<PAGE>
 
                                                                    EXHIBIT 10.3
                                                                                

                             EMPLOYMENT AGREEMENT
                              (Malcolm Morville)

     This Agreement, dated as of June 5, 1996, is between Phytera, Inc.
("Phytera"), a Massachusetts corporation with its principal offices at Four
Biotech Park, 377 Plantation Street, Worcester, Massachusetts  01605 and Malcolm
Morville (the "Executive") residing at 449 West Main Street, Shrewsbury,
Massachusetts  01545.

     Phytera desires to employ the Executive as President and Chief Executive
Officer of Phytera for the period and upon the terms and conditions hereinafter
set forth.

     Executive desires to serve in such capacities for such period and upon such
terms.

     Accordingly, the parties hereto agree as follows:

     SECTION 1.  EMPLOYMENT OF EXECUTIVE.

     1.1  Employment.  Subject to the terms and conditions of this Agreement,
          ----------                                                         
Phytera agrees to employ Executive as President and Chief Executive Officer of
Phytera.  Executive shall perform such specific duties as are commensurate with
such positions, and as may reasonably be assigned to the Executive from time to
time by the Board of Directors of Phytera, for the period commencing on the date
hereof and terminating on June 5, 1999, unless earlier terminated as herein
provided.  Executive hereby accepts such employment for the term hereof.
Neither Phytera nor Executive shall have any obligation to continue employment
after the term hereof.  If Executive remains employed by Phytera after the term
hereof, Executive's employment and compensation may be terminated at will, with
or without cause and with or without notice, at any time at the option of
Phytera or Executive, subject to the terms set forth in Section 4.2 hereof.

     SECTION 2.  COMPENSATION.  For all services to be rendered by Executive to
Phytera during the term of this Agreement, Phytera shall pay to, and provide the
Executive with, the following compensation and benefits:

     2.1  Base Salary and Bonus.  For the period from the date hereof until
          ---------------------                                            
December 31, 1996, Phytera shall pay to Executive (i) a base salary of not less
than $250,000 per year, pro rated for such portion of a year and payable in
substantially equal installments in accordance with Phytera practice as in
effect from time to time, and (ii) incentive and compensatory bonuses, if any,
as may be awarded in accordance with the written consent of the Phytera's
Compensation Committee dated January 11, 1996.  With respect to subsequent
periods during the term of this Agreement, Phytera will review Executive's base
salary and bonus from time to time and may make adjustments to such base salary
and determine such bonus based upon, among other factors: (a) Executive's
performance, (b) Phytera's performance, (c) changes in costs of living, (d)
changes in Executive's responsibilities, and (e) the benefit to Phytera of
Executive's efforts on its behalf; provided that Executive's base salary shall
not be less than $250,000 per year during the term of this Agreement.
<PAGE>
 
     2.2  Participation in Benefit Plans.  Executive shall be entitled to
          ------------------------------                                 
participate in all employee benefit plans or programs of Phytera.  For the
purpose of determining Executive's eligibility for such plans and programs,
Executive's tenure shall be calculated from Executive's original date of hire at
Phytera (or any affiliate or predecessor of Phytera).  Phytera may, from time to
time, grant Executive stock options under Phytera's stock option plans.  Phytera
does not guarantee the adoption or continuance of any particular employee
benefit or stock plan or other program during the term of this Agreement, and
Executive's participation in any such plan or program shall be subject to the
provisions, rules and regulations applicable thereto.  Executive shall be
entitled to paid vacation each year in accordance with applicable Phytera
policy.  Health and dental plans shall cover Executive and his dependents as
they do for other Phytera executives.  Such health and dental plans comply with
ERISA and COBRA to the extent applicable.  Under current health insurance
policies, such COBRA rights will commence on termination of the period over
which severance payments are made under Section 4.2.

     2.3  Expenses.  Phytera shall reimburse Executive for all ordinary and
          --------                                                         
necessary business expenses incurred in the performance of Executive's duties
under this Agreement, provided that Executive accounts properly for such
expenses to Phytera in accordance with the general corporate policies of Phytera
and in accordance with the requirements of the Internal Revenue Service
regulations relating to substantiation of expenses.

     SECTION 3.  CONFIDENTIAL INFORMATION AND NON-COMPETITION AGREEMENTS.  As a
condition to Phytera's obligations hereunder, the Executive has executed a
Confidentiality and Proprietary Information Agreement pertaining to the
intellectual property and confidential information of Phytera an Agreement Not
to Compete, in favor of Phytera.

     The obligations of Executive under this section and the agreements
referenced in the preceding paragraph shall survive termination of this
Agreement for any reason.

     SECTION 4.  TERMINATION AND SEVERANCE PAYMENT.

     4.1  Early Termination.  Prior to the expiration of the term specified in
          -----------------                                                   
Section 1.1:

          (a) Executive's employment hereunder shall terminate upon Executive's
death or inability, by reason of physical or mental impairment, to perform
substantially all of Executive's duties as contemplated herein for a continuous
period of 120 days or more;

          (b) Executive's employment hereunder may be terminated by the
Executive without Good Reason, as defined below;

          (c) Executive's employment hereunder may be terminated by the
Executive with Good Reason;

          (d) Executive's employment hereunder may be terminated by Phytera
without Cause, as defined below; or

          (e) Executive's employment hereunder may be terminated by Phytera with
Cause.

                                       2
<PAGE>
 
     4.2  Definitions.  For the purposes of this Section 4, the following terms
          -----------                                                          
shall apply:

          (a) "Cause" shall mean Executive's breach of any material duty or
obligation hereunder, or intentional or grossly negligent conduct that is
materially injurious to Phytera, as reasonably determined by Phytera's Board of
Directors, or willful failure to follow the reasonable directions of Phytera's
Board of Directors.

          (b) "Good Reason" shall mean (1) during the nine (9) month period
following a Change in Control, a good faith determination by the Executive that
as a result of such Change in Control, he is not able to discharge his duties
effectively or (2) without the Executive's express written consent, the
occurrence after a Change in Control of any of the following circumstances:

               (i)   the assignment to the Executive of any duties inconsistent
     (except in the nature of a promotion) with the position in Phytera that he
     held immediately prior to the Change in Control or a substantial adverse
     alteration in the nature or status of his position or responsibilities or
     the conditions of his employment from those in effect immediately prior to
     the Change in Control;

               (ii)  a reduction by Phytera in the Executive's annual base
     salary as in effect on the date hereof or as the same may be increased from
     time to time;

               (iii) Phytera's requiring the Executive to be based more than
     twenty-five (25) miles from Phytera's offices at which he was principally
     employed immediately prior to the date of the Change in Control except for
     required travel on Phytera's business to an extent substantially consistent
     with his present business travel obligations;

               (iv)  the failure by Phytera to pay to the Executive any portion
     of his current compensation or compensation under any deferred compensation
     program of Phytera, within seven (7) days of the date such compensation is
     due;

               (v)   the failure by Phytera to continue in effect any material
     compensation or benefit plan in which the Executive participates
     immediately prior to the Change in Control unless an equitable arrangement
     (embodied in an ongoing substitute or alternative plan) has been made with
     respect to such plan, or the failure by Phytera to continue the Executive's
     participation therein (or in such substitute or alternative plan) on a
     basis not materially less favorable, both in terms of the amount of
     benefits provided and the level of his participation relative to other
     participants, than existed at the time of the Change in Control;

               (vi)  the failure by Phytera to continue to provide the Executive
     with benefits substantially similar to those enjoyed by him under any of
     Phytera's pension, life insurance, medical, health and accident, or
     disability plans in which he was participating at the time of the Change in
     Control, the taking of any action by Phytera which would directly or
     indirectly materially reduce any of such benefits or deprive the Executive
     of any material fringe benefit enjoyed by him at the time of the Change in
     Control, or the failure by Phytera to provide the Executive with the number
     of paid vacation days to which he is entitled on the basis of his years of
     service with Phytera in accordance with Phytera's normal vacation policy in
     effect at the time of the Change in Control; or

                                       3
<PAGE>
 
               (vii) the failure of Phytera to obtain a satisfactory agreement
     from any successor to assume and agree to perform this Agreement, as
     contemplated in Section 5 hereof.

     The Executive's right to terminate his employment pursuant to this
Subsection shall not be affected by his incapacity due to physical or mental
illness.  The Executive's continued employment shall not constitute consent to,
or a waiver of rights with respect to, any circumstance constituting Good Reason
hereunder.

          (c) "Change in Control" shall mean:

               (i)   the acquisition from any party other than Phytera of 40% or
more of Phytera's Common Stock (including shares convertible into Common Stock)
by any "person" (as such term is defined in Section 3(a)(9) of the Securities
Exchange Act of 1934);

               (ii)  a merger or similar combination after which 49% or more of
the voting stock of the surviving corporation is held by persons who were not
stockholders of Phytera immediately prior to such merger or combination; and

               (iii) after termination of the Shareholders Agreement dated
January 31, 1996, the election by the stockholders of Phytera of 20% or more of
the directors of Phytera other than pursuant to nomination by Phytera's
management.

     4.3  Severance Payment; Benefits.
          --------------------------- 

          (a)  Termination Events Resulting in Severance Payments and Option and
               -----------------------------------------------------------------
Restricted Stock Vesting Acceleration.  In the event of the termination of the
-------------------------------------                                         
Executive's employment by Phytera without Cause or by the Executive with Good
Reason, whether before or after the expiration of the term specified in Section
1.1 (including a failure of the Phytera to enter into a renewal of this
Agreement):

          (i) Phytera shall make severance payments to Executive equal to (A)
          six (6) months of the Executive's base salary at the time of such
          termination, payable in a lump sum within ten days after the
          termination date and (B) an amount equal to the Executive's maximum
          incentive bonus that would be payable to him at any time within the
          six month period following such termination and would otherwise be due
          to Executive if such termination had not occurred and the maximum
          amount of such bonus had been fully earned, pro rated on the basis of
          the number of days that have elapsed between the beginning of the
          bonus period in which such termination occurs and the termination
          date, payable in a lump sum within ten (10) days after the termination
          date; and

          (ii) any options then held by Executive to purchase shares of the
          Common Stock of Phytera, which options are then subject to vesting
          based on continued employment only, shall, notwithstanding any
          contrary provision in the agreement or plan pursuant to which such
          options had been granted, a portion of the number of shares which
          would otherwise become exercisable on the next vesting date ("Next
          Option Vest Date") under such option shall be deemed fully vested and

                                       4
<PAGE>
 
          exercisable on the date immediately preceding the effective date of
          such termination for the duration of the term of such options, such
          portion to be calculated by multiplying the number of shares which
          would otherwise become exercisable on the Next Option Vest Date by a
          fraction, (i) the numerator of which is the number of calendar days
          which elapsed from the last vesting date of such option or the date of
          grant of such option if there is no last vesting date (the "Option
          Base Date") through the date of termination and (ii) the denominator
          of which is the total number of calendar days from the Option Base
          Date to the Next Option Vest Date; and

          (ii) any Common Stock of Phytera then held by Executive pursuant to
          Restricted Stock Purchase Agreements providing Phytera with a right of
          repurchase upon termination of employment subject to vesting
          provisions, shall, notwithstanding any contrary provision in the
          agreement pursuant to which such shares had been issued, a portion of
          the number of shares which would otherwise become free from such
          repurchase right on the next vesting date ("Next Stock Vest Date")
          under such agreement shall be deemed fully vested on the date
          immediately preceding the effective date of such termination, such
          portion to be calculated by multiplying the number of shares which
          would otherwise become vested on the Next Stock Vest Date by a
          fraction, (i) the numerator of which is the number of calendar days
          which elapsed from the last vesting date of such shares under such
          agreement or the date of such agreement if there is no last vesting
          date (the "Stock Base Date") through the date of termination and (ii)
          the denominator of which is the total number of calendar days from the
          Stock Base Date to the Next Stock Vest Date.

     In the event that Executive's employment is terminated pursuant to Section
4.1(a), (b) or (d), no severance shall be payable, Executive's options shall be
exercisable in accordance with their terms and Executive's shares of Common
Stock shall be subject to repurchase in accordance with the terms of any
applicable Restricted Stock Purchase Agreement.

          (b) Benefits.  In the event of any termination of Executive,
              --------     
Executive's coverage under Phytera's life, health and dental insurance plans
will remain in effect and Executive will be entitled to continue to participate
in Phytera's retirement plans, all at Phytera's expense, during the six months
following the termination date, unless Executive notifies Phytera in writing
that such coverage is no longer necessary. If because of limitations required by
third parties or imposed by law, Executive cannot be provided such benefits
through Phytera's plans, then Phytera will provide Executive with substantially
equivalent benefits on an aggregate basis, at its expense.

     SECTION 5.  MISCELLANEOUS.

     5.1  Assignment.  This Agreement may not be assigned, in whole or in part,
          ----------                                                           
by any party without the prior written consent of the other party, except that
Phytera may, without the consent of Executive, assign its rights and obligations
under this Agreement to any corporation, firm or other business entity with or
into which Phytera may merge or consolidate, or to which Phytera may sell or
transfer all or substantially all of its assets, or of which 50% or more of the

                                       5
<PAGE>
 
equity investment and of the voting control is owned, directly or indirectly,
by, or is under common ownership with, Phytera.  After any such assignment by
Phytera, Phytera shall be discharged from all further liability hereunder and
such assignee shall have all the rights and obligations of Phytera under this
Agreement.

     5.2  Notices.  All notices, requests, demands and other communications to
          -------                                                             
be given pursuant to this Agreement shall be in writing and shall be deemed to
have been duly given if delivered by hand or mailed by registered or certified
mail, return receipt requested, postage prepaid, to the addresses set forth at
the beginning of this Agreement or such other address as a party shall have
designated by notice in writing to the other party, provided that notice of any
change in address must actually have been received to be effective hereunder.

     5.3  Integration.  This Agreement is the entire agreement of the parties
          -----------                                                        
with respect to the subject matter hereof and supersedes any prior agreement or
understanding relating to Executive's employment with or compensation by
Phytera.  This Agreement may not be amended, supplemented or otherwise modified
except by a writing signed by Executive and Phytera.

     5.4  Binding Effect.  Subject to Section 5.1, this Agreement shall inure to
          --------------                                                        
the benefit of and be binding upon the parties hereto and their successors,
assigns, heirs and personal representatives.

     5.5  Counterparts.  This Agreement may be executed in two or more
          ------------                                                
counterparts, each of which shall be deemed an original and shall together
constitute one and the same instrument.

     5.6  Severability.  If any provision hereof shall, for any reason, be held
          ------------                                                         
to be invalid or unenforceable in any respect, such invalidity or
unenforceability shall not affect any other provision hereof, and this Agreement
shall be construed as if such invalid or unenforceable provision had not been
included herein.  If any provision hereof shall for any reason be held by a
court to be excessively broad as to duration, geographical scope, activity or
subject matter, it shall be construed by limiting and reducing it to make it
enforceable to the extent compatible with applicable law as then in effect.

     5.7  Governing Law.  This Agreement shall be governed by the laws of the
          -------------                                                      
Commonwealth of Massachusetts, without regard to its conflict of law provisions.

                                       6
<PAGE>
 
     IN WITNESS WHEREOF, the undersigned have duly executed and delivered this
Agreement as of the date first stated above.

                                             EXECUTIVE


                                             /s/ Malcolm Morville 
                                             ----------------------------
                                             Malcolm Morville


                                             PHYTERA, INC.


                                             By: /s/ Robert Foster
                                                -------------------------
                                               Title:

                                       7