase Rights. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator. Notice
of the determination shall be given to each Service Provider to whom an Option
or Stock Purchase Right is so granted within a reasonable time after the date of
such grant.

                                     - 9 -
<PAGE>   10

        14. Amendment and Termination of the Plan.

                (a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.

                (b) Stockholder Approval. The Board shall obtain stockholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.

                (c) Effect of Amendment or Termination. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to Options
granted under the Plan prior to the date of such termination.

        15. Conditions Upon Issuance of Shares.

                (a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.

                (b) Investment Representations. As a condition to the exercise
of an Option, the Administrator may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.

        16. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.

        17. Reservation of Shares. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

        18. Stockholder Approval. The Plan shall be subject to approval by the
stockholders of the Company within twelve (12) months after the date the Plan is
adopted. Such stockholder approval shall be obtained in the degree and manner
required under Applicable Laws.

        19. Information to Optionees and Purchasers. The Company shall provide
to each Optionee and to each individual who acquires Shares pursuant to the
Plan, not less frequently than annually during the period such Optionee or
purchaser has one or more Options or Stock Purchase Rights outstanding, and, in
the case of an individual who acquires Shares pursuant to the Plan, during the
period such individual owns such Shares, copies of annual financial statements.
The

                                     - 10 -
<PAGE>   11

Company shall not be required to provide such statements to key employees whose
duties in connection with the Company assure their access to equivalent
information

                                     - 11 -

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