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                                                                    EXHIBIT 10.1

                          AGREEMENT AND PLAN OF MERGER

                                  BY AND AMONG

                         LEXICON GENETICS INCORPORATED,

                            ANGLER ACQUISITION CORP.,

                                       AND

                             COELACANTH CORPORATION

                                  June 13, 2001

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                          AGREEMENT AND PLAN OF MERGER

         This AGREEMENT AND PLAN OF MERGER (the "AGREEMENT") is made and entered
into as of June 13, 2001, by and among LEXICON GENETICS INCORPORATED, a Delaware
corporation ("PARENT"), its wholly-owned subsidiary, ANGLER ACQUISITION CORP., a
Delaware corporation ("MERGER SUB"), and COELACANTH CORPORATION, a Delaware
corporation ("COMPANY").

                                    RECITALS:

         WHEREAS, the respective Boards of Directors of Company, Parent and
Merger Sub have determined that it is in the best interests of their respective
companies and the stockholders of their respective companies that Company and
Merger Sub combine into a single company through the statutory merger of Merger
Sub with and into Company (the "MERGER") and, in furtherance thereof, have
approved the Merger in accordance with the applicable provisions of the Delaware
General Corporation Law ("DELAWARE LAW") upon the terms and subject to the
conditions set forth herein; and

         WHEREAS, Company, Parent and Merger Sub desire to make certain
representations, warranties, covenants and other agreements in connection with
the Merger; and

         WHEREAS, holders of at least a majority of the requisite classes and
series of the Company's outstanding capital stock required to approve the Merger
have executed an agreement granting Parent an irrevocable proxy to vote such
holders' shares of capital stock in favor of the Merger and the transactions
contemplated thereby.

         NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements set forth herein, and for other good and
valuable consideration, and intending to be legally bound hereby, the parties
hereto agree as follows:

                                   ARTICLE 1

                                   THE MERGER

     SECTION 1.1 THE MERGER. At the Effective Time (as hereinafter defined) and
subject to and upon the terms and conditions of this Agreement and the
Certificate of Merger attached hereto as Exhibit A (the "CERTIFICATE OF MERGER")
and the applicable provisions of Delaware Law, Merger Sub shall be merged with
and into the Company, the separate corporate existence of Merger Sub shall
cease, and the Company shall continue as the surviving corporation and a
wholly-owned subsidiary of Parent. The Company, as the surviving corporation,
after the Merger is hereinafter sometimes referred to as the "SURVIVING
CORPORATION."

     SECTION 1.2 CLOSING; EFFECTIVE TIME. The closing of the transactions
contemplated hereby (the "CLOSING") shall take place as soon as practicable
following the execution of the Agreement and after the satisfaction or waiver of
each of the conditions set forth

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in Article 5 hereof, or at such other time as the parties hereto agree (the
"CLOSING DATE"). The Closing shall take place at the offices of Mintz Levin Cohn
Ferris Glovsky & Popeo P.C., 666 Third Avenue, New York, New York, or at such
other location as the parties hereto agree. In connection with the Closing, the
parties hereto shall cause the Merger to be consummated by filing the
Certificate of Merger, and any other documents required by Delaware Law, with
the Secretary of State of the State of Delaware, in accordance with the relevant
provisions of Delaware Law (the time of such filings being the "EFFECTIVE
TIME").

     SECTION 1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation, and the Surviving Corporation shall become a wholly-owned
subsidiary of Parent.

     SECTION 1.4 CERTIFICATE OF INCORPORATION; BYLAWS.

         (a) At the Effective Time, the Certificate of Incorporation of the
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation, until thereafter
amended as provided by Delaware Law.

         (b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended as provided by Delaware Law and such Bylaws.

     SECTION 1.5 DIRECTORS AND OFFICERS.

         (a) At the Effective Time, the directors of Merger Sub shall be the
directors of the Surviving Corporation, until their respective successors are
duly elected or appointed and qualified.

         (b) The officers of the Company, as in effect immediately prior to the
Effective Time, shall be the officers of the Surviving Corporation, until their
respective successors are duly elected or appointed and qualified.

     SECTION 1.6 EFFECT ON CAPITAL STOCK Subject to the terms and conditions of
this Agreement and the Certificate of Merger, as of the Effective Time and by
virtue of the Merger and without any further action on the part of Parent,
Merger Sub, Company or the holders of any of the Company's securities:

         (a) Conversion of Company Capital Stock. At the Effective Time, except
as otherwise provided in Section 1.6(b) and 1.6(f), all shares of capital stock
of the Company issued and outstanding immediately prior to the Effective Time
(other than any such shares owned by Merger Sub, collectively, the "Shares"),
shall be converted into the right to receive unregistered shares of Parent's
common stock, par value $.001 per share (the "PARENT COMMON STOCK"), with

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an aggregate value, based on the Average Closing Price (as hereinafter defined)
of $32,000,000 (the "PURCHASE PRICE") provided that no fractional shares of
Parent Common Stock shall be issued and, in lieu thereof, a cash payment shall
be made pursuant to Section 1.6(g) valued at the Average Closing Price. All such
Shares, by virtue of the Merger and without any action on the part of the
holders thereof, shall no longer be outstanding and shall be canceled and
retired and shall cease to exist, and each holder of a certificate representing
any such Shares shall thereafter cease to have any rights with respect to such
Shares, except each such holder's right to receive the Purchase Price for such
Shares shall be as follows: (A) 90% of such Purchase Price shall be payable upon
surrender of such certificate in accordance with Section 1.8 and, (B) following
such surrender, up to 10% of such Purchase Price shall be payable upon
distribution of the Escrow Fund (as hereinafter defined) under the Indemnity
Escrow Agreement (as hereinafter defined) in accordance with the terms thereof.
The Purchase Price shall be allocated and disbursed among the holders of the
Company's capital stock (the "STOCKHOLDERS") in accordance with the provisions
of the Amended and Restated Certificate of Incorporation of the Company, in
effect as of the date of this Agreement. Hypothetical examples of Purchase Price
allocation, based on various transaction values, are set forth in Exhibit B
attached hereto.

For purposes of this Agreement, the term "AVERAGE CLOSING PRICE" shall mean the
average closing price of a share of Parent Common Stock on the Nasdaq National
Market for the 30 calendar days ending on the third calendar day prior to the
Closing Date; provided, however, that (i) if such price is equal to or less than
$8.87, the Average Closing Price shall be deemed to be $8.87, and (ii) if such
price is equal to or greater than $13.30, the Average Closing Price shall be
deemed to be $13.30. Subject to adjustment pursuant to Section 1.6(g), the total
number of shares of Parent Common Stock to be delivered, whether delivered or
held back, at the Effective Time shall be (i) equal to the number of shares of
Parent Common Stock obtained by dividing (A) $32,000,000 by (B) the Average
Closing Price, if the Average Closing Price is between $8.87 and $13.30; (ii)
2,406,305 shares of Parent Common Stock if the Average Closing Price is equal to
or greater than $13.30; or (iii) 3,609,457 shares of Parent Common Stock if the
Average Closing Price is equal to or less than $8.87.

         (b) Cancellation of Company Capital Stock Owned by Company. At the
Effective Time, all shares of the Company's capital stock that are owned or held
by the Company as treasury stock shall be surrendered and extinguished without
any conversion thereof.

         (c) Merger Sub Stock. At the Effective Time, all issued and outstanding
shares of common stock of Merger Sub, by virtue of the Merger and without any
further action on the part of any holder thereof, shall be converted into, and
exchanged for, one share of common stock, par value $0.0001 per share, of the
Surviving Corporation.

         (d) Stock Option Plan.

               (i) At the Effective Time, each then outstanding option to
purchase Company Common Stock (a "STOCK OPTION") granted under the Company's
1999 Stock Option Plan ("COMPANY STOCK OPTION PLAN") shall be assumed by Parent.
Each Stock Option that is assumed by Parent (the "ASSUMED OPTION") shall become
an option to purchase shares of the common stock of Parent (the "PARENT COMMON
STOCK") in such amount and at such exercise

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price as provided below and otherwise having the terms and conditions not less
favorable than those that were applicable under the Company Stock Option Plan
(and any stock option agreement applicable to such Stock Option prior to the
Effective Time):

                    (A) The Assumed Option shall entitle the holder to purchase
               that number of shares of Parent Common Stock (rounded up to the
               nearest whole number) as the holder of such Stock Option would
               have been entitled to receive pursuant to the Merger had such
               Stock Option holder exercised such option in full immediately
               prior to the Effective Time (not taking into account whether or
               not such option was in fact exercisable); and

                    (B) The exercise price per share of Parent Common Stock
               shall be equal to (x) the aggregate exercise price of such Stock
               Option prior to the Effective Time divided by (y) the number of
               shares of Parent Common Stock which the Stock Option authorizes
               the holder to purchase as of the Effective Time.

Prior to the Effective Time, without the written consent of the Parent, the
Company shall not knowingly take any action to effect the acceleration of any
Stock Option held by the Stock Option holder without the written consent of the
Parent.

               (ii) As soon as practicable after the Effective Time, Parent
shall deliver to each holder of an outstanding Stock Option an appropriate
notice setting forth the number of shares of Parent Common Stock subject to the
Assumed Option, the exercise price of the Assumed Option and the Optionee's
rights pursuant thereto.

               (iii) Prior to the Effective Time, Parent shall have taken all
corporate action necessary to reserve for issuance a sufficient number of shares
of Parent Common Stock for delivery upon exercise of Company Stock Options.
Subject to any applicable limitations under the Securities Act of 1933, as
amended, and the rules and regulations thereunder (the "SECURITIES ACT"), Parent
shall file a Registration Statement on Form S-8 (or any successor form),
effective not later than twenty (20) days after the Effective Time, with respect
to the shares of Parent Common Stock issuable upon exercise of the outstanding
Stock Options. Parent shall provide all Optionees with a prospectus or updated
prospectus (as defined in Section 10(a) of the Securities Act) and Parent shall
use all reasonable efforts to maintain the effectiveness of such registration
statement and the current status of the prospectus relating thereto, for so long
as such options shall remain outstanding.

         (e) Company Warrants. At the Effective Time, the Parent shall assume
all of the Company's rights and obligations with respect to each of the warrants
to purchase capital stock of the Company (each a "COMPANY WARRANT" and
collectively, the "COMPANY WARRANTS") then outstanding, and such Company Warrant
shall be replaced by Parent with, and shall be converted into, a warrant to
purchase that number of shares of Parent Common Stock (rounded up to the nearest
whole number) as the holder of such Company Warrant would have been entitled to
receive pursuant to the Merger had such Company Warrant been exercised in full

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immediately prior to the Effective Time, at the applicable ratio set forth in
Section 1.6(a). Each Company Warrant that is assumed by Parent (collectively,
the "PARENT WARRANTS") shall have terms and conditions that are no less
favorable than those that were applicable under the Company Warrant. At the
Effective Time, the Parent Warrants shall be executed and delivered by the
Parent.

         (f) Dissenters' Rights. For the purposes of this Agreement, "DISSENTING
SHARES" shall refer to all Shares held by stockholders of the Company who have
not voted such Shares for approval of the Merger and with respect to which such
stockholders shall have demanded properly in writing appraisal for such Shares
in accordance with Section 262 of Delaware Law. The aggregate number of
Dissenting Shares shall in no event exceed 10% of the Company's outstanding
Common Stock as of the Effective Time, on a fully diluted, as-converted basis.
Any Dissenting Shares shall not be converted into, or be exchangeable for, the
right to receive Parent Common Stock but shall instead be converted in to the
right to receive such consideration as may be determined to be due with respect
to such Dissenting Shares pursuant to Delaware Law unless and until such holder
shall have failed to perfect or shall have effectively withdrawn or lost such
holder's right of appraisal and payment, as the case may be. The Company shall
give Parent prompt notice of any withdrawals of any Dissenting Shares (and shall
also give Parent prompt notice of any withdrawals of such demands for appraisal
rights), and Parent shall have the right to direct all negotiations and
proceedings with respect to such demands. Neither the Company nor the Surviving
Corporation shall, except with the prior written consent of Parent, voluntarily
make any payments with respect to, or settle or offer to settle, any such demand
for appraisal rights. If after the Effective Time, any Dissenting Shares shall
lose their status as Dissenting Shares, Parent shall issue and deliver, upon
surrender by such Company Stockholder of a certificate or certificates
representing any Shares, the number of shares of Parent Company Stock to which
such stockholder would otherwise be entitled under Section 1.6(a) and the
Certificate of Merger, without any interest thereon.

         (g) No Fractional Shares. No certificates evidencing fractional shares
of Parent Common Stock shall be issued upon the surrender for exchange of the
Shares, and such fractional share interests shall not entitle the owner thereof
to any rights of a stockholder of Parent. In lieu of any such fractional shares,
each holder of a stock certificate previously evidencing a Share, upon surrender
of such certificate for exchange pursuant to this Section 1.6, shall be paid an
amount in cash (without interest), rounded to the nearest cent, determined by
multiplying (i) the Average Closing Price by (ii) the fractional interest to
which such holder would otherwise be entitled (after taking into account all
Shares held of record by such holder at the Effective Time).

     SECTION 1.7 INCENTIVE BONUSES. At and after the Closing, Parent shall fund
a $1,450,000 cash bonus pool to be distributed solely to management and
employees of the Company who remain in the employment of the Surviving
Corporation or Parent at the time of distribution. Bonuses will be awarded by
the Surviving Corporation or Parent and paid in accordance with the terms of
that certain letter agreement dated of even date herewith by and among the
Parent, the Merger Sub and the Company.

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     SECTION 1.8 CERTIFICATES. At or after the Effective Time, each stockholder
of the Company shall surrender to the Parent for cancellation its certificates
representing all of the issued and outstanding Shares owned by such stockholder,
duly endorsed in blank, or accompanied by stock power, and signed by such
stockholder. Upon surrender of such certificate or certificates, at the Closing,
or upon presentation thereafter in accordance with Section 1.9, the holder of
such certificates shall be entitled to receive its portion of the Purchase Price
as set forth in Section 1.6(a).

     SECTION 1.9 TRANSFER OF SHARES AFTER THE EFFECTIVE TIME. The Purchase Price
issued upon the surrender for exchange of Shares in accordance with the terms
hereof shall be deemed to have been issued in full satisfaction of all rights
pertaining to such Shares, and there shall be no further registration of
transfers on the records of the Surviving Corporation of Shares which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, certificates representing Shares are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article 1.

     SECTION 1.10 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of Company, the officers and directors of Company are
fully authorized in the name of their corporation or otherwise to take, and will
use good faith efforts to take, all such lawful and necessary action, so long as
such action is not inconsistent with this Agreement.

     SECTION 1.11 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
certificates representing Shares shall have been lost, stolen or destroyed, the
Parent shall issue in exchange for such lost, stolen or destroyed certificates,
upon the making of an affidavit of that fact by the holder thereof, and
appropriate indemnification of Parent as Parent reasonably deems necessary, that
portion of the Purchase Price as may be required pursuant to Section 1.6(a).

                                   ARTICLE 2

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         In this Agreement, any reference to any event, change, condition or
effect being "material" with respect to any entity or group of entities means
any material event, change, condition or effect related to the condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, operations or results of operations of such entity or
group of entities taken as a whole. In this Agreement, any reference to a
"MATERIAL ADVERSE EFFECT" with respect to any entity or group of entities means
any event, change or effect that is materially adverse to the condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, operations or results of operations of such entity and
its subsidiaries, taken as a whole.

         In this Agreement, any reference to a party's "KNOWLEDGE" means the
actual knowledge of such party's officers and directors and all employees of
such party whose primary

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duties include the subject matter of the applicable representation or warranty,
except for Merger Sub, which shall include the actual knowledge of Parent's
officers and directors.

         Except as disclosed in a document of even date herewith and delivered
by the Company to Parent prior to the execution and delivery of this Agreement
and referring to the representations and warranties in this Agreement (the
"COMPANY DISCLOSURE SCHEDULE"), the Company represents and warrants to Parent
and Merger Sub as follows:

     SECTION 2.1 CORPORATE ORGANIZATION. The Company is a corporation validly
existing and in good standing under the laws of the State of Delaware. The
Company has full corporate power and authority to own its properties and assets
and to carry on its business as now being conducted and is duly qualified or
licensed to do business as a foreign corporation in good standing in each
jurisdiction in which the ownership of its property or the conduct of its
business requires such qualifications, except jurisdictions in which the failure
to be so qualified or licensed would not have a Material Adverse Effect. The
Company has delivered or made available to Parent and Merger Sub complete and
correct copies of its Restated Certificate of Incorporation, as amended to the
date hereof, and Bylaws of the Company.

     SECTION 2.2 CAPITAL STOCK. The authorized Company Capital Stock consists
of:

         (a) Preferred Stock. 41,496,251 shares of Preferred Stock, $.0001 par
value per share: of which (i) 4,291,639 shares have been designated Series A
Preferred Stock, of which 3,993,213 shares are currently issued and outstanding
and 298,426 shares have been reserved for issuance pursuant to Company Warrants;
(ii) 2,750,000 shares have been designated Series B Preferred Stock, of which
2,750,000 shares are currently issued and outstanding; (iii) 11,964,148 shares
have been designated Series C Preferred Stock, of which 11,844,148 shares are
currently issued and outstanding and 71,316 shares have been reserved for
issuance pursuant to Company Warrants; (iv) 5,263,158 shares have been
designated Series D Preferred Stock, all of which shares are currently issued
and outstanding; (v) 11,964,148 shares of Class C Redeemable Preferred Stock,
(the "CLASS C REDEEMABLE PREFERRED STOCK"), of which no shares are currently
issued and outstanding, and (vi) 5,263,158 shares of Class D Redeemable
Preferred Stock (the "CLASS D REDEEMABLE PREFERRED STOCK, and together with the
Class C Redeemable Preferred Stock, the "REDEEMABLE PREFERRED STOCK"), of which
no shares are currently issued and outstanding (all such preferred stock
described in this Section 2.2(a), the "PREFERRED STOCK").

         (b) Common Stock. 50,000,000 shares of common stock, $.0001 par value
per share ("COMMON STOCK"), of which 1,271,638 shares are currently issued and
outstanding and of which (i) 4,291,639 shares have been reserved for issuance
upon conversion of the Series A Preferred Stock, (ii) 2,750,000 shares have been
reserved for issuance upon conversion of the Series B Preferred Stock, (iii)
11,964,148 shares have been reserved for issuance upon conversion of the Series
C Preferred Stock, (iv) 5,263,158 shares have been reserved for issuance upon
conversion of the Series D Preferred Stock, and (v) 4,287,857 shares have been
reserved for issuance pursuant to outstanding Stock Options under the Company
Stock Option Plan.

         (c) The outstanding shares of Common Stock, Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
have been duly

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authorized and validly issued, fully paid and nonassessable, and were issued in
accordance with the registration provisions of applicable federal and state
securities laws or pursuant to valid exemptions therefrom.

         (d) The table in Section 2.2(d) of the Company Disclosure Schedule sets
forth a true and complete list of options, warrants, and other convertible
securities issued by the Company (including, without limitation, options issued
pursuant to the Company Stock Option Plan and the Company Warrants) and
outstanding as of the date of this Agreement, together with the number and type
of securities held by each such holder and, as applicable, the exercise price of
such securities and the extent to which such securities are vested. There are no
agreements between the Company and any holder of its capital stock that provides
for accelerated vesting or accelerated lapse of any repurchase right. The
issuance of the issued and outstanding shares of capital stock of the Company
and the Common Stock issuable upon conversion thereof, if applicable, were
issued in compliance with any preemptive rights, rights of first refusal, rights
of first offer or other similar rights or such rights were properly waived.

     SECTION 2.3 SUBSIDIARIES OF THE COMPANY Except as set forth in Section 2.3
of the Company Disclosure Schedule, the Company does not own or control,
directly or indirectly, any capital stock or other equity securities in any
other corporation, association, or other business entity, and the Company does
not have any direct or indirect equity or ownership interest in any partnership,
joint venture, or other business. Section 2.3 of the Company Disclosure Schedule
further sets forth all drug discovery collaboration agreements entered into by
the Company.

     SECTION 2.4 AUTHORIZATION, ETC. The Company has full power and authority to
execute and deliver this Agreement and to carry out the transactions
contemplated hereby. The execution and delivery by the Company of this Agreement
and the consummation by the Company of the transactions contemplated hereby have
been duly approved and authorized, and no other corporate proceedings on the
part of the Company are necessary to approve and authorize the execution and
delivery by the Company of this Agreement and the consummation by the Company of
the transactions contemplated hereby. This Agreement has been duly and validly
executed by the Company and, assuming this Agreement constitutes the valid and
binding agreement of Parent and Merger Sub, constitutes a valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms, subject to the effects of bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally, and the application of general rules of equity.

     SECTION 2.5 BALANCE SHEETS AND INCOME STATEMENTS. The Company has
previously delivered to Parent and Merger Sub the following financial
statements, including the related notes and schedules thereto (collectively, the
"FINANCIAL STATEMENTS"):

         (a) the audited consolidated balance sheets of the Company and its
consolidated subsidiaries as of June 30, 1999, and June 30, 2000 and the audited
consolidated statements of operations, stockholders' equity and cash flows for
each of the fiscal years then ended; and

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         (b) the unaudited consolidated balance sheet (the "BALANCE SHEET") of
the Company and its consolidated subsidiaries as of April 30, 2001 (the "BALANCE
SHEET DATE") and the unaudited consolidated statements of operations,
stockholders' equity and cash flows for the ten (10) month period then ended.

The Financial Statements present fairly in all material respects the
consolidated assets, liabilities, stockholders' equity and results of operations
and financial position of the Company and its consolidated subsidiaries as of
the dates and for the periods indicated, and have been prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a consistent
basis throughout the periods indicated except that unaudited Financial
Statements may not contain all footnotes required by GAAP and are subject to
normal year-end adjustments. Set forth in Section 2.5 of the Company Disclosure
Schedule is an aged schedule of the Company's accounts payable as of the date of
this Agreement.

     SECTION 2.6 NO UNDISCLOSED LIABILITIES. The Company does not have any
liabilities or obligations, whether accrued, absolute or contingent, that are
required to be reflected on a balance sheet of the Company prepared in
accordance with GAAP, other than (a) liabilities and obligations that are
reflected, accrued or reserved for in the Financial Statements, (b) obligations
incurred in the ordinary course of business since the date of the Balance Sheet,
or (c) other liabilities and obligations that are not required by GAAP to be
included in the Financial Statements and would not have a Material Adverse
Effect.

     SECTION 2.7 NO APPROVALS OR CONFLICTS. Except as set forth in Section 2.7
of the Company Disclosure Schedule, or, with respect to clauses (b) through (d)
below, as otherwise would not in the aggregate have a Material Adverse Effect,
neither the execution and delivery by the Company of this Agreement nor the
consummation by the Company of the transactions contemplated hereby will (a)
violate, conflict with or result in a breach of any provision of the Certificate
of Incorporation or Bylaws of the Company, (b) violate, conflict with or result
in a breach of any provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under any
note, bond, mortgage, indenture, deed of trust, lease, contract, agreement or
other instrument to which the Company or any of its properties may be bound, (c)
violate any order, injunction, judgment, ruling, law or regulation of any court
or governmental authority applicable to the Company or any of its properties, or
(d) except for applicable requirements of the United States Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT") and New Jersey Industrial Site
Recovery Act (N.J.S.A. Section 13:1K-6 et seq.), as amended ("ISRA"), require
any consent, approval or authorization of, or notice to, or declaration, filing
or registration with, any governmental or regulatory authority, or any other
third party.

     SECTION 2.8 COMPLIANCE WITH LAW; GOVERNMENTAL AUTHORIZATIONS. Except as set
forth in Section 2.8 of the Company Disclosure Schedule, as reflected, accrued
or reserved for in the Financial Statements, or as otherwise would not in the
aggregate have a Material Adverse Effect, the Company is not in violation of any
license, permit, order, injunction, judgment, ruling, law or regulation of any
court or governmental authority applicable to the property or business of the
Company. Except as set forth in Section 2.8 of the Company Disclosure Schedule
or as otherwise would not reasonably be expected in the aggregate to have a
Material Adverse Effect,

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the licenses, permits and other governmental authorizations held by the Company
are valid and sufficient for the conduct the business of the Company as
currently conducted.

     SECTION 2.9 LITIGATION. Except as set forth in Section 2.9 of the Company
Disclosure Schedule, there are no actions, proceedings or investigations pending
or, to the knowledge of the Company, threatened against the Company or the
transactions contemplated by this Agreement, before any court or governmental or
regulatory authority or body.

     SECTION 2.10 TITLE TO ASSETS. Except as set forth in Section 2.10 of the
Company Disclosure Schedule, on the Balance Sheet Date, the Company had and,
except with respect to assets disposed of in the ordinary course of business
since the Balance Sheet Date and disclosed on Schedule 2.10 of the Company
Disclosure Schedule, the Company now has good and valid title to all the
properties and assets owned by it and reflected on the Balance Sheet or which
would have been reflected on the Balance Sheet if acquired prior to the Balance
Sheet Date, free and clear of all encumbrances except for (i) exceptions to
title as set forth in Section 2.10 of the Company Disclosure Schedule; (ii)
mortgages and encumbrances which secure indebtedness or obligations reflected on
the Balance Sheet; (iii) liens for Taxes (as defined in Section 2.12) not yet
payable or any Taxes being contested in good faith; (iv) liens arising as a
matter of law in the ordinary course of business; and (v) such imperfections of
title and encumbrances, if any, as would not, in the aggregate, have a Material
Adverse Effect. Except as set forth in Section 2.10 of the Company Disclosure
Schedule, the Company owns, or has valid leasehold interests in, all material
tangible properties and assets used in the conduct of its business purported to
be owned by it. The Company does not own any real property.

     SECTION 2.11 ABSENCE OF CERTAIN CHANGES. Except as disclosed in Section
2.11 of the Company Disclosure Schedule and as otherwise provided herein, since
the Balance Sheet Date, (a) the business of the Company has been conducted in
the ordinary course consistent with past practice in all material respects; and
(b) there has not been any event and/or circumstances that would have a Material
Adverse Effect.

     SECTION 2.12 TAXES.

         (a) The Company or a representative thereof on its behalf, (i) has duly
filed with the appropriate Federal, state, local and/or foreign taxing
authorities, as applicable, all material Tax Returns (as defined below) required
to be filed by or with respect to it, (ii) has paid or made provision in the
Balance Sheet for all material Taxes (as defined below) shown as being owed by
it on such required Tax Returns, and (iii) except as set forth in Section 2.12
of the Company Disclosure Schedule, as of the date hereof, has not received any
written notice of deficiency or assessment from any Federal, state, local or
foreign taxing authority with respect to liabilities for Taxes which has not
been paid or finally settled. Any such deficiency or assessment disclosed in
Section 2.12 of the Company Disclosure Schedule is being contested in good faith
through appropriate proceedings.

         (b) For purposes of this Agreement, "TAXES" shall mean all taxes,
charges, fees, levies, penalties or other assessments imposed by any United
States Federal, state, local or foreign taxing authority, including, but not
limited to, income, excise, property, sales and use,

                                       10
<PAGE>   12

transfer, franchise, payroll, withholding, social security or other taxes,
including any interest, penalties or additions attributable thereto.

         (c) For purposes of this Agreement, "TAX RETURN" shall mean any return,
report, information return or other document (including any related or
supporting information) filed or required to be filed with any taxing authority
with respect to Taxes.

     SECTION 2.13 EMPLOYEE BENEFITS.

         (a) Schedule 2.13 sets forth a list of each "employee pension benefit
plan" (within the meaning of Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), "employee welfare benefit plan" (as
defined in Section 3(1) of ERISA) and any severance, change in control or
employment plan, program or agreement, and vacation, incentive, bonus, stock
option, stock purchase, and restricted stock plan, program or policy or fringe
benefit plan or arrangement sponsored or maintained by or contributed to the
Company, in which present or former employees or directors of the Company
participate (collectively, the "COMPANY PLANS").

         (b) The Company Plans are in compliance with all applicable
requirements of ERISA, the Code, and other applicable laws and have been
administered in accordance with their terms and such laws, except where the
failure to so comply or administer would not reasonably be expected to have a
Material Adverse Effect. Each Company Plan which is intended to be qualified
within the meaning of Section 401 of the Code has received a favorable
determination letter as to its qualification or it has a standardized prototype
plan with an IRS identification number, and nothing has occurred to the
knowledge of the Company that would reasonably be expected to affect such
qualification.

         (c) There are no pending or, to the knowledge of the Company,
threatened claims and no pending or, to the knowledge of the Company, threatened
litigation with respect to any the Company Plans, other than ordinary and usual
claims for benefits by participants and beneficiaries.

         (d) Each Company Plan may be unilaterally terminated by the Company at
any time without penalty or liability.

         (e) All contributions required under the Company Plans have been timely
paid when due and properly accrued in accordance with GAAP and reflected on the
Balance Sheet.

     SECTION 2.14 LABOR RELATIONS. Except as set forth in Section 2.14 of the
Company Disclosure Schedule, the Company is not a party to any collective
bargaining agreement applicable to employees of the Company. Except as set forth
in Section 2.14 of the Company Disclosure Schedule, the Company is in compliance
in all material respects with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours and
is not engaged in any unfair labor practice which has had or would reasonably be
expected to have a Material Adverse Effect. As of the date hereof, there is no

                                       11
<PAGE>   13

labor strike, dispute, slowdown or stoppage actually pending or, to the
knowledge of the Company, threatened against or affecting the Company.

     SECTION 2.15 INTELLECTUAL PROPERTY. Section 2.15 of the Company Disclosure
Schedule contains a list of all registered patents, trademarks, trade names,
service marks and copyrights owned by the Company and material to the business
as is currently conducted (collectively, "INTELLECTUAL PROPERTY"), and an
accurate and complete list of all material licenses and other agreements
relating thereto (collectively, "LICENSE AGREEMENTS"). Except as set forth in
Section 2.15 of the Company Disclosure Schedule, (a) the consummation of the
transactions contemplated by this Agreement will not materially impair Parent
and Merger Sub's right to use any Intellectual Property or the enforceability of
the License Agreements, (b) the Company has not received a written notice of any
claims by any person relating to the Company's use of any Intellectual Property,
or challenging or questioning the validity or enforceability of any such License
Agreement, which claims, if adversely decided, would reasonably be expected to
have a Material Adverse Effect, (c) the Company owns or has the right to use all
intellectual property rights currently used by the Company or necessary for the
conduct of the Company's business as currently conducted, (d) to the knowledge
of the Company, the business conducted or proposed to be conducted by the
Company does not and will not cause the Company to infringe or violate any of
the trademarks, service marks, trade names, copyrights, mask-works, licenses,
trade secrets, processes, data, know-how or other intellectual property rights
or the patents of any third party, and does not and will not require the Company
to obtain any license or other agreement to use any trademarks, service marks,
trade names, copyrights, mask-works, licenses, trade secrets, processes, data,
know-how or other intellectual property rights or patents of others, except for
licenses or agreements that can be obtained in the ordinary course of business
without unreasonable effort, delay, cost or expense, (e) to the Company's
knowledge, no director, officer or stockholder of the Company owns any rights in
patents, trademarks, service marks, trade names, copyrights, mask-works, trade
secrets, processes, data or know-how directly or indirectly competitive with
those owned or to be used by the Company or derived from or in connection with
the conduct of the Company's business, and the Company does not believe that it
is or will be necessary to use any inventions or works of authorship of its
employees (or persons it currently intends to hire) made outside of their
employment by the Company, and (f) to the Company's knowledge, no person
employed by or affiliated with the Company has utilized or proposes to utilize
any trade secret or any information or documentation proprietary to any former
employer, and to the Company's knowledge, no person employed by or affiliated
with the Company has violated any confidential relationship which such person
may have had with any third party, in each case in connection with the
development, manufacture or sale of any product or proposed product or the
development or sale of any service or proposed service of the Company, and the
Company has no reason to believe there will be any such utilization or
violation.

     SECTION 2.16 CONTRACTS.

         (a) With respect to the Company and except as otherwise disclosed on
Schedule 2.16 of the Company Disclosure Schedule, the Company has delivered or
made available to Parent and Merger Sub true and complete copies of (i) each
contract for the purchase of inventory in excess of $50,000 per calendar year,
(ii) each contract with a customer involving

                                       12
<PAGE>   14

net revenues to the Company reasonably anticipated to be in excess of $50,000
per calendar year, (iii) each contract with any officer, director, employee or
independent contractor with an aggregate future liability in any fiscal year in
excess of $50,000, (iv) each indenture, mortgage, note, letter of credit or
other instrument relating to the borrowing of money (or the guarantee thereof)
involving an amount in excess of $50,000, including the aggregate principal and
interest outstanding as of the date hereof under each such instrument, (v) each
contract that involves expenditures in excess of $50,000 over its term, (vi)
each lease, rental or occupancy agreement, license, installment and conditional
sale agreement, and other contract affecting the ownership of, leasing of, title
to, use of, or any leasehold or other interest in, any real or personal property
(except personal property leases and installment and conditional sales
agreements having a value per item or aggregate payments of less than $50,000
and with terms of less than one year) (with respect to those agreements in this
clause (vi) pertaining to personal property, the "PERSONAL PROPERTY LEASES"),
(vii) each collective bargaining agreement and other contract to or with any
labor union or other employee representative of a group of employees, and (viii)
each material joint venture, partnership and similar arrangements by the Company
with any other person involving revenues or expenditures in excess of $50,000
over its term (the items described in clauses (i) through (viii) collectively,
the "CONTRACTS" and individually, a "CONTRACT"). Section 2.16 of the Company
Disclosure Schedule sets forth a true and correct list of all Contracts as of
the date hereof.

         (b) Except as set forth in Section 2.16 of the Company Disclosure
Schedule, (i) each Contract is in full force and effect, except where the
failure to be in full force and effect would not have a Material Adverse Effect
and (ii) there are no existing defaults by the Company or, to the Company's
knowledge, any third party thereunder, under such Contracts, which defaults
would result in a Material Adverse Effect.

     SECTION 2.17 ENVIRONMENTAL MATTERS. Except as disclosed on Section 2.17 of
the Company Disclosure Schedule: (i) the Company is in compliance with all
applicable Environmental Laws, except for such failures to comply that in the
aggregate would not have a Material Adverse Effect; and (ii) the Company
possesses and is in compliance with all applicable Environmental Permits
required by Environmental Laws to operate as it currently operates, except for
such failures to comply that in the aggregate would not have a Material Adverse
Effect; (iii) there are no judicial, administrative, or arbitral proceedings
pending or, to the knowledge of the Company, threatened, that seek to enforce or
impose liability under any applicable Environmental Law against the Company, or
to revoke or modify any Environmental Permit held by the Company; (iv) there are
no judgments, orders, decrees, settlements, or arbitral awards in effect under
any applicable Environmental Laws to which the Company is a party; (v) to the
knowledge of the Company, there are no Materials of Environmental Concern at or
emanating from any of the facilities currently or formerly owned or operated by
the Company that are reasonably likely to result in liability under any
applicable Environmental Law; (vi) the Company has not received any written
notification alleging that it is liable for, or request for information pursuant
to section 104(e) of the Comprehensive Environmental Response, Compensation and
Liability Act or similar state statute concerning, disposal of Materials of
Environmental Concern by the Company on, at or from any of the facilities
currently or formerly owned or operated by the Company, (vii) the Company has
not transported, transferred or disposed of, nor has it arranged for any third
parties to transport, transfer or dispose of, any

                                       13
<PAGE>   15

Material of Environmental Concern to or at any off-site location other than a
site with an Environmental Permit to receive such Material of Environmental
Concern and other than in a manner that is in compliance with Environmental
Laws, (viii) the Company has not recycled, treated, spilled, leaked, dumped,
discharged, released or disposed of, or arranged for any third parties to
recycle, treat, spill, leak, dump, discharge, release or dispose of, any
Material of Environmental Concern upon property currently or previously owned or
leased by it, except in material compliance with Environmental Laws, (ix) the
following have been made available to Parent regardless of their materiality:
(a) all environmental audits, assessments or occupational health studies of
which the Company is aware relating to the Company, or any real property
currently or formerly owned or leased by the Company; (b) all material
correspondence and memoranda concerning inquiries from or discussions between
the federal or state environmental and/or occupational safety and hazard
officials; and (c) all citations or notices of violation, and all correspondence
and memoranda related thereto, issued under OSHA, or analogous state or local
statutes, Environmental Laws, ordinances, codes, rules, regulations, orders,
rulings, or decrees, relating to or affecting the Company or any real property
currently or formerly owned or leased by the Company. To the knowledge of the
Company, after due inquiry, all information furnished or supplied to state
environmental regulators by or on behalf of the Company regarding the potential
applicability of ISRA to this transaction is timely, accurate and complete.
Notwithstanding the generality of any other representations and warranties in
this Agreement, the representations and warranties in this Section 2.17 shall be
deemed the only representations and warranties in this Agreement with respect to
matters relating to Environmental Laws or to Materials of Environmental Concern.

         For purposes of this Section 2.17, the following terms shall have the
meaning described below:

               "ENVIRONMENTAL LAWS": all federal, state, or local statutes,
         regulations, ordinances, codes, or administrative or judicial decrees
         or orders, any of which govern or relate to pollution, protection of
         the environment, public health and safety, the ambient air or air
         emissions, soil, surface water or groundwater, hazardous or toxic
         substances, solid or hazardous waste or occupational health and safety,
         in effect as of the date of this Agreement.

               "ENVIRONMENTAL PERMITS": all permits, licenses, registrations,
         approvals and other authorizations issued by federal, state or local
         authorities as applicable.

               "MATERIALS OF ENVIRONMENTAL CONCERN": any hazardous, acutely
         hazardous, or toxic substance or waste defined and regulated as such
         under applicable Environmental Laws, including without limitation the
         federal Comprehensive Environmental Response, Compensation and
         Liability Act and the federal Resource Conservation and Recovery Act.

     SECTION 2.18 INSURANCE. Section 2.18 of the Company Disclosure Schedule
lists all insurance policies covering the assets, employees and operations of
the Company as of the date hereof. Such insurance policies are in full force and
effect and are adequate to insure the

                                       14
<PAGE>   16

business of the Company in such amounts and against such risks as are customary
for companies engaged in businesses similar to that of the Company.

     SECTION 2.19 LICENSES AND PERMITS. Except as set forth in Section 2.19 of
the Company Disclosure Schedule and subject to any governmental approvals
required to be obtained after the Closing, which shall be the obligation of
Parent and Merger Sub to obtain, the Company has all local, state and federal
licenses (collectively, the "LICENSES AND PERMITS") necessary to conduct its
business in the manner currently conducted, except where the failure to have
such licenses would not have a Material Adverse Effect. There is no material
default under any of the Licenses and Permits, and no notices have been received
by the Company with respect to threatened, pending, or possible revocation,
termination, suspension or limitation of any such License or Permit.

     SECTION 2.20 NO BROKERS' OR OTHER FEES. Except as set forth on Section 2.20
of the Company Disclosure Schedule, no broker, finder or investment banker is
entitled to any fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of the Company.

                                   ARTICLE 3

                        REPRESENTATIONS AND WARRANTIES OF
                              PARENT AND MERGER SUB

         Except as disclosed in the Parent SEC Reports (as defined herein), or
in a document of even date herewith and delivered by Parent and Merger Sub to
the Company prior to the execution and delivery of this Agreement and referring
to the representations and warranties in this Agreement (the "PARENT DISCLOSURE
Schedule"), Parent and Merger Sub jointly and severally represent and warrant to
the Company as follows:

     SECTION 3.1 ORGANIZATION AND STANDING. Each of Parent and Merger Sub is a
corporation validly existing and in good standing under the laws of its
respective state of incorporation. Each of Parent and Merger Sub has full
corporate power and authority to own its properties and assets and to carry on
its business as now being conducted and is duly qualified or licensed to do
business as a foreign corporation in good standing in each jurisdiction in which
the ownership of its property or the conduct of its business requires such
qualifications, except jurisdictions in which the failure to be so qualified or
licensed would not have a Material Adverse Effect. Each of Parent and Merger Sub
has delivered or made available to the Company complete and correct copies of
its respective Certificate of Incorporation (and all amendments thereto to the
date hereof) and Bylaws.

     SECTION 3.2 CAPITALIZATION.

         (a) The capitalization of Parent is accurately represented in the
Parent SEC Reports and there have been no changes in such capitalization as
reflected in the Parent SEC Reports, other than changes relating to employee
benefit plans or otherwise in the course of ordinary business, which changes are
not material in the aggregate.

                                       15
<PAGE>   17

         (b) The authorized capital stock of Merger Sub consists of 1,000 shares
of common stock, $0.001 par value per share, all of which are duly authorized,
validly issued and fully paid and non-assessable, and all of which are, and at
the Effective Time will be, owned by Parent free and clear of any Lien.

     SECTION 3.3 SUBSIDIARIES. The Parent does not own or control, directly or
indirectly, any capital stock or other equity securities in any other
corporation, association, or other business entity, and the Parent does not have
any direct or indirect equity or ownership interest in any partnership, joint
venture, or other business other than equity securities or ownership interests
which are immaterial in amount or significance.

     SECTION 3.4 AUTHORIZATION, ETC. Parent and Merger Sub each have full power
and authority to execute and deliver this Agreement and to carry out the
transactions contemplated hereby. The execution and delivery by Parent and
Merger Sub of this Agreement and the consummation by Parent and Merger Sub of
the transactions contemplated hereby have been duly approved and authorized, and
no other corporate proceedings on the part of Parent and/or Merger Sub are
necessary to approve and authorize the execution and delivery by each of Parent
and Merger Sub of this Agreement and the consummation by each of Parent and
Merger Sub of the transactions contemplated hereby. This Agreement has been duly
and validly executed by each of Parent and Merger Sub and, assuming this
Agreement constitutes the valid and binding agreement of the Company,
constitutes a valid and binding agreement of each of Parent and Merger Sub,
enforceable against each of Parent and Merger Sub in accordance with its terms,
subject to the effects of bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights
generally, and the application of general rules of equity.

     SECTION 3.5 NO APPROVALS OR CONFLICTS. Except as set forth in Section 3.5
of the Parent Disclosure Schedule or, with respect to clauses (b) through (d)
below, as otherwise would not in the aggregate have a Material Adverse Effect,
neither the execution and delivery by each of Parent and Merger Sub of this
Agreement nor the consummation by Parent and Merger Sub of the transactions
contemplated hereby will (a) violate, conflict with or result in a breach of any
provision of the Certificate of Incorporation or Bylaws of either Parent or
Merger Sub, (b) violate, conflict with or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under any note, bond, mortgage, indenture,
deed of trust, lease, contract, agreement or other instrument to which each of
Parent and Merger Sub or any of its properties may be bound, (c) violate any
order, injunction, judgment, ruling, law or regulation of any court or
governmental authority applicable to each of Parent and Merger Sub or any of its
properties, or (d) except for applicable requirements of the Exchange Act
require any consent, approval or authorization of, or notice to, or declaration,
filing or registration with, any governmental or regulatory authority, or any
other third party.

     SECTION 3.6 COMPLIANCE WITH LAW; GOVERNMENTAL AUTHORIZATIONS. Except as set
forth in Section 3.6 of the Parent Disclosure Schedule, or as otherwise would
not in the aggregate have a Material Adverse Effect, each of Parent and Merger
Sub is not in violation of any license, permit, order, injunction, judgment,
ruling, law or regulation of any court or governmental

                                       16
<PAGE>   18

authority applicable to the property or business of each of Parent and Merger
Sub. Except as set forth in Section 3.6 of the Parent Disclosure Schedule or as
otherwise would not in the aggregate have a Material Adverse Effect, the
licenses, permits and other governmental authorizations held by each of Parent
and Merger Sub are valid and sufficient for the conduct the business of each of
Parent and Merger Sub as currently conducted.

     SECTION 3.7 LITIGATION. Except as set forth in the Parent SEC Reports or in
Section 3.7 of the Parent Disclosure Schedule, there are no actions, proceedings
or investigations pending or, to the knowledge of Parent or Merger Sub,
threatened against Parent or Merger Sub or the transactions contemplated by this
Agreement, before any court or governmental or regulatory authority or body.

     SECTION 3.8 BROKERS' AND FINDERS' FEES. Parent has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.

     SECTION 3.9 SEC FILINGS; FINANCIAL STATEMENTS.

         (a) Parent has filed all forms, reports and documents required to be
filed with the United States Securities and Exchange Commission ("SEC") and has
heretofore delivered to the Company, in the form filed with the SEC, (i) its
Annual Report on Form 10-K for the fiscal year ended December 31, 2000, (ii) all
proxy statements relating to Parent's meetings of stockholders (whether annual
or special) since January 1, 2000, (iii) all other reports or registration
statements filed by Parent with the SEC since December 31, 2000, and (iv) all
amendments and supplements to all such reports or registration statements filed
by parent with the SEC (collectively, the "PARENT SEC REPORTS"). The Parent SEC
Reports (i) were prepared in all material respects in accordance with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
(ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. None of Parent's subsidiaries is required to file any forms, reports
or other documents with the SEC.

         (b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Parent SEC Reports has been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto) and each
fairly presents in all materials respects the consolidated financial position of
Parent and its subsidiaries as at the respective dates thereof and the
consolidated results of its operations and cash flows for the periods indicated,
except that the unaudited interim financial statements were or are subject to
normal and recurring year-end adjustments, which were not or are not expected to
be material in amount.

                                       17
<PAGE>   19

     SECTION 3.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since March 31, 2001,
there has not occurred any event which either individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect on the Parent.

     SECTION 3.11 INTERIM OPERATIONS OF MERGER SUB. Merger Sub was formed on
June 7, 2001 solely for the purpose of engaging in the transactions contemplated
hereby, has engaged in no other business activities and has conducted its
operations only as contemplated hereby.

     SECTION 3.12 REQUIRED VOTE. This Agreement has been approved by Parent, as
the sole stockholder of Merger Sub. No other vote of holders of any class or
series of securities of Parent or Merger Sub is necessary to approve this
Agreement, the Merger and the transactions contemplated hereby.

     SECTION 3.13 THE PARENT COMMON STOCK. The shares of Parent Common Stock to
be delivered pursuant to Section 1.6(a) will, upon issuance pursuant to this
Agreement, be duly authorized, validly issued, fully paid and non-assessable,
and free of liens and restrictions on transfer.

     SECTION 3.14 FORM S-3 ELIGIBILITY. The Parent is eligible to file a
registration statement with respect to the resale of the Parent Common Stock on
Form S-3.

                                    ARTICLE 4

                                    COVENANTS

     SECTION 4.1 CONDUCT OF BUSINESS. Except (i) actions taken to implement this
Agreement and the transactions contemplated hereby, (ii) as disclosed in Section
4.1 of the Company Disclosure Schedule, or (iii) with the prior written consent
of Parent, from and after the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Effective Time, the Company
will:

         (a) use commercially reasonable efforts to preserve intact the present
business organization of the Company, preserve the goodwill of and maintain
satisfactory relationships with customers, suppliers and other persons and
entities having business relationships with the Company and generally operate
the Company in the ordinary course of business consistent with prior practices
in all material respects; and

         (b) not (i) cause to be issued or sold any shares of capital stock or
other securities of the Company or any options, warrants or commitments of any
kind with respect thereto other than the issuance of common stock upon exercise
of any outstanding Stock Options, (ii) directly or indirectly cause to be
purchased, redeemed or otherwise acquired or disposed of any shares of capital
stock of the Company other than an employee's options purchased, redeemed or
otherwise acquired by any the Company in connection with such employee's
termination of employment with the Company, (iii) declare, set aside or pay any
dividend or other distribution out of the Company, (iv) permit or allow the
Company to borrow or agree to

                                       18
<PAGE>   20

borrow any funds or incur, whether directly or by way of guarantee, any
obligation for borrowed money in excess of $50,000, (v) subject any of the
property or assets of the Company (real, personal or mixed, tangible or
intangible) to any mortgage, pledge, lien or encumbrance or otherwise permit or
allow the disposition of any property or assets of the Company (real, personal
or mixed, tangible or intangible), other than in each case the ordinary course
of business and consistent with past practice, (vi) enter into any new contract,
which contract requires the Company to make capital expenditures in excess of
$50,000, (vii) change any accounting policies or procedures other than those
that may be required by a change in applicable law or in GAAP, (viii) amend its
Certificate of Incorporation or Bylaws, (ix) increase or accelerate the payment
or vesting of amounts payable or shares issuable under any Company Plan, (x)
increase the salary, benefits, bonus, stock options or other compensation
payable to any officer, director or employee, (xi) license, transfer or
otherwise dispose of any of the Company's intellectual property rights, or (xii)
agree to do any of the foregoing.

     SECTION 4.2 PUBLIC DISCLOSURE. Unless otherwise permitted by this
Agreement, the parties to this Agreement shall consult with each other before
issuing any press release or otherwise making any public statement or making any
other public (or non-confidential) disclosure (whether or not in response to an
inquiry) regarding the terms of this Agreement and the transactions contemplated
hereby, and neither shall issue any such press release or make any such
statement or disclosure without the prior approval of the other (which approval
shall not be unreasonably withheld), except as may be required by law.

     SECTION 4.3 CONSENTS AND FILINGS; COOPERATION.

         (a) Each party shall use all reasonable efforts in making any
registration or filing with, any governmental agency or body or other third
party required in connection with the execution, delivery or performance of this
Agreement.

         (b) Parent understands and agrees that consummation of the Merger
requires the prior consent of the lenders under the bank credit facilities
disclosed in Section 4.3(b) of the Company Disclosure Schedule, and in the
absence of such consent, Parent will have to cause the Company to pay in full
all outstanding amounts under each such facility at Closing, and the Company
will not be responsible for the failure to obtain such consent or to effect such
payment.

     SECTION 4.4 COVENANT TO SATISFY CONDITIONS. Each party agrees to use
commercially reasonable efforts to insure that the conditions set forth in
Article 6 hereof are satisfied, insofar as such matters are within the control
of such party.

     SECTION 4.5 LEGAL REQUIREMENTS. Each of Parent and Company will, and will
cause their respective subsidiaries to, take all reasonable actions necessary to
comply promptly with all legal requirements which may be imposed on them with
respect to the consummation of the transactions contemplated by this Agreement
and will promptly cooperate with and furnish information to any party hereto
necessary in connection with any such requirements imposed upon such other party
in connection with the consummation of the transactions contemplated by this
Agreement and will take all reasonable actions necessary to obtain (and will
cooperate with the other parties hereto in obtaining) any consent, approval,
order or authorization of, or any

                                       19
<PAGE>   21

registration, declaration or filing with, any governmental entity or other
person, required to be obtained or made in connection with the taking of any
action contemplated by this Agreement.

     SECTION 4.6 DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION. For a
period of seven years after the Closing, Parent shall not permit the Company to
amend, repeal or modify any provision in its Certificate of Incorporation or
Bylaws relating to the exculpation or indemnification of former officers and
directors (unless required by law), it being the intent of the parties hereto
that the officers and directors of the Company prior to the Closing shall
continue to be entitled to such exculpation and indemnification to the fullest
extent permitted under applicable law. For a period of seven years from and
after the Closing, Parent shall cause the Surviving Corporation to maintain in
effect the current policies of directors' and officers' liability insurance
coverage maintained by the Company, or provide other comparable insurance;
provided, however, that the cost to maintain such coverage shall not exceed
$11,000 per year and, if such cost exceeds $11,000 per year, Parent shall cause
the Surviving Corporation to purchase the maximum amount of such coverage as is
available for not more than $11,000 per year.

     SECTION 4.7 EMPLOYEE BENEFIT ARRANGEMENTS.

         (a) Parent agrees that the Company shall honor, and from and after the
Effective Time, the Surviving Corporation shall honor, in accordance with their
respective terms as in effect on the date hereof, the employment, severance, and
bonus agreements and arrangements to which the Company is a party (as set forth
in Section 2.13 of the Company Disclosure Schedule). As of the Effective Time,
Parent or the Surviving Corporation shall offer employment with the Parent or
the Surviving Corporation to the employees, including those on vacation, leave
of absence, disability or layoff, who were employed by the Company on the day
immediately preceding the Effective Time on the same terms (including salary,
fringe benefits, job responsibility and location) as those provided to the
employees of the Company on the day immediately preceding the Effective Time.

         (b) For a period of two years following the Effective Time, Parent or
the Surviving Corporation shall, during the term of their employment, provide to
the employees that accept such employment with employee benefit plans,
agreements, programs, policies and arrangements that are substantially no less
favorable, in the aggregate, than the Company Plans in effect immediately prior
to the Effective Time. Those employees of the Company who accept such offer of
employment with Parent or the Surviving Corporation shall be referred to herein
as "TRANSFERRED EMPLOYEES".

         (c) Parent shall recognize each Transferred Employee's service with the
Company as of the Effective Time as service with Parent for all purposes,
including eligibility, vesting and benefit levels, as applicable in Parent's
"employee pension benefit" plans (as defined in Section 3(2) of ERISA),
"employee welfare benefit plans" (as defined in Section 3(1) of ERISA),
vacation, disability, severance, fringe benefits and other employee benefit
plans or policies ("PARENT PLANS"), but only to the extent that such service was
recognized by the Company under the applicable Company employee pension benefit
plans, employee welfare benefit plans, vacation, disability, severance, fringe
benefit and other employee benefit plans or

                                       20
<PAGE>   22

policies. With respect to any plan that is a welfare benefit plan, or any plan
that would be a welfare benefit plan if it were subject to ERISA, for purposes
of the Transferred Employees, Parent shall (1) cause there to be waived any
pre-existing condition to the extent waived under the comparable Company Plan,
(2) give effect, in determining any deductible and maximum out-of-pocket
limitations, to claims incurred and amounts paid by, and amounts reimbursed to,
such employees with respect to similar plans maintained by the Company
immediately prior to the Effective Time and (3) recognize all credited service
with the Company.

         (d) Notwithstanding any terms of this Section 4.7 to the contrary,
nothing in this Section 4.7 shall be construed to alter the employment-at-will
relationship between each Transferred Employee and Parent or the Surviving
Corporation, as applicable, nor to limit or restrict in any way the right of
Parent or the Surviving Corporation, as applicable, to terminate such
Transferred Employee's employment (other than as provided in a written
employment agreement between such Transferred Employee and Parent or the
Surviving Corporation).

     SECTION 4.8 CONTACT WITH CUSTOMERS AND SUPPLIERS. Parent and its
representatives shall contact and communicate with the employees, customers,
suppliers, licensees and licensors of the Company in connection with the
transactions contemplated hereby only with the prior written consent of the
Company, and which consent may be conditioned upon a designee of the Company
being present at any such meeting or conference.

     SECTION 4.9 NOTIFICATION OF CERTAIN MATTERS; SUPPLEMENTS TO DISCLOSURE
SCHEDULE. Each party will give prompt notice to the other party, orally and in
writing, of (i) the occurrence, or failure to occur, of any event which
occurrence or failure would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate at any time from the date
hereof to the Effective Time, or (ii) any failure of such party or any officer,
director, employee, stockholder or agent thereof, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder. No supplemental disclosure delivered in accordance with the preceding
sentence will constitute an amendment of the Disclosure Schedule of the
supplementing party unless the other party consents thereto in writing.

     SECTION 4.10 ISRA. The Company shall make all filings required by and
complete in a timely and thorough manner all measures, tasks, requirements or
responsibilities arising under or required by ISRA in connection with the
consummation of the Merger in order to ensure that the Merger complies with ISRA
even if such filings, measures, tasks, requirements or responsibilities are not
demanded or required until after the Effective Time.

     SECTION 4.11 S-3 REGISTRATION.

         (a) As soon as reasonably practicable, but in any event within 30 days
of the Effective Time, Parent shall prepare and file with the SEC a registration
statement on Form S-3 (or, if not eligible to use such Form, on such other Form
as may be used to register the resale of the Shares of Parent Common Stock
issued in the Merger, including Form S-1) (the "REGISTRATION STATEMENT") to
register the resale of the shares of Parent Common Stock issued in the Merger.
Parent may include in the registration statement under this Section 4.11 any
other

                                       21
<PAGE>   23

shares of Parent Common Stock (including issued and outstanding shares of Parent
Common Stock as to which the holders thereof have contracted with Parent for
"piggyback" registration rights).

         (b) When required under Section 4.11 hereof to effect a registration
under Form S-3 under the 1933 Act covering the registration of Parent Common
Stock to be received by the Stockholders in the Merger for resale by the
Stockholders, Parent shall, as expeditiously as reasonably possible:

               (i) use its best commercially reasonable efforts to cause such
     registration statement to become effective within 60 days of its initial
     filing date and keep such registration statement effective for twenty-four
     months (or such shorter period after which all Parent Common Stock may be
     sold by the Stockholders in accordance with the requirements of Rule 144
     under the 1933 Act in a 90-day period);

               (ii) use its best commercially reasonable efforts to prepare and
     file with the SEC such amendments and supplements to such registration
     statement as may be necessary to comply with the provisions of the 1933
     Act;

               (iii) furnish to the Stockholders such numbers of copies of a
     prospectus, including a preliminary prospectus, in conformity with the
     requirements of the 1933 Act, and such other documents as they may
     reasonably request in order to facilitate the disposition of the Parent
     Common Stock to be received by them in the Merger;

               (iv) use its commercially reasonable efforts to register and
     qualify the securities covered by such registration statement under such
     other securities or Blue Sky laws of such states or jurisdictions as shall
     be reasonably requested by the Stockholders, provided that Parent shall not
     be required to become subject to taxation, to qualify to do business or to
     file a general consent to service of process in any such states or
     jurisdictions;

               (v) use its commercially reasonable efforts to maintain the
     listing of the securities covered by such registration statement to be
     included for quotation on the Nasdaq National Market or such other exchange
     on which Parent Common Stock may then be listed;

               (vi) promptly deliver a Deferral Notice (as defined below) to the
     Representative upon the commencement of any Deferral Period (as defined
     below). Upon (A) the issuance by the SEC of a stop order suspending the
     effectiveness of the registration statement or the initiation of
     proceedings with respect to the registration statement under Section 8(d)
     or 8(e) of the Securities Act, (B) the occurrence of any event or the
     existence of any fact (a "MATERIAL EVENT") as a result of which the
     registration statement shall contain any untrue statement of a material
     fact or omit to state any material fact required to be stated therein or
     necessary to make the

                                       22
<PAGE>   24

     statements therein not misleading, or any related prospectus shall contain
     any untrue statement of a material fact or omit to state any material fact
     required to be stated therein or necessary to make the statements therein,
     in the light of the circumstances under which they were made, not
     misleading, or (C) the occurrence or existence of any pending corporate
     development that, in the discretion of Parent, makes it appropriate to
     suspend the availability of the registration statement and the related
     prospectus, (i) in the case of clause (B) above, subject to the next
     sentence, as promptly as practicable prepare and file a post-effective
     amendment to such registration statement or a supplement to the related
     prospectus or any document incorporated therein by reference or file any
     other required document that would be incorporated by reference into such
     registration statement and prospectus so that such registration statement
     does not contain any untrue statement of a material fact or omit to state
     any material fact required to be stated therein or necessary to make the
     statements therein not misleading, and such prospectus does not contain any
     untrue statement of a material fact or omit to state any material fact
     required to be stated therein or necessary to make the statements therein,
     in the light of the circumstances under which they were made, not
     misleading, as thereafter delivered to the purchasers of the securities
     being sold thereunder, and, in the case of a post-effective amendment to
     the registration statement, subject to the next sentence, use all best
     commercially reasonable efforts to cause it to be declared effective as
     promptly as is reasonably practicable, and (ii) give notice to the
     Representative that the availability of the registration statement is
     suspended (a "DEFERRAL NOTICE"), which notice the Representative shall
     promptly deliver to the Stockholders and, upon receipt of any Deferral
     Notice, each Stockholder agrees not to sell any securities pursuant to the
     registration statement until such Stockholder's receipt of copies of the
     supplemented or amended prospectus provided for in clause (i) above, or
     until it is advised in writing by Parent that the prospectus may be used,
     and has received copies of any additional or supplemental filings that are
     incorporated or deemed incorporated by reference in such prospectus. Parent
     will use all best commercially reasonable efforts to ensure that the use of
     the prospectus may be resumed (x) in the case of clause (A) above, as
     promptly as is practicable, (y) in the case of clause (B) above, as soon
     as, in the sole judgment of Parent, public disclosure of such Material
     Event would not be prejudicial to or contrary to the interests of Parent
     or, if necessary to avoid unreasonable burden or expense, as soon as
     reasonably practicable thereafter and (z) in the case of clause (C) above,
     as soon as, in the discretion of Parent, such suspension is no longer
     appropriate. Notwithstanding anything to the contrary in this Section
     4.11(b)(vi), the period during which the availability of the registration
     statement and related prospectus is suspended (the "DEFERRAL PERIOD") shall
     not exceed thirty (30) days in any three (3) month period or an aggregate
     of sixty (60) days in any twelve (12) month period.

         (c) Furnish Information. The Representative shall furnish to Parent
such information regarding the Stockholders, the Parent Common Stock held by the
Stockholders and the intended method of disposition of such securities as shall
be required to effect the registration of the Stockholders' Parent Common Stock
and as may be required from time to time to keep such registration current.

         (d) Expenses of Registration. All expenses incurred by or on behalf of
Parent in connection with registrations, filings or qualifications pursuant to
this Section 4.11, including without limitation all registration, filing and
qualification fees, printers' and accounting fees, and fees and disbursements of
counsel for Parent, shall be borne by Parent. In no event

                                       23
<PAGE>   25

shall Parent be obligated to bear underwriting, brokerage or related fees,
discounts or commissions or the fees or expenses of counsel to the Stockholders.

         (e) No Underwriting. In no event shall the Stockholders be obligated to
enter into any underwriting arrangements. However, if Parent offers a
Stockholder an opportunity to participate in an underwritten public offering and
such Stockholder elects not to participate, such Stockholder's ability to sell
any securities held by such Stockholder pursuant to the Registration Statement
shall be suspended until the 60th day following the closing of such underwritten
offering.

         (f) Indemnification. To the fullest extent permitted by law, Parent
will indemnify and hold harmless the Stockholders, and each person, if any, who
controls the Stockholders within the meaning of the Securities Act or the
Exchange Act (for purposes of this Section 4.11 only, a "COMPANY INDEMNIFIED
PERSON") against all actions, claims, losses, damages, liabilities and expenses
to which they or any of them become subject under the Securities Act, the
Exchange Act or under any other law and, except as hereinafter provided, will
promptly reimburse as incurred the Company Indemnified Persons for any legal or
other expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions, whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact in any registration statement and any prospectus
filed pursuant to this Section 4.11 or any post-effective amendment thereto, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or any violation by Parent of any rule or regulation promulgated
under the Securities Act or the Exchange Act applicable to Parent and relating
to action or inaction required of Parent in connection with such registration;
provided, however, that Parent shall not be liable to any such Company
Indemnified Person in respect of any claims, losses, damages, liabilities and
expenses resulting from any untrue statement or alleged untrue statement, or
omission or alleged omission made in reliance upon and in conformity with
information furnished to Parent by the Company Indemnified Person specifically
for use in connection with such registration statement and prospectus or
post-effective amendment. The indemnification provided in this Section 4.11(f)
shall be in addition to the indemnification provided in Section 8.2 and shall
not be subject to the limitations set forth in Section 8.5.

         (g) To the fullest extent permitted by law, the Stockholders will,
severally and not jointly, indemnify Parent, and each person, if any, who
controls Parent within the meaning of the Securities Act or the Exchange Act,
(for purposes of this Section 4.11 only, a "PARENT INDEMNIFIED PERSON") against
any actions, claims, losses, damages, liabilities and expenses to which they or
any of them may become subject under the Securities Act, the Exchange Act or
under any other law, and, except as hereinafter provided, will promptly
reimburse such Parent Indemnified Person for any legal or other expenses
reasonably incurred by them or any of them in connection with investigating or
defending any actions, whether or not resulting in any liability, insofar as
such losses, claims, damages, expenses, liabilities or actions arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact in any registration statement and any prospectus filed pursuant to this
Section 4.11 or any post-effective amendment

                                       24
<PAGE>   26

thereto, or any omission or alleged omission to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, which untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with information furnished Parent by the
Stockholders in writing specifically for use in connection with such
registration statement, prospectus or post-effective amendment; provided,
however, that the obligations of the Stockholders hereunder shall be limited to
an amount equal to the net proceeds actually received by such Stockholders from
the sale of such Stockholders' Parent Common Stock. The indemnification provided
in this Section 4.11(g) shall be in addition to the indemnification provided in
Section 8.1 and shall not be subject to the limitations set forth in Section
8.5.

         (h) Each Company Indemnified Person or Parent Indemnified Person
entitled to indemnification under this Section 4.11 (for the purposes of this
Section 4.11, an "INDEMNIFIED PERSON") shall give notice to the party required
to provide indemnification (the "INDEMNIFYING PERSON") promptly after such
Indemnified Person has actual knowledge of any claim as to which indemnity may
be sought and shall permit the Indemnifying Person to assume the defense of any
such claim and any litigation resulting therefrom, provided that counsel for the
Indemnifying Person who conducts the defense of such claim or any litigation
resulting therefrom shall be approved by the Indemnified Person (whose approval
shall not unreasonably be withheld), and the Indemnified Person may participate
in such defense at such party's expense, and provided further that the failure
of any Indemnified Person to give notice as provided herein shall not relieve
the Indemnifying Person of its obligations under this Section 4.11 except to the
extent the Indemnifying Person is materially prejudiced thereby. No Indemnifying
Person, in the defense of any such claim or litigation, shall (except with the
consent of each Indemnified Person) consent to entry of any judgment or enter
into any settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to each Indemnified Person of a complete
release from all liability in respect to such claim or litigation. Each
Indemnified Person shall furnish such information regarding itself or the claim
in question as an Indemnifying Person may reasonably request in writing and as
shall be reasonably required in connection with the defense of such claim and
litigation resulting therefrom.

         (i) To the extent that the indemnification provided for in this Section
4.11 is held by a court of competent jurisdiction to be unavailable to an
Indemnified Person with respect to any loss, liability, claim, damage or expense
referred to herein, then the Indemnifying Person, in lieu of indemnifying such
Indemnified Person hereunder, shall contribute to the amount paid or payable by
such Indemnified Person as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Person on the one hand and of the Indemnified Person on the
other in connection with the statements or omissions which resulted in such
loss, liability, claim, damage or expense, as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Person and of
the Indemnified Person shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Indemnifying Person or by the Indemnified Person and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.

                                       25
<PAGE>   27

         (j) Notwithstanding anything in this Section 4.11 to the contrary,
Parent's obligation to register shares held by a Stockholder is subject to such
Stockholder's execution and delivery of an agreement substantially in the form
of Exhibit C hereto (the "STOCKHOLDER AGREEMENT") at or before the Effective
Time.

     SECTION 4.12 NO SOLICITATION OF OTHER PROPOSALS. From the date hereof until
the earlier of the Effective Time or the termination of this Agreement in
accordance with its terms, the Company shall not, nor shall it authorize or
permit any of its stockholders, officers, directors, employees, representatives
or agents (collectively, the "COMPANY REPRESENTATIVES") directly or indirectly,
to (i) solicit, facilitate, initiate, entertain, encourage or take any action to
solicit, facilitate, initiate, entertain or encourage, any inquiries or
communications or the making of any proposal or offer that constitutes or may
constitute an Acquisition Proposal (as defined herein) or (ii) participate or
engage in any discussions or negotiations with, or provide any information to or
take any other action with the intent to facilitate the efforts of, any person
concerning any possible Acquisition Proposal or any inquiry or communication
which might reasonably be expected to result in an Acquisition Proposal. For
purposes of this Agreement, the term "ACQUISITION PROPOSAL" shall mean any
inquiry, proposal or offer from any person (other than Parent, Merger Sub or any
of their affiliates) relating to any merger, consolidation, recapitalization,
liquidation or other direct or indirect business combination or reorganization,
involving the Company or the issuance or acquisition of shares of capital stock
or other equity securities of the Company representing 50% or more of the
outstanding capital stock or other securities of the Company or any tender or
exchange offer that if consummated would result in any person, together with all
Affiliates thereof, beneficially owning shares of capital stock or other equity
securities of the Company representing 50% or more of the outstanding capital
stock or other securities of the Company, or the sale, lease exchange, license
(whether exclusive or not), or other disposition of any significant portion of
the business or other assets of the Company, or any other transaction, the
consummation of which could reasonably be expected to impede, interfere with,
prevent or materially delay the consummation of the transactions contemplated
hereby or which would reasonably be expected to diminish significantly the
benefits to Parent of the transactions contemplated hereby. The Company shall
immediately cease and cause to be terminated all existing discussions or
negotiations with any persons conducted heretofore with respect to, or that
could reasonably be expected to lead to, an Acquisition Proposal. The Company
will notify Parent promptly of the existence and material terms of any
Acquisition Proposal.

     SECTION 4.13 CONDUCT OF BUSINESS BY PARENT. During the period from the date
of this Agreement to the Effective Time of the Merger (except as otherwise
expressly contemplated by the terms of this Agreement), and except as approved
by the Company, which approval shall not be unreasonably withheld, Parent shall
not:

         (a) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, Parent Common Stock, or (ii) combine or reclassify
the Parent Common Stock or issue or authorize the issuance of any other
securities in lieu of or in substitution for shares of Parent Common Stock;

                                       26
<PAGE>   28

         (b) amend Parent's certificate of incorporation or bylaws in a manner
that would be materially adverse to the holders of Parent Common Stock; or

         (c) authorize, or commit or agree to take, any of the foregoing
actions.

     SECTION 4.14 FURTHER ASSURANCES. Each of the parties to this Agreement
shall use commercially reasonable efforts to effectuate the transactions
contemplated hereby and to fulfill and cause to be fulfilled the conditions to
closing under this Agreement. Each party hereto, at the reasonable request of
another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions
contemplated hereby.

     SECTION 4.15 BRIDGE FINANCING.

         In the event that the Closing does not occur prior to July 13, 2001,
Parent shall provide to the Company bridge financing (the "BRIDGE FINANCING") to
be funded on or before 5 p.m. (New York City time), July 13, 2001. The Bridge
Financing shall include the following material items:

         (a) the amount of Bridge Financing required to be provided by the
Parent shall not exceed $750,000 per month or $1 million in the aggregate;

         (b) the amount of any Bridge Financing provided by the Parent shall
bear interest at the prime rate of The Chase Manhattan Bank in effect from time
to time plus 5%; and

         (c) any Bridge Financing provided by the Parent shall be repaid in full
upon the earlier to occur of (i) 30 days after the date on which such Bridge
Financing was funded or (ii) termination of this Agreement pursuant to Article
6.

All other terms of any such Bridge Financing shall be as set forth in the
documentation relating to the Bridge Financing.

     SECTION 4.16 NOTICE OF EXERCISE OF WARRANT. Contemporaneously with the
execution of this Agreement, the Company shall give written notice to GE Capital
Corporation of the Merger in accordance with the terms of such Company Warrant
held by GE Capital Corporation.

     SECTION 4.17 AGREEMENT AND IRREVOCABLE PROXY. Contemporaneously with the
execution of this Agreement, the Company shall cause the Stockholders listed in
Section 4.17 of the Company Disclosure Schedule to enter into an agreement and
irrevocable proxy, which agreement and proxy shall become effective as of the
date hereof, in the form attached hereto as Exhibit D.

                                       27
<PAGE>   29

                                    ARTICLE 5

                            CONDITIONS TO THE MERGER

     SECTION 5.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER.
The respective obligations of each party to this Agreement to consummate and
effect this Agreement and the transactions contemplated hereby shall be subject
to the satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:

         (a) Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the holders of at least the requisite number of the
shares of the Company's capital stock outstanding as of the record date set for
the Company's stockholders meeting (or through action by written consent).

         (b) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal. In the event an
injunction or other order shall have been issued, each party agrees to use its
reasonable efforts to have such injunction or other order lifted.

     SECTION 5.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF COMPANY. The
obligations of the Company to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by the Company:

         (a) Representations, Warranties and Covenants. Except as disclosed in
the Parent Disclosure Schedule dated the date of this Agreement, the
representations and warranties made by Parent and Merger Sub in this Agreement
shall be true and correct on and as of the Effective Time as though such
representations and warranties were made at such time, except for (i)
representations and warranties that expressly refer to another date, and (ii)
changes expressly permitted or contemplated by the terms of this Agreement.

         (b) Performance. Parent and Merger Sub each shall have performed and
complied in all material respects with all agreements, obligations and
conditions required by this Agreement to be so performed or complied with by
each of Parent and Merger Sub prior to and as of the Effective Time.

         (c) Officer's Certificate. Parent and Merger Sub shall have delivered
to the Company a certificate, dated as of the Effective Time and executed by an
officer of Parent and Merger Sub, respectively, certifying to the satisfaction
of the conditions specified in Sections 5.2(a) and 5.2(b) hereof.

                                       28
<PAGE>   30

         (d) Secretary's Certificate. Each of Parent and Merger Sub shall have
delivered to the Company a certificate dated as of the Effective Time and
executed by the Secretary of Parent and Merger Sub, respectively, (i) attaching
and certifying on behalf of Parent and Merger Sub, respectively, as complete and
correct copies of (A) the certificate of incorporation and bylaws of Parent and
Merger Sub, respectively, each as in effect as of the Effective Time, (B) the
resolutions of the board of directors of Parent and Merger Sub, respectively,
authorizing the execution, delivery and performance of this Agreement and any
other document delivered in connection with the Closing and the consummation of
the Merger and (C) any required approvals by the stockholders of Parent and
Merger Sub, respectively, with respect to the Merger, the Merger Agreement and
any other document delivered in connection with the Closing; and (ii) certifying
on behalf of Parent and Merger Sub, respectively, the incumbency and genuineness
of the signatures of each officer of Parent and Merger Sub, respectively,
executing this Agreement and any other document delivered in connection with the
Closing by Parent and Merger Sub, respectively.

         (e) Consents and Approvals. There shall have been obtained any and all
permits, approvals and consents of all governmental authorities or third
parties, in each case as described in Section 3.5 of this Agreement or as set
forth in Section 3.5 of the Parent Disclosure Schedule, that reasonably may be
deemed necessary for consummation of the Merger. The Company shall have been
provided with executed copies of all such permits, approvals and consents.

     SECTION 5.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER
SUB. The obligations of Parent and Merger Sub to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Parent:

         (a) Representations, Warranties and Covenants. Except as disclosed in
the Company Disclosure Schedule dated the date of this Agreement, the
representations and warranties made by the Company in this Agreement shall be
true and correct on and as of the Effective Time as though such representations
and warranties were made at such time, except for (i) representations and
warranties that expressly refer to another date, and (ii) changes expressly
permitted or contemplated by the terms of this Agreement.

         (b) Performance. The Company shall have performed and complied in all
material respects with all agreements, obligations and conditions required by
this Agreement to be so performed or complied with by the Company prior to and
as of the Effective Time.

         (c) Officer's Certificate. The Company shall have delivered to the
Parent and Merger Sub a certificate, dated as of the Effective Time and executed
by an officer of the Company, certifying to the satisfaction of the conditions
specified in Sections 5.3(a) and 5.3(b) hereof.

         (d) Secretary's Certificate. The Company shall have delivered to Parent
and Merger Sub a certificate dated as of the Effective Time and executed by the
Secretary of the

                                       29
<PAGE>   31

Company (i) attaching and certifying on behalf of the Company as complete and
correct copies of (A) the certificate of incorporation and bylaws of the
Company, each as in effect as of the Effective Time, (B) the resolutions of the
board of directors of the Company authorizing the execution, delivery and
performance of this Agreement and any other document delivered in connection
with the Closing and the consummation of the Merger and (C) any required
approvals by the stockholders of the Company with respect to the Merger, the
Merger Agreement and any other document delivered in connection with the
Closing; and (ii) certifying on behalf of the Company the incumbency and
genuineness of the signatures of each officer of the Company executing this
Agreement and any other document delivered in connection with the Closing by the
Company.

         (e) Resignation of Directors. The directors of Company in office
immediately prior to the Effective Time shall have resigned as directors of
Company effective as of the Effective Time.

         (f) Indemnification Escrow Account. Upon Closing, 10% of the Purchase
Price payable to the Stockholders shall be placed in an escrow account pursuant
to an escrow agreement substantially in the form attached hereto as Exhibit E.

         (g) Employment Agreements. Each of Alan Main, Hartmuth Kolb and David
Boulton shall have entered into an employment agreement with the Parent or the
Surviving Corporation setting forth the position, title and salary previously
agreed to by the parties thereto, which agreement shall be substantially in the
form attached hereto AS Exhibit F, with such changes as are reasonably agreed to
by the parties thereto in light of comparable positions in the industry, and
shall become effective as of the Effective Time.

         (h) Dissenting Shares. The aggregate number of Dissenting Shares shall
be less than 10% of the Company's outstanding Common Stock on a fully diluted,
as converted basis.

         (i) Stockholder Agreements. Stockholder Agreements shall have been
executed and delivered by Stockholders holding at least 90% of the Company's
outstanding Common Stock on a fully diluted, as converted basis.

         (j) Consents and Approvals. There shall have been obtained any and all
permits, approvals and consents of all governmental authorities or third
parties, in each case as described in Section 2.7 of this Agreement or as set
forth in Section 2.7 of the Company Disclosure Schedule that reasonably may be
deemed to be necessary for the consummation of the Merger. Parent shall have
been provided with executed copies of all such permits, approvals and consents.

         (k) ISRA. The Company shall have obtained and provided to Parent
either: (1) a letter from the New Jersey Department of Environmental Protection
stating that ISRA is not applicable to the transaction contemplated by this
Agreement or approving an exemption under ISRA, or (2) an approved Negative
Declaration (as defined by ISRA) or No Further Action Letter

                                       30
<PAGE>   32

(as defined by ISRA) with respect to each and every Industrial Establishment (as
defined by ISRA) involved in the transaction contemplated by this Agreement.

                                    ARTICLE 6

                                   TERMINATION

     SECTION 6.1 TERMINATION. At any time prior to the Effective Time, whether
before or after approval of the matters presented in connection with the Merger
by the Company's stockholders, this Agreement may be terminated:

         (a) by mutual consent duly authorized by the Board of Directors of
Parent and the Company;

         (b) by either the Company or Parent if the Closing shall not have
occurred on or before July 31, 2001 (the "TERMINATION DATE"); provided, however,
that the right to terminate this Agreement under this Section 6.1(b) shall not
be available to any party whose failure to satisfy any obligation under this
Agreement has to any extent been the cause of, or resulted in, the failure of
the Closing to occur before the Termination Date; or

         (c) by either the Company or Parent in the event any court or
governmental agency of competent jurisdiction shall have issued an order, decree
or ruling or taken any other action restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby and such order, decree or
ruling or other action shall have become final and nonappealable; or

         (d) by either the Company or Parent if there has been a material breach
of any representation, warranty, covenant or agreement on the part of the
non-terminating party set forth in this Agreement, which breach has not been
cured within thirty (30) business days following receipt by the non-terminating
party of notice of such breach from the terminating party or assurance of such
cure reasonably satisfactory to the terminating party shall not have been given
by or on behalf of the non-terminating party within such thirty (30)
business-day period.

     SECTION 6.2 PROCEDURE AND EFFECT OF TERMINATION. If the transactions
contemplated by this Agreement are terminated as provided herein:

         (a) Each party will redeliver all documents, work papers and other
material of the other party relating to the transactions contemplated hereby,
whether so obtained before or after the execution hereof, to the party
furnishing the same;

         (b) All confidential information received by Parent and Merger Sub with
respect to the business of the Company shall be treated in accordance with the
provisions of the Confidentiality Agreement, dated as of May 11, 2001, between
Parent and the Company and the Confidentiality Agreement dated as of June 4,
2001, between Parent and the Company (together, the "CONFIDENTIALITY
AGREEMENT"), which shall survive the termination of this Agreement in accordance
with its terms; and

                                       31
<PAGE>   33

         (c) No party to this Agreement will have any liability under this
Agreement to the other except (i) with respect to the obligations set forth in
Sections 4.5, 6.2(a), 6.2(b), 6.3 and 8.1, (ii) for any failure to perform or
satisfy in all material respects all of the agreements and covenants to be
performed hereunder at or prior to the Closing or the Effective Time, as
applicable, (iii) as provided in the Confidentiality Agreement, (iv) in respect
of fraud in connection with any representation or warranty under this Agreement
and (v) any Bridge Financing previously provided by the Parent to the Company
shall be repaid in accordance with, and otherwise governed by, the terms of the
documentation relating to any such Bridge Financing.

     SECTION 6.3 TERMINATION FEE.

         (a) If either the Company, on the one hand, or Parent and Merger Sub,
on the other hand, exercises its right to terminate the Agreement pursuant to
Section 6.1(d), the non-terminating party shall, no later than the second
business day after the date of termination, pay to the terminating party a fee
of $3,000,000 (the "BREAKUP FEE") to the account or accounts designated by the
terminating party; provided, however, such Breakup Fee shall not be payable
unless the terminating party, at the time of such termination, has (i) satisfied
all of the conditions precedent to the non-terminating party's obligations set
forth in Article V, (ii) complied with all of its agreements, obligations and
covenants set forth in this Agreement, and (iii) is not in breach of any of its
representations or warranties made pursuant to this Agreement. Such Breakup Fee
is intended to constitute liquidated damages, and shall be the terminating
party's sole and exclusive remedy, at law or in equity, for the non-terminating
party's breach and/or failure to perform.

         (b) The Breakup Fee shall be paid in immediately available funds in
accordance with Section 6.3(a). If not paid at such time, from the date such
Breakup Fee is due hereunder until paid in full, the amount of the Breakup Fee
shall bear interest at the prime rate of The Chase Manhattan Bank in effect from
time to time. Parent shall also pay, together with the Breakup Fee and accrued
interest, any costs of collection on the part of the Company. At any time prior
to the Effective Time any party hereto may, to the extent legally allowed, (i)
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (ii) waive any inaccuracies in the representations and
warranties made to such party contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions for the benefit of such party contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.

                                       32
<PAGE>   34

                                   ARTICLE 7

                   SURVIVAL OF REPRESENTATIONS AND WARRANTIES

     SECTION 7.1 REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANY. The
representations and warranties relating to the Company contained in Article 2 of
this Agreement shall survive the Effective Time until the one-year anniversary
of the Effective Time.

     SECTION 7.2 REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGER SUB.
The representations and warranties of Parent and Merger Sub contained in Article
3 of this Agreement shall survive the Effective Time until the one-year
anniversary of the Effective Time.

     SECTION 7.3 LIMITATION OF RECOURSE. Except as set forth in Sections 4.11(f)
and (g), following the one-year anniversary of the Effective Time, neither the
Company nor the Company's stockholders, on the one hand, nor Parent and the
Surviving Corporation, on the other hand, shall have any liability or obligation
to indemnify or otherwise hold harmless the other parties (or any of their
successors or permitted assigns) for any claim or any loss or liability arising
from or in any way relating to this Agreement or any of the transactions
contemplated hereby or any other transaction or event occurring on or prior to
the Closing or the Effective Time (including, without limitation, any
misrepresentation or inaccuracy in, or breach of, any representations or
warranties other than the representations or warranties contained in Articles 2
and 3) or any breach or failure in performance prior to the Closing or the
Effective Time of any covenants or agreements made by such party in this
Agreement or in any exhibit or the Disclosure Schedule hereto or any certificate
or instrument delivered hereunder. Without limiting the generality of the
foregoing, in the absence of actual fraud, no party hereto nor any of their
respective successors or permitted assigns shall be entitled to seek any
rescission of the transactions consummated under this Agreement or other remedy
at law or in equity.

     SECTION 7.4 ACKNOWLEDGMENT BY THE PARTIES. The Company, on the one hand,
and Parent and the Surviving Corporation, on the other hand, understands that
the representations and warranties of the other parties will not survive
following the one-year anniversary of the Effective Time and constitute the sole
and exclusive representations and warranties of the other parties in connection
with the transactions contemplated hereby. Each party to this Agreement
understands, acknowledges and agrees that all other representations and
warranties of any kind or nature expressed or implied (including, without
limitation, any relating to the future or historical financial condition,
results of operations, assets or liabilities of the) are specifically disclaimed
by each other party.

                                       33
<PAGE>   35

                                   ARTICLE 8

                           ESCROW AND INDEMNIFICATION

     SECTION 8.1 INDEMNIFICATION BY THE STOCKHOLDERS. Subject to the limitations
set forth in Section 8.5 herein, the Parent and its affiliates (including the
Surviving Corporation) shall be entitled to be protected, defended, indemnified
and held harmless, promptly upon demand at any time and from time to time out of
the Escrow Fund, against any and all losses, liabilities, claims, actions,
damages and expenses (including without limitation, reasonable attorneys' fees
and disbursements) (collectively, "LOSSES"), arising out of or in connection
with (i) any misrepresentation or breach of any representation or warranty made
by the Company in this Agreement, (ii) any breach or non-fulfillment of any
covenant or agreement made by the Company in this Agreement, (iii) any
misrepresentation or breach of any representation or warranty made by a
Stockholder in the Stockholder Agreement, or (iv) any breach or non-fulfillment
of any covenant or agreement made by a Stockholder in the Stockholder Agreement.
Nothing herein shall prevent or limit a Stockholder from seeking indemnification
from a breaching Stockholder for the breaching Stockholder's pro rata share of
the Escrow Fund.

     SECTION 8.2 INDEMNIFICATION BY PARENT. Parent shall indemnify, defend and
hold harmless the Company (prior to Closing) and the Stockholders (following the
Closing), promptly upon demand at any time and from time to time, against any
and all Losses arising out of or in connection with any of the following: (i)
any misrepresentation or breach of any representation or warranty made by Parent
or Merger Sub in this Agreement or (ii) any breach or non-fulfillment of any
covenant or agreement made by Parent or the Merger Sub in this Agreement.

     SECTION 8.3 ESCROW OF SHARES. At the Effective Time, 10% of the Parent
Common Stock to be delivered to the Stockholders shall be registered in the name
of and delivered to the federal banking institution selected by Parent to serve
as escrow agent (the "ESCROW AGENT"), which institution shall be reasonably
acceptable to the Company, such deposit to constitute the escrow fund (the
"ESCROW FUND") and to be governed by the terms set forth herein and in the
Escrow Agreement attached hereto as Exhibit E (the "INDEMNITY ESCROW
AGREEMENT"). The Escrow Fund shall be held by the Escrow Agent for a period of
one (1) year following the Effective Time and delivered by the Escrow Agent to
the Stockholders entitled thereto, or to Parent and the Surviving Corporation,
as appropriate, all as provided under the terms of the Indemnity Escrow
Agreement.

     SECTION 8.4 APPOINTMENT OF REPRESENTATIVE. Michael Steinmetz, on behalf of
MPM Asset Management, is hereby appointed as the representative (the
"REPRESENTATIVE") of the Stockholders. The Representative is authorized to act
on behalf of the Stockholders in all matters arising under this Agreement, the
Stockholder Agreement and the Escrow Agreement. The Representative may be
replaced by an affirmative vote of the Stockholders who, prior to the Effective
Time, were the holders of a majority of the Shares. The Representative shall not
be liable in his capacity as representative of the Stockholders and Parent shall
indemnify Representative and hold such individual harmless from any liability,
cost or expense, unless the Representative has acted with gross negligence or
willful misconduct.

                                       34
<PAGE>   36

     SECTION 8.5 LIMITATIONS.

         (a) Except as set forth in Section 4.11(g), the Parent agrees that
after the Effective Time the sole and exclusive remedy for all Losses under
Section 8.1 or otherwise in connection with this Agreement or the transactions
contemplated hereby shall be to make one or more claims against the Escrow Fund.

         (b) The Stockholders, the Company and the Parent or any of its
affiliates, shall not be entitled to indemnification for Losses arising out of
matters referred to in this Article 8, unless it shall have given written notice
to the indemnifying party, setting forth its claim for indemnification in
reasonable detail, within the period from the Effective Time until the one-year
anniversary of the Effective Time.

         (c) Anything in this Agreement to the contrary notwithstanding, no
indemnification payment shall be made pursuant to this Article 8, whether from
the Escrow Fund or otherwise, until the amounts which the indemnified party
would otherwise be entitled to receive as indemnification under this Agreement
aggregate at least $250,000, which shall be treated as a reduction of the
indemnified party's damages.

         (d) An indemnified party shall promptly give written notice to the
indemnifying party after the indemnified party has knowledge that any legal
proceeding has been instituted or any claim has been asserted in respect of
which indemnification may be sought under the provisions of this Article 8. If
the indemnifying party, within thirty (30) days after the indemnified party has
given such notice (or within such shorter period of time as an answer or other
responsive motion may be required), shall have acknowledged in writing his or
its obligation to indemnify, then the indemnifying party shall have the right to
control the defense of such claim or proceeding, and the indemnifying party
shall not settle or compromise such claim or proceeding without the written
consent of the indemnified party. The indemnified party may in any event
participate in any such defense with his or its own counsel and at his or its
own expense.

         (e) The indemnified party shall be kept fully informed by the
indemnifying party of such action, suit or proceeding at all stages thereof,
whether or not he or it is represented by counsel. The indemnifying party shall,
at the indemnifying party's expense, make available to the indemnified party and
its attorneys and accountants all books and records of the indemnifying party
relating to such action, suit or proceeding, and the parties hereto agree to
render to each other such assistance as they may reasonably require of each
other in order to ensure the proper and adequate defense of any such action,
suit or proceeding.

     SECTION 8.6 DISTRIBUTIONS; VOTING.

         (a) Any shares of Parent Common Stock or other equity securities issued
or distributed by Parent (including shares issued upon a stock split) ("NEW
SHARES") in respect of the shares of Parent Common Stock that have not been
released from the Escrow Fund (the "ESCROW SHARES"), and any dividends declared
and paid on the Escrow Shares ("NEW CASH") shall be added to the Escrow Fund and
become a part thereof. When and if cash dividends on

                                       35
<PAGE>   37

Escrow Shares in the Escrow Fund shall be declared and paid, they shall be
retained in escrow pending final distribution of the Escrow Fund and will not be
immediately distributed to the beneficial owners of the Escrow Shares. Such New
Cash consisting of dividends will become part of the Escrow Fund and will be
available to satisfy Losses. The beneficial owners of the New Cash shall pay any
taxes on any interest payable on such New Cash.

         (b) Each Stockholder shall have voting rights with respect to that
number of Escrow Shares contributed to the Escrow Fund on behalf of such
Stockholder (and on any voting securities added to the Escrow Fund in respect of
such Escrow Shares) so long as such Escrow Shares or other voting securities are
held in the Escrow Fund. As the record holder of such shares, the Escrow Agent
shall vote such shares in accordance with the instructions of the solicitation
materials to such Stockholders.

                                    ARTICLE 9

                                  MISCELLANEOUS

     SECTION 9.1 FEES AND EXPENSES. Except as otherwise provided in this
Agreement, all fees and expenses incurred in connection with the sale of the
Company, including without limitation this Agreement and the transactions
contemplated hereby, shall be paid by the party incurring such expenses, except
that in the event the Merger is consummated, Parent shall be responsible for the
first $1,000,000 of the aggregate amount of all legal, investment banking,
financial advisory, accounting and other fees and expenses of the Company (which
shall in any event be presented by the Company for payment one day prior to the
Closing Date with respect to the transactions contemplated by this Agreement
(including any governmental filings)) and the Stockholders, jointly and
severally (and not Parent or the Company), shall be responsible for all other of
such legal, investment banking, financial advisory, accounting and other fees
and expenses of the Company or the Stockholders (the "EXCESS EXPENSES"). Parent
shall be entitled to reimbursement for Excess Expenses, if any, in the form of
disbursements from the Escrow Fund.

     SECTION 9.2 GOVERNING LAW. This Agreement shall be construed under and
governed by the laws of the State of Delaware applicable to contracts made and
to be performed entirely within such state.

     SECTION 9.3 AMENDMENT. This Agreement may not be amended, modified or
supplemented except upon the execution and delivery of a written agreement
executed by the parties hereto.

     SECTION 9.4 ASSIGNMENT. Except as otherwise expressly permitted under this
Agreement, no party hereunder shall have the right to assign its rights
hereunder or any interest herein without the prior written consent of the other
parties hereto. Nothing in this Agreement is intended or shall be construed to
confer upon any person other than the parties hereto and their respective
permitted assigns any right, remedy or claim under or by reason of this
Agreement or any part hereof.

                                       36
<PAGE>   38

     SECTION 9.5 WAIVER. Any of the terms or conditions of this Agreement that
may be lawfully waived may be waived in writing at any time by the party that is
entitled to the benefits thereof. Any waiver of any of the provisions of this
Agreement by any party hereto shall be binding only if set forth in an
instrument in writing signed on behalf of such party. No failure to enforce any
provision of this Agreement shall be deemed to or shall constitute a waiver of
such provision and no waiver of any of the provisions of this Agreement shall be
deemed to or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.

     SECTION 9.6 NOTICES. Any notice, demand, or communication required or
permitted to be given by any provision of this Agreement shall be deemed to have
been sufficiently given or served for all purposes if (a) personally delivered,
(b) mailed by registered or certified first-class mail, prepaid with return
receipt requested, (c) sent by a nationally recognized overnight courier
service, to the recipient at the address below indicated or (d) delivered by
facsimile which is confirmed in writing by sending a copy of such facsimile to
the recipient thereof pursuant to clause (a) or (c) above:

                   If to Parent/Merger Sub:

                   Lexicon Genetics Incorporated
                   4000 Research Forest Drive
                   The Woodlands, TX 77381
                   Attn: Dr. Arthur T. Sands, President and CEO
                   Telefax: 281-863-8088

                   with a copy to:

                   Lexicon Genetics Incorporated
                   4000 Research Forest Drive
                   The Woodlands, TX 77381
                   Attn: Jeff Wade

                   and a copy to:

                   Vinson & Elkins L.L.P.
                   1001 Fannin, Suite 2700
                   Houston, Texas  77002
                   Attention: David Oelman

                   If to the Company:

                   Coelacanth Corporation
                   279 Princeton-Hightstown Road
                   East Windsor, NJ  08520
                   Attention:  Alan Main

                                       37
<PAGE>   39

                   with a copy to:

                   Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
                   One Financial Center
                   Boston, MA  02111
                   Attention:  Jonathan Kravetz, Esq.

or to such other address as any party hereto may, from time to time, designate
in a written notice given in like manner.

Except as otherwise provided herein, any notice under this Agreement will be
deemed to have been given (x) on the date such notice is personally delivered or
delivered by facsimile, (y) four days after the date of mailing if sent by
certified or registered mail or (z) the next succeeding business day after the
date such notice is delivered to the overnight courier service if sent by
overnight courier; provided that in each case notices received after 4:00 p.m.
(local time of the recipient) shall be deemed to have been duly given on the
next business day.

     SECTION 9.7 COMPLETE AGREEMENT. This Agreement, the Confidentiality
Agreement and the other documents and writings referred to herein or delivered
pursuant hereto contain the entire understanding of the parties with respect to
the subject matter hereof and thereof and supersede all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof and thereof. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns.

     SECTION 9.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.

     SECTION 9.9 HEADINGS. The headings contained in this Agreement are for
reference only and shall not affect in any way the meaning or interpretation of
this Agreement.

     SECTION 9.10 CONSTRUCTION. This Agreement has been negotiated by the
Company and Parent and their respective legal counsel, and legal and equitable
principles that might require the construction of this Agreement against the
party drafting this Agreement shall not apply in any construction or
interpretation of this Agreement.

     SECTION 9.11 SEVERABILITY. Any provision of this Agreement which is
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining provisions hereof
in such jurisdiction or rendering that or any other provision of this Agreement
invalid, illegal or unenforceable in any other jurisdiction.

     SECTION 9.12 THIRD PARTIES. Except as expressly set forth in Sections 1.6,
1.7, 1.8, 4.6, 4.7, 4.11 and 9.1 and in Article 8, nothing herein expressed or
implied is intended or shall be construed to confer upon or give to any person
or corporation, other than the parties hereto and

                                       38
<PAGE>   40

their permitted successors or assigns, any rights or remedies under or by reason
of this Agreement.

     SECTION 9.13 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. THE PARTIES
HERETO HEREBY CONSENT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED
WITHIN THE AREA ENCOMPASSED BY THE STATE OF DELAWARE AND IRREVOCABLY AGREE THAT
ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE
LITIGATED IN SUCH COURTS. THE PARTIES HERETO EACH ACCEPT FOR ITSELF AND IN
CONNECTION WITH ITS RESPECTIVE PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
EXCLUSIVE JURISDICTION AND VENUE OF THE AFORESAID COURTS AND WAIVE ANY DEFENSE
OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREE TO BE BOUND BY ANY NON-APPEALABLE
JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. THE PARTIES HERETO
EACH DESIGNATE CT CORPORATION SYSTEM, INC. AND SUCH OTHER PERSONS AS MAY
HEREINAFTER BE SELECTED BY SELLERS WHO IRREVOCABLY AGREE IN WRITING TO SO SERVE
AS AGENT TO RECEIVE ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY COURT PROCEEDING,
SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY THE PARTIES HERETO TO BE EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE
MAILED BY REGISTERED MAIL TO THE PARTIES HERETO, AS PROVIDED HEREIN, EXCEPT THAT
UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL
NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS.

     SECTION 9.14 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY LAW,
THE PARTIES HERETO HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY
DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION. THE
PARTIES HERETO ALSO WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH
MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF ANY OF THE OTHER PARTIES. THE SCOPE
OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT
MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS
AGREEMENT, INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF
DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THE PARTIES HERETO
ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS
AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED
FUTURE DEALINGS. THE PARTIES HERETO FURTHER WARRANT AND REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THE WAIVER SHALL

                                       39
<PAGE>   41

APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE
TRANSACTION CONTEMPLATED HEREBY. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY
BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

                            [SIGNATURE PAGE FOLLOWS]

                                       40
<PAGE>   42

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized,
all as of the date first written above.

                             LEXICON GENETICS INCORPORATED

                             By: /s/  ARTHUR T. SANDS
                                 ----------------------------------------------
                                 Name: Arthur T. Sands, M.D., Ph.D.
                                 Title: President and Chief Executive Officer

                             ANGLER ACQUISITION CORP.

                             By: /s/  ARTHUR T. SANDS
                                 ----------------------------------------------
                                 Name: Arthur T. Sands, M.D., Ph.D.
                                 Title: President and Chief Executive Officer

                             COELACANTH CORPORATION

                             By: /s/  ALAN MAIN
                                 ----------------------------------------------
                                 Name: Alan Main, Ph.D.
                                 Title: President and Chief Executive Officer
<PAGE>   43

                                    EXHIBIT A

                                     FORM OF
                              CERTIFICATE OF MERGER
                                       OF
                            ANGLER ACQUISITION CORP.
                            (A DELAWARE CORPORATION)
                                  WITH AND INTO
                             COELACANTH CORPORATION
                            (A DELAWARE CORPORATION)

                     Pursuant to Section 252 of the General
                    Corporation Law of the State of Delaware

         The undersigned corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware (the "DGCL") DOES HEREBY
CERTIFY:

         FIRST: The name and state of incorporation of each of the constituent
corporations to the merger (the "Merger") are as follows:

<TABLE>
<CAPTION>
              Name                                        State
              ----                                        -----
<S>                                                      <C>
              Angler Acquisition Corp.                    Delaware
              Coelacanth Corporation                      Delaware
</TABLE>

         SECOND: That an Agreement and Plan of Merger (the "Merger Agreement"),
dated as of June ___, 2001, between Lexicon Genetics Incorporated, a Delaware
corporation, Angler Acquisition Corp., a Delaware corporation, and Coelacanth
Corporation, a Delaware corporation, has been approved, adopted, certified,
executed and acknowledged by each of the constituent corporations in accordance
with the requirements of Section 252 of the DGCL.

         THIRD: That the name of the corporation surviving the Merger is
"Coelacanth Corporation," a Delaware corporation (the "Surviving Corporation").

         FOURTH: That the text of the Certificate of Incorporation of Coelacanth
Corporation shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended in accordance with the provisions thereof
and applicable law.

         FIFTH: That the executed Merger Agreement is on file at an office of
the Surviving Corporation, the address of which is 4000 Research Forest Drive,
The Woodlands, Texas 77381.

         SIXTH: That a copy of the Merger Agreement will be furnished by the
Surviving Corporation, upon request and without cost, to any stockholder of
either constituent corporation.

         SEVENTH: That this Certificate of Merger, and the Merger provided for
herein, shall become effective at the time this Certificate of Merger is filed
with the Delaware Secretary of State.

                                      A-1

<PAGE>   44

         IN WITNESS WHEREOF, Coelacanth Corporation has caused this Certificate
of Merger to be executed this ____ day of _________, 2001.

                                          COELACANTH CORPORATION

                                          By:
                                             -----------------------------------
                                          Name:
                                          Title:

                                      A-2

<PAGE>   45

                                    EXHIBIT B

The Purchase Price for the shares of capital stock of the Company is based on
the Average Closing Price of a share of Parent Common Stock. The Average Closing
Price is subject to a Collar that sets a maximum possible Average Closing Price
of $13.30 and a minimum possible Average Closing Price of $8.87. The amount of
the Average Closing Price determines the number of shares of Parent Common Stock
allocable to the holders of capital stock of the Company. If the Average Closing
Price is within the Collar, the implied deal value will be $32,000,000, as set
forth in the "Within Collar" column. If the Average Closing Price is below the
Collar, the Average Closing Price will be deemed to be $8.87, but the implied
transaction value may be less than $32,000,000, as set forth in the "Below
Collar" columns. If the Average Closing Price is above the collar, the Average
Closing Price will be deemed to be $13.30, but the implied transaction value may
be greater than $32,000,000, as set forth in the "Above Collar" columns. The
actual amount of the Average Closing Price, and the resulting allocation of
shares of Parent Common Stock, may impact the Company stockholders' decision to
convert their shares to Company common stock prior to the Effective Time of the
Merger.

Attached hereto are hypothetical examples of the allocation of the Purchase
Price based on assumed Average Closing Prices as of July 15, 2001, which
examples are intended to assist the Company stockholders in understanding the
Purchase Price allocation under the Merger Agreement.

For the purposes of this Exhibit B, the following terms shall have the following
meanings:

"Average Closing Price" means the average closing price of Parent Common Stock
on the Nasdaq National Market for the 30 calendar days ending on the third
calendar day prior to the Closing Date, provided, however, if such price is
equal to or greater than $13.30, the Average Closing Price shall be deemed to be
$13.30 and if the Average Closing Price is less than or equal to $8.87, the
Average Closing Price shall be deemed to be $8.87. The range of $13.30 to $8.87
is sometimes referred to in this Exhibit B as the "Collar".

"Merger Consideration" means the total number of shares of Parent Common Stock
to be delivered, whether delivered or held back, at the Effective Time, which is
equal to (i) such number of shares of Parent Common Stock obtained by dividing
(A) $32,000,000 by (B) the Average Closing Price, if the Average Closing Price
is within the Collar, (ii) 2,406,305 shares of Parent Common Stock if the
Average Closing Price is equal to or greater than $13.30 or (iii) 3,609,457
shares if the Average Closing Price is equal to or less than $8.87.

"Series A Liquidation Amount" means $2,419,887, which is the value of the Merger
Consideration which would be allocated to the holders of the Company's Series A
Preferred Stock, as a group, under the terms of the Amended and Restated
Certificate of Incorporation of the Company (the "CHARTER") assuming none of the
holders of the Company's Series A Preferred elected to convert their shares of
Series A Preferred Stock to Common Stock prior to the Effective Time. This
represents such number of shares of Parent Common Stock as is obtained by
dividing $2,419,887 by the Average Closing Price.

                                      B-1

<PAGE>   46

"Series B Liquidation Amount" means $5,500,000, which is the value of the Merger
Consideration which would be allocated to the holders of the Company's Series B
Preferred Stock, as a group, under the terms of the Charter assuming none of the
holders of Series B Preferred Stock elected to convert their shares of Series B
Preferred Stock into Common Stock prior to the Effective Time. This represents
such number of shares of Parent Common Stock as is obtained by dividing
$5,500,000 by the Average Closing Price.

"Series C Liquidation Amount" means the value obtained by (i) multiplying the
number of outstanding shares of Series C Preferred Stock at the Effective Time
by $0.76, plus (ii) any and all accumulated and unpaid dividends since the date
of issuance of the Series C Preferred Stock at a quarterly dividend rate of
1.8%, subject to proration for partial quarters on the basis of a 90-day quarter
and accumulating and compounding quarterly on the last day of March, June,
September and December of each year (together with (i), the ("SERIES C BASE
LIQUIDATION AMOUNT"), plus (iii) its respective portion of the Surplus Amount
(treating the Series C Preferred Stock as if it had been converted into Common
Stock at the Effective Time, as set forth in the Charter).

"Series D Liquidation Amount" means the value obtained by (i) multiplying the
number of outstanding shares of Series D Preferred Stock at the Effective Time
by $0.95, plus (ii) any and all accumulated and unpaid dividends since the date
of issuance of the Series D Preferred Stock at a quarterly dividend rate of
1.8%, subject to proration for partial quarters on the basis of a 90-day quarter
and accumulating and compounding quarterly at a preference amount of $1.045, on
the last day of March, June, September and December of each year (together with
(i), the "SERIES D BASE LIQUIDATION AMOUNT"), plus (iii) its respective portion
of the Surplus Amount (treating the Series D Preferred Stock as if it had been
converted into Common Stock at the Effective Time, as set forth in the Charter).

"Surplus Amount" means the value obtained by subtracting the sum of the Series D
Base Liquidation Amount, the Series C Base Liquidation Amount, the Series B
Liquidation Amount, and the Series A Liquidation Amount from the Merger
Consideration, which net amount represents such number of shares of Parent
Common Stock as is obtained by dividing the Surplus Amount by the Average
Closing Price.

Based on the assumptions set forth above, assuming an Average Closing Price
within the Collar, the Purchase Price would be allocated among the holders of
the Company's capital stock as follows (this is as set forth on the attached
chart under the heading "WITHIN COLLAR"):

(i)      each issued and outstanding share of the Company's Series D Preferred
         Stock and each issued and outstanding share of the Company's Series C
         Preferred Stock, respectively, would be converted into the right to
         receive its respective portion of the Series D Liquidation Amount and
         the Series C Liquidation Amount, respectively; and

(ii)     each issued and outstanding share of the Company's Series B Preferred
         Stock and each issued and outstanding share of the Company's Series A
         Preferred Stock, respectively,

                                      B-2

<PAGE>   47

         would be converted into the right to receive its respective portion of
         the Series B Liquidation Amount and the Series A Liquidation Amount,
         respectively; and

(iii)    each issued and outstanding share of Common Stock would be converted
         into the right to receive its respective portion of the Surplus Amount.

                                      B-3

<PAGE>   48

5 Day Average Closing Price       $      11.08
20% Above                         $      13.30
20% Below                         $       8.87

Max. # of Shares                     3,609,457
Min. # of Shares                     2,406,305

<TABLE>
<CAPTION>
                                                   Below Collar                       Within Collar         Above Collar
                                                    Series D
                                                  Trigger Price
<S>                               <C>            <C>            <C>                  <C>                    <C>
Average Closing Price             $     6.9263   $      7.0889  $     7.2033         $ 8.87 - $13.30        $    14.1296

                                                                                     Floats Between
# of Shares Issued                   3,609,457       3,609,457     3,609,457          Min. and Max.            2,406,305
IMPLIED DEAL VALUES               $ 25,000,000   $  25,586,958  $ 26,000,000         $    32,000,000        $ 34,000,000

Series D Redeemable                  5,861,688       5,361,688     5,361,688               5,361,688           5,361,688
Series D Participation                      --         500,000       618,283               2,336,496           2,909,234
                                    ----------      ----------    ----------              ----------          ----------
Series D Total                       5,861,688       5,861,688     5,979,970               7,698,184           8,270,922

Series C Redeemable                 10,559,383      10,559,383    10,559,383              10,559,383          10,559,383
Series C Participation                 595,145       1,125,195     1,391,376               5,258,023           6,546,905
                                    ----------      ----------    ----------              ----------          ----------
Series C Total                      11,154,528      11,684,577    11,950,758              15,817,405          17,106,288

Series B                             5,500,000       5,500,000     5,500,000               5,500,000           5,500,000

Series A                             2,419,887       2,419,887     2,419,887               2,419,887           2,419,887

Common                                  63,897         120,806       149,384                 564,524             702,904

Per Share Distribution            $    0.05025   $     0.09500  $    0.11747         $       0.44393        $    0.55275

<CAPTION>

                                                                     Above Collar
                                         Series A                                              Series B
                                      Trigger Price                                         Trigger Price
<S>                                   <C>                 <C>            <C>                <C>                 <C>
Average Closing Price                 $    14.5362        $    14.5451   $    27.4280       $    27.4967        $    27.8435

# of Shares Issued                       2,406,305           2,406,305      2,406,305          2,406,305           2,406,305
IMPLIED DEAL VALUES                   $ 34,978,598        $ 35,000,000   $ 66,000,000       $ 66,165,385        $ 67,000,000

Series D Redeemable                      5,361,688           5,361,688      5,361,688          5,361,688           5,361,688
Series D Participation                   3,189,474           3,194,509     10,487,408         10,526,316          10,701,170
                                        ----------          ----------     ----------         ----------          ----------
Series D Total                           8,551,162           8,556,197     15,849,096         15,888,004          16,062,858

Series C Redeemable                     10,559,383          10,559,383     10,559,383         10,559,383          10,559,383
Series C Participation                   7,177,554           7,188,884     23,600,739         23,688,296          24,081,785
                                        ----------          ----------     ----------         ----------          ----------
Series C Total                          17,736,936          17,748,267     34,160,121         34,247,679          34,641,168

Series B                                 5,500,000           5,500,000      5,500,000          5,500,000           5,591,361

Series A                                 2,419,887           2,423,707      7,956,907          7,986,426           8,119,090

Common                                     770,613             771,829      2,533,875          2,543,276           2,585,523

Per Share Distribution                $    0.60600        $    0.60696   $    1.99261       $    2.00000        $    2.03322
</TABLE>

                                      B-4

<PAGE>   49

                                    EXHIBIT C

                          FORM OF STOCKHOLDER AGREEMENT

         This Stockholder Agreement is made and entered into as of this ____ day
of ______________, 2001 by and among the undersigned stockholder (the
"Stockholder") of Coelacanth Corporation, a Delaware corporation (the
"Company"), Lexicon Genetics Incorporated, a Delaware corporation (the "Parent")
and Angler Acquisition Corp., a Delaware corporation and wholly owned subsidiary
of the Parent (the "Merger Sub"). This Agreement is being delivered pursuant to
Sections 4.11 and 5.3(h) of the Agreement and Plan of Merger dated as of June
__, 2001 (the "Merger Agreement") by and among the Parent, the Merger Sub and
the Company. Capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Merger Agreement.

         WHEREAS, the Merger Agreement provides that it is a condition to the
obligations of the Parent and the Merger Sub to consummate and effect the Merger
Agreement and the transactions contemplated thereby that stockholders of the
Company holding at least 90% of the Company's outstanding common stock, $.0001
par value per share (the "Common Stock"), on a fully diluted, as-converted
basis, shall have executed and delivered this Agreement;

         WHEREAS, the Parent and the Merger Sub would not consummate and effect
the transactions contemplated by the Merger Agreement if such condition were not
satisfied;

         WHEREAS, the Stockholder expects to derive a significant benefit from
the consummation of the transactions contemplated by the Merger Agreement; and

         WHEREAS, the Stockholder desires to execute and deliver this Agreement
as an inducement to the Parent and the Merger Sub to consummate and effect the
transactions contemplated by the Merger.

         NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the Stockholder hereby represents and warrants to and
agrees with the Parent and the Merger Sub as follows:

         1. Stockholder's Title and Authority. The Stockholder hereby represents
and warrants to the Parent and the Merger Sub that (a) the Stockholder has duly
authorized, executed and delivered this Agreement and this Agreement constitutes
a valid and binding agreement and neither the execution and delivery of this
Agreement nor the consummation by the Stockholder of the transactions
contemplated hereby will constitute a violation of, a default under, or conflict
with any contract, commitment, agreement, understanding, arrangement or
restriction of any kind to which the Stockholder is a party or by which the
Stockholder is bound; (b) consummation by the Stockholder of the transactions
contemplated hereby will not violate, or require any consent, approval, or
notice under, any provision of law applicable to the Stockholder; (c) the shares
of capital stock of the Company and options and warrants to acquire capital
stock of the Company as set forth on the signature page hereto (the "Shares")
and the certificates or other instruments representing same are now and, at the
Closing, will be, held by the Stockholder or by a nominee

                                      C-1

<PAGE>   50

or custodian for the benefit of the Stockholder, free and clear of all liens,
claims, security interests, proxies, voting trusts or agreements or any other
encumbrances whatsoever ("Encumbrances") with respect to the ownership or voting
of the Shares or otherwise, other than Encumbrances created by or arising
pursuant to the Agreement and Irrevocable Proxy previously executed by the
Stockholder, if so executed by the Stockholder, and there are no outstanding
options, warrants or rights to purchase or acquire, or proxies,
powers-of-attorney, voting agreements, trust agreements or other agreements
relating to, the Shares other than such Agreement and Irrevocable Proxy; (d)
such Shares constitute all of the securities of the Company owned beneficially
or of record by the Stockholder on the date hereof and as will be so owned on
the Closing Date; and (e) the Stockholder has the present power and right to
vote all of the Shares (other than options and warrants) that are entitled to
vote.

         2. Stockholders' Representative. The Stockholder hereby irrevocably
ratifies and agrees to the appointment of Michael Steinmetz, on behalf of MPM
Asset Management, as the representative (the "Representative") of the
stockholders of the Company (provided that the Representative may be replaced in
accordance with Section 8.4 of the Merger Agreement) for the purpose of
administering the Merger Agreement on behalf of the Stockholder, to the extent
set forth in the Merger Agreement and the Indemnity Escrow Agreement, including
without limitation, signing the Indemnity Escrow Agreement, performing the
functions and acts of the Representative thereunder, delivering appropriate
instructions and executing any documents or agreements necessary or desirable
for carrying out the functions of the Representative thereunder and otherwise
administering the indemnification and escrow distribution provisions set forth
in Article 8 of the Merger Agreement. The Stockholder agrees that the Parent and
the Surviving Corporation shall be entitled to deal exclusively with the
Representative and that the Representative shall have the authority to bind the
Stockholder with respect to all such matters arising under the Merger Agreement
and the Escrow Agreement.

         3. Registration Rights. The Stockholder has reviewed, and hereby
understands, acknowledges and agrees to, the provisions relating to registration
set forth in Section 4.11 of the Merger Agreement and further agrees to provide
timely to the Representative the information relating to the Stockholder
required by Section 4.11(c) of the Merger Agreement. The Stockholder has
reviewed, and hereby acknowledges and agrees to be bound by and in accordance
with, the indemnification provisions and procedures set forth in Sections
4.11(g) and (h), respectively, of the Merger Agreement.

         4. Investment Intent. The Stockholder hereby represents and warrants to
each of the Parent and Merger Sub as follows: (i) the Stockholder is acquiring
the shares of Parent Common Stock to be issued pursuant to the Merger Agreement
and the Merger to such Stockholder solely for such Stockholder's account, for
investment purposes only and with no current intention or plan to distribute,
sell or otherwise dispose of any of those shares in connection with any
distribution in violation of the securities laws; (ii) the Stockholder is not a
party to any agreement or other arrangement for the disposition of any shares of
Parent Common Stock; (iii) the Stockholder is an "accredited investor" as
defined in Rule 501(a) under the Securities Act of 1933, as amended (the
"Securities Act"); (iv) the Stockholder (A) is able to bear the economic risk of
an investment in the Parent Common Stock acquired pursuant to the Merger
Agreement and the Merger, (B) can afford to sustain a total loss of that
investment, (C) has such knowledge

                                      C-2

<PAGE>   51

and experience in financial and business matters, and such past participation in
investments, that he is capable of evaluating the merits and risks of the
proposed investment in the Parent Common Stock, (D) has received and reviewed
copies of the Merger Agreement, the Parent SEC Reports and the Company's
unaudited consolidated balance sheet dated April 30, 2001 and the Company's
unaudited consolidated statement of operations for the 10-month period ending on
April 30, 2001; and (v) the Stockholder, if a corporation, partnership, trust or
other entity, acknowledges that it was not formed for the specific purpose of
acquiring the Parent Common Stock. Without limiting any of the foregoing, the
Stockholder acknowledges that the shares of Parent Common Stock to be delivered
to such Stockholder pursuant to the Merger Agreement and the Merger have not
been registered under the Securities Act or qualified under applicable blue sky
laws, and the Stockholder agrees not to dispose of any portion of Parent Common
Stock unless either (x) a registration statement under the Securities Act is in
effect as to the applicable shares and the disposition is made in accordance
with that registration statement, or (y) an exemption from the registration
requirements of the Securities Act is available with respect to the applicable
shares and the disposition is made in accordance with that exemption; and, in
the case of either (x) or (y), the disposition is made in accordance with the
provisions of Sections 6 and 7 of this Agreement.

         5. Receipt and Release. As of the Closing and upon distribution of the
Purchase Price in accordance with the Merger Agreement, the Stockholder
acknowledges, confirms and agrees that the shares of Parent Common Stock
allocated to such Stockholder, and issued to such Stockholder or to the
Representative on behalf of such Stockholder, at the Effective Time pursuant to
the Merger and the Merger Agreement constitute in full such Stockholder's
proportionate share of the Purchase Price determined in accordance with Section
1.6 of the Merger Agreement and to which such Stockholder is entitled pursuant
to the Merger Agreement. The Stockholder hereby remits, releases, acquits and
forever discharges the Company, the Surviving Corporation and the Parent of and
from any Claims (as defined below) relating to the sufficiency or amount of
consideration allocated to and received by such Stockholder (or by the
Representative on behalf of such Stockholder) at the Effective Time pursuant to
the Merger Agreement and the Merger.

         AS OF THE CLOSING, THE STOCKHOLDER DOES HEREBY FOR THE STOCKHOLDER AND
ANY OF THE STOCKHOLDER'S HEIRS, EXECUTORS, ADMINISTRATORS AND LEGAL
REPRESENTATIVES REMISE, RELEASE, ACQUIT AND FOREVER DISCHARGE THE COMPANY (AND,
AS OF THE EFFECTIVE TIME, THE SURVIVING CORPORATION) OF AND FROM ANY AND ALL
CLAIMS, DEMANDS, LIABILITIES, RESPONSIBILITIES, DISPUTES, CAUSES OF ACTION AND
OBLIGATIONS (COLLECTIVELY "CLAIMS") OF EVERY NATURE WHATSOEVER, LIQUIDATED OR
UNLIQUIDATED, KNOWN OR UNKNOWN, MATURED OR UNMATURED, FIXED OR CONTINGENT, WHICH
SUCH STOCKHOLDER NOW HAS, OWNS OR HOLDS OR HAS AT ANY TIME PREVIOUSLY HAD, OWNED
OR HELD AGAINST THE COMPANY INCLUDING, WITHOUT LIMITATION, ANY AND ALL CLAIMS
ARISING OUT OF THE NEGLIGENCE, GROSS NEGLIGENCE OR WILLFUL ACTS OF THE COMPANY
AND ITS EMPLOYEES AND AGENTS, WHETHER ANY SUCH CLAIM EXISTS AS OF THE CLOSING OR
RELATES TO ANY MATTER THAT OCCURRED ON OR PRIOR TO THE CLOSING; PROVIDED,
HOWEVER, THAT, EXCEPT AS SET FORTH IN THE PRECEDING PARAGRAPH, ANY CLAIM THAT
MAY ARISE IN CONNECTION WITH THE FAILURE OF ANY OF THE PARTIES HERETO TO PERFORM
ANY OF THEIR OBLIGATIONS HEREUNDER OR UNDER THE MERGER AGREEMENT OR UNDER ANY
OTHER AGREEMENT RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY OR BY THE
MERGER AGREEMENT OR FROM ANY BREACHES BY ANY SUCH PARTY OF ANY OF SUCH PARTY'S

                                      C-3

<PAGE>   52

REPRESENTATIONS OR WARRANTIES HEREIN OR IN ANY OTHER AGREEMENT RELATING TO THE
TRANSACTIONS CONTEMPLATED HEREBY OR BY THE MERGER AGREEMENT SHALL NOT BE
REMISED, RELEASED, ACQUITTED OR DISCHARGED PURSUANT TO THIS AGREEMENT.

         THE STOCKHOLDER HEREBY REPRESENTS AND WARRANTS THAT THE STOCKHOLDER HAS
NOT PREVIOUSLY ASSIGNED OR TRANSFERRED, OR PURPORTED TO ASSIGN OR TRANSFER, TO
ANY PERSON ALL OR ANY PART OF ANY SUCH CLAIMS. THE STOCKHOLDER COVENANTS AND
AGREES NOT TO ASSIGN OR TRANSFER TO ANY PERSON ALL OR ANY PART OF ANY SUCH
CLAIMS. THE STOCKHOLDER REPRESENTS AND WARRANTS THAT THE STOCKHOLDER HAS READ
AND UNDERSTANDS ALL OF THE PROVISIONS OF THIS SECTION 5 AND THAT THE STOCKHOLDER
HAS BEEN REPRESENTED BY LEGAL COUNSEL OF HIS OWN CHOOSING IN CONNECTION WITH THE
NEGOTIATION, EXECUTION AND DELIVERY OF THIS AGREEMENT.

         6. Certain Prohibited Transactions. The Stockholder hereby agrees that,
except with the prior written consent of Parent, the Stockholder will not sell,
offer to sell, solicit offers to buy, dispose of, loan, pledge or grant any
right with respect to any Parent Common Stock issued to the Stockholder pursuant
to the Merger Agreement and the Merger (collectively, a "Disposition"), or
engage in any hedging or other transaction which is designed to or could
reasonably be expected to lead to or result in a Disposition of any such Parent
Common Stock by such Stockholder or any other person or entity. Such prohibited
hedging or other transaction shall include, without limitation, effecting any
short sale or having in effect any short position (whether or not such sale or
position is against the box and regardless of when such position was entered
into) or making any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any such Parent Common Stock
or with respect to any security (other than a broad-based market basket or
index) that includes, relates to or derives any significant part of its value
from Parent Common Stock.

         7. Restrictions on Sale of Parent Company Stock. The restrictions
described in Section 6 above will lapse as follows: (i) on the earlier to occur
of (A) the effective date of the Registration Statement or (B) the 90th day
after the Closing Date, with respect to 50% of the Parent Common Stock received
by the Stockholder pursuant to the Merger Agreement and the Merger, (ii) on the
180th day after the Closing Date with respect to 20% of such Parent Company
Stock, (iii) on the 270th day after the Closing Date with respect to 20% of such
Parent Company Stock and (iv) on the first anniversary of the Closing Date with
respect to the remainder of such Parent Common Stock, which remainder shall be
the Parent Common Stock held in escrow pursuant to the Indemnity Escrow
Agreement.

         8. Escrow. The Stockholder hereby acknowledges that the Stockholder has
reviewed Section 9.1 of the Merger Agreement, and agrees that Parent is entitled
to deduct from the Escrow Fund amounts equal to the Excess Expenses. The
Stockholder has reviewed and understands the indemnification provisions in
Articles 7 and 8 of the Merger Agreement and hereby agrees that the Escrow Fund
shall be available to satisfy such matters for which the Escrow Fund is
available under the terms of the Merger Agreement, subject to the limitations
and procedures set forth in Articles 7 and 8 of the Merger Agreement. The
provisions of Articles 7 and 8 of the Merger Agreement shall apply mutatis
mutandis to any such misrepresentation or breach by the Stockholder.

                                      C-4

<PAGE>   53

         9. Notices. Any notice, demand, or communication required or permitted
to be given by any provision of this Agreement shall be deemed to have been
sufficiently given or served for all purposes if (a) personally delivered, (b)
mailed by registered or certified first-class mail, prepaid with return receipt
requested, (c) sent by a nationally recognized overnight courier service, to the
recipient at the address below indicated or (d) delivered by facsimile which is
confirmed in writing by sending a copy of such facsimile to the recipient
thereof pursuant to clause (a) or (c) above:

                           If to Parent/Merger Sub:

                           Lexicon Genetics Incorporated
                           4000 Research Forest Drive
                           The Woodlands, TX 77381
                           Attn:  Dr. Arthur T. Sands, President and CEO
                           Telefax:  281-863-8088

                           with a copy to:

                           Vinson & Elkins, L.L.P.
                           1001 Fannin, Suite 2300
                           Houston, Texas 77002
                           Attention:  David Oelman
                           Telefax:  (713) 615-5861

                           If to the Stockholder:

                           -------------------------------------

                           -------------------------------------

                           -------------------------------------

                           -------------------------------------

                           with a copy to:

                           -------------------------------------

                           -------------------------------------

                           -------------------------------------

                           -------------------------------------

                           with a copy to:

                           Mintz Levin Cohn Ferris Glovsky and Popeo PC
                           One Financial Center
                           Boston, MA 02111
                           Attn:  Jonathan Kravetz
                           Telefax:  ____________

                                      C-5

<PAGE>   54

or to such other address as any party hereto may, from time to time, designate
in a written notice given in like manner.

         Except as otherwise provided herein, any notice under this Agreement
will be deemed to have been given (x) on the date such notice is personally
delivered or delivered by facsimile, (y) four days after the date of mailing if
sent by certified or registered mail or (z) the next succeeding business day
after the date such notice is delivered to the overnight courier service if sent
by overnight courier; provided that in each case notices received after 4:00
p.m. (local time of the recipient) shall be deemed to have been duly given on
the next business day.

         10. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.

         11. Governing Law. This Agreement shall be construed under and governed
by the laws of the State of Delaware applicable to contracts made and to be
performed entirely within such state without giving effect to the provisions
thereof relating to conflicts of law.

         12. Amendment. This Agreement may not be amended, modified or
supplemented except upon the execution and delivery of a written agreement
executed by the parties hereto.

         13. Binding Effect; Assignment. The terms and provisions of this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the successors and permitted assigns of the parties hereto. No party hereunder
shall have the right to assign its rights hereunder or any interest herein
without the prior consent of the other parties hereto. Nothing in this Agreement
is intended or shall be construed to confer upon any person other than the
parties hereto and their respective permitted assigns any right, remedy or claim
under or by reason of this Agreement or any part hereof.

         14. Headings. The headings contained in this Agreement are for
reference only and shall not affect in any way the meaning or interpretation of
this Agreement.

         15. Construction. This Agreement has been negotiated by the Stockholder
and the Parent and their respective legal counsel, and legal and equitable
principles that might require the construction of this Agreement against the
party drafting this Agreement shall not apply in any construction or
interpretation of this Agreement.

         16. Severability. Any provision of this Agreement which is invalid,
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Agreement invalid,
illegal or unenforceable in any other jurisdiction.

         17. Further Assurances. The Stockholder will, upon request, execute and
deliver any additional documents and take such further actions as may reasonably
be necessary or desirable to carry out the provisions hereof.

                                      C-6

<PAGE>   55

         IN WITNESS WHEREOF, the parties hereto have executed this Stockholder
Agreement as of this _____ day of __________, 2001.

                                 -----------------------------------------------
                                 Signature of Stockholder

                                 -----------------------------------------------
                                 Name of Stockholder

                                 Shares Owned:

                                 ___________ shares of Common Stock
                                 ___________ shares of Series A Preferred Stock
                                 ___________ shares of Series B Preferred Stock
                                 ___________ shares of Series C Preferred Stock
                                 ___________ shares of Series D Preferred Stock

                                 Options and Warrants Owned:

                                 Options to purchase ______________ shares of
                                 Common Stock

                                 Warrants to purchase _____________ shares of
                                 Common Stock

Agreed and Accepted:

LEXICON GENETICS INCORPORATED

By:
     --------------------------------------
Name:
      -------------------------------------
Title:
      -------------------------------------

ANGLER ACQUISITION CORP.

By:
     --------------------------------------
Name:
      -------------------------------------
Title:
      -------------------------------------

                                      C-7

<PAGE>   56

                                    EXHIBIT D

                                     FORM OF
                         AGREEMENT AND IRREVOCABLE PROXY

         This Agreement and Irrevocable Proxy, dated as of June 12, 2001 (the
"Agreement"), is by and between Lexicon Genetics Incorporated, a Delaware
corporation ("Lexicon"), and the undersigned stockholder (the "Stockholder") of
Coelacanth Corporation, a Delaware corporation ("Coelacanth").

                                    RECITALS:

         WHEREAS, Lexicon, Angler Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Lexicon ("Merger Sub"), and Coelacanth propose to
enter into an Agreement and Plan of Merger in the form attached hereto as
Exhibit A (the "Merger Agreement"), providing, among other things, for the
merger of Merger Sub with and into Coelacanth (the "Merger") in accordance with
the terms and provisions of, and subject to the conditions set forth in, the
Merger Agreement, as a result of which all outstanding shares of the
Coelacanth's capital stock will be converted into the right to receive shares of
Lexicon's common stock on the basis set forth in the Merger Agreement; and

         WHEREAS, the Stockholder is the owner, beneficially and of record, of
the number of shares of Coelacanth capital stock (the "Shares") identified on
the signature page of this Agreement; and

         WHEREAS, the Stockholder has agreed to vote the Shares in favor of the
Merger; and

         WHEREAS, as a condition to Lexicon's willingness to enter into the
Merger Agreement, the Stockholder has agreed, upon the terms and subject to the
conditions set forth herein, to enter into this Agreement and to grant Lexicon
an irrevocable proxy (the "Proxy"), with respect to the Shares;

        NOW, THEREFORE, to induce Lexicon to enter into the Merger Agreement and
in consideration of the foregoing and the representations, warranties, covenants
and agreements set forth herein and in the Merger Agreement, including the
benefits that the parties hereto expect to derive from the Merger, the receipt
and sufficiency of all of which are hereby acknowledged by the parties, the
parties hereto agree as follows:

         1. Revocation of Prior Proxies. The Stockholder hereby revokes all
previous proxies granted with respect to any of the Shares owned by the
Stockholder that would conflict with the terms of the Proxy granted hereby.

         2. Grant of Irrevocable Proxy. The Stockholder hereby irrevocably
constitutes and appoints Lexicon and Arthur T. Sands, M.D., Ph.D., President and
Chief Executive Officer of Lexicon, and Jeffrey L. Wade, Executive Vice
President and General Counsel of Lexicon, in

                                      D-1

<PAGE>   57

their respective capacities as officers of Lexicon, and any individual, who
shall hereafter succeed to the office of President and Chief Executive Officer
or Executive Vice President and General Counsel, respectively, of Lexicon, and
each of them individually, as the Stockholder's true and lawful proxy and
attorney-in-fact, with full power of substitution, for and in the name, place
and stead of the Stockholder, to call and attend any and all meetings of the
Coelacanth stockholders and any adjournments thereof, to execute any and all
written consents of stockholders of the Coelacanth, and to vote all of the
Shares and to represent and otherwise act as the Stockholder could act, in the
same manner and with the same effect as if the Stockholder were personally
present, at any annual, special or other meeting of the stockholders of the
Coelacanth, and at any adjournment thereof (a "Meeting"), or pursuant to any
written consent in lieu of meeting or otherwise; provided, however, that any
such vote or consent in lieu thereof or any other action so taken shall be
solely for the purposes of (i) voting in favor of the Merger and the Merger
Agreement and any transactions contemplated thereby or (ii) rejecting any
proposal for any merger agreement or merger (other than the Merger Agreement and
the Merger), consolidation, combination, sale of substantial assets,
reorganization, recapitalization, dissolution, liquidation or winding up of or
by Coelacanth or amendment of the Coelacanth's Certificate of Incorporation or
By-laws or any other transaction or action which is intended to frustrate or
impair the right or ability of Lexicon, on the one hand, and Coelacanth, on the
other hand, to consummate the Merger (a "Competing Proposal"). Such attorneys
and proxies are hereby authorized to vote the Shares in accordance with the
terms of the Proxy contemplated hereby.

         3. Vote in Favor of Merger and Merger Agreement. If Lexicon is unable
or declines to exercise the power and authority granted by the Proxy for any
reason, the Stockholder covenants and agrees (i) to vote all the Shares in favor
of approval and adoption of the Merger and the Merger Agreement and the
transactions contemplated thereby at any Meeting and, upon request of Lexicon,
to provide the Stockholder's written consent thereto, and (ii) unless otherwise
requested by Lexicon, to vote all the Shares against any Competing Proposal at
any Meeting and to refuse to provide the Stockholder's written consent thereto.

         4. No Action Without Lexicon's Consent. The Stockholder hereby
covenants and agrees that it will not vote or take any action by written consent
of stockholders in lieu of meeting on any matter that is subject to the Proxy
without Lexicon's prior written consent.

         5. Negative Covenants of the Stockholder. Except to the extent
contemplated herein or in the Merger Agreement, the Stockholder hereby covenants
and agrees that the Stockholder will not, and will not agree to, directly or
indirectly, (i) sell, transfer, assign, cause to be redeemed or otherwise
dispose of any of the Shares or enter into any contract, option or other
agreement or understanding with respect to the sale, transfer, assignment,
redemption or other disposition of any Shares; (ii) grant any proxy,
power-of-attorney or other authorization or interest in or with respect to such
Shares; or (iii) deposit such Shares into a voting trust or enter into a voting
agreement or arrangement with respect to such Shares unless and until, in the
case of (i), (ii) or (iii) above, the Stockholder shall have taken all actions
(including, without limitation, the endorsement of a legend on the certificates
evidencing such Shares) reasonably necessary to ensure that such Shares shall at
all times be subject to all the rights, powers and privileges granted or
conferred, and subject to all the restrictions, covenants and limitations

                                      D-2

<PAGE>   58

imposed, by this Agreement and shall have caused any transferee of any of the
Shares to execute and deliver to Lexicon, an Agreement and Irrevocable Proxy, in
substantially the form of this Agreement with respect to the Shares. The
Stockholder further covenants and agrees that the Stockholder will not (x)
initiate, encourage, participate in or solicit, directly or indirectly, or
engage in discussions or negotiations with respect to, any inquiries or the
making of any proposal with respect to, or engage in negotiations concerning or
provide any confidential information or data to, any person relating to, any
Competing Proposal or (y) take any other action (other than, to the extent
contemplated in this Agreement, voting for the Merger at the Stockholders'
Meeting (as defined in the Merger Agreement) or any other actions intended to
assist the consummation of the Merger or the satisfaction of the conditions
specified in Article 5 of the Merger Agreement) the effect of which, directly or
indirectly, would be to frustrate Lexicon's ability to exercise the Proxy or
consummate the Merger.

         6. Restrictions on Activities in Lexicon Common Stock. The Stockholder
covenants and agrees that, except to the extent contemplated herein or in the
Merger Agreement it will not, for the Stockholder's own account, at any time
prior to the Effective Time of the Merger, purchase, sell, transfer, assign or
otherwise dispose of, or enter into any contract, option or other arrangement or
understanding with respect to the purchase, sale, transfer, assignment or other
disposition of, any shares of Lexicon's common stock.

         7. Negative Covenants of Lexicon. Lexicon covenants and agrees that it
will not amend the Merger Agreement in any material respect unless it obtains
the Stockholder's prior written consent thereto. Provided that Lexicon shall
have notified the Stockholder of any such amendment, Lexicon and the Stockholder
hereby agree that the sole remedy of the Stockholder for a breach by Lexicon of
the foregoing covenant shall be to elect to terminate this Agreement by notice
to Lexicon.

         8. Stockholder's Representations and Warranties. The Stockholder
represents and warrants to Lexicon that (i) the Stockholder has duly authorized,
executed and delivered this Agreement and this Agreement constitutes a valid and
binding agreement and neither the execution and delivery of this Agreement nor
the consummation by the Stockholder of the transactions contemplated hereby will
constitute a violation of, a default under, or conflict with any contract,
commitment, agreement, understanding, arrangement or restriction of any kind to
which the Stockholder is a party or by which the Stockholder is bound; (ii)
consummation by the Stockholder of the transactions contemplated hereby will not
violate, or require any consent, approval, or notice under, any provision of law
applicable to the Stockholder; (iii) the Shares and the certificates
representing same are now and at all times during the term of this Agreement
will be held by the Stockholder, or by a nominee or custodian for the benefit of
the Stockholder, free and clear of all liens, claims, security interests,
proxies, voting trusts or agreements or any other encumbrances whatsoever
("Encumbrances") with respect to the ownership or voting of the Shares or
otherwise, other than Encumbrances created by or arising pursuant to this
Agreement, and there are no outstanding options, warrants or rights to purchase
or acquire, or proxies, powers-of-attorney, voting agreements, trust agreements
or other agreements relating to, the Shares other than this Agreement; (iv) such
Shares constitute all of the securities of the Coelacanth owned beneficially or
of record by the Stockholder on the date hereof; (v) the

                                      D-3

<PAGE>   59

Stockholder has the present power and right to vote all of the Shares as
contemplated herein; and (vi) Stockholder has received and reviewed copies of
(A) Coelacanth's unaudited consolidated balance sheet dated April 30, 2001 and
its unaudited consolidated statement of operations for the 10-month period
ending April 30, 2001 and (B) Lexicon's Report on Form 10K for the year-ended
December 31, 2000 and Report on Form 10Q for the quarter-ended March 31, 2001.

         9. Lexicon Representations and Warranties. Lexicon has full power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. The execution and delivery by Lexicon of this Agreement have been
duly approved and authorized, and no other corporate proceedings on the part of
Lexicon are necessary to approve and authorize the execution and delivery by
Lexicon of this Agreement. This Agreement has been duly and validly executed by
Lexicon and, assuming this Agreement constitutes the valid and binding agreement
of Stockholder, constitutes a valid and binding agreement of Lexicon,
enforceable against Lexicon in accordance with its terms, subject to the effects
of bankruptcy, insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights generally, and the
application of general rules of equity and the discretion of the court before
which any proceeding therefore may be brought.

         10. Certain Defined Terms. Unless otherwise expressly provided herein,
all capitalized terms used herein without definition shall have the meanings
assigned to them in the Merger Agreement.

         11. Choice of Law. The terms and provisions of this Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware
without giving effect to the provisions thereof relating to conflicts of law.

         12. Binding Effect; Assignability. The terms and provisions of this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
the successors and permitted assigns of the parties hereto. This Agreement and
the rights hereunder may not be assigned or transferred by Lexicon, except with
the prior written consent of the Stockholder.

         13. Term. This Agreement shall terminate at the earliest to occur
of (i) the Effective Time, (ii) the termination of the Merger Agreement in
accordance with its terms, (iii) upon written notice of termination of this
Agreement given by Lexicon to the Stockholder expressly referring to this
paragraph, (v) termination of this Agreement in accordance with Section 7 hereof
or (vi) July 31, 2001.

         14. Irrevocable Proxy Coupled With an Interest. The Stockholder
acknowledges that Lexicon will enter into the Merger Agreement in reliance upon
this Agreement, including the Proxy, and that the Proxy is granted in
consideration for the execution and delivery of the Merger Agreement by Lexicon.
THE STOCKHOLDER AGREES THAT THE PROXY AND ALL OTHER POWER AND AUTHORITY INTENDED
TO BE CONFERRED HEREBY IS COUPLED WITH AN INTEREST SUFFICIENT IN LAW TO SUPPORT
AN IRREVOCABLE POWER AND, EXCEPT AS PROVIDED IN PARAGRAPH 13 ABOVE, SHALL NOT BE
TERMINATED BY ANY ACT OF THE STOCKHOLDER BY LACK OF APPROPRIATE POWER OR
AUTHORITY OR BY THE OCCURRENCE OF ANY OTHER EVENT OR EVENTS.

                                      D-4

<PAGE>   60

         15. Specific Performance. The parties acknowledge and agree that
performance of their respective obligations hereunder will confer a unique
benefit on the other and that a failure of performance will result in
irreparable harm to the other and will not be compensable by money damages. The
parties therefore agree that this Agreement, including the Proxy, shall be
specifically enforceable and that specific enforcement and injunctive relief
shall be a remedy properly available to Lexicon and the Stockholder for any
breach of any agreement, covenant or representation of the other hereunder.

         16. Further Assurance. The Stockholder will, upon request, execute
and deliver any additional documents and take such further actions as may
reasonably be necessary or desirable to carry out the provisions hereof.

         17. Severability. If any term, provision, covenant or restriction
of this Agreement, or the application thereof to any circumstance shall, to any
extent, be held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement or the application thereof to any other
circumstance, shall remain in full force and effect, shall not in any way be
affected, impaired or invalidated and shall be enforced to the fullest extent
permitted by law.

         18. Counterparts. This Agreement and Irrevocable Proxy may be
executed in counterparts, each of which shall be deemed to be an original but
all of which together shall constitute one and the same document.

                                      D-5

<PAGE>   61

         IN WITNESS WHEREOF, Lexicon and the Stockholder have duly executed this
Agreement or caused this Agreement to be duly executed as of the date first set
forth hereinabove.

                                 "Stockholder"

                                 [NAME OF RECORD STOCKHOLDER]

                                 Shares Owned:

                                              shares of Common Stock
                                 ------------
                                              shares of Series A Preferred Stock
                                 ------------
                                              shares of Series B Preferred Stock
                                 ------------
                                              shares of Series C Preferred Stock
                                 ------------
                                              shares of Series D Preferred Stock
                                 ------------

                                 By:
                                    -------------------------------------------
                                 Its:
                                     ------------------------------------------

                                 "Lexicon"

                                 LEXICON GENETICS INCORPORATED

                                 By:
                                    -------------------------------------------
                                 Its:
                                     ------------------------------------------

                                      D-6

<PAGE>   62

                                    EXHIBIT E

                            FORM OF ESCROW AGREEMENT

         THIS ESCROW AGREEMENT (this "Escrow Agreement") is made effective as of
______________, 2001 (the "Effective Date") by and among Lexicon Genetics
Incorporated, a Delaware corporation ("Purchaser"), and ________________ (the
"Sellers' Representative") as representative of the shareholders identified on
Exhibit A hereto (each, a "Seller" and collectively, the "Sellers"), and The
Chase Manhattan Bank, a New York State Bank ("Escrow Agent").

                                 RECITALS

         WHEREAS, Purchaser, Angler Acquisition Corp., a Delaware corporation
(the "Merger Sub"), and Coelacanth Corporation, a Delaware corporation
("Coelacanth"), are parties to an Agreement and Plan of Merger dated June __,
2001 (the "Merger Agreement") providing for, among other things, the merger of
Merger Sub with and into Coelacanth;

         WHEREAS, each of the Seller's owned capital stock of Coelacanth has
been converted into shares of Purchaser's common stock, par value $0.001 per
share (the "Common Stock"), pursuant to the Merger Agreement;

         WHEREAS, the Merger Agreement sets forth certain general terms of
Sellers' indemnification of Purchaser;

         WHEREAS, Purchaser and certain of the Sellers have entered into a
Stockholder Agreement (the "Stockholder Agreements"), which sets forth certain
additional general terms of Sellers' indemnification of Purchaser in connection
with the merger and appoints the Shareholders' Representative to act for them in
connection with this Escrow Agreement;

         WHEREAS, pursuant to the Merger Agreement and the Stockholder
Agreements the Purchaser is authorized to withhold an aggregate of ___ shares
(the "Escrow Shares") from the shares of Purchaser's Common Stock issuable to
Sellers in exchange for their shares in the Company and to deliver the Escrow
Shares to Escrow Agent issued in Escrow Agent's name; and

         WHEREAS, Purchaser and the Sellers' Representative have requested the
Escrow Agent to act in the capacity of escrow agent under this Escrow Agreement,
and the Escrow Agent, subject to the terms and conditions hereof, has agreed so
to do.

         NOW, THEREFORE, for and in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

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<PAGE>   63

                            TERMS OF ESCROW AGREEMENT

         1. Deposit of Escrow Shares. On __________, 2001 [the Effective Date],
Purchaser shall deliver the Escrow Shares to the Escrow Agent to be deposited,
held and disbursed strictly in accordance with the terms of this Escrow
Agreement. Escrow Agent hereby agrees to accept the Escrow Shares upon and
subject to the terms and conditions hereof. The number of Escrow Shares
allocable to each Seller as of the Effective Date in accordance with the Merger
Agreement shall be set forth opposite such Seller's name on Exhibit A hereto.

         2. Escrow Account.

               (a) The Escrow Shares shall be held in an account (the "Escrow
Account") with the Escrow Agent. If cash dividends or other cash distributions
are paid with respect to the Escrow Shares, Escrow Agent shall invest and
reinvest the cash in the Fidelity Prime Money Market Fund No. 76. The Escrow
Agent or any of its affiliates may receive compensation with respect to any
investment directed hereunder. It is expressly agreed and understood by the
parties hereto that Escrow Agent shall not in any way whatsoever be liable for
losses on any investments, including, but not limited to, losses from market
risks due to premature liquidation or resulting from other actions taken
pursuant to this Escrow Agreement. The dividends and other cash distributions
received in respect of the Escrow Shares, together with all interest earned
thereon are collectively referred to herein as the "Escrow Funds" and shall
become part of the Escrow Account. Any stock dividends, stock split shares or
other securities received in respect of, or in exchange for, the Escrow Shares
shall be deemed to also be "Escrow Shares" and a part of the Escrow Account.

               (b) The Escrow Account shall be in the name of the Sellers'
Representative, in trust for each of the Sellers.

               (c) The Escrow Account shall be under the sole control of the
Escrow Agent (subject to the terms of this Escrow Agreement), and designated
signers of Escrow Agent shall have the sole and exclusive authority to transfer
Escrow Shares, draw checks or make withdrawals on the Escrow Account.

A monthly statement detailing the contents of, and transactions in, the Escrow
Account shall be sent to each of the Purchaser and the Sellers' Representative.
Receipt, investment and reinvestment of the Escrow Funds shall be confirmed by
Escrow Agent as soon as practicable by account statement, and any discrepancies
in any such account statement shall be noted by Purchaser and Sellers to Escrow
Agent within 30 calendar days after receipt thereof. Failure to inform Escrow
Agent in writing of any discrepancies in any such account statement within said
30-day period shall conclusively be deemed confirmation of such account
statement in its entirety.

               (d) The Purchaser shall not have any responsibility or liability
for the security of any Escrow Shares or Escrow Funds in the Escrow Account or
for calculating, reporting, or paying any interest on the Escrow Account.
Moreover, the Purchaser shall not have any responsibility or liability for the
amount of interest paid by the Escrow Agent on the Escrow Account. The Purchaser
shall not have any responsibility or liability for, or with respect to, any loss
or damage resulting from any failure, refusal or inability of the Escrow Agent
to transfer the

                                      E-2

<PAGE>   64

Escrow Shares or to disburse, or allow for withdrawal of, the Escrow Funds upon
proper authorization or direction.

               (e) Escrow Agent may make transfers or disbursements from the
Escrow Account without regard to how the timing of such transfers or
disbursements may affect the amount of interest paid on the Escrow Account.

               (f) Until the Escrow Shares of a Seller are distributed under
this Escrow Agreement, such Seller shall be entitled to exercise all voting and
consensual powers and rights pertaining such Escrow Shares, or any part thereof,
for all purposes not inconsistent with the terms of this Escrow Agreement.

               (g) The Escrow Shares shall be appropriately adjusted so as to
take into account stock splits, stock dividends, reverse stock splits and other
similar changes affecting the outstanding shares of Parent Common Stock.

         3. Disbursement of Escrow Shares and Escrow Funds. The Escrow Agent is
hereby authorized to transfer the Escrow Shares and to release and deliver the
Escrow Funds, only as follows:

               (a) If Purchaser and Sellers' Representative instruct Escrow
Agent jointly in writing, or if Purchaser or Sellers' Representative provides
Escrow Agent with a copy of a written decision by arbitrators of the American
Arbitration Association or a judgment, decree or order of a court (whether or
not appealable) awarding payment to such party, Escrow Agent shall promptly
transfer the Escrow Shares and/or disburse the Escrow Funds as so directed or
ordered.

               (b) If Purchaser believes it is entitled to transfer of Escrow
Shares and/or disbursement from the Escrow Funds pursuant to the Merger
Agreement or the Stockholder Agreements, Purchaser will submit prior to 5:00
p.m. Houston, Texas time on [day before date in Section 3c] to Sellers'
Representative and the Escrow Agent an affidavit. The affidavit will be executed
by Purchaser setting forth: (i) the amount of Escrow Shares and/or Escrow Funds
to be transferred to Purchaser, and (ii) the specific provision under the Merger
Agreement or the Stockholder Agreements that entitles Purchaser to receive such
amount of Escrow Shares and/or Escrow Funds from the Escrow Account. The Escrow
Agent shall transfer the Escrow Shares and/or disburse the Escrow Funds from the
Escrow Account as directed by Purchaser on the eleventh day after receipt of the
affidavit by Escrow Agent. Provided, however, if Escrow Agent receives a notice
from Sellers' Representative prior to 5:00 p.m. Houston, Texas time on the tenth
(10) day after receipt of the affidavit by Escrow Agent that he intends to
dispute the claim for payment in the affidavit, Escrow Agent shall not pay any
amount on such claim until instructed jointly in writing by both Purchaser and
Sellers' Representative or Purchaser provides Escrow Agent with a copy of a
written decision by arbitrators of the American Arbitration Association or a
judgment, decree or order of a court (whether or not appealable) awarding
Purchaser such payment.

               (c) On ___________, ___, Escrow Agent shall disburse to the
Sellers' Representative all remaining Escrow Shares and Escrow Funds less the
total amount of any

                                      E-3

<PAGE>   65

unresolved claim(s) as to which an affidavit has been provided under Section
3(b). Any Escrow Shares and Escrow Funds remaining in escrow after such claim(s)
have been satisfied shall be disbursed to the Sellers promptly after the time of
satisfaction.

               (d) Whenever this Section 3 requires disbursement to the Sellers,
the Escrow Agent shall transfer Escrow Shares and/or disburse Escrow Funds to
the Sellers' Representative at the address provided herein. Sellers'
Representative shall then be responsible for transferring the appropriate number
of Escrow Shares and amount of Escrow Funds to each Seller, which number and
amount shall be in proportion to the number of Escrow Shares allocated to the
Seller as of the Effective Date as set forth in Exhibit A hereto.

               (e) Whenever this Escrow Agreement permits a disbursement from
escrow of a certain sum and Escrow Shares will be transferred in satisfaction
thereof, the number of Escrowed Shares to be disbursed in satisfaction shall
equal the certain sum divided by the "Market Price" per share of the Escrowed
Shares. "Market Price" shall mean the closing price on the Nasdaq National
Market (or such national exchange on which the Escrow Shares are listed) on the
last trading day prior to disbursements. If the Escrowed Shares are not quoted
on the Nasdaq National Market or the Nasdaq Small Cap Market or listed on any
national exchange, the "Market Price" shall be the market price as reasonably
determined by an independent appraiser selected by Purchaser and reasonably
acceptable to the Sellers' Representative. Escrow Agent will not be responsible
for determining the above.

         4. Exculpation Provisions for Escrow Agent.

               (a) It is agreed that (i) Escrow Agent shall in no case or event
be liable for any direct or indirect damage caused by the exercise of Escrow
Agent's discretion in any particular manner, or for any other reason, except
gross negligence or a willful breach with reference to its duties hereunder;
(ii) Escrow Agent shall not be liable or responsible for the sufficiency or
correctness as to form, manner of execution, or validity of any instrument
tendered to Escrow Agent hereunder, nor as to identity, authority, or rights of
any person executing the same; and (iii) Escrow Agent shall not be liable or
responsible for Escrow Agent's failure to ascertain the terms or conditions, or
to comply with any of the provisions of any agreement, contract or other
documents other than its instructions contained herein as amended from time to
time in accordance with the terms hereof.

               (b) Purchaser and Sellers hereby jointly and severally covenant
and agree to indemnify and hold Escrow Agent harmless from and against any and
all losses, costs, damages or expenses (including reasonable attorneys' fees) it
may sustain by reason of its service as escrow agent hereunder, except if such
loss, costs, damages or expenses (including attorneys' fees) are incurred by
reason of a willful breach of Escrow Agent's obligations hereunder or gross
negligence on its part, and any such indemnification from the Sellers shall be
charged to and set-off and paid from the Escrow Fund.

               (c) In the event of any disagreement between the parties to this
Escrow Agreement resulting in adverse claims or demands being made in connection
with the Escrow Funds, or in the event that Escrow Agent, in good faith, shall
be in doubt as to what action it

                                      E-4

<PAGE>   66

should take hereunder, Escrow Agent may, at its option, refuse to comply with
any requests, claims or demands relating to this Escrow Agreement, so long as
such disagreements continue or such doubt exists, and in any such event, Escrow
Agent shall be entitled to continue to refrain from acting until (i) the rights
to the Escrow Funds shall have been fully and finally adjudicated by a court of
competent jurisdiction, or (ii) all differences shall have been adjusted and all
doubt resolved by written agreement among all of the persons making requests,
claims or demands with respect to the Escrow Funds, and Escrow Agent shall have
been notified thereof in writing signed by all such persons. In connection with
any such disagreement as aforesaid, Escrow Agent shall have the right to
institute a bill of interpleader, and any costs so incurred by Escrow Agent may
be payable out of the Escrow Funds. The rights of Escrow Agent under this
paragraph are cumulative of all other rights that it may have by law or
otherwise and shall survive the termination of this Escrow Agreement.

         5. Replacement of Escrow Agent.

               (a) At any time during the term of this Escrow Agreement, Escrow
Agent may resign and be discharged of the obligations created by this Escrow
Agreement by executing and delivering to Purchaser and Sellers' Representative,
at least forty-five (45) days' advance written notice of its resignation as
Escrow Agent and specifying the date when such resignation is to take effect.
Any resignation of Escrow Agent shall not become effective until the earlier to
occur of (a) acceptance of appointment by the successor Escrow Agent, or (b) 90
days after Escrow Agent's notice of resignation.

               (b) Escrow Agent may be removed at any time by Purchaser or
Sellers' Representative by a written notice executed by one party to Escrow
Agent and the other party, whereupon a successor Escrow Agent shall be appointed
pursuant to subparagraph (d) below.

               (c) If Escrow Agent shall otherwise be removed, or be dissolved,
or if its property or affairs shall be taken under the control of any state or
federal court or administrative body or agency because of insolvency or
bankruptcy or for any other reason, a vacancy shall forthwith exist in the
office of Escrow Agent, and a successor shall be appointed pursuant to
subparagraph (d) below.

               (d) In the event of the removal or resignation of the Escrow
Agent pursuant to subparagraphs (a), (b) or (c) above, Purchaser and the
Sellers' Representative shall endeavor in good faith to agree upon a successor
Escrow Agent to be appointed by written instrument, one copy of which instrument
shall be delivered to the predecessor Escrow Agent, the successor Escrow Agent,
Purchaser and Sellers' Representative.

               (e) Upon the acceptance of appointment by the successor Escrow
Agent, the predecessor Escrow Agent shall be compensated by Purchaser for any
remaining reasonable out-of-pocket expenses for which it has not been previously
reimbursed, but shall not thereafter be entitled to any further reimbursement or
compensation for its former duties as Escrow Agent hereunder.

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<PAGE>   67

               (f) Any successor Escrow Agent appointed hereunder shall execute,
acknowledge and deliver to Purchaser and Sellers' Representative an instrument
accepting such appointment hereunder, and thereupon such successor Escrow Agent,
without any further act shall become duly vested with all of the property,
rights, powers, trusts, duties and obligations of its predecessor hereunder,
with the same effect as if originally named Escrow Agent.

         6. Miscellaneous.

               (a) All charges, fees and expenses of Escrow Agent incurred in
connection with this Escrow Agreement shall be paid by Purchaser. Purchaser
agrees to pay Escrow Agent for its services hereunder in accordance with Escrow
Agent's fee schedule attached hereto as Schedule I as in effect from time to
time and to pay all expenses incurred by Escrow Agent in connection with the
performance of its duties and enforcement of its rights hereunder and otherwise
in connection with the preparation, operation, administration and enforcement of
this Escrow Agreement, including, without limitation, attorneys' fees, brokerage
costs and related expenses incurred by Escrow Agent.

               (b) Release of the Escrow Funds pursuant to this Escrow Agreement
shall not in any way constitute a cure or waiver of any breach of
representation, warranty or covenant under the Stockholder Agreements or the
Merger Agreement or invalidate any act done pursuant to any notice of default or
prejudice either Purchaser or Sellers in the exercise of any of their respective
rights under the Stockholder Agreements or the Merger Agreement or applicable
law. Purchaser and Sellers' Representative further acknowledge and agree that
the rights and remedies of the parties under this Escrow Agreement are in
addition to, and not in derogation of, the rights and remedies arising under the
Stockholder Agreements or the Merger Agreement.

               (c) Any notice or other communication required or permitted to be
given under this Escrow Agreement by any party hereto to any other party hereto
shall be considered as properly given if in writing and (a) delivered against
receipt therefor, (b) mailed by registered or certified mail, return receipt
requested and postage prepaid or (c) sent by telefax machine, in each case to
the address or telefax number, as the case may be, set forth below:

                 Purchaser:            Lexicon Genetics Incorporated
                                       4000 Research Forest Drive
                                       The Woodlands, TX  77381
                                       Attn:  Arthur Sands, M.D., Ph.D.
                                       Phone:    (281) 364-0100
                                       Fax:       (281) 863-8321

                 With a copy to:       Attn:  Jeffery Wade, General Counsel
                                       Lexicon Genetics Incorporated
                                       4000 Research Forest Drive
                                       The Woodlands, TX  77381
                                       Phone:    (281) 364-0100
                                       Fax:       (281) 863-8321

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<PAGE>   68

                Sellers:
                                --------------------------------------------

                                --------------------------------------------

                                --------------------------------------------
                                Phone:
                                        ------------------------------------
                                Fax:
                                        ------------------------------------

                With a copy to:
                                  Mintz, Levin, Cohn, Ferris, Glovsky
                                    and Popeo, P.C.
                                  One Financial Center
                                  Boston, MA  02111
                                  Attention:  Jonathan Kravetz, Esq.

                Escrow Agent:     The Chase Manhattan Bank
                                  600 Travis, Suite 1150
                                  Houston, Texas  77002
                                  Attn:  Colette L. Potier
                                  Phone:   713-216-5793
                                  Fax:      713-216-6927

               (d) This Escrow Agreement shall be governed by the laws of the
State of Texas.

               (e) The provisions of this Escrow Agreement, may be amended only
by a written agreement signed by or on behalf of Purchaser, the Sellers'
Representative and Escrow Agent.

               (f) All obligations of the parties to this Escrow Agreement are
performable in the City of Houston, Harris County, State of Texas. Venue of any
litigation arising out of this Escrow Agreement shall be brought in a court of
competent jurisdiction in Harris County, Texas or, if subject matter and
personal jurisdiction exists, in the United States District Court in and for the
Eastern District of Texas, Houston Division. All parties hereto agree that
Harris County, Texas, and the aforesaid Federal Court bear a substantial
relationship to the transaction made the subject of the Merger Agreement or the
Stockholder Agreements and to this Escrow Agreement, and that specifying such
County and State, and Federal Court, as the forum for any litigation arising out
of this Escrow Agreement comports with substantial notions of justice and fair
play, including but not limited to factors involved in the Doctrine of Forum Non
Conveniens.

               (g) This Escrow Agreement may be executed by the parties hereto
in one or more separate counterparts, each of which shall be deemed an original
but all of which together shall constitute but one agreement.

               (h) This Escrow Agreement evidences the entire agreement between
the undersigned relating to the manner of holding and the disbursement of the
Escrow Funds and supersedes all prior agreements, understandings, negotiations
and discussions, oral or written, of the parties relating to such subject
matter.

                                      E-7

<PAGE>   69

               (i) The terms of this Escrow Agreement shall be binding upon and
shall inure to the benefit of Purchaser, the Sellers and Escrow Agent and their
respective successors and assigns, including any debtor in possession or
bankruptcy trustee acting for any of said parties.

               (j) Time is of the essence of this Escrow Agreement and all time
periods hereunder.

               (k) In the event of any litigation arising out of this Escrow
Agreement, the losing party agrees to indemnify and reimburse the prevailing
party and Escrow Agent for any costs and expenses incurred in such litigation,
including reasonable attorney's fees and costs of court.

               (l) Upon final disbursement of the Escrow Funds in accordance
with the terms hereof, this Escrow Agreement shall terminate and no parties
hereunder shall have any further rights or obligations hereunder; provided,
however, that in the event all fee, expenses, costs and other amounts required
to be paid to Escrow Agent hereunder are not fully and finally paid prior to
termination, the provisions of Section 4(b) and 6(a) hereof shall survive the
termination hereof until such amounts have been paid.

               (m) This Escrow Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which shall constitute the full
and complete Escrow Agreement. All signatures of the parties to this Escrow
Agreement may be transmitted by facsimile, and such facsimile will, for all
purposes, be deemed to be the original signature of such party whose signature
it reproduces, and will be binding upon such party.

               (n) In the event funds transfer instructions are given (other
than in writing at the time of execution of the Escrow Agreement), whether in
writing, by telefax, or otherwise, the Escrow Agent is authorized to seek
confirmation of such instructions by telephone call-back to the person or person
designated on Schedule II hereto, and the Escrow Agent may rely upon the
confirmations of anyone purporting to be the person or persons so designated.
The persons and telephone numbers for call-backs may be changed only in writing
actually received and acknowledged by the Escrow Agent. The parties to this
Escrow Agreement acknowledge that such security procedure is commercially
reasonable.

               It is understood that the Escrow Agent and the beneficiary's bank
in any funds transfer may rely solely upon any account numbers or similar
identifying number provided by either of the other parties hereto to identify
(i) the beneficiary, (ii) the beneficiary's bank, or (iii) an intermediary bank.
The Escrow Agent may apply any of the escrowed funds for any payment order it
executes using any such identifying number, even where its use may result in a
person other than the beneficiary being paid, or the transfer of funds to a bank
other than the beneficiary's bank or an intermediary bank, designated.

IN WITNESS WHEREOF, Purchaser, Sellers' Representative on behalf of each of the
Sellers and the Escrow Agent have executed this Escrow Agreement to be effective
as of ________________, 2001.

                                      E-8

<PAGE>   70

                                        LEXICON GENETICS INCORPORATED

                                        By:
                                           ------------------------------------
                                        Print Name:
                                                   ----------------------------
                                        Title:
                                              ---------------------------------
                                        Tax Id No.:

                                        SELLERS

                                        By:
                                           ------------------------------------
                                        Print Name:
                                                   ----------------------------
                                           as representative for all the Sellers
                                        Tax Id No.:

                                        ESCROW AGENT:

                                        [                                     ]
                                         -------------------------------------

                                        By:
                                           ------------------------------------
                                        Print Name:
                                                   ----------------------------
                                        Title:
                                              ---------------------------------

                                      E-9

<PAGE>   71

                                    EXHIBIT A

                                STOCKHOLDERS LIST

<TABLE>
<CAPTION>
    Name of Stockholder     Address     Tax Id no./SSN    Number of Escrow Shares
    -------------------     -------     --------------    -----------------------
<S>                          <C>        <C>               <C>

</TABLE>

                                      E-10

<PAGE>   72

                Lexicon Genetics Inc. / Angler Escrow A/C#2158901

                                   Schedule I

                                  [CHASE LOGO]

================================================================================

                                SCHEDULE OF FEES
                                       FOR
                              ESCROW AGENT SERVICES

================================================================================

NOTE:    WE REQUIRE UNDER THE FOLLOWING FEE SCHEDULE THAT THE DEPOSIT PROCEEDS
         WILL BE CONTINUALLY INVESTED IN FIDELITY PRIME MONEY MARKET FUND #76.

<TABLE>
<S>                                                                       <C>
         NEW ACCOUNT ACCEPTANCE FEE ..................................... $   750
                  Payable upon Account Opening

         MINIMUM  ADMINISTRATIVE FEE .................................... $ 3,500
                  Payable Upon Account Opening and in Advance for each
                  year in which we act as Escrow Agent
</TABLE>

ACTIVITY FEES:

DISBURSEMENTS

 Per Check                              $      15
 Per Wire        U.S.                   $      35
                    International       $     100

RECEIPTS

Per Check                               $       7
Per Wire                                $      10

INVESTMENTS
Per directed buy/sell                   $      50
         This fee would be applicable to each re-registration and/or delivery of
         shares. A single delivery to the shareholders' representative would be
         made without charge.
Per automated cash management transaction
         Fee is deducted monthly from fund/account at an annual rate of .50%

                                      E-11

<PAGE>   73

LEGAL EXPENSES:                         AT COST
There will be no legal expense for Chase if Chase's standard form escrow
agreement is employed without substantive amendments.

A New Account Acceptance Fee will be charged for the Bank's review of the Escrow
Agreement along with any related account documentation. A one (1) year Minimum
Administrative Fee will be assessed for any account which is funded. The account
will be invoiced in the month in which the account is opened and annually
thereafter. Payment of the invoice is due 30 days following receipt.

The Administrative Fee will cover a maximum of fifteen (15) annual
administrative hours for the Bank's standard Escrow services including account
setup, safekeeping of assets, investment of funds, collection of income and
other receipts, preparation of statements comprising account activity and asset
listing, and distribution of assets in accordance with the specific terms of the
Escrow Agreement.

EXTRAORDINARY SERVICES AND OUT-OF POCKET EXPENSES:

Any additional services beyond our standard services as specified above, such as
annual administrative activities in excess of fifteen (15) hours and all
reasonable out-of-pocket expenses including attorney's fees will be considered
extraordinary services for which related costs, transaction charges, and
additional fees will be billed at the Bank's standard rate.

MODIFICATION OF FEES:

Circumstances may arise necessitating a change in the foregoing fee schedule.
The Bank will attempt at all times, however, to maintain the fees at a level
which is fair and reasonable in relation to the responsibilities assumed and the
duties performed.

ASSUMPTIONS:

o    The escrow deposit shall be continuously invested in Fidelity Prime Money
     Market Fund #76. The Minimum Administrative Fee would include A
     SUPPLEMENTAL CHARGE OF 50 BASIS POINTS on the escrow deposit amount if
     another investment option is chosen.

o    The account will be invoiced in the month in which the account is opened
     and annually thereafter.

o    Payment of the invoice is due 30 days following receipt.

================================================================================
All fees quoted are subject to our review and acceptance, and that of our legal
counsel, of the documents governing the escrow. As a condition for acceptance of
an appointment, it is expected that all legal fees and out-of-pocket expenses
incurred by The Chase Manhattan Bank and our counsel in connection with our
review of the transaction will be paid by the client regardless of whether or
not the transaction closes.
================================================================================

                                      E-12

<PAGE>   74

II. Schedule II

                TELEPHONE NUMBER(s) FOR CALL-BACKS AND PERSON(s)
                DESIGNATED TO CONFIRM FUNDS TRANSFER INSTRUCTIONS

                  If to Purchaser:

<TABLE>
<CAPTION>
          Name                                        Telephone Number
          ----                                        ----------------
<S>                                               <C>
1.
    ---------------------------                   ----------------------
2.
    ---------------------------                   ----------------------
</TABLE>

If to Seller:

<TABLE>
<CAPTION>
          Name                                        Telephone Number
          ----                                        ----------------
<S>                                               <C>

1.
    ---------------------------                   ----------------------
2.
    ---------------------------                   ----------------------

</TABLE>

Telephone call-backs shall be made to either Purchaser or Seller if joint
instructions are required pursuant to the Escrow Agreement.

                                      E-13

<PAGE>   75

                                    EXHIBIT F

                                     FORM OF

                              EMPLOYMENT AGREEMENT

         THIS EMPLOYMENT AGREEMENT, made and entered into as of _______, 2001
(the "EFFECTIVE DATE"), by and between Lexicon Genetics Incorporated, a Delaware
corporation (hereafter "COMPANY"), and __________________ (hereafter
"EXECUTIVE"), an individual and resident of _________ County, _______.

                                   WITNESSETH:

         WHEREAS, Company wishes to secure the services of the Executive subject
to the terms and conditions hereafter set forth; and

         WHEREAS, the Executive is willing to enter into this Agreement upon the
terms and conditions hereafter set forth;

         NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein, the parties hereto agree as follows:

         1. EMPLOYMENT. During the Employment Period (as defined in Section 4
hereof), the Company shall employ Executive, and Executive shall serve, as
____________ of the Company. Executive's principal place of employment shall be
at [the Company's principal corporate offices in The Woodlands, Texas,] or at
such other location for [the Company's principal corporate offices] during the
Employment Period.

         2. DUTIES AND RESPONSIBILITIES OF EXECUTIVE.

                  (a) During the Employment Period, Executive shall devote his
         services full time to the business of the Company and its Affiliates
         (as defined below), and perform the duties and responsibilities
         assigned to him by [the Chief Executive Officer ("CEO")] or Board of
         Directors (the "BOARD") of the Company to the best of his ability and
         with reasonable diligence. Executive agrees to cooperate fully with the
         Board, CEO and other executive officers of the Company, and not to
         engage in any activity which conflicts with or interferes with the
         performance of his duties hereunder. During the Employment Period,
         Executive shall devote his best efforts and skills to the business and
         interests of Company, do his utmost to further enhance and develop
         Company's best interests and welfare, and endeavor to improve his
         ability and knowledge of Company's business, in an effort to increase
         the value of his services for the mutual benefit of the parties hereto.
         During the Employment Period, it shall not be a violation of this
         Agreement for Executive to (1) serve on corporate, civic, or charitable
         boards or committees (except for boards or committees of a Competing
         Business (as defined in Section 11)), (2) deliver

                                      F-1

<PAGE>   76

         lectures, fulfill teaching or speaking engagements, or (3) manage
         personal investments; provided that such activities do not materially
         interfere with performance of Executive's responsibilities under this
         Agreement.

                  For purposes of this Agreement, "AFFILIATE" means any entity
         which owns or controls, is owned or controlled by, or is under common
         ownership or control with, the Company.

                  (b) Executive represents and covenants to Company that he is
         not subject or a party to any employment agreement, noncompetition
         covenant, nondisclosure agreement, or any similar agreement, covenant,
         understanding, or restriction that would prohibit Executive from
         executing this Agreement and fully performing his duties and
         responsibilities hereunder, or would in any manner, directly or
         indirectly, limit or affect the duties and responsibilities that may
         now or in the future be assigned to Executive hereunder.

         3. COMPENSATION.

                  (a) During the Employment Period, the Company shall pay to
         Executive an annual base salary of $_________ in consideration for his
         services under this Agreement, payable on a pro rata basis in not less
         than monthly installments, in conformity with the Company's customary
         payroll practices for executive salaries. Executive's base salary shall
         be subject to review at least annually, and such salary may be
         adjusted, depending upon the performance of the Company and Executive,
         upon the recommendation of the Compensation Committee of the Board (the
         "COMPENSATION COMMITTEE"). All salary, bonus and other compensation
         payments hereunder shall be subject to all applicable payroll and other
         taxes.

                  (b) As promptly as practicable after the end of each calendar
         year during the Employment Period, the Compensation Committee shall
         determine whether Executive is entitled to a bonus based on the
         attainment of performance goals during the calendar year then ended
         (the "BONUS YEAR"). For each Bonus Year during the Employment Period
         (including the Bonus Year commencing on the Effective Date and ending
         on December 31, 2001), the Compensation Committee shall establish
         certain performance goals for the Company and the Executive and a
         targeted annual bonus amount (the amount of which annual target bonus
         shall be within the sole discretion of the Compensation Committee). The
         target bonus shall be paid to Executive within 60 days after the end of
         the applicable Bonus Year based on the extent to which the performance
         goals and objectives for the Bonus Year have been achieved. The full
         amount of the target bonus shall be paid if substantially all of the
         designated performance goals and objectives have been achieved for the
         Bonus Year; if not, the Compensation Committee, in its discretion
         exercised in good faith, may award a target bonus to Executive in an
         amount less than the full target bonus for that Bonus Year. The
         Compensation Committee may also award additional bonuses or other
         compensation to Executive at any time in its complete discretion.

                                      F-2

<PAGE>   77

         4. TERM OF EMPLOYMENT. Executive's initial term of employment with the
Company under this Agreement shall be for the period beginning on the Effective
Date and ending at midnight (CST) on December 31, 2002, unless Notice of
Termination pursuant to Section 7 is given by either the Company or Executive to
the other party. The Company and Executive shall each have the right to give
Notice of Termination at will, with or without cause, at any time, subject to
the terms and conditions of this Agreement regarding the rights and duties of
the parties upon termination of employment. The term of employment hereunder
ending on December 31, 2002, shall be referred to herein as the "INITIAL TERM OF
EMPLOYMENT." On December 31, 2002 and on December 31st of each succeeding year
(each such date being referred to as a "RENEWAL DATE"), this Agreement shall
automatically renew and extend for a period of one (1) additional year (a
"RENEWAL TERM") unless written notice of non-renewal is delivered from one party
to the other at least sixty (60) days prior to the relevant Renewal Date or,
alternatively, the parties may mutually agree to voluntarily enter into a new
employment agreement at any time. The period from the Effective Date through the
date of Executive's termination of employment at any time for whatever reason
shall be referred to herein as the "EMPLOYMENT PERIOD."

         5. BENEFITS. Subject to the terms and conditions of this Agreement,
during the Employment Period, Executive shall be entitled to the following:

                  (a) REIMBURSEMENT OF BUSINESS EXPENSES. The Company shall pay
         or reimburse Executive for all reasonable travel, entertainment and
         other expenses paid or incurred by Executive in performing his business
         obligations hereunder. Executive shall provide substantiating
         documentation for expense reimbursement requests as reasonably required
         by the Company.

                  (b) BENEFITS. Executive shall be entitled to and shall receive
         all other benefits and conditions of employment available generally to
         executives of the Company pursuant to Company plans and programs,
         including, but not limited to, group health insurance benefits, dental
         benefits, life insurance benefits, disability benefits, and pension and
         retirement benefits. The Company shall not be obligated to institute,
         maintain, or refrain from changing, amending, or discontinuing, any
         such employee benefit program or plan, so long as such actions are
         similarly applicable to covered executives generally.

                  Notwithstanding the previous paragraph, Company shall provide
         Executive with long-term disability ("LTD") insurance coverage, at no
         cost to Executive, that provides income replacement benefits to
         Executive, if he should incur a long-term disability covered under such
         policy, in an amount at least equal to 60% of his base salary at the
         time of such disability, which benefits shall begin after a waiting
         period that does not exceed six months. The income replacement benefits
         described in the previous sentence shall remain payable at least until
         Executive attains the age of 65 provided that he remains unable to
         perform the essential functions of his occupation during such period.
         To the extent that the Company's LTD policy which covers employees
         generally does not provide sufficient coverage to Executive, as
         described in the previous sentence, Company

                                      F-3

<PAGE>   78

         agrees to purchase a supplemental LTD policy for Executive from a
         reputable insurer and to pay the premiums on Executive's behalf during
         the Employment Period.

                  Notwithstanding the first paragraph of this Section 5(b), the
         Company shall pay for term life insurance coverage on Executive's life,
         with the beneficiary(ies) thereof designated by Executive, with a death
         benefit in an amount not less than twice Executive's base salary
         (pursuant to Section 3(a)) as such base salary is set on each January 1
         during the Employment Period. Upon request, Executive agrees to take
         any physical exams, and to provide such information, which are
         reasonably necessary or appropriate to secure or maintain such term
         life insurance coverage.

                  (c) PAID VACATION. Executive shall be entitled to a paid
         annual vacation of three (3) weeks. Vacation time may be accumulated
         and carried over by Executive into any subsequent year(s); provided,
         however, Executive shall not be permitted to accumulate more than six
         (6) weeks of accrued and unused vacation. In addition, the Executive
         shall be allowed up to five (5) days each year to attend professional
         continuing education meetings or seminars; provided that attendance at
         such meetings or seminars shall be planned for minimum interference
         with the Company's business.

         6. RIGHTS AND PAYMENTS UPON TERMINATION. The Executive's right to
compensation and benefits for periods after the date on which his employment
with the Company and its Affiliates (as defined in Section 2) terminates for
whatever reason (the "TERMINATION DATE") shall be determined in accordance with
this Section 6.

                  (a) ACCRUED SALARY AND VACATION PAYMENTS. Executive shall be
         entitled to the following payments under this Section 6(a) regardless
         of the reason for termination, in addition to any payments or benefits
         to which the Executive is entitled under the terms of any employee
         benefit plan or the provisions of Section 6(b):

                           (1) his accrued but unpaid salary through his
                  Termination Date; and

                           (2) his accrued but unpaid vacation pay for the
                  period ending on his Termination Date in accordance with
                  Section 5(c) above.

                  (b) SEVERANCE PAYMENTS.

                           (1) At any time prior to a Change in Control (as
                  defined below), in the event that (A) Executive's employment
                  hereunder is terminated by the Company at any time for any
                  reason except (i) for Cause (as defined below) or (ii) due to
                  Executive's death or Disability (as defined below), or (B)
                  Executive terminates his own employment hereunder for Good
                  Reason (as defined below), then, in either such event,
                  Executive shall be entitled to receive, and the Company shall
                  be obligated to pay, Executive's base salary under Section
                  3(a) (without regard to any bonuses or extraordinary
                  compensation) then being paid to him on the Termination Date
                  as salary continuation (pursuant to the Company's normal

                                      F-4

<PAGE>   79

                  payroll procedures) for a period equal to six (6) consecutive
                  months following the Termination Date. In the event of
                  Executive's death during such salary continuation period, the
                  Company shall pay the sum of the present value of all
                  remaining payments (using a 5% discount rate) in a single
                  payment to Executive's surviving spouse, if any, or if there
                  is no surviving spouse, to Executive's estate within 60 days
                  of his death. Such severance payments shall be subject to
                  Sections 10 and 11 hereof.

                           Prior to a Change in Control, in the event that
                  Executive's employment is terminated through notice of
                  non-renewal as of the end of the Initial Term of Employment
                  (pursuant to Section 4) or any one-year Renewal Term,
                  Executive shall be entitled to receive, and the Company shall
                  be obligated to pay, Executive's base salary under Section
                  3(a) (without regard to any bonuses or extraordinary
                  compensation) then being paid to him on the Termination Date
                  as salary continuation (pursuant to the Company's normal
                  payroll procedures) for each month following his Termination
                  Date, not to exceed six months, that Executive is (A) not in
                  violation of the confidential information, non-competition and
                  other covenants of Sections 10 and 11 hereof and (B) not
                  employed by another employer, as determined by the Company.

                           (2) At any time after a Change in Control (as defined
                  below), in the event that (A) Executive's employment hereunder
                  is terminated by the Company at any time for any reason except
                  (i) for Cause (as defined below) or (ii) due to Executive's
                  death or Disability (as defined below), or (B) Executive
                  terminates his own employment hereunder for Good Reason (as
                  defined below in this Section 6(c)), then, in either such
                  event, Executive shall be entitled to receive, and the Company
                  shall be obligated to pay, Executive's base salary under
                  Section 3(a) (without regard to any bonuses or extraordinary
                  compensation except as provided below in this paragraph) then
                  being paid to him on the Termination Date as salary
                  continuation (pursuant to the Company's normal payroll
                  procedures) for a period equal to twelve (12) consecutive
                  months following the Termination Date, plus an additional
                  single sum payment equal to one-half of Executive's target
                  bonus (pursuant to Section 3(b)) for the Bonus Year in which
                  the termination occurred, which bonus shall be payable within
                  30 days from the Termination Date. In the event of Executive's
                  death during such salary continuation period, the Company
                  shall pay the sum of the present value of all remaining
                  payments in a single payment (using a 5% discount rate) to
                  Executive's surviving spouse, if any, or if there is no
                  surviving spouse, to Executive's estate within 60 days of his
                  death.

                           After a Change in Control, in the event that the
                  Company terminates Executive's employment through notice of
                  nonrenewal as of the end of the Initial Term of Employment
                  (pursuant to Section 4) or any one-year Renewal Term,
                  Executive shall be entitled to receive, and the Company shall
                  be obligated to pay, Executive's base salary under Section
                  3(a) (without regard to any bonuses or extraordinary
                  compensation) then being paid to him on the Termination Date
                  as

                                      F-5

<PAGE>   80

                  salary continuation (pursuant to the Company's normal
                  payroll procedures) for a period of six (6) consecutive months
                  following the Termination Date.

                           (3) Except as otherwise specifically provided in this
                  Section 6(b), severance payments shall be in addition to, and
                  shall not reduce or offset, any other payments that are due to
                  Executive from the Company (or any other source) or under any
                  other agreements, except that severance payments hereunder
                  shall offset any severance benefits otherwise due to Executive
                  under any severance pay plan or program maintained by the
                  Company that covers its employees generally. The provisions of
                  this Section 6(b) shall supersede any conflicting provisions
                  of this Agreement but shall not be construed to curtail,
                  offset or limit Executive's rights to any other payments,
                  whether contingent upon a Change in Control (as defined below)
                  or otherwise, under this Agreement or any other agreement,
                  contract, plan or other source of payment.

                           (4) A "CHANGE IN CONTROL" of the Company shall be
                  deemed to have occurred if any of the following shall have
                  taken place: (A) any "person" (as such term is used in
                  Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
                  1934 (the "Exchange Act")) other than Gordon Cain and his
                  Affiliates (defined below), taken together, is or becomes the
                  "beneficial owner" (as defined in Rule 13d-3 under the
                  Exchange Act, or any successor provisions thereto), directly
                  or indirectly, of securities of the Company representing
                  thirty-five percent (35%) or more of the combined voting power
                  of the Company's then-outstanding voting securities; (B) the
                  approval by the stockholders of the Company of a
                  reorganization, merger, or consolidation, in each case with
                  respect to which persons who were stockholders of the Company
                  immediately prior to such reorganization, merger, or
                  consolidation do not, immediately thereafter, own or control
                  more than fifty percent (50%) of the combined voting power
                  entitled to vote generally in the election of directors of the
                  reorganized, merged or consolidated Company's then outstanding
                  securities in substantially the same proportion as their
                  ownership of the Company's outstanding voting securities prior
                  to such reorganization, merger or consolidation; (C) a
                  liquidation or dissolution of the Company or the sale of all
                  or substantially all of the Company's assets; (D) in the event
                  any person is elected by the stockholders of the Company to
                  the Board who has not been nominated for election by a
                  majority of the Board or any duly appointed committee thereof;
                  or (E) following the election or removal of directors, a
                  majority of the Board consists of individuals who were not
                  members of the Board two (2) years before such election or
                  removal, unless the election of each director who is not a
                  director at the beginning of such two-year period has been
                  approved in advance by directors representing at least a
                  majority of the directors then in office who were directors at
                  the beginning of the two-year period. The Board, in its
                  discretion, may deem any other corporate event affecting the
                  Company to be a "Change in Control" hereunder.

                                      F-6

<PAGE>   81

                           An "AFFILIATE" of Gordon Cain shall include (1) any
                  person or entity directly or indirectly controlling or
                  controlled by or under direct or indirect common control with
                  Gordon Cain, (2) any spouse, immediate family member or
                  relative of Gordon Cain, (3) any trust in which Gordon Cain or
                  any person described in clause (2) above has a beneficial
                  interest, and (4) any trust established by Gordon Cain or any
                  person described in clause (2) above, whether or not such
                  person has a beneficial interest in such trust. For purposes
                  of this definition of "Affiliate," the term "control" means
                  the power to direct the management and policies of a person,
                  directly or through one or more intermediaries, whether
                  through the ownership of voting securities by contract, or
                  otherwise.

                           (5) "DISABILITY" means a permanent and total
                  disability which entitles Executive to disability income
                  payments under the Company's long-term disability plan or
                  policy as then in effect which covers Executive pursuant to
                  Section 5(b). If Executive is not covered under the Company's
                  long-term disability plan or policy at such time for whatever
                  reason or under a supplemental LTD policy provided by the
                  Company, then the term "Disability" hereunder shall mean a
                  "permanent and total disability" as defined in Section
                  22(e)(3) of the Code and, in this case, the existence of any
                  such Disability shall be certified by a physician acceptable
                  to both the Company and Executive. In the event that the
                  parties are not able to agree on the choice of a physician,
                  each shall select a physician who, in turn, shall select a
                  third physician to render such certification. All costs
                  relating to the determination of whether Executive has
                  incurred a Disability shall be paid by the Company.

                           (6) "CODE" means the Internal Revenue Code of 1986,
                  as amended. References in this Agreement to any Section of the
                  Code shall include any successor provisions of the Code or its
                  successor.

                           (7) "CAUSE" means a termination of employment
                  directly resulting from (1) the Executive having engaged in
                  intentional misconduct causing a material violation by the
                  Company of any state or federal laws, (2) the Executive having
                  engaged in a theft of corporate funds or corporate assets or
                  in a material act of fraud upon the Company, (3) an act of
                  personal dishonesty taken by the Executive that was intended
                  to result in personal enrichment of the Executive at the
                  expense of the Company, (4) Executive's final conviction (or
                  the entry of a plea of nolo contendere or equivalent plea) in
                  a court of competent jurisdiction of a felony, or (5) a breach
                  by the Executive during the Employment Period of the
                  provisions of Sections 9, 10, and 11 hereof, if such breach
                  results in a material injury to the Company. For purposes of
                  this definition of "Cause", the term "Company" shall mean the
                  Company or any of its Affiliates (as defined in Section 2).

                           (8) "GOOD REASON" means the occurrence of any of the
                  following events without Executive's express written consent:

                                      F-7

<PAGE>   82

                                    (A) Before a Change in Control (as defined
                           in Section 6(b)), (i) a five percent (5%) or greater
                           reduction in Executive's annual base salary unless
                           any such greater reduction is (i) applied across the
                           board to the other senior officers of the Company
                           except the CEO or (ii) specifically agreed to in
                           writing by Executive or, after a Change in Control,
                           any reduction in Executive's base salary unless such
                           reduction is specifically agreed to in writing by
                           Executive, provided that, in either event, Executive
                           specifically terminates his employment for Good
                           Reason hereunder within 120 days from the date that
                           he has actual notice of such reduction; or

                                    (B) Before or after a Change in Control, any
                           breach by the Company of any material provision of
                           this Agreement, provided that Executive specifically
                           terminates his employment for Good Reason hereunder
                           within 120 days from the date that he has actual
                           notice of such material breach; or

                                    (C) Only following a Change in Control, any
                           of the following events will constitute Good Reason,
                           provided that Executive specifically terminates his
                           employment for Good Reason hereunder within 12 months
                           following his receipt of actual notice of an event
                           listed below:

                                            (i) the failure by the Company or
                                    its successor to expressly assume and agree
                                    to continue and perform this Agreement in
                                    the same manner and to the same extent that
                                    the Company would be required to perform if
                                    such Change in Control had not occurred;

                                            (ii) Executive's duties or
                                    responsibilities for the Company or its
                                    successor are materially reduced; or

                                            (iii) the Company or its successor
                                    fails to continue in effect any pension,
                                    medical, health-and-accident, life
                                    insurance, or disability income plan or
                                    program in which Executive was participating
                                    at the time of the Change in Control (or
                                    plans providing Executive with substantially
                                    similar benefits), or the taking of any
                                    action by the Company or its successor that
                                    would adversely affect Executive's
                                    participation in or materially reduce his
                                    benefits under any such plan that was
                                    enjoyed by him immediately prior to the
                                    Change in Control, unless the Company or its
                                    successor provides a replacement plan with
                                    substantially similar benefits.

                           Notwithstanding the preceding provisions of this
                  Section 6(b)(8), if Executive desires to terminate his
                  employment for Good Reason, he shall first

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                   give written notice of the facts and circumstances providing
                   the basis for Good Reason to the Board or the Compensation
                   Committee, and allow the Company thirty (30) days from the
                   date of such notice to remedy, cure or rectify the situation
                   giving rise to Good Reason to the reasonable satisfaction of
                   Executive.

         7. NOTICE OF TERMINATION. Any termination by the Company or the
Executive shall be communicated by Notice of Termination to the other party
hereto. For purposes of this Agreement, the term "NOTICE OF TERMINATION" means a
written notice that indicates the specific termination provision of this
Agreement relied upon and sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.

         8. NO MITIGATION REQUIRED. Executive shall not be required to mitigate
the amount of any payment provided for under this Agreement by seeking other
employment or in any other manner.

         9. CONFLICTS OF INTEREST.

                  (a) In keeping with his fiduciary duties to Company, Executive
         hereby agrees that he shall not become involved in a conflict of
         interest, or upon discovery thereof, allow such a conflict to continue
         at any time during the Employment Period. Moreover, Executive agrees
         that he shall immediately disclose to the Board any facts which might
         involve a conflict of interest that has not been approved by the Board.

                  (b) Executive and Company recognize and acknowledge that it is
         not possible to provide an exhaustive list of actions or interests
         which may constitute a "conflict of interest." Moreover, Company and
         Executive recognize there are many borderline situations. In some
         instances, full disclosure of facts by the Executive to the Board may
         be all that is necessary to enable Company to protect its interests. In
         others, if no improper motivation appears to exist and Company's
         interests have not demonstrably suffered, prompt elimination of the
         outside interest may suffice. In other serious instances, it may be
         necessary for the Company to terminate Executive's employment for Cause
         (as defined in Section 6(b)). The Board reserves the right to take such
         action as, in its good faith judgment, will resolve the conflict of
         interest.

                  (c) Executive hereby agrees that any direct or indirect
         interest in, connection with, or benefit from any outside activities,
         particularly commercial activities, which interest might adversely
         affect the Company or any of its Affiliates (as defined in Section 2),
         involves a possible conflict of interest. Circumstances in which a
         conflict of interest on the part of Executive would or might arise, and
         which must be reported immediately to the Board, include, but are not
         limited to, any of the following:

                           (1) Ownership by the Executive and his immediate
                  family members of more than a two percent (2%) interest, on an
                  aggregated basis, in any lender,

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                  supplier, contractor, customer or other entity with which
                  Company or any of its Affiliates does business;

                           (2) Misuse of information, property or facilities to
                  which Executive has access in a manner which is demonstrably
                  and materially injurious to the interests of Company or any of
                  its Affiliates, including its business, reputation or
                  goodwill; or

                           (3) Materially trading in products or services
                  connected with products or services designed or marketed by or
                  for the Company or any of its Affiliates.

         10. CONFIDENTIAL INFORMATION.

                  (a) NON-DISCLOSURE OBLIGATION OF EXECUTIVE. For purposes of
         this Section 10, all references to Company shall mean and include its
         Affiliates (as defined in Section 2). Executive hereby acknowledges,
         understands and agrees that all Confidential Information, as defined in
         Section 10(b), whether developed by Executive or others employed by or
         in any way associated with Executive or Company, is the exclusive and
         confidential property of Company and shall be regarded, treated and
         protected as such in accordance with this Agreement. Executive
         acknowledges that all such Confidential Information is in the nature of
         a trade secret. Failure to mark any writing confidential shall not
         affect the confidential nature of such writing or the information
         contained therein.

                  (b) DEFINITION OF CONFIDENTIAL INFORMATION. The term
         "CONFIDENTIAL INFORMATION" shall mean information, whether or not
         originated by Executive, which is used in Company's business and (1) is
         proprietary to, about or created by Company; (2) gives Company some
         competitive business advantage or the opportunity of obtaining such
         advantage, or the disclosure of which could be detrimental to the
         interests of Company; (3) is designated as Confidential Information by
         Company, known by the Executive to be considered confidential by
         Company, or from all the relevant circumstances considered confidential
         by Company, or from all the relevant circumstances should reasonably be
         assumed by Executive to be confidential and proprietary to Company; or
         (4) is not generally known by non-Company personnel. Such Confidential
         Information includes, but is not limited to, the following types of
         information and other information of a similar nature (whether or not
         reduced to writing or designated as confidential):

                           (1) Work product resulting from or related to the
                  research, development or production of the programs of the
                  Company including, without limitation, the Human Gene Trap(TM)
                  database, OmniBank(R), homologous recombination, DNA
                  sequencing, phenotypic analysis, drug target validation and
                  drug discovery;

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                           (2) Internal Company personnel and financial
                  information, vendor names and other vendor information
                  (including vendor characteristics, services and agreements),
                  purchasing and internal cost information, internal service and
                  operational manuals, and the manner and methods of conducting
                  Company's business;

                           (3) Marketing, partnering and business and
                  development plans, price and cost data, price and fee amounts,
                  pricing and billing policies, quoting procedures, marketing
                  techniques and methods of obtaining business, forecasts and
                  forecast assumptions and volumes, and future plans and
                  potential strategies of the Company which have been or are
                  being discussed; and

                           (4) Business acquisition and other business
                  opportunities.

                  (c) EXCLUSIONS FROM CONFIDENTIAL INFORMATION. The term
         "CONFIDENTIAL INFORMATION" shall not include information publicly known
         other than as a result of a disclosure by Executive in breach of
         Section 10(a), and the general skills and experience gained during
         Executive's work with the Company which Executive could reasonably have
         been expected to acquire in similar work with another company.

                  (d) COVENANTS OF EXECUTIVE. As a consequence of Executive's
         acquisition or anticipated acquisition of Confidential Information,
         Executive shall occupy a position of trust and confidence with respect
         to Company's affairs and business. In view of the foregoing and of the
         consideration to be provided to Executive, Executive agrees that it is
         reasonable and necessary that Executive make the following covenants:

                           (1) At any time during the Employment Period and
                  within ten (10) years after the Employment Period, Executive
                  shall not disclose Confidential Information to any person or
                  entity, either inside or outside of Company, other than as
                  necessary in carrying out duties on behalf of Company, without
                  obtaining Company's prior written consent (unless such
                  disclosure is compelled pursuant to court order or subpoena,
                  and at which time Executive gives notice of such proceedings
                  to Company), and Executive will take all reasonable
                  precautions to prevent inadvertent disclosure of such
                  Confidential Information. This prohibition against Executive's
                  disclosure of Confidential Information includes, but is not
                  limited to, disclosing the fact that any similarity exists
                  between the Confidential Information and information
                  independently developed by another person or entity, and
                  Executive understands that such similarity does not excuse
                  Executive from abiding by his covenants or other obligations
                  under this Agreement.

                           (2) At any time during or after the Employment
                  Period, Executive shall not use, copy or transfer Confidential
                  Information other than as necessary in carrying out his duties
                  on behalf of Company, without first obtaining Company's prior
                  written consent, and will take all reasonable precautions to
                  prevent inadvertent use, copying or transfer of such
                  Confidential Information. This

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                  prohibition against Executive's use, copying, or transfer of
                  Confidential Information includes, but is not limited to,
                  selling, licensing or otherwise exploiting, directly or
                  indirectly, any products or services (including databases,
                  written documents and software in any form) which embody or
                  are derived from Confidential Information, or exercising
                  judgment in performing analyses based upon knowledge of
                  Confidential Information.

                  (e) RETURN OF CONFIDENTIAL MATERIAL. Executive shall promptly
         turn over to the person designated by the Board or CEO all originals
         and copies of materials containing Confidential Information in the
         Executive's possession, custody, or control upon request or upon
         termination of Executive's employment with Company. Executive agrees to
         attend a termination interview with the person or persons designated by
         the Board or CEO in the Company's offices for a reasonable time period.
         The purposes of the termination interview shall be (1) to confirm
         turnover of all Confidential Information, (2) discuss any questions
         Executive may have about his continuing obligations under this
         Agreement, (3) answer questions related to his duties and on-going
         projects to allow a temporary or permanent successor to obtain a better
         understanding of the employment position, (4) confirm the number of any
         outstanding stock options, or other long-term incentive awards, and
         their vested percentages and other terms and conditions, and (5) any
         other topics relating to the business affairs of Company or its
         Affiliates as determined by the Company.

                  (f) INVENTIONS. Any and all inventions, products, discoveries,
         improvements, copyrightable or patentable works or products,
         trademarks, service marks, ideas, processes, formulae, methods,
         designs, techniques and trade secrets (collectively hereinafter
         referred to as "INVENTIONS") made, developed, conceived or resulting
         from work performed by Executive (alone or in conjunction with others,
         during regular hours of work or otherwise) while he is employed by
         Company and which may be directly or indirectly useful in, or related
         to, the business of Company (including, without limitation, research
         and development activities of Company), or which are made using any
         equipment, facilities, Confidential Information, materials, labor,
         money, time or other resources of Company, shall be promptly disclosed
         by Executive to the person or persons designated by the Board or CEO,
         shall be deemed Confidential Information for purposes of this
         Agreement, and shall be Company's exclusive property. Executive shall,
         upon Company's reasonable request during or after the Employment
         Period, execute any documents and perform all such acts and things
         which are necessary or advisable in the opinion of Company to cause
         issuance of patents to, or otherwise obtain recorded protection of
         right to intellectual property for, Company with respect to Inventions
         that are to be Company's exclusive property under this Section 10, or
         to transfer to and vest in Company full and exclusive right, title and
         interest in and to such Inventions; provided, however, that the expense
         of securing any such protection of right to Inventions shall be borne
         by Company. In addition, during or after the Employment Period,
         Executive shall, at Company's expense, reasonably assist the Company in
         any reasonable and proper manner in enforcing any Inventions which are
         to be or become Company's exclusive property hereunder against
         infringement by others. Executive shall keep confidential and

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         will hold for Company's sole use and benefit any Invention that is to
         be Company's exclusive property under this Section 10 for which full
         recorded protection of right has not been or cannot be obtained.

                  (g) PROPERTY RIGHTS. In keeping with his fiduciary duties to
         Company, Executive hereby covenants and agrees that during his
         Employment Period, and for a period of three (3) months following his
         Termination Date, Executive shall promptly disclose in writing to
         Company any and all Inventions, which are conceived, developed, made or
         acquired by Executive, either individually or jointly with others, and
         which relate to, or are useful in, the business, products or services
         of Company including, without limitation, research and development
         activities of the Company, or which are made using any equipment,
         facilities, Confidential Information, material, labor, money, time or
         other resources of the Company. In consideration for his employment
         hereunder, Executive hereby specifically sells, assigns and transfers
         to Company all of his worldwide right, title and interest in and to all
         such Inventions.

                  If during the Employment Period, Executive creates any
         original work of authorship or other property fixed in any tangible
         medium of expression which (1) is the subject matter of copyright
         (including computer programs) and (2) directly relates to Company's
         present or planned business, products, or services, whether such
         property is created solely by Executive or jointly with others, such
         property shall be deemed a work for hire, with the copyright
         automatically vesting in Company. To the extent that any such writing
         or other property is determined not to be a work for hire for whatever
         reason, Executive hereby consents and agrees to the unconditional
         waiver of "moral rights" in such writing or other property, and to
         assign to Company all of his right, title and interest, including
         copyright, in such writing or other property.

                  Executive hereby agrees to (1) assist Company or its nominee
         at all times in the protection of any property that is subject to this
         Section 10, (2) not to disclose any such property to others without the
         written consent of Company or its nominee, except as required by his
         employment hereunder, and (3) at the request of Company, to execute
         such assignments, certificates or other interests as Company or its
         nominee may from time to time deem desirable to evidence, establish,
         maintain, perfect, protect or enforce its rights, title or interests in
         or to any such property.

                  (h) EMPLOYEE PROPRIETARY INFORMATION AGREEMENT. The provisions
         of this Section 10 shall not supersede the Employee Proprietary
         Information Agreement (the "Proprietary Agreement") between Employee
         and the Company (or any other agreement of similar intent) which shall
         remain in full force and effect and, moreover, this Agreement, the
         Proprietary Agreement and any such other similar agreement between the
         parties shall be construed and applied as being mutually consistent to
         the full extent possible.

                  (i) REMEDIES. In the event of a breach or threatened breach of
         any of the provisions of this Section 10, Company shall be entitled to
         an injunction ordering the

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         return of all such Confidential Information and Inventions, and
         restraining Executive from using or disclosing, for his benefit or the
         benefit of others, in whole or in part, any Confidential Information
         or Inventions. Executive further agrees that any breach or threatened
         breach of any of the provisions of this Section 10 would cause
         irreparable injury to Company, for which it would have no adequate
         remedy at law. Nothing herein shall be construed as prohibiting
         Company from pursuing any other remedies available to it for any such
         breach or threatened breach, including the recovery of damages.

         11. AGREEMENT NOT TO COMPETE. All references in this Section 11 to
"COMPANY" shall mean and include its Affiliates (as defined in Section 2).

                  (a) PROHIBITED EXECUTIVE ACTIVITIES. Executive agrees that
         except in the ordinary course and scope of his employment hereunder
         during the Employment Period, Executive shall not while employed by
         Company and for a period of six (6) months following his Termination
         Date, within the continental United States:

                           (1) Directly or indirectly engage or invest in, own,
                  manage, operate, control or participate in the ownership,
                  management, operation or control of, be employed by,
                  associated or in any manner connected with, or render services
                  or advice to, any Competing Business (as defined below);
                  provided, however, Executive may invest in the securities of
                  any enterprise with the power to vote up to two percent (2%)
                  of the capital stock of such enterprise (but without otherwise
                  participating in the activities of such enterprise) if such
                  securities are listed on any national or regional securities
                  exchange or have been registered under Section 12(g) of the
                  Securities Exchange Act of 1934;

                           (2) Directly or indirectly, either as principal,
                  agent, independent contractor, consultant, director, officer,
                  employee, employer, advisor (whether paid or unpaid),
                  stockholder, partner or in any other individual or
                  representative capacity whatsoever, either for his own benefit
                  or for the benefit of any other person or entity, solicit,
                  divert or take away, any customers, clients, or business
                  acquisition or other business opportunities of Company; or

                           (3) Directly or indirectly, either as principal,
                  agent, independent contractor, consultant, director, officer,
                  employee, advisor (whether paid or unpaid), stockholder,
                  partner or in any other individual or representative capacity
                  whatsoever, either for his own benefit or for the benefit of
                  any other person or entity, either (A) hire, attempt to hire,
                  contact or solicit with respect to hiring any employee of
                  Company, (B) induce or otherwise counsel, advise or encourage
                  any employee of Company to leave the employment of Company, or
                  (C) induce any distributor, representative or agent of Company
                  to terminate or modify its relationship with Company.

                           "COMPETING BUSINESS" means any individual, business,
                  firm, company, partnership, joint venture, organization, or
                  other entity whose products or services

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                  compete in whole or in part, at any time during the
                  Employment Period with the products or services (or planned
                  products and services) of Company including, without
                  limitation, genomics research, development and products
                  including, without limitation, the Human Gene Trap(TM)
                  database, OmniBank(R), homologous recombination, DNA
                  sequencing, phenotypic analysis, drug target validation and
                  drug discovery.

                  (b) ESSENTIAL NATURE OF NON-COMPETE OBLIGATION. It is
         acknowledged, understood and agreed by and between the parties hereto
         that the covenants made by Executive in this Section 11 are essential
         elements of this Agreement and that, but for the agreement of the
         Executive to comply with such covenants, Company would not have entered
         into this Agreement.

                  (c) NECESSITY AND REASONABLENESS OF NON-COMPETE OBLIGATION.
         Executive hereby specifically acknowledges and agrees that:

                           (1) Company has expended and will continue to expend
                  substantial time, money and effort in developing its business;

                           (2) Executive will, in the course of his employment,
                  be personally entrusted with and exposed to Confidential
                  Information (as defined in  Section 10);

                           (3) Company, during the Employment Period and
                  thereafter, will be engaged in its highly competitive business
                  in which many firms, including Company, compete;

                           (4) Executive could, after having access to Company's
                  financial records, contracts, and other Confidential
                  Information and know-how and, after receiving training by and
                  experience with the Company, become a competitor;

                           (5) Company will suffer great loss and irreparable
                  harm if Executive terminates his employment and enters,
                  directly or indirectly, into competition with Company;

                           (6) The temporal and other restrictions contained in
                  this Section 11 are in all respects reasonable and necessary
                  to protect the business goodwill, trade secrets, prospects and
                  other reasonable business interests of Company;

                           (7) The enforcement of this Agreement in general, and
                  of this Section 11 in particular, will not work an undue or
                  unfair hardship on Executive or otherwise be oppressive to
                  him; it being specifically acknowledged and agreed by
                  Executive that he has activities and other business interests
                  and opportunities which will provide him adequate means of
                  support if the provisions of this Section 11 are enforced
                  after the Termination Date; and

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                           (8) the enforcement of this Agreement in general, and
                  of this Section 11 in particular, will neither deprive the
                  public of needed goods or services nor otherwise be injurious
                  to the public.

                  (d) JUDICIAL MODIFICATION. Executive agrees that if an
         arbitrator (pursuant to Section 21) or a court of competent
         jurisdiction determines that the length of time or any other
         restriction, or portion thereof, set forth in this Section 11 is overly
         restrictive and unenforceable, the arbitrator or court shall reduce or
         modify such restrictions to those which it deems reasonable and
         enforceable under the circumstances, and as so reduced or modified, the
         parties hereto agree that the restrictions of this Section 11 shall
         remain in full force and effect. Executive further agrees that if an
         arbitrator or court of competent jurisdiction determines that any
         provision of this Section 11 is invalid or against public policy, the
         remaining provisions of this Section 11 and the remainder of this
         Agreement shall not be affected thereby, and shall remain in full force
         and effect.

         12. REMEDIES. In the event of any pending, threatened or actual breach
of any of the covenants or provisions of Section 9, 10, or 11, it is understood
and agreed by Executive that the remedy at law for a breach of any of the
covenants or provisions of these Sections may be inadequate and, therefore,
Company shall be entitled to a restraining order or injunctive relief from any
court of competent jurisdiction, in addition to any other remedies at law and in
equity. In the event that Company seeks to obtain a restraining order or
injunctive relief, Executive hereby agrees that Company shall not be required to
post any bond in connection therewith. Should a court of competent jurisdiction
or an arbitrator (pursuant to Section 21) declare any provision of Section 9,
10, or 11 to be unenforceable due to an unreasonable restriction of duration or
geographical area, or for any other reason, such court or arbitrator is hereby
granted the consent of each of the Executive and Company to reform such
provision and/or to grant the Company any relief, at law or in equity,
reasonably necessary to protect the reasonable business interests of Company or
any of its affiliated entities. Executive hereby acknowledges and agrees that
all of the covenants and other provisions of Sections 9, 10, and 11 are
reasonable and necessary for the protection of the Company's reasonable business
interests. Executive hereby agrees that if the Company prevails in any action,
suit or proceeding with respect to any matter arising out of or in connection
with Section 9, 10, or 11, Company shall be entitled to all equitable and legal
remedies, including, but not limited to, injunctive relief and compensatory
damages.

         13. DEFENSE OF CLAIMS. Executive agrees that, during the Employment
Period and for a period of two (2) years after his Termination Date, upon
request from the Company, he will cooperate with the Company and its Affiliates
in the defense of any claims or actions that may be made by or against the
Company or any of its Affiliates that affect his prior areas of responsibility,
except if Executive's reasonable interests are adverse to the Company or
Affiliates in such claim or action. To the extent travel is required to comply
with the requirements of this Section 13, the Company shall, to the extent
possible, provide Executive with notice at least 10 days prior to the date on
which such travel would be required. The Company agrees to promptly pay or
reimburse Executive upon demand for all of his reasonable travel and other
direct

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expenses incurred, or to be reasonably incurred, to comply with his obligations
under this Section 13.

         14. DETERMINATIONS BY THE COMPENSATION COMMITTEE.

                  (a) TERMINATION OF EMPLOYMENT. Prior to a Change in Control
         (as defined in Section 6(b)), any question as to whether and when there
         has been a termination of Executive's employment, the cause of such
         termination, and the Termination Date, shall be determined by the
         Compensation Committee in its discretion exercised in good faith.

                  (b) COMPENSATION. Prior to a Change in Control (as defined in
         Section 6(b)), any question regarding salary, bonus and other
         compensation payable to Executive pursuant to this Agreement shall be
         determined by the Compensation Committee in its discretion exercised in
         good faith.

         15. WITHHOLDINGS: RIGHT OF OFFSET. Company may withhold and deduct from
any benefits and payments made or to be made pursuant to this Agreement (a) all
federal, state, local and other taxes as may be required pursuant to any law or
governmental regulation or ruling, (b) all other employee deductions made with
respect to Company's employees generally, and (c) any advances made to Executive
and owed to Company.

         16. NONALIENATION. The right to receive payments under this Agreement
shall not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge or encumbrance by Executive, his dependents or beneficiaries,
or to any other person who is or may become entitled to receive such payments
hereunder. The right to receive payments hereunder shall not be subject to or
liable for the debts, contracts, liabilities, engagements or torts of any person
who is or may become entitled to receive such payments, nor may the same be
subject to attachment or seizure by any creditor of such person under any
circumstances, and any such attempted attachment or seizure shall be void and of
no force and effect.

         17. INCOMPETENT OR MINOR PAYEES. Should the Board determine that any
person to whom any payment is payable under this Agreement has been determined
to be legally incompetent or is a minor, any payment due hereunder may,
notwithstanding any other provision of this Agreement to the contrary, be made
in any one or more of the following ways: (a) directly to such minor or person;
(b) to the legal guardian or other duly appointed personal representative of the
person or estate of such minor or person; or (c) to such adult or adults as
have, in the good faith knowledge of the Board, assumed custody and support of
such minor or person; and any payment so made shall constitute full and complete
discharge of any liability under this Agreement in respect to the amount paid.

         18. SEVERABILITY. It is the desire of the parties hereto that this
Agreement be enforced to the maximum extent permitted by law, and should any
provision contained herein be held unenforceable by a court of competent
jurisdiction or arbitrator (pursuant to Section 21), the parties hereby agree
and consent that such provision shall be reformed to create a valid and
enforceable provision to the maximum extent permitted by law; provided, however,
if such

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provision cannot be reformed, it shall be deemed ineffective and deleted
herefrom without affecting any other provision of this Agreement.

         19. TITLE AND HEADINGS; CONSTRUCTION. Titles and headings to Sections
hereof are for the purpose of reference only and shall in no way limit, define
or otherwise affect the provisions hereof. Any and all Exhibits referred to in
this Agreement are, by such reference, incorporated herein and made a part
hereof for all purposes. The words "herein", "hereof", "hereunder" and other
compounds of the word "here" shall refer to the entire Agreement and not to any
particular provision hereof.

         20. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO THE PRINCIPLES
OF CONFLICTS OF LAW.

         21. ARBITRATION.

                  (a) ARBITRABLE MATTERS. If any dispute or controversy arises
         between Executive and the Company relating to (1) this Agreement in any
         way or arising out of the parties' respective rights or obligations
         under this Agreement or (2) the employment of Executive or the
         termination of such employment, then either party may submit the
         dispute or controversy to arbitration under the then-current Commercial
         Arbitration Rules of the American Arbitration Association (AAA) (the
         "RULES"); provided, however, the Company shall retain its rights to
         seek a restraining order or injunctive relief pursuant to Section 12.
         Any arbitration hereunder shall be conducted before a single arbitrator
         unless the parties mutually agree that the arbitration shall be
         conducted before a panel of three arbitrators. The arbitrator shall be
         selected (from lists provided by the AAA) through mutual agreement of
         the parties, if possible. If the parties fail to reach agreement upon
         appointment of the arbitrator within twenty (20) days following receipt
         by one party of the other party's notice of desire to arbitrate, then
         within five (5) days following the end of such 20-day period, each
         party shall select one arbitrator who, in turn, shall within five (5)
         days select a third arbitrator who shall be the single arbitrator
         hereunder. The site for any arbitration hereunder shall be in Harris
         County or Montgomery County, Texas, unless otherwise mutually agreed by
         the parties, and the parties hereby waive any objection that the forum
         is inconvenient.

                  (b) SUBMISSION TO ARBITRATION. The party submitting any matter
         to arbitration shall do so in accordance with the Rules. Notice to the
         other party shall state the question or questions to be submitted for
         decision or award by arbitration. Notwithstanding any provision of this
         Section 21, Executive shall be entitled to seek specific performance of
         the Executive's right to be paid during the pendency of any dispute or
         controversy arising under this Agreement. In order to prevent
         irreparable harm, the arbitrator may grant temporary or permanent
         injunctive or other equitable relief for the protection of property
         rights.

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<PAGE>   93

                  (c) ARBITRATION PROCEDURES. The arbitrator shall set the date,

         time and place for each hearing, and shall give the parties advance
         written notice in accordance with the Rules. Any party may be
         represented by counsel or other authorized representative at any
         hearing. The arbitration shall be governed by the Federal Arbitration
         Act, 9 U.S.C. Sections 1 et. seq. (or its successor). The arbitrator
         shall apply the substantive law (and the law of remedies, if
         applicable) of the State of Texas to the claims asserted to the extent
         that the arbitrator determines that federal law is not controlling.

                  (d) COMPLIANCE WITH AWARD.

                           (1) Any award of an arbitrator shall be final and
                  binding upon the parties to such arbitration, and each party
                  shall immediately make such changes in its conduct or provide
                  such monetary payment or other relief as such award requires.
                  The parties agree that the award of the arbitrator shall be
                  final and binding and shall be subject only to the judicial
                  review permitted by the Federal Arbitration Act.

                           (2) The parties hereto agree that the arbitration
                  award may be entered with any court having jurisdiction and
                  the award may then be enforced as between the parties, without
                  further evidentiary proceedings, the same as if entered by the
                  court at the conclusion of a judicial proceeding in which no
                  appeal was taken. The Company and the Executive hereby agree
                  that a judgment upon any award rendered by an arbitrator may
                  be enforced in other jurisdictions by suit on the judgment or
                  in any other manner provided by law.

                  (e) COSTS AND EXPENSES. Each party shall pay any monetary
         amount required by the arbitrator's award, and the fees, costs and
         expenses for its own counsel, witnesses and exhibits, unless otherwise
         determined by the arbitrator in the award. The compensation and costs
         and expenses assessed by the arbitrator and the AAA shall be split
         evenly between the parties unless otherwise determined by the
         arbitrator in the award. If court proceedings to stay litigation or
         compel arbitration are necessary, the party who opposes such
         proceedings to stay litigation or compel arbitration, if such party is
         unsuccessful, shall pay all associated costs, expenses, and attorney's
         fees which are reasonably incurred by the other party as determined by
         the arbitrator.

         22. BINDING EFFECT; THIRD PARTY BENEFICIARIES. This Agreement shall be
binding upon and inure to the benefit of the parties hereto, and to their
respective heirs, executors, personal representatives, successors and permitted
assigns hereunder, but otherwise this Agreement shall not be for the benefit of
any third parties.

         23. ENTIRE AGREEMENT AND AMENDMENT. This Agreement contains the entire
agreement of the parties with respect to Executive's employment and the other
matters covered herein; moreover, this Agreement supersedes all prior and
contemporaneous agreements and understandings, oral or written, between the
parties hereto concerning the subject matter hereof.

                                      F-19

<PAGE>   94

This Agreement may be amended, waived or terminated only by a written instrument
executed by both parties hereto.

         24. SURVIVAL OF CERTAIN PROVISIONS. Wherever appropriate to the
intention of the parties hereto, the respective rights and obligations of said
parties, including, but not limited to, the rights and obligations set forth in
Sections 6 through 14 and 21 hereof, shall survive any termination or expiration
of this Agreement.

         25. WAIVER OF BREACH. No waiver by either party hereto of a breach of
any provision of this Agreement by any other party, or of compliance with any
condition or provision of this Agreement to be performed by such other party,
will operate or be construed as a waiver of any subsequent breach by such other
party or any similar or dissimilar provision or condition at the same or any
subsequent time. The failure of either party hereto to take any action by reason
of any breach will not deprive such party of the right to take action at any
time while such breach continues.

         26. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the Company and its Affiliates (as defined in Section
2), and upon any successor to the Company following a Change in Control (as
defined in Section 6(b)); provided, however, any such assignment by the Company
shall not relieve Company of its obligations hereunder unless such successor to
the Company has fully and expressly assumed the obligations of the Company to
the Executive under this Agreement. Any reference herein to "Company" shall mean
the Company as first written above, as well as any successor or successors
thereto.

         This Agreement is personal to Executive, and Executive may not assign,
delegate or otherwise transfer all or any of his rights, duties or obligations
hereunder without the consent of the Board. Any attempt by the Executive to
assign, delegate or otherwise transfer this Agreement, any portion hereof, or
his rights, duties or obligations hereunder without the prior approval of the
Board shall be deemed void and of no force and effect.

         27. NOTICES. Notices provided for in this Agreement shall be in writing
and shall be deemed to have been duly received (a) when delivered in person or
sent by facsimile transmission, (b) on the first business day after it is sent
by air express overnight courier service, or (c) on the third business day
following deposit in the United States mail, registered or certified mail,
return receipt requested, postage prepaid and addressed, to the following
address, as applicable:

                  (1)      If to Company, addressed to:

                           Lexicon Genetics Incorporated
                           4000 Research Forest Drive
                           The Woodlands, Texas 77381
                           Attention:  Corporate Secretary

                                      F-20

<PAGE>   95

                  (2)      If to Executive, addressed to the address set forth
                           below his name on the execution page hereof;

or to such other address as either party may have furnished to the other party
in writing in accordance with this Section 27.

         28. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the same instrument.
Each counterpart may consist of a copy hereof containing multiple signature
pages, each signed by one party, but together signed by both parties hereto.

         29. EXECUTIVE ACKNOWLEDGMENT; NO STRICT CONSTRUCTION. The Executive
represents to Company that he is knowledgeable and sophisticated as to business
matters, including the subject matter of this Agreement, that he has read the
Agreement and that he understands its terms and conditions. The parties hereto
agree that the language used in this Agreement shall be deemed to be the
language chosen by them to express their mutual intent, and no rule of strict
construction shall be applied against either party hereto. Executive also
represents that he is free to enter into this Agreement including, without
limitation, that he is not subject to any other contract of employment or
covenant not to compete that would conflict in any way with his duties under
this Agreement. Executive acknowledges that he has had the opportunity to
consult with counsel of his choice, independent of Employer's counsel, regarding
the terms and conditions of this Agreement and has done so to the extent that
he, in his unfettered discretion, deemed to be appropriate.

         30. SUPERSEDING AGREEMENT. This Employment Agreement shall supersede
any prior employment agreement entered into between the Company and Executive.

         IN WITNESS WHEREOF, the Executive has hereunto set his hand, and
Company has caused this Agreement to be executed in its name and on its behalf,
to be effective as of the Effective Date first above written.

                                                   EXECUTIVE:

                                                   Signature:
                                                             -------------------
                                                                  [Name]

                                                   Date:
                                                        ------------------------

                                                   Address for Notices:

                                                   [Address]

                                      F-21
<PAGE>   96

                                            LEXICON GENETICS INCORPORATED

                                            By:
                                               ---------------------------------
                                                    Arthur T. Sands, M.D., Ph.D.
                                                    President and Chief
                                                    Executive Officer

                                            Date:
                                                 -------------------------------

                                      F-22<PAGE>

                                                                     Exhibit 4.1

                                                               EXECUTION VERSION
                                                               -----------------

                         REGISTRATION RIGHTS AGREEMENT
                         -----------------------------

          This Registration Rights Agreement is made and entered into as of
January 26, 2001 (this "Agreement"), by and among mPhase Technologies, Inc., a
                        ---------
New Jersey corporation (the "Company"), the purchasers listed on Exhibit A
                             -------
attached hereto (each a "Purchaser" and collectively, the "Purchasers").

          Upon the terms and subject to the conditions of the Common Stock and
Warrant Purchase Agreement, dated as of January 26, 2001, by and among the
Company and the Purchasers (the "Purchase Agreement"), the Company has agreed to
                                 ------------------
provide to the Purchasers certain registration rights under the Securities Act
of 1933, as amended, and the rules and regulations thereunder, with respect to a
minimum of 1,500,000 shares to a maximum of 2,500,000 shares (the "Shares") of
                                                                   ------
the Company's common stock, stated value $.01 per share ("Common Stock"), and
                                                          ------------
Warrants issued to the Purchasers on the date hereof pursuant to the Purchase
Agreement.  The number of Shares owned by each Purchaser is set forth opposite
such Purchaser's name on Schedule 1.
                         -----------

          The Company and each of the Purchasers hereby agree as follows:

      1.  Definitions.
          -----------

          Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Purchase Agreement.  As used in this Agreement,
the following terms shall have the following meanings:

          "Advice" shall have the meaning set forth in Section 3(k).
           ------

          "Affiliate" means, with respect to any Person, any other Person that
           ---------
directly or indirectly controls or is controlled by or under common control with
such Person.  For the purposes of this definition, "control," when used with
                                                    -------
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
                  ----------    -----------       ----------
correlative to the foregoing.

          "Blackout Period" shall have the meaning set forth in Section 3(l).
           ---------------

          "Board" shall have the meaning set forth in Section 3(l).
           -----

          "Business Day" means any day except Saturday, Sunday and any day which
           ------------
shall be a legal holiday or a day on which banking institutions in the State of
New York generally are authorized or required by law or other government actions
to close.
<PAGE>

          "Commission" means the Securities and Exchange Commission.
           ----------

          "Common Stock" means the Company's Common Stock, par value $.01 per
           ------------
share.

          "Effectiveness Date" means with respect to the Registration Statement
           ------------------
the earlier of the 90th day following the Closing Date, before which the Company
will use its best efforts to cause the registration statement to become
effective, and the date which is within five (5) Business Days of the date on
which the Commission informs the Company that the Commission (i) will not review
the Registration Statement or (ii) that the Company may request the acceleration
of the effectiveness of the Registration Statement.

          "Effectiveness Period" shall have the meaning as set forth in Section
           --------------------
2 hereof.

          "Exchange Act" means the Securities Exchange Act of 1934, as amended.
           ------------

          "Filing Date" means the date the Registration Statement is filed which
           -----------
date shall be on or before the 45th day after the Closing Date.

          "Holder" or "Holders" means the holder or holders, as the case may be,
           ------      -------
from time to time of Registrable Securities, including the Purchaser and their
permitted assigns.

          "Indemnified Party" shall have the meaning set forth in Section 5(c).
           -----------------

          "Indemnifying Party" shall have the meaning set forth in Section 5(c).
           ------------------

          "Losses" shall have the meaning set forth in Section 5(a).
           ------

          "Nasdaq" shall mean the Nasdaq Bulletin Board Market.
           ------

          "Person" means an individual or a corporation, partnership, trust,
           ------
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.

          "Proceeding" means an action, claim, suit, investigation or proceeding
           ----------
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.

          "Prospectus" means the prospectus included in the Registration
           ----------
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference in such Prospectus.

                                      -2-
<PAGE>

          "Registrable Securities" means the Shares and the Warrant Shares and
           ----------------------
any shares of Common Stock issuable upon any stock split, stock dividend,
recapitalization or similar event with respect to such Shares or Warrant Shares.

          "Registration Statement" means the registration statement contemplated
           ----------------------
by Section 2, including (in each case) the Prospectus, amendments and
supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference in such registration statement.

          "Rule 144" means Rule 144 promulgated by the Commission pursuant to
           --------
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.

          "Rule 158" means Rule 158 promulgated by the Commission pursuant to
           --------
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.

          "Rule 415" means Rule 415 promulgated by the Commission pursuant to
           --------
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.

          "Securities Act" means the Securities Act of 1933, as amended.
           --------------

      2.  Registration.  The Company shall use its best efforts to prepare and
          ------------
file with the Commission, on or prior to the Filing Date, a Registration
Statement covering all Registrable Securities. The Registration Statement shall
be on Form S-1 (except if the Company is then eligible to register for resale
the Registrable Securities on Form S-3, in which case such registration shall be
on such form in accordance herewith). The Company shall use its reasonable best
efforts to cause the Registration Statement to be declared effective under the
Securities Act as promptly as practicable after the filing thereof but on or
prior to the Effectiveness Date and to keep such Registration Statement
continuously effective under the Securities Act until such date as is the
earlier of (x) the date when all Registrable Securities covered by such
Registration Statement have been sold or (y) the date on which the Registrable
Securities may be sold pursuant to Rule 144 as determined by the counsel to the
Company pursuant to a written opinion letter, addressed to the Company's
transfer agent to such effect (the "Effectiveness Period").
                                    --------------------

3.  Registration Procedures.
    -----------------------

          In connection with the Company's registration obligations hereunder,
the Company shall:

          (a)  Use its best efforts to prepare and file with the Commission, on
or prior to the Filing Date, a Registration Statement on Form S-1 (or if the
Company is then eligible to register for resale the Registrable Securities on
Form S-3 such registration shall be on such form in accordance herewith) in
accordance with the method or methods of distribution thereof as specified by
the Company, and cause the Registration Statement to become effective and remain
effective on or prior to the Effectiveness Date as provided herein; provided,
                                                                    --------
however, that prior
-------

                                      -3-
<PAGE>

to the filing of the Registration Statement or any related Prospectus or any
amendment or supplement thereto (including any document that would be
incorporated therein by reference), the Company shall furnish to the Holders
copies of all such documents proposed to be filed, which documents (other than
those incorporated by reference) will be subject to the review of such Holders.

        (b)  (i)  Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period; (ii) cause the
related Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed with the Commission;
(iii) respond as promptly as practicable to any comments received from the
Commission with respect to the Registration Statement or any amendment thereto
and as promptly as practicable provide the Holders true and complete copies of
all correspondence from and to the Commission relating to the Registration
Statement; and (iv) comply in all material respects with the provisions of the
Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement during the
applicable period in accordance with the intended methods of disposition by the
Holders thereof set forth in the Registration Statement as so amended or in such
Prospectus as so supplemented.

        (c)  Notify the Holders of Registrable Securities to be sold as promptly
as practicable (i)(A) when a Prospectus or any Prospectus supplement or post-
effective amendment to the Registration Statement is proposed to be filed; (B)
when the Commission notifies the Company whether there will be a "review" of
such Registration Statement and whenever the Commission comments in writing on
such Registration Statement and (C) with respect to the Registration Statement
or any post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) of the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction, or the initiation or
threatening of any Proceeding for such purpose; and (v) of the occurrence of any
event that makes any statement made in the Registration Statement or Prospectus
or any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires any revisions to the
Registration Statement, Prospectus or other documents so that, in the case of
the Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.

        (d)  Use its reasonable best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of, (i) any order suspending the effectiveness of
the Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.

                                      -4-
<PAGE>

        (e)  Promptly deliver to each Holder, without charge, as many copies of
the Registration Statement, Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons may
reasonably request.

        (f)  Prior to any public offering of Registrable Securities, use its
reasonable best efforts to register or qualify or cooperate with the selling
Holders in connection with the registration or qualification (or exemption from
such registration or qualification) of such Registrable Securities for offer and
sale under the securities or Blue Sky laws of such jurisdictions within the
United States as any Holder requests in writing, to keep each such registration
or qualification (or exemption therefrom) effective during the Effectiveness
Period and to do any and all other acts or things necessary to enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement; provided, however, that the Company shall not be
                        --------  -------
required to qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action that would subject it to general service
of process in any such jurisdiction where it is not then so subject or subject
the Company to any material tax in any such jurisdiction where it is not then so
subject.

        (g)  Cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold pursuant
to a Registration Statement, which certificates shall be free of all restrictive
legends.

        (h)  Upon the occurrence of any event contemplated by Section 3(c)(v),
as promptly as practicable, prepare a supplement or amendment, including a post-
effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.

        (i)  Use its reasonable best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the Nasdaq and any other
securities exchange, quotation system, market or over-the-counter bulletin
board, if any, on which similar securities issued by the Company are then
listed.

        (j)  Comply in all material respects with all applicable rules and
regulations of the Commission and make generally available to its security
holders earning statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 not later than forty-five (45) days after the end of
any 12-month period (or ninety (90) days after the end of any 12-month period if
such period is a fiscal year) commencing on the first day of the first fiscal
quarter of the Company after the effective date of the Registration Statement,
which statement shall conform to the requirements of Rule 158.

        (k)  Require each selling Holder to furnish to the Company information
regarding such Holder and the distribution of such Registrable Securities as is
required by law to be disclosed in the Registration Statement, and the Company
may exclude from such registration the Registrable Securities of any such Holder
who fails to furnish such information within a

                                      -5-
<PAGE>

reasonable time prior to the filing of each Registration Statement, supplemented
Prospectus and/or amended Registration Statement.

          If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.

          Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(e) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c), (ii) it and its officers, directors or Affiliates, if any, will
comply with the prospectus delivery requirements of the Securities Act as
applicable to them in connection with sales of Registrable Securities pursuant
to the Registration Statement, and (iii) if any Registration Statement or
Prospectus refers to any Holder by name or otherwise as the Holder of any
securities of the Company, then such Holder shall promptly notify the Company of
any fact of which the Holder becomes aware and the happening of any event which
relates to the Holder or distribution of such securities owned by such Holder
which results in the Registration Statement or the Prospectus included in such
Registration Statement containing an untrue statement of material fact or
omitting to state a material fact required to be stated therein or necessary to
make the statements therein not misleading and shall provide to the Company such
information as shall be necessary to enable the Company to prepare a supplement
or post-effective Amendment to such Registration Statement or Prospectus or any
document incorporated therein by reference or file any other document required
so that the Registration Statement or Prospectus will not contain an untrue
statement of material fact or omit to state a material fact required to be
stated therein.

          Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence of any event
of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv) or 3(c)(v), such
Holder will forthwith discontinue disposition of such Registrable Securities
under the Registration Statement until such Holder's receipt of the copies of
the supplemented Prospectus and/or amended Registration Statement contemplated
by Section 3(h), or until it is advised in writing (the "Advice") by the Company
                                                         ------
that the use of the applicable Prospectus may be resumed, and, in either case,
has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.

        (l)  If (i) there is material non-public information regarding the
Company which the Company's Board of Directors (the "Board") reasonably
                            -----
determines not to be in the Company's best interest to disclose and which the
Company is not otherwise required to disclose, or (ii) there is a significant
business opportunity (including, but not limited to, the acquisition or
disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or other similar transaction) available to
the Company which the Board reasonably determines not to be in the Company's
best interest to disclose and which the Company would be

                                      -6-
<PAGE>

required to disclose under the Registration Statement, then the Company may
suspend effectiveness of a registration statement and suspend the sale of
Registrable Securities under a Registration Statement for a period that the
Board, in its sole discretion, determines to be reasonable under the
circumstances (a "Blackout Period").
                 -----------------

        (m)  Notwithstanding anything to the contrary contained in this
Agreement, (i) the Registration Statement shall register for resale only the
Registrable Securities and those securities listed on Schedule 3.2 to the
Purchase Agreement, and (ii) the Company shall not be permitted to file a
registration statement for a period ending 120 days from the date hereof;
provided, however, that the Company may file a registration statement for
--------  -------
up to 3,000,000 shares of Common Stock for resale by its stockholders, at
any time after the Effectiveness Date.

      4.  Registration Expenses
          ---------------------

          All fees and expenses incident to the registration of the Registrable
Securities shall be borne by the Company, other than fees and expenses of any
counsel retained by the Holders in connection with the transactions contemplated
by this Agreement and those set forth in the Purchase Agreement, which fees and
expenses shall be borne exclusively by the Holders, whether or not the
Registration Statement is filed or becomes effective and whether or not any
Registrable Securities are sold pursuant to the Registration Statement.  The
fees and expenses to be borne by the Company shall include, without limitation,
the following: (i) all registration and filing fees (including, without
limitation, fees and expenses (A) with respect to filings required to be made
with the Nasdaq and each other securities exchange or market on which
Registrable Securities are required hereunder to be listed, and (B) with respect
to filings required to be made with the Commission; (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is requested by the holders of a majority of the Registrable
Securities included in the Registration Statement), (iii) messenger, telephone
and delivery expenses, (iv) fees and disbursements of counsel for the Company
and (v) fees and expenses of all other Persons retained by the Company in
connection with the consummation of the transactions contemplated by this
Agreement, including, without limitation, the Company's independent public
accountants (including the expenses of any comfort letters or costs associated
with the delivery by independent public accountants of a comfort letter or
comfort letters).  In addition, the Company shall be responsible for all of its
internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.

      5.  Indemnification
          ---------------

          (a)  Indemnification by the Company.  The Company shall,
               ------------------------------
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents or employees, if any, of such
Holder and each Person who controls any such Holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, agents and employees of each such controlling Person, and
the respective successors, assigns, estate and personal representatives of each
of the foregoing, to the

                                      -7-
<PAGE>

fullest extent permitted by applicable law, from and against any and all claims,
losses, damages, liabilities, penalties, judgments, costs (including, without
limitation, costs of investigation) and expenses (including, without limitation,
attorneys' fees and expenses) (collectively, "Losses"), as incurred, arising out
                                              ------
of or relating to any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in the light of the circumstances under which they were
made) not misleading, except to the extent, but only to the extent, that such
untrue statements or omissions are based upon information regarding such Holder
furnished in writing to the Company by such Holder expressly for use therein,
which information was reasonably relied on by the Company for use therein. The
Company shall notify the Holders promptly of the institution, threat or
assertion of any Proceeding of which the Company is aware in connection with the
transactions contemplated by this Agreement. Such indemnity shall survive the
transfer of the Registrable Securities by the Holders.

        (b)  Indemnification by Holders.  Each Holder shall, severally and not
             --------------------------
jointly, indemnify and hold harmless the Company, the directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, and the
respective successors, assigns, estate and personal representatives of each of
the foregoing, to the fullest extent permitted by applicable law, from and
against all Losses, as incurred, arising solely out of or based solely upon any
untrue statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or arising solely out of or based solely
upon any omission of a material fact required to be stated therein or necessary
to make the statements therein (in the case of any Prospectus or form of
prospectus or supplement thereto, in the light of the circumstances under which
they were made) not misleading, to the extent, but only to the extent, that such
untrue statement or omission is contained in or omitted from any information so
furnished in writing by such Holder to the Company specifically for inclusion in
the Registration Statement or such Prospectus and that such information was
reasonably relied upon by the Company for use in the Registration Statement,
such Prospectus or such form of prospectus. Notwithstanding anything to the
contrary contained herein, the Holder shall be liable under this Section 5(b)
for only that amount as does not exceed the net proceeds to such Holder as a
result of the sale of Registrable Securities pursuant to such Registration
Statement.

          (c)  Conduct of Indemnification Proceedings.  If any Proceeding shall
               --------------------------------------
 be brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall notify the Person
 ------------------
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
                                    ------------------
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided that the
                                                               -------- ----
failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not

                                      -8-
<PAGE>

subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.

          An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party).  The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld.  No Indemnifying Party shall,
without the prior written consent of the Indemnified Party, effect any
settlement of any pending Proceeding in respect of which any Indemnified Party
is a party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject matter of
such Proceeding.

          All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten (10)
Business Days of written notice thereof to the Indemnifying Party, regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided that the Indemnifying Party may require such
                           -------- ----
Indemnified Party to undertake to reimburse all such fees and expenses to the
extent it is finally judicially determined that such Indemnified Party is not
entitled to indemnification hereunder.

          (d)  Contribution.  If a claim for indemnification under Section 5(a)
               ------------
or 5(b) is unavailable to an Indemnified Party because of a failure or refusal
of a governmental authority to enforce such indemnification in accordance with
its terms (by reason of public policy or otherwise), then each Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall, severally and not
jointly, contribute to the amount paid or payable by such Indemnified Party as a
result of such Losses, in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions, statements or omissions that resulted in such Losses, as well
as any other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of a
material fact, has been taken or made by, or relates to information supplied by,
such Indemnifying, Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
in Section

                                      -9-
<PAGE>

5(c), any reasonable attorneys' or other reasonable fees or expenses incurred by
such party in connection with any Proceeding to the extent such party would have
been indemnified for such fees or expenses if the indemnification provided for
in this Section was available to such party in accordance with its terms.
Notwithstanding anything to the contrary contained herein, the Holder shall be
liable or required to contribute under this Section 5(d) for only that amount as
does not exceed the net proceeds to such Holder as a result of the sale of
Registrable Securities pursuant to such Registration Statement.

          The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.

          The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties

      6.  Rule 144.
          --------

          As long as any Holder owns Registrable Securities, the Company
covenants to use its best efforts to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act.  As long as any Holder owns Registrable
Securities, if the Company is not required to file reports pursuant to Section
13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the Holders
and make publicly available in accordance with Rule 144(c) promulgated under the
Securities Act annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be included
in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as
any other information required thereby, in the time period that such filings
would have been required to have been made under the Exchange Act.  The Company
further covenants that it will take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable such
Person to sell Shares without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act.

      7.  Miscellaneous.
          -------------

          (a)  Failure to File Registration Statement and Other Events.  The
               -------------------------------------------------------
Company and the Purchasers agree that the Holders will suffer damages if the
Registration Statement is not filed on or prior to the Filing Date and not
declared effective by the Commission on or prior to the Effectiveness Date and
maintained in the manner contemplated herein during the Effectiveness Period or
if certain other events occur. The Company and the Holders further agree that it
would not be feasible to ascertain the extent of such damages with precision. If
(i) the Registration Statement is not filed on or prior to the Filing Date, or
is not declared effective by the Commission on or prior to the Effectiveness
Date, or (ii) the Company fails to file with the Commission a request for
acceleration in accordance with Rule 461 promulgated under the

                                      -10-
<PAGE>

Securities Act within five (5) Business Days of the date that the Company is
notified (orally or in writing, whichever is earlier) by the Commission that a
Registration Statement will not be "reviewed," or not subject to further review
(any such failure being referred to as an "Event"), the Company shall pay as
                                           -----
liquidated damages for such failure and not as a penalty (the "Liquidated
                                                               ----------
Damages") to each Holder an amount equal to one percent (1%) of such Holder's
-------
pro rata share of the purchase price paid by all Holders for the Shares
purchased pursuant to the Purchase Agreement for each thirty (30) day period
following such Event until the applicable Event has been cured, which amount
shall be pro rated for any period less than thirty (30) days (the "Periodic
                                                                   --------
Amount"); provided that such delay was not caused by the Holders.  Payments to
------
be made pursuant to this Section 7(a) shall be due and payable immediately upon
demand in shares of Common Stock. The parties agree that the Periodic Amount
represents a reasonable estimate on the part of the parties, as of the date of
this Agreement, of the amount of damages that may be incurred by the Holders if
the Registration Statement is not filed on or prior to the Filing Date or has
not been declared effective by the Commission on or prior to the Effectiveness
Date.

     (b)  Remedies.  In the event of a breach by the Company or by a Holder, of
          --------
any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.

     (c)  Specific Enforcement, Consent to Jurisdiction.
          ---------------------------------------------

          (i)  The Company and the Holders acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.

          (ii) Each of the Company and the Holders (i) hereby irrevocably
submits to the jurisdiction of the United States District Court for the Southern
District of New York and the courts of the State of New York located in New York
county for the purposes of any suit, action or proceeding arising out of or
relating to this Agreement and (ii) hereby waives, and agrees not to assert in
any such suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of such court, that the suit, action or proceeding is
brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Each of the Company and the Holders consents to process
being served in any such suit, action or proceeding by mailing a copy thereof to
such party at the address in effect for notices to it under this Agreement and
agrees that such service shall constitute good and sufficient service of process

                                      -11-
<PAGE>

and notice thereof. Nothing in this Section shall affect or limit any right to
serve process in any other manner permitted by law.

     (d)  Amendments and Waivers.  The provisions of this Agreement, including
          ----------------------
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the same shall be in writing and signed by the Company and Holders
of not less 51% of the Registrable Securities then owned by all Holders.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
Holders and that does not directly or indirectly affect the rights of other
Holders may be given by Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates; provided, however, that the
                                                    --------  -------
provisions of this sentence may not be amended, modified, or supplemented except
in accordance with the provisions of the immediately preceding sentence.

     (e)  Notices.  Any and all notices or other communications or deliveries
          -------
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., New York City time, on
a Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., New York City time, on any
date and earlier than 11:59 p.m., New York City time, on such date, (iii) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be
with respect to each Holder at its address set forth under its name on Schedule
                                                                       --------
1 attached hereto, or with respect to the Company, addressed to:
-

                         mPhase Technologies, Inc.
                         587 Connecticut Avenue
                         Norwalk, Connecticut 06854
                         Attn:  General Counsel

or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice.  Copies of notices to any Holder shall be sent to the addresses
listed on Schedule 1 attached hereto.  Copies of notices to the Company shall be
          ----------
sent to:

                         Piper Marbury Rudnick & Wolfe LLP
                         1251 Avenue of the Americas
                         New York, New York 10020
                         Attn:  Kenneth Willig, Esq.

     (f)  Successors and Assigns.  This Agreement shall be binding upon and
          ----------------------
inure to the benefit of the parties and their successors and permitted assigns.
Permitted assigns of the Company shall include any person or entity which
acquires all or substantially all of the capital stock or assets of the Company
or is the successor to the Company by merger, consolidation or

                                      -12-
<PAGE>

other similar transaction.  No Holder shall assign its rights hereunder
without the prior written consent of the Company.

     (g)  Counterparts.  This Agreement may be executed in any number of
          ------------
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.

     (h)  Governing Law.  This Agreement shall be governed by and construed in
          -------------
accordance with the laws of the State of New York, without regard to principles
of conflicts of law thereof. This Agreement shall not be interpreted or
construed with any presumption against the party causing this Agreement to be
drafted.

     (i)  Cumulative Remedies.  The remedies provided herein are cumulative and
          -------------------
 not exclusive of any remedies provided by law.

     (j)  Severability.  If any term, provision, covenant or restriction of this
          ------------
Agreement is held to be invalid, illegal, void or unenforceable in any respect,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.

     (k)  Headings.  The headings herein are for convenience only, do not
          --------
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.

                                      -13-
<PAGE>

          IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.

                              MPHASE TECHNOLOGIES, INC.

                              By:
                                 ---------------------------------
                                 Name:
                                 Title:

                              [PURCHASER]

                              By:
                                 ---------------------------------
                                 Name:
                                 Title:

                                      -14-

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