Document:

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CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                                                  EXHIBIT 10.120

                    AMENDMENT TO THE COLLABORATION AGREEMENT

                             WARNER-LAMBERT COMPANY
                                       AND
                           SEQUANA THERAPEUTICS, INC.

                                 OCTOBER 1, 1999

<PAGE>   2

                    AMENDMENT TO THE COLLABORATION AGREEMENT

        This AMENDMENT TO THE COLLABORATION AGREEMENT (the "Agreement"),
effective as of October 1, 1999 (the "Effective Date"), is made by and between
WARNER-LAMBERT COMPANY, a Delaware corporation, with a principal place of
business at 201 Tabor Road, Morris Plains, New Jersey 07950 ("Warner"), and
SEQUANA THERAPEUTICS, INC., a California corporation and a wholly-owned
subsidiary of Axys Pharmaceuticals, Inc. ("Axys"), with a principal place of
business at 11099 N. Torrey Pines Road, La Jolla, California 92037 ("Sequana").
Sequana and Warner may be referred to herein individually as a "Party" and
collectively as the "Parties."

                                   BACKGROUND

        WHEREAS, Sequana and Warner are parties to that certain Collaboration
Agreement by and between Sequana and Warner dated October 31, 1997; and

        WHEREAS, the Parties wish to amend and restate the Collaboration
Agreement by, and subject to the terms and conditions of, this Agreement;

        NOW, THEREFORE, in consideration of the foregoing premises and the
mutual promises contained herein, Sequana and Warner hereby agree as follows:

1.      DEFINITIONS

        As used in this Agreement, the following capitalized terms shall have
the meanings set forth below.

        1.1 "AFFILIATE" means, with respect to a Party, any corporation,
association or other entity that directly or indirectly controls, is controlled
by or is under common control with such Party. As used in this definition of
"Affiliate," the term "control" means direct or indirect beneficial ownership of
more than fifty percent (50%) of the voting or income interest in the applicable
corporation or other business entity.

        1.2 "AGENCY" means the U.S. Food and Drug Administration or any
successor entity (the "FDA"), and agencies of other governments of other
countries having similar jurisdiction over the development, manufacturing and
marketing of pharmaceuticals.

        1.3 "ANTISENSE" means a nucleic acid, or a functional analog, derivative
or homologue thereof, that (a) is complementary to a segment of DNA of a target
Gene or such target Gene's cognate RNA, and (b) upon delivery by any means,
alters the transcription, processing, elaboration, RNA expression, or protein
production of or by such target Gene.

        1.4 "AREA" means either of Bipolar Disorder or Schizophrenia.

        1.5 "ARRAY WORK" means all data generated by Sequana resulting from
Sequana's use of microarray technology to identify disease and treatment genes
(or ESTs) differentially expressed in [ * ], or disease and treatment genes (or
ESTs) differentially expressed in [ * ].

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       1.
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        1.6 "BACKGROUND TECHNOLOGY" shall mean all proprietary inventions,
methods, ideas, know-how, data, software, protocols, techniques and information
(a) that (i) Sequana Controlled on the Collaboration Effective Date or (ii)
Sequana developed prior to the Sequana Research Termination Date independently
and outside the scope of this Agreement, and in either case had the right to
contribute to the Research Program; and (b) that is necessary for the research,
design, development, testing, use, manufacture or sale of Collaboration
Products, including, without limitation, all United States and foreign patents
and patent applications relating thereto (including, without limitation, all
reissues, extensions, substitutions, confirmations, registrations,
revalidations, additions, continuations, continuations-in-part, and divisions
thereof).

        1.7 "BIOINFORMATIONAL DATABASE" means the relational database of all
genetic and sample information generated pursuant to the Research Program, and
the related genotype sample files.

        1.8 "BIPOLAR DISORDER" means bipolar affective disorder, bipolar I
disorder, bipolar II disorder and schizoaffective disorder (bipolar subtype).

        1.9 "COLLABORATION AGREEMENT" means that certain Collaboration Agreement
entered into by and between Sequana and Warner effective as of October 31, 1997.

        1.10 "COLLABORATION ASSETS" means the items described in Schedule 1.10.

        1.11 "COLLABORATION EFFECTIVE DATE" means October 31, 1997.

        1.12 "COLLABORATION PRODUCT" means any of the following if developed by
Warner or its Affiliates or Sublicensees: (a) a therapeutic human product, an
active ingredient of which is a Compound; (b) a therapeutic product that is a
Protein, Gene Therapy, Antisense or Vaccine product that is based upon, derived
from or active against a Disease Gene or Disease Gene Product; or (c) a
diagnostic, prognostic or pharmacogenetic product in the form of a device,
compound, kit or service developed based upon or derived from research involving
(in whole or in part) the Current Linkages or the Array Work and conducted prior
to [ * ].

        1.13 "COLLABORATION TECHNOLOGY" means all Know-How and Patent Rights
conceived of, reduced to practice or otherwise developed solely by a Party or
jointly by the Parties pursuant to and during the course of the Research
Program, but specifically excluding all Background Technology.

        1.14 "COMPOUND" means any molecule with a molecular weight of [ * ] that
is identified by Warner or its Affiliates or Sublicensees through application of
an assay or animal model developed based on a Disease Gene or Disease Gene
Product.

        1.15 "CONFIDENTIAL INFORMATION" shall have the meaning ascribed in
Section 9.1.

        1.16 "CONTINUED RESEARCH PROGRAM" means any program of research and
development in the Field conducted by Warner and its Affiliates and Sublicensees
after the Effective Date.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       2.
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        1.17 "CONTROL" or "CONTROLLED" means, with respect to any material,
Know-How or intellectual property right, that the Party owns or has a license to
such material, Know-How or intellectual property right and has the ability to
grant the access, the license, the sublicense or the assignment to such
material, Know-How or intellectual property right to the other Party, as
provided for herein without violating an agreement with, or infringing any
rights of, a Third Party as of the time the Party would be first required
hereunder to make such assignment or grant such access, license or sublicense to
the other Party.

        1.18 "CURRENT LINKAGES" means those candidate linkage sites identified
through the Research Program and existing on the Effective Date, [ * ].

        1.19 "DISEASE GENE" means (a) a Gene identified by a Schizophrenia or
Bipolar Disorder disease associated haplotype that is sufficiently small to
define a single gene product, or (b) a Gene with a mutation which is shown to be
genetically associated with Schizophrenia or Bipolar Disorder and is consistent
with a Schizophrenia or Bipolar Disorder related biological function, in each
case only if identified from the Current Linkages, or identified by Warner (or
its Affiliates or Sublicensees) through Warner's (or its Affiliates' or
Sublicensees') use of the Array Work, prior to [ * ]. Notwithstanding the
foregoing, a Gene, which would otherwise be deemed a Disease Gene under the
preceding sentence, shall not be deemed a Disease Gene if at its time of
identification by Warner, its Affiliates or its Sublicensees, (i) the sequence
of such Gene and its association with Schizophrenia or Bipolar Disorder is in
the public domain, or (ii) such Gene already has been publicly proposed by a
Third Party to be a target for a disease in the Area.

        1.20 "DISEASE GENE MILESTONE" means the milestone described in Section
5.3(b)(i).

        1.21 "DISEASE GENE PRODUCT" means any protein product, or fragment
thereof, of a Disease Gene, identified at any time during the term of this
Agreement.

        1.22 "FIELD" means research and drug discovery aimed at identifying
human Genes and Gene sequence information for the purpose of discovering
compounds, and the development and commercialization of such compounds useful
for the treatment of Schizophrenia or Bipolar Disease.

        1.23 "FULL TIME EQUIVALENT" or "FTE" means a full-time employee or the
equivalent thereof.

        1.24 "GENE" means a gene, including without limitation all its
regulatory sequences, and any and all variants thereof, including without
limitation "splice variants," polymorphisms, alleles and mutations of such gene.

        1.25 "GENE THERAPY" means the introduction of a Gene into a person for
therapeutic purposes by (a) in vivo introduction for incorporation into cells of
such person, or (b) ex vivo introduction into cells for transfer into a person.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       3.
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        1.26 "IBD TECHNOLOGY" means the technology described in Schedule 1.26
hereto, to the extent that such technology is Controlled by Sequana at the time
of Warner's exercise of the IBD Option as described in Section 4.5.

        1.27 "IND" means an Investigational New Drug application, as defined in
the U.S. Food, Drug and Cosmetic Act and the regulations promulgated thereunder,
or any corresponding foreign application, registration or certification.

        1.28 "KNOW-HOW" means all ideas, inventions, data, instructions,
processes, formulas, expert opinions and information, including, without
limitation, biological, chemical, pharmacological, toxicological,
pharmaceutical, physical and analytical, clinical, safety, manufacturing and
quality control data and information, in each case, which are necessary or
useful for and are specific to the research, design, development, testing, use,
manufacture or sale of Collaboration Products. "Know-How" does not include any
inventions included in the Patent Rights.

        1.29 "NET SALES" means the gross amount invoiced by Warner or Sequana,
or their Affiliates or Sublicensees, as the case may be, for sales to Third
Parties (other than Sublicensees) in arm's length transactions of the applicable
Collaboration Products and any and all services provided in connection with
sales of such Collaboration Products [ * ]. A "sale" shall include any transfer
or other disposition for consideration, and Net Sales shall include the fair
market value of all other consideration received by the selling Party or its
Affiliates or permitted Sublicensees in respect of any grant of rights to make,
use, sell or otherwise distribute Collaboration Products, whether such
consideration is in cash, payment in kind, exchange or another form.

        In the case of discounts on "bundles" of products or services which
include Collaboration Products, the selling Party may, [ * ] The selling party
shall provide the other party documentation, reasonably acceptable to the other
party, establishing such average discount with respect to each "bundle." [ * ]

        1.30 "NEW DRUG APPLICATION" or "NDA" means a New Drug Application, as
defined in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated
thereunder, and any corresponding foreign application, registration or
certification.

        1.31 "PATENT RIGHTS" means all United States and foreign patents
(including all reissues, extensions, substitutions, confirmations,
re-registrations, re-examinations, revalidations and patents of addition) and
patent applications (including, without limitation, all continuations,
continuations-in-part and divisions thereof) in each case, claiming an invention
which is necessary or useful for the design, development, testing, use,
manufacture or sale of Collaboration Products.

        1.32 "PROTEIN" means any of a class of compounds, other than a Compound,
composed of a variety of amino acids joined by peptide linkages, including
aggregates, hybrids, fragments and analogs thereof, as well as naturally
post-translationally modified variants thereof (i.e., glycosylated proteins) and
chemically modified versions thereof (e.g., pegylated or liposomally
encapsulated proteins).

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       4.
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        1.33 "RESEARCH PROGRAM" shall have the meaning set forth in the
Collaboration Agreement.

        1.34 "SCHIZOPHRENIA" means schizophrenia, schizoaffective disorder
(depressive subtype) and schizophrenic spectrum disorders (schizophreniform
disorder, schizotypal disorders and NOS psychotic disorder).

        1.35 "SEQUANA COLLABORATION TECHNOLOGY" means all Collaboration
Technology that is Controlled by Sequana as of the Effective Date, specifically
including the Collaboration Assets, but specifically excluding any Sequana
Software.

        1.36 "SEQUANA RESEARCH TERMINATION DATE" means the Effective Date or
September 30, 1999, whichever is earlier.

        1.37 "SEQUANA SOFTWARE" means the Software described in Schedule 1.37.

        1.38 "SOFTWARE" means computer code (in source or object form) that is
Controlled by Sequana and that, when executed by a digital computer, provides
said computer with the capability of manipulating numbers, text and/or graphics
in a manner defined by said computer code.

        1.39 "SUBLICENSEE" means a Third Party to whom Warner has granted a
license or sublicense under the Collaboration Technology to make, have made,
import, use, sell, offer for sale or otherwise exploit a Collaboration Product
in the Territory. As used in this Agreement, "Sublicensee" shall also include a
Third Party to whom Warner has granted the right to distribute the Collaboration
Product in the Territory.

        1.40 "THIRD PARTY" means any party other than Warner or Sequana or their
respective Affiliates.

        1.41 "TVS SOFTWARE" means the Target Validation System software
described in Schedule 1.37 and all data embedded therein.

        1.42 "VACCINE" means a prophylactic or therapeutic agent that acts by
inducing a humoral and/or cell-mediated immune response directed against an
antigen.

        1.43 "VALID CLAIM" means a claim of a pending patent application within
the Patent Rights (provided such application has not been pending for more than
[ * ] years from the date it was first filed with the governmental agency with
jurisdiction over patent applications) or an issued and unexpired patent
included within the Patent Rights which has not been held unenforceable or
invalid by a court or other governmental agency of competent jurisdiction, and
which has not been disclaimed or admitted to be invalid or unenforceable through
reissue or otherwise.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       5.
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2.      AMENDMENT OF THE COLLABORATION AGREEMENT

        The Parties agree that the Collaboration Agreement is hereby amended in
its entirety and restated by this Agreement as of and for the period following
the Sequana Research Termination Date, except as otherwise expressly and
specifically provided herein.

3.      RESEARCH PROGRAM

        3.1 TERMINATION OF CURRENT SEQUANA RESEARCH PROGRAM.

            (a) The Parties hereby agree that Sequana's participation in the
Research Program shall end as of the Sequana Research Termination Date, and
Warner thereafter shall be entitled to conduct the Continued Research Program,
in its sole discretion, subject to the terms set forth herein.

            (b) Warner shall incur no further financial obligation under Section
5.3 of the Collaboration Agreement after the Sequana Research Termination Date;
provided, however, that (i) Warner shall make all payments due to Sequana under
Section 5.3 of the Collaboration Agreement through the Sequana Research
Termination Date, and (ii) Warner shall pay Sequana for the FTEs used to
transfer the Collaboration Assets to Warner as further described in Sections 3.3
and 5.2 of this Agreement.

        3.2 CONTINUED RESEARCH PROGRAM.

            (a) Warner's conduct of the Continued Research Program may, in
Warner's sole discretion, include all research and development of the Current
Linkages and Array Work by Warner, its Affiliates or its Sublicensees following
the Sequana Research Termination Date. Warner shall have no obligation to
conduct the Continued Research Program. Neither Party makes any warranty that
the Continued Research Program shall achieve any research objectives.

            (b) After the Sequana Research Termination Date, Warner shall be
[ * ] for [ * ] in conducting the Continued Research Program, including, without
limitation, the acquisition of any technology or intellectual property rights,
in each case, which Warner deems, in its sole discretion, to be necessary or
useful for the conduct of the Continued Research Program. It is understood and
agreed that Sequana shall [ * ] any activities under the Continued Research
Program and shall incur [ * ] with respect thereto, other than [ * ] pursuant
hereto.

            (c) If Warner hires or retains any individual or entity who was
employed or retained by (i) Axys or Sequana or (ii) any vendor, contractor,
consultant or similar entity retained by Axys or Sequana, which individual or
entity performed activities related to the Research Program, Axys and Sequana
hereby waive [ * ] applicable to such entity or individual, but only to the
extent such restrictions would prevent such entity or individual from [ * ],
including [ * ].

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       6.
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        3.3 TRANSFER OF COLLABORATION ASSETS. Sequana agrees to transfer to
Warner all the Collaboration Assets, subject to the terms of this Section 3.3.
The Collaboration Assets are transferred by Sequana and accepted by Warner "as
is."

            (a) Sequana shall use [ * ] efforts to transfer to Warner all the
Collaboration Assets, other than the [ * ], by [ * ], but Sequana shall transfer
such Collaboration Assets to Warner (other than the [ * ]) by a date that is in
no event later than [ * ], except that the [ * ] shall be delivered no later
than [ * ]. Sequana shall target the transfer of the [ * ] to Warner by [ * ].

            (b) Sequana shall use [ * ] efforts to complete the transfer of the
[ * ] as soon as is reasonably possible following the Effective Date.

            (c) Warner shall pay for [ * ] paid to Third Parties for
transferring the Collaboration Assets to a Warner-designated location. Sequana
shall provide the FTEs designated on Schedule 3.3 in order to effect such
transfer, [ * ] in accordance with Section 5.2.

        3.4 PATIENT SAMPLE COLLECTION AND OTHER THIRD PARTY COSTS. Sequana will
transfer to Warner all patient sample collections that are in its Control and
that [ * ], and shall transfer to Warner all other patient sample collections
that [ * ] other than the patient sample collection [ * ], as to which Sequana
will use [ * ] efforts to transfer such collection to Warner. Sequana will
assign to Warner as soon as practicable all right, title and interest in all
outstanding Third Party contracts covering the collection of such samples (each
such contract, a "Collection Contract"); provided however that Warner
acknowledges that the transfer of those samples that are not in Sequana's
Control and the assignment hereunder of one or more Collection Contracts may
require the consent of Third Parties, and that Sequana may not be able to obtain
such consent; and provided further that Sequana shall not be required to make
any payments to transfer such samples or assign any Collection Contract to
Warner. Notwithstanding the foregoing, Sequana shall make all payments to such
Third Parties which are due and owing under such contracts and for which Sequana
has been paid by Warner. At Warner's written request, Sequana shall [ * ].
Warner's obligations under Section 2.2.2 of the Collaboration Agreement will
continue in full force and effect with respect to each Collection Contract until
such time as the assignment of such contract to Warner becomes effective.
Following assignment of each Collection Contract, Warner shall be directly
responsible for all payments due to a Third Party under such contract. In the
event Warner notifies Sequana in writing that it does not desire to assume any
particular Collection Contract prior to the assignment thereof to Warner,
Sequana will retain the applicable patient samples and terminate such contract;
provided that Warner shall be responsible for and reimburse Sequana for [ * ].

        3.5 RECORDS. In accordance with its normal record keeping practices,
Warner shall maintain records of its research and development activities
relating to Collaboration Products.

        3.6 REPORTS. Until the first commercial sale of a Collaboration Product,
Warner shall, periodically and not less often than semi-annually during the term
of this Agreement, prepare and provide to Sequana, a written statement, signed
by the program director for the Continued Research Program or his superior,
describing whether any milestones for which

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       7.
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Sequana is entitled to payment hereunder were achieved, or whether any
Collaboration Products have begun development, since the last written report and
whether Warner is continuing any research or development efforts under the
Continued Research Program. Upon the written request of Sequana from time to
time (but not more frequently than once every six months), a financial or other
officer of Warner shall certify in writing whether any milestones or other
payments are due and owing from Warner hereunder, together with a description,
if applicable, in reasonable detail of any such milestones or other payments.

4.      TECHNOLOGY TRANSFER

        4.1 ASSIGNMENT OF SEQUANA COLLABORATION TECHNOLOGY.

            (a) Sequana hereby assigns to Warner all of Sequana's right, title
and interest to the Sequana Collaboration Technology and intellectual property
rights therein. Sequana shall, as reasonably requested by Warner, take all
necessary steps to perfect Warner's title to the Sequana Collaboration
Technology, at Warner's expense.

            (b) Sequana shall deliver to Warner, at the time Sequana delivers
the Collaboration Assets hereunder, all documents and other materials in
Sequana's possession and Control that materially embody the Collaboration
Technology. If Warner identifies any documents or other materials embodying the
Sequana Collaboration Technology that it reasonably believes may be in Sequana's
possession and Control, and requests such documents or materials from Sequana in
writing by [ * ], then Sequana shall promptly search for such documents or
materials, and may cure any breach of this Section 4.1(b) by delivering to
Warner such documents or materials as it may locate as soon as is reasonably
practicable. Sequana shall deliver the originals of such documents or materials,
if so requested by Warner, to the extent that such originals are reasonably
available. If Warner has not identified any documents or other materials
embodying the Sequana Collaboration Technology that it reasonably believes may
be in Sequana's possession and Control and requested such documents or materials
from Sequana in writing by [ * ], then Sequana shall be deemed to have fully
delivered all such documents and materials hereunder and shall have no further
obligations under this subsection (b).

        4.2 LICENSING OF BACKGROUND TECHNOLOGY. Subject to the terms and
conditions of this Agreement, Sequana hereby grants to Warner an exclusive (even
as to Sequana), worldwide license under Sequana's interest in the Background
Technology that was licensed to Warner under the Collaboration Agreement as of
the Effective Date, with the right to sublicense, to the extent necessary for
Warner (a) to conduct the Continued Research Program, (b) make, have made, use
and import Compounds and (c) to make, have made, use, import, offer for sale and
sell Collaboration Products.

        4.3 SEQUANA SOFTWARE.

            (a) LICENSE. Subject to the terms and conditions of this Agreement,
Sequana hereby grants to Warner a non-exclusive, nontransferable, worldwide,
royalty-free license, without the right to sublicense except to its Affiliates
and collaborative partners, to the Sequana Software, to use and duplicate and to
make derivative works of the Sequana Software, in each case, solely to conduct
internal research pursuant to the Continued Research Program. Sequana

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       8.
<PAGE>   10

shall provide Warner with a copy of all such Software, in object code or, to the
extent available, source code format as requested by Warner.

            (b) TVS SOFTWARE. Sequana shall provide Warner with such
documentation, if any, relating to the TVS Software that is in Sequana's
possession as of the Effective Date solely for use pursuant to subsection (a)
above. In the event that during the [ * ] period following the Effective Date,
Sequana makes any upgrades or bug fixes to its internal version of the TVS
Software, then Sequana shall provide to Warner, without additional charge, such
bug fixes or upgrades to the TVS Software in the form in which such upgrades are
developed; it being understood that Sequana shall have no obligation to develop
or make any such upgrades or bug fixes or any other changes to such TVS Software
or any other Software existing as of the Effective Date. The TVS Software shall
be available to Warner in object and/or source code form and shall include any
source code for tools developed for the transfer of the data to and from TVS, as
requested by Warner. Sequana shall be responsible for transferring all Research
Program data, from the instance of the TVS Software used in [ * ] to the
instance of the TVS Software which is [ * ].

        4.4 NO IMPLIED LICENSES, RESERVATION OF RIGHTS. No rights or licenses
with respect to any intellectual property owned by Sequana or Warner are granted
or shall be deemed granted hereunder or in connection herewith, other than those
rights expressly granted in Sections 4.1, 4.2 and 4.3. Sequana hereby reserves
all rights to such intellectual property, other than as expressly set forth in
Sections 4.1, 4.2 and 4.3 above, including without limitation the right to
freely use, assign, transfer, grant licenses thereunder and otherwise dispose of
such intellectual property for any purpose consistent with the terms of this
Agreement.

        4.5 IBD OPTION.

            (a) Sequana hereby grants to Warner an exclusive, non-transferable
option to acquire [ * ] (the "IBD Option"), subject to the terms and conditions
of this Section 4.5.

            (b) The IBD Option may be exercised by Warner at any time during the
period from the Effective Date through [ * ] by providing Sequana with written
notice that Warner is exercising the IBD Option. If Warner exercises the IBD
Option as described in this subsection (b), then as soon as reasonably possible
following such exercise date:

                (i) The Parties shall agree upon a reasonable mechanism and
schedule for the [ * ] in light of Sequana's need to obtain the consents and
cooperation of certain Third Parties in connection with [ * ]; and

                (ii) Sequana shall use [ * ] efforts to obtain such consents and
cooperation from third parties necessary to [ * ], and shall [ * ].

            Upon [ * ] as described in subsections (i) and (ii) above, Warner
shall pay Sequana an exercise fee of [ * ] in exchange for such [ * ], and
Sequana shall be deemed to have [ * ]. In the event Warner refuses to pay
Sequana the exercise fee (in whole or in part) because [ * ] in Warner's
reasonable judgment, Warner shall provide Sequana, upon its written request,
with a listing (in reasonable detail) of the [ * ], and the Parties shall work
cooperatively to [ * ].

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       9.
<PAGE>   11

In the event that Warner elects to [ * ], and Sequana shall have no further
obligations to Warner under this Section 4.5.

            (c) In the event that Warner does not exercise the IBD option as
described in subsection (b) above by [ * ], the IBD option shall expire, and
Sequana thereafter shall have no further obligations to Warner under this
Section 4.4.

            (d) Sequana covenants that, after the Effective Date and prior to
[ * ], it shall not [ * ]. Sequana further represents and warrants that [ * ].

5.      CONSIDERATION

        5.1 TECHNOLOGY TRANSFER FEE. In partial consideration for the rights
granted and materials transferred to Warner herein, Warner shall pay to Sequana
a non-creditable, non-refundable technology transfer fee of [ * ]. Such amount
shall be paid to Sequana [ * ]. The first such payment shall be paid [ * ], and
the second such payment shall be paid [ * ].

        5.2 FTE-BASED PAYMENTS.

             (a) With respect to the transfer of the Collaboration Assets other
than the Bioinformational Database, Warner shall pay Sequana [ * ] as
reimbursement for the work of the [ * ] FTEs described in Schedule 3.3 through
[ * ], subject to subsection (c) below. Such amount shall be Warner's sole
payment obligation with respect to the FTEs used to transfer such Collaboration
Assets, regardless of whether such FTEs continue to work to transfer such
Collaboration Assets beyond [ * ], except as provided in Section 5.2(b).

            (b) With respect to the pre-transfer preparation and transfer of the
Bioinformational Database and the TVS Software, Warner shall pay to Sequana a
monthly fee of [ * ] per FTE used for such work after [ * ] and prior to [ * ],
and Warner shall promptly reimburse Sequana for all consultants used in such
work; provided that no consultant time after [ * ] shall be paid for by Warner
unless otherwise agreed by the Parties. Sequana shall use no less than [ * ] and
no more than [ * ] FTEs and/or individual consultants at a time to effect such
transfer unless otherwise agreed in writing by Warner. Promptly after each of
[ * ], Sequana shall provide Warner with time documentation comparable to that
provided in the Research Program with respect to all such FTEs being paid for by
Warner and shall provide Warner with copies of the bills it receives from the
consultants it uses to effectuate such transfer.

            (c) If, during a particular month, a FTE ceases its activities with
respect any of the foregoing services, or a FTE is removed from the performance
of such services, then Warner shall only be responsible for the pro rata portion
of such monthly fee for such FTE with respect to such month. Sequana shall
invoice Warner monthly with respect to such FTE costs, providing reasonable
detail, and Warner shall pay such invoices within [ * ] of receipt.

        5.3 MILESTONES.

            (a) GENERAL. The Parties jointly shall be responsible for
determining in good faith when and if each of the milestone events described in
subsections (b) and (c) below has

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      10.
<PAGE>   12

occurred. In the event the Parties cannot agree whether a milestone event has
occurred after a period of thirty (30) days, the decision will be referred to
the Chief Executive Officer of Sequana and Warner's President of its Parke-Davis
Pharmaceutical Research Division for good faith resolution for a period of
thirty (30) days. In the event that such individuals are unable to resolve such
dispute during such 30 day period, subject to Section 13.1, either Party may
thereafter pursue any remedies it may have at law or in equity.

            (b) [ * ].

                (i) Within thirty (30) days of each and every occurrence of the
                milestone event set forth below (the "[ * ]"), Warner will pay
                to Sequana the indicated non-refundable, non-creditable
                milestone payment:

                    Milestone                                     Amount
                    ---------                                     ------
                      [ * ]                                        [ * ]

            (c) [ * ]. If any Disease Gene is identified prior to [ * ], then
within thirty (30) days following the occurrence of the relevant events
specified below, Warner shall pay to Sequana for a Collaboration Product which
is [ * ], the indicated non-refundable, non-creditable milestone amounts:

                    Milestones                                    Amount
                    ----------                                    ------
                      [ * ].                                       [ * ]
                      [ * ].                                       [ * ]
                      [ * ].                                       [ * ]
                      [ * ].                                       [ * ]
                      [ * ].                                       [ * ]

            In no event shall any of the milestone payments set forth in this
subsection (c) be paid more than [ * ] with respect to each of Schizophrenia and
Bipolar Disorder. The payment due under this subsection (c) shall be made with
respect to each applicable Collaboration Product; provided, however, that [ * ].

        5.4 ROYALTIES.

            (a) COLLABORATION PRODUCT ROYALTIES. In consideration of the rights
granted hereunder, Warner shall pay the following royalties to Sequana with
respect to annual aggregate Net Sales of Collaboration Products, on a
Collaboration Product-by-Collaboration Product basis:

                      [ * ]
                      [ * ]

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      11.
<PAGE>   13

            (b) COMPUTATION OF ROYALTIES. All sales of Collaboration Products
between Warner and any of its Affiliates and Sublicensees shall be disregarded
for purposes of computing Net Sales and royalties under this Section 5.4, and in
such instances royalties shall be payable only upon sales to unlicensed Third
Parties. Nothing herein contained shall obligate Warner to pay Sequana more than
one royalty payment on any unit of a Collaboration Product.

            (c) ROYALTY TERM. The obligation of Warner to pay royalties under
this Section 5.4 shall continue for each Collaboration Product on a
product-by-product and country-by-country basis, until such time as there are no
Valid Claims in such country covering such Collaboration Product.

        5.5 THIRD PARTY ROYALTIES. [ * ] shall be responsible for the payment of
any royalties, license fees and milestone and other payments due to any other
Third Party(ies) under licenses or similar agreements entered into by [ * ],
which are necessary or useful for the manufacture, use, import, or sale of
Collaboration Products.

        5.6 WITHHOLDING TAXES. Any income or other tax that Warner, its
Affiliates or Sublicensees is required to withhold and pay on behalf of Sequana
with respect to the royalties payable under this Agreement shall be deducted
from and offset against said royalties prior to remittance to Sequana; provided,
however, that in regard to any tax so deducted, Warner shall give or cause to be
given to Sequana such assistance as may reasonably be necessary to enable
Sequana to claim exemption therefrom or credit therefor, and in each case shall
furnish Sequana proper evidence of the taxes paid on its behalf.

6.      BOOKS AND RECORDS

        6.1 ROYALTY REPORTS AND PAYMENTS. The royalties due under Section 5.4
shall be paid quarterly, within sixty (60) days after the close of each calendar
quarter, or earlier, if practical, immediately following each quarterly period
in which such royalties are earned. With each such quarterly payment, Warner
shall furnish Sequana a royalty statement setting forth, on a country-by-country
and Collaboration Product-by-Collaboration Product basis, the total number of
units of each royalty bearing Collaboration Product sold hereunder for the
quarterly period for which the royalties are due. Simultaneously with the
delivery of each such report, Warner shall pay to Sequana the total royalties,
if any, due to Sequana for the period of such report. If no royalties are due,
Warner shall so report. In addition, at Sequana's request, but no more often
than once in any twelve (12) month period, Warner shall report to Sequana on a
country-by-country and Collaboration Product-by-Collaboration Product basis the
amounts of any deductions and/or adjustments to Net Sales taken by Warner
pursuant to Section 1.30 with respect to Net Sales in the preceding four (4)
calendar quarters.

        6.2 PAYMENT METHOD; LATE PAYMENTS. All amounts due Sequana hereunder
shall be paid in U.S. dollars by wire transfer in immediately available funds to
a bank account designated by Sequana. Any payments or portions thereof due
hereunder which are not paid on the date such payments are due under this
Agreement shall bear interest at a rate equal to the lesser of prime rate as
reported by the Citibank (or its successor in interest), New York, New York,
plus two percent (2%), or the maximum rate permitted by law, calculated on the
number of days such

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      12.
<PAGE>   14

payment is delinquent, compounded monthly. This Section 6.2 shall in no way
limit any other remedies, in law or equity, available to Sequana.

        6.3 CURRENCY CONVERSION. Royalties earned shall first be determined in
the currency of the country in which they are earned and then converted to its
equivalent in United States currency. The buying rates of exchange for
converting the currencies involved into the currency of the United States quoted
by Citibank (or its successor in interest) New York, New York at the close of
business on the last business day of the quarterly period in which the royalties
were earned shall be used to determine any such conversion.

        6.4 RESTRICTIONS ON PAYMENTS. The obligation to pay royalties under this
Agreement shall be waived and excused to the extent that statutes, laws, codes
or government regulations in a particular country prevent such royalty payments;
provided, however, in such event, if legally permissible, Warner shall pay the
royalties owed to Sequana by depositing such amounts in a bank account in such
country that has been designated by Sequana and promptly report such payment to
Sequana.

        6.5 RECORDS; INSPECTION. Warner and its Affiliates shall keep (and cause
its Sublicensees to keep) complete, true and accurate books of account and
records for the purpose of determining the royalty amounts payable under Section
5.4. Such books and records shall be kept reasonably accessible for at least
three (3) years following the end of the calendar quarter to which they pertain.
Such records will be open for inspection during such three (3) year period by a
representative or agent of Sequana reasonably acceptable to Warner, which
approval shall not be unreasonably withheld for the purpose of verifying the
royalty statements. Such inspections may be made no more than once each calendar
year, at reasonable times mutually agreed by Warner and Sequana. Sequana's
representative or agent will be obliged to execute a reasonable confidentiality
agreement prior to commencing any such inspection and may only disclose to
Sequana the amount of any variance or error. Sequana shall bear the costs and
expenses of inspections conducted under this Section 6.5, unless a variation or
error producing an underpayment in royalties payable exceeding [ * ] of the
amount payable for any inspection period is established in the course of any
such inspection, whereupon all costs relating to the inspection and any unpaid
amounts that are discovered will be paid by Warner, together with interest on
such unpaid amounts at the rate specified in Section 6.2 above.

7.      COMMERCIALIZATION

        7.1 PRODUCT DEVELOPMENT. Warner shall be responsible for all costs of
conducting and shall have the sole and exclusive right to conduct, in its sole
discretion, such development of Collaboration Product(s) as Warner may choose to
do, including, without limitation, conducting clinical trials, under its own
IND, and paying for all expenses incurred by it in conducting clinical trials
for such Collaboration Products. In addition, Warner shall be responsible, at
its sole expense, for all commercialization of and shall have the sole and
exclusive right to conduct, in its sole discretion, commercialization of such
Collaboration Products throughout the world as Warner may choose to do. [ * ]

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      13.
<PAGE>   15

8.      REPRESENTATIONS AND WARRANTIES

        8.1 LEGAL AUTHORITY. Each Party represents and warrants to the other
that it has the legal power, authority and right to enter into this Agreement
and to perform its respective obligations set forth herein.

        8.2 NO CONFLICTS. Each Party represents and warrants that as of the
Effective Date it is not a party to any agreement or arrangement with any Third
Party or under any obligation or restriction, including pursuant to its
Certificate of Incorporation or Bylaws, which in any way limits or conflicts
with its ability to fulfill any of its obligations under this Agreement, and
shall not enter into any such agreement during the term of this Agreement.

        8.3 SEQUANA REPRESENTATIONS. Sequana represents and warrants to Warner
as follows:

            (a) From the Collaboration Effective Date, Sequana [ * ]; and

            (b) As of the Effective Date, Sequana Controls the Sequana Software.

        8.4 DISCLAIMER OF WARRANTIES. Sequana and Warner each specifically
disclaim that the research and development of Collaboration Products will be
successful, in whole or part. SEQUANA AND WARNER EXPRESSLY DISCLAIM ANY
WARRANTIES OR CONDITIONS, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT
TO THE BACKGROUND TECHNOLOGY, COLLABORATION TECHNOLOGY OR COLLABORATION
COMPOUNDS INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF ANY BACKGROUND TECHNOLOGY,
COLLABORATION TECHNOLOGY, PATENTED OR UNPATENTED, OR NON-INFRINGEMENT OF THE
INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.

9.      CONFIDENTIALITY

        9.1 CONFIDENTIAL INFORMATION. Except as expressly provided herein, the
Parties agree that the receiving Party shall keep completely confidential and
shall not publish or otherwise disclose and shall not use for any purpose except
for the purposes contemplated by this Agreement: (a) in the case where Warner is
the receiving Party, any Sequana Background Technology, or any other data,
samples, technical and economic information (including the economic terms
hereof), commercialization, clinical and research strategies and know-how and
other information provided to Warner by Sequana (Sequana in such case to be the
"Disclosing Party") in connection with either this Agreement or the
Collaboration Agreement, other than the Collaboration Technology and the IBD
Technology transferred to Warner pursuant hereto; and (b) in the case where
Sequana is the receiving party, any Collaboration Technology and all other data,
results and information developed pursuant to the Research Program or the
Continued Research Program and solely owned by Warner, and any other data,
samples, technical and economic information (including the economic terms
hereof), commercialization, clinical and research strategies and know-how and
other information provided to Sequana by Warner (Warner in such case to be the
"Disclosing Party") in connection with either this Agreement or

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      14.
<PAGE>   16

the Collaboration Agreement ((a) and (b) collectively, the "Confidential
Information"). Notwithstanding the preceding sentence, the Parties agree that
all confidential or proprietary information pertaining to the Research Program
and assigned to Warner hereunder shall be deemed to be Warner's Confidential
Information for purposes of this Agreement. "Confidential Information" shall not
include:

                (i) information that is or becomes part of the public domain
through no wrongful act of the non-Disclosing Party or its Affiliates; and

                (ii) information that is obtained after the date hereof by the
non-Disclosing Party or one of its Affiliates from any Third Party which is
lawfully in possession of such Confidential Information and not in violation of
any contractual or legal obligation to the Disclosing Party with respect to such
Confidential Information;

                (iii) information that is known to the non-Disclosing Party or
one or more of its Affiliates prior to disclosure by the Disclosing Party, as
evidenced by the non-Disclosing Party's written records; and

                (iv) information that is necessary to be disclosed to any
governmental authorities or pursuant to any regulatory filings, but only to the
limited extent and for the sole purpose of such legally required disclosure, and
provided that (A) the non-Disclosing Party notifies the Disclosing Party
reasonably in advance so that the Disclosing Party may seek a protective order
for such Confidential Information, and (B) the non-Disclosing Party cooperates
fully with the Disclosing Party in such efforts; or

                (v) information which has been independently developed by the
non-Disclosing Party without the aid or use of any Confidential Information.

        9.2 PERMITTED DISCLOSURES. Confidential Information may be disclosed to
employees, agents, consultants, sublicensees or suppliers of the non-Disclosing
Party or its Affiliates, but only to the extent reasonably required to
accomplish the purposes of this Agreement and only if the non-Disclosing Party
obtains prior written agreement from its employees, agents, consultants,
sublicensees or suppliers to whom disclosure is to be made to hold in confidence
and not make use of such information for any purpose other than those permitted
by this Agreement. Each Party will use at least the same standard of care as it
uses to protect proprietary or confidential information of its own to ensure
that such employees, agents, consultants, sublicensees or suppliers do not
disclose or make any unauthorized use of the Confidential Information.
Notwithstanding any other provision of this Agreement, each Party may disclose
the terms of this Agreement to prospective lenders, investment bankers and other
financial institutions of its choice solely for purposes of financing the
business operations of such Party either (a) upon the written consent of the
other Party or (b) if the disclosing Party obtains a signed confidentiality
agreement with such entity or financial institution with respect to such
information, upon terms substantially similar to those contained in this Article
9.

        9.3 PUBLICITY. All publicity, press releases and other announcements
relating to this Agreement or the modifications to the Collaboration Agreement
contemplated hereby shall be reviewed in advance by, and shall be subject to the
approval of, both Parties; provided, however,

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      15.
<PAGE>   17

that either Party may (a) publicize the existence and general subject matter of
this Agreement without the other Party's approval, and (b) disclose the terms of
this Agreement only to the extent required to comply with applicable securities
laws, and in the case of (b), the non-Disclosing Party shall have the right to
review and comment on such disclosure prior to its submission, where
practicable. Once a particular disclosure described in (a) has been approved for
disclosure, either Party may make disclosures which do not differ materially
therefrom without any need for further consents. Notwithstanding the foregoing,
Warner shall have an unrestricted right to publish any information regarding the
status or results of the Continued Research Program or other activities
regarding development and/or commercialization of any and all Collaboration
Products, provided that Warner shall not disclose any of Sequana's Confidential
Information.

        9.4 TERM OF CONFIDENTIALITY. All obligations of confidentiality and
non-use imposed upon the Parties under this Agreement shall continue
indefinitely until such time as the information that is subject to such
obligations no longer comprises Confidential Information under one of the
exceptions set forth in Section 9.1.

10.     RELEASE OF CLAIMS

        10.1 MUTUAL RELEASE.

            (a) Effective upon the Sequana Research Termination Date, Warner
hereby forever generally and completely releases and discharges Sequana and its
servants, agents, directors, officers and employees, of and from any and all
claims and demands of every kind and nature, in law, equity or otherwise, known
and unknown, suspected and unsuspected, disclosed and undisclosed, and in
particular, of and from all claims and demands of every kind and nature, known
and unknown, suspected and unsuspected, disclosed and undisclosed, for damages
actual and consequential, past, present and future, arising out of or in any way
related to the Parties' respective obligations, activities and/or dealings with
one another pursuant to the Collaboration Agreement prior to such date, but
excluding from the foregoing (i) any claims or demands arising out of or in any
way related to claims for breach of those provisions of the Collaboration
Agreement relating to (1) obligations of confidentiality, (2) limitations on use
of the Background Technology (as defined in the Collaboration Agreement) or of
the Collaboration Technology (as defined in the Collaboration Agreement) or (3)
the provisions contained in Sections 2.6 and 4.6, the second sentence of Section
15.7 or the second sentence of Section 15.12 of the Collaboration Agreement; or
(ii) claims asserted by Third Parties, including claims by Warner arising out of
claims asserted by Third Parties.

            (b) Effective upon the Sequana Research Termination Date, Sequana
hereby forever generally and completely releases and discharges Warner and its
servants, agents, directors, officers and employees, of and from any and all
claims and demands of every kind and nature, in law, equity or otherwise, known
and unknown, suspected and unsuspected, disclosed and undisclosed, and in
particular of and from all claims and demands of every kind and nature, known
and unknown, suspected and unsuspected, disclosed and undisclosed, for damages
actual and consequential, past, present and future, arising out of or in any way
related to the Parties' respective obligations, activities and/or dealings with
one another pursuant to the Collaboration Agreement prior to such date, but
excluding from the foregoing any claims or demands arising

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      16.
<PAGE>   18

out of or in any way related to: (i) any claims or demands arising out of or in
any way related to claims for breach of those provisions of the Collaboration
Agreement relating to (1) obligations of confidentiality, (2) limitations on use
of the Background Technology (as defined in the Collaboration Agreement) or of
the Collaboration Technology (as defined in the Collaboration Agreement) or (3)
the provisions contained in Sections 2.6 and 4.6, the second sentence of Section
15.7 or the second sentence of Section 15.12 of the Collaboration Agreement;
(ii) any claims asserted by Third Parties, including claims by Sequana arising
out of claims asserted by Third Parties; (iii) all payments due to Sequana under
Section 5.3 of the Collaboration Agreement up to and including the Sequana
Research Termination Date; and (iv) all patient sample collection reimbursement
payments due to Sequana pursuant to Section 2.2.2 of the Collaboration Agreement
prior to the effective date that each applicable patient sample collection
agreement is assigned to Warner pursuant to Section 3.4 of this Agreement.

            (c) It is understood and agreed that the release set forth in
subsection (a) above, in the case of Warner, and subsection (b) above, in the
case of Sequana, is a full, complete and final general release of any and all
claims described as aforesaid, and each Party agrees that such release shall
apply to all unknown, unanticipated, unsuspected and undisclosed claims,
demands, liabilities, actions or causes of action, in law, equity or otherwise,
as well as those which are now known, anticipated, suspected or disclosed.

            (d) Each Party has been fully advised by its respective attorney of
the contents of section 1542 of the Civil Code of the State of California, and
that section and the benefits thereof, and of any equivalent law or rule in any
other applicable jurisdiction, are hereby expressly waived. Section 1542 reads
as follows:

               "Section 1542. (General Release - Claims Extinguished.) A general
        release does not extend to claims which the creditor does not know or
        suspect to exist in his favor at the time of executing the release,
        which if known by him must have materially affected his settlement with
        the debtor."

        10.2 PERIOD OF EFFECTIVENESS. For the avoidance of doubt, the Parties
acknowledge and agree that the releases set forth in Section 10.1 above are
effective only as to claims, demands, liabilities, actions or causes of action,
in law, equity or otherwise, whenever made, arising out of or related to the
activities of the Parties pursuant to the Collaboration Agreement prior to the
Sequana Research Termination Date, and shall be of no force and effect with
respect to any other claims, demands, liabilities, actions or causes of action,
in law, equity or otherwise, including without limitation those arising out of
or in any way related to this Agreement.

11.     INDEMNIFICATION

        11.1 WARNER. Warner hereby agrees to defend, indemnify and hold harmless
Sequana and its Affiliates and their respective employees, agents, officers,
directors and permitted assigns (each a "Sequana Indemnitee") from and against
any claims by a Third Party resulting in any liabilities, damages, settlements,
claims, actions, suits, penalties, fines, costs or expenses incurred (including,
without limitation, reasonable attorneys' fees and other expenses of litigation)
(any of the foregoing, a "Claim") arising out of or resulting from (a)
negligence or willful misconduct by Warner; (b) a breach of any of the
representations or warranties of Warner

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      17.
<PAGE>   19

under this Agreement; or (c) the research and development, manufacture, use,
promotion, marketing, sale or other distribution of any Collaboration Product,
or any use or disposition of the Collaboration Technology, by Warner or its
Affiliates or Sublicensees, except, in each case, to the extent that such Claim
arises out of or results from the negligence or willful misconduct of any
Sequana Indemnitee.

        11.2 SEQUANA. Sequana agrees to defend, indemnify and hold harmless
Warner and its Affiliates and their respective employees, agents, officers,
directors and permitted assigns (each a "Warner Indemnitee") from and against
any claims by a Third Party resulting in any liabilities, damages, settlements,
claims, actions, suits, penalties, fines, costs or expenses incurred (including,
without limitation, reasonable attorneys' fees and other expenses of litigation)
(any of the foregoing, a "Claim") arising out of or resulting from (a) the
negligence or willful misconduct of Sequana, or (b) a breach of any of the
representations or warranties of Sequana under this Agreement, (c) Sequana's
conduct of the Research Program prior to the Sequana Research Termination Date,
except, in each case, to the extent that such Claim arises out of or results
from the negligence or willful misconduct of any Warner Indemnitee.

        11.3 PROCEDURE. A Party or person (the "Indemnitee") that intends to
claim indemnification under this Article 11 shall promptly notify the other
Party (the "Indemnitor") in writing of any loss, claim, damage, liability or
action in respect of which the Indemnitee or any of its Affiliates, or their
directors, officers, employees, agents or counsel intend to claim such
indemnification, and the Indemnitor shall have the right to participate in, and,
to the extent the Indemnitor so desires, to assume sole control over the defense
and settlement thereof with counsel chosen by Indemnitor, with consent of
Indemnitee, which consent shall not be unreasonably withheld. The failure to
deliver written notice to the Indemnitor within a reasonable time after the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such Indemnitor of any liability to the Indemnitee under
this Article 11. At the Indemnitor's request, the Indemnitee under this Article
11, and its employees and agents, shall cooperate fully with the Indemnitor and
its legal representatives in the investigation and defense of any action, claim
or liability covered by this indemnification and provide full information with
respect thereto.

12.     TERM AND TERMINATION

        12.1 TERM. This Agreement shall be effective as of the Effective Date
and, unless otherwise terminated earlier pursuant to the other provisions of
this Article 12, shall continue in full force and effect on a Collaboration
Product-by-Collaboration Product and country-by-country basis until the date
that neither Warner nor its Affiliates or Sublicensees has any remaining royalty
obligations to Sequana in such country under this Agreement.

        12.2 TERMINATION FOR CAUSE. Either Party may terminate this Agreement in
the event the other Party has materially breached or defaulted in the
performance of any of its obligations hereunder, and such default has continued
for sixty (60) days after written notice thereof was provided to the breaching
Party by the nonbreaching Party, or if a cure of such default cannot reasonably
be effected within such sixty (60) day period, the defaulting Party has failed
to deliver within such period a plan for curing such breach or default which is
reasonably sufficient to effect a cure. Any termination shall become effective
at the end of such sixty (60) day period

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      18.
<PAGE>   20

unless the breaching Party has cured any such breach or default prior to the
expiration of the sixty (60) day period, or has delivered to the other Party a
plan for curing such breach which is reasonably acceptable to the other Party.
Notwithstanding the above, in the case of a failure to pay any amount due
hereunder, the period for cure of any such default following notice thereof
shall be ten (10) days and, unless payment is made within such ten day period,
the termination shall become effective at the end of such period.

        12.3 EFFECT OF TERMINATION.

            (a) ACCRUED RIGHTS AND OBLIGATIONS. Termination of this Agreement
for any reason shall not release any Party hereto from any liability which, at
the time of such termination, has already accrued to the other Party or which is
attributable to a period prior to such termination, nor preclude either Party
from pursuing any rights and remedies it may have hereunder or at law or in
equity which accrued or are based upon any event occurring prior to such
termination.

            (b) RETURN OF CONFIDENTIAL INFORMATION. Upon any termination of this
Agreement, Warner and Sequana shall promptly return to the other Party all
Confidential Information received from the other Party (except one copy of which
may be retained by legal counsel solely for purposes of monitoring compliance
with the provisions of Article 9 and archival purposes).

            (c) LICENSES. In the event of any termination of this Agreement by
Sequana pursuant to Section 12.2, the licenses granted Warner in Article 4 shall
terminate concurrently.

        12.4 SURVIVAL. Sections 6.5, 12.3 and 12.4 and Articles 7, 8, 9, 10, 11,
13 and 14 shall survive the expiration or termination of this Agreement for any
reason.

13.     DISPUTE RESOLUTION

        13.1 MEDIATION. If a dispute arises out of or relates to this Agreement,
or the breach thereof, and if said dispute cannot be settled through
negotiation, the Parties agree first to try in good faith to settle the dispute
by mediation under the Commercial Mediation Rules of the American Arbitration
Association, before resorting to arbitration, litigation, or some other dispute
resolution procedure.

        13.2 VENUE. The exclusive venue of any dispute arising out of or in
connection with the performance of or any breach of this Agreement, shall be the
state courts or U.S. District Court located in or for Sequana's principal place
of business, and the Parties hereby irrevocably consent to the personal
jurisdiction of such courts.

14.     MISCELLANEOUS

        14.1 GOVERNING LAW. This Agreement and any dispute arising from the
performance or any breach hereof shall be governed by and construed in
accordance with the laws of the State of New York, as such laws are applied to
agreements entered into between residents of, and to be performed entirely
within, the State of New York.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      19.
<PAGE>   21

        14.2 WAIVER. No failure on the part of Sequana or Warner to exercise and
no delay in exercising any right under this Agreement, or provided by statute or
at law or in equity or otherwise, shall impair, prejudice or constitute a waiver
of any such right, nor shall any partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other right.

        14.3 ASSIGNMENT. This Agreement may not be assigned by either Party to
any Third Party hereto without the written consent of the other Party hereto;
except either Party may assign this Agreement, without such consent, to (a) an
Affiliate of such Party; or (b) an entity that acquires all or substantially all
of the business or assets of such Party (or with respect to Warner, all of
Warner's pharmaceutical research and development business or assets) to which
this Agreement pertains, whether by merger, reorganization, acquisition, sale,
or otherwise. The terms and conditions of this Agreement shall be binding on and
inure to the benefit of the permitted successors and assigns of the Parties. Any
assignment not in conformance with this Section 14.3 shall be null, void and of
no legal effect.

        14.4 NOTICES. All notices, requests and other communications hereunder
shall be in writing and shall be personally delivered or sent by nationally
recognized overnight express delivery service, registered or certified mail,
return receipt requested, postage prepaid, in each case to the respective
address specified below, or such other address as may be specified in writing to
the other Parties hereto:

               Warner:       Warner-Lambert Company
                             2800 Plymouth Road
                             Ann Arbor, Michigan 48105
                             Attn:  President
                                    Parke-Davis Pharmaceutical Research

                             with a copy to:

                             Warner-Lambert Company
                             201 Tabor Road
                             Morris Plains, New Jersey 07950
                             Attn: Vice President, General Counsel

               Sequana:      Axys Pharmaceuticals, Inc.
                             180 Kimball Way
                             South San Francisco, Ca 94086
                             Attn: Chief Executive Officer

                             with a copy to: Legal Department

        14.5 FORCE MAJEURE. Neither Party shall be liable to the other for
failure or delay in the performance of any of its obligations under this
Agreement for the time and to the extent such failure or delay is caused by
earthquake, riot, civil commotion, war, hostilities between nations,
governmental law, order or regulation, embargo, action by the government or any
agency thereof, act of God, storm, fire, accident, labor dispute or strike,
sabotage, explosion or

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      20.
<PAGE>   22

other similar or different contingencies, in each case, beyond the reasonable
control of the respective Party. The Party affected by force majeure shall
provide the other Party with full particulars thereof as soon as it becomes
aware of the same (including its best estimate of the likely extent and duration
of the interference with its activities), and will use its best endeavors to
overcome the difficulties created thereby and to resume performance of its
obligations as soon as practicable. If the performance of any obligation under
this Agreement is delayed owing to a force majeure for any continuous period of
more than six (6) months, the Parties hereto shall consult with respect to an
equitable solution, including the possible termination of this Agreement.

        14.6 INDEPENDENT CONTRACTORS. It is understood that both Parties hereto
are independent contractors and are engaged in the operation of their own
respective businesses, and neither Party hereto is to be considered the agent or
partner of the other Party for any purpose whatsoever. Neither Party has any
authority to enter into any contracts or assume any obligations for the other
Party or make any warranties or representations on behalf of the other Party.
Sequana acknowledges that neither it nor any of its employees are employees of
Warner or members of any of its benefit plans and that neither it nor any of its
employees are eligible to participate in any such benefit plans even if it is
later determined that its or any of its employees' status during the period of
this Agreement was that of an employee of Warner. In addition, Sequana waives
any claim that it may have under the terms of any such benefit plans or under
any law for participation in or benefits under any of Warner's benefit plans.

        14.7 ADVICE OF COUNSEL. Sequana and Warner have each consulted counsel
of their choice regarding this Agreement, and each acknowledges and agrees that
this Agreement shall not be deemed to have been drafted by one Party or another
and will be construed accordingly.

        14.8 SEVERABILITY. In the event that any provisions of this Agreement
are determined to be invalid or unenforceable by a court of competent
jurisdiction, the remainder of the Agreement shall remain in full force and
effect without said provision. The Parties shall in good faith negotiate a
substitute clause for any provision declared invalid or unenforceable, which
shall most nearly approximate the intent of the Parties in entering this
Agreement.

        14.9 COMPLIANCE WITH LAWS. Each Party shall furnish to the other Party
any information requested or required by that Party during the term of this
Agreement to enable that Party to comply with the requirements of any U.S. or
foreign federal, state and/or government agency. Each Party shall comply with
all applicable U.S., foreign, state, regional and local laws, rules and
regulations relating to its activities to be performed pursuant to this
Agreement, including without limitation, the United States Foreign Corrupt
Practices Act, United States export regulations and such other United States and
foreign laws and regulations as may be applicable, and shall obtain all
necessary approvals, consents and permits required by the applicable agencies of
the government of the United States and foreign jurisdictions.

        14.10 NO IMPLIED LICENSES OR WARRANTIES. No right or license under any
patent application, issued patent, know-how or other proprietary information is
granted or shall be granted by implication. All such rights or licenses are or
shall be granted only as expressly provided in the terms of this Agreement.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      21.
<PAGE>   23

        14.11 ENTIRE AGREEMENT. This Agreement together with the attached
Schedules entered by the Parties of even date herewith, constitute the entire
agreement, both written or oral, with respect to the subject matter hereof, and
supersede all prior or contemporaneous understandings or agreements, whether
written or oral, between Warner and Sequana with respect to such subject matter.

        14.12 HEADINGS. The captions to the several Sections and Articles hereof
are not a part of this Agreement, but are included merely for convenience of
reference only and shall not affect its meaning or interpretation.

        14.13 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and which together shall
constitute one instrument.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      22.
<PAGE>   24

        IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed by their authorized representatives as of the Effective Date.

WARNER-LAMBERT COMPANY                        SEQUANA THERAPEUTICS, INC.

By: /s/ Peter B. Corr                         By:/s/ Daniel H. Petree
    ------------------------------------         ------------------------------
Name:    Peter B. Corr                        Name:       Daniel H. Petree
      ----------------------------------           ----------------------------
Title:   President, R&D Corporate V.P.        Title:      President & CEO
       ---------------------------------             --------------------------

[ * ]

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

<PAGE>   25

                                  SCHEDULE 1.10

                              COLLABORATION ASSETS

1.            [ * ]

2.     [ * ]

3.     [ * ]

4.     [ * ]

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

<PAGE>   26

                                SCHEDULE 1.11(a)
                                    EQUIPMENT

1.      [ * ]

2.      [ * ]

3.      [ * ]

4.      [ * ]

5.      [ * ]

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

<PAGE>   27

[ * ]

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

<PAGE>   28

                                  SCHEDULE 1.26

                                 IBD TECHNOLOGY

1.    [ * ]

           2.     [ * ]

[ * ]

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

<PAGE>   29

                                  SCHEDULE 1.37
                                SEQUANA SOFTWARE

Software includes: the applications, source code (except as noted) and code
libraries used to analyze data from the Research Program, all applicable
documentation (as available), training materials (as available), and where
possible Y2K compliance / testing information, as specifically described below.
For Perl applications and apple scripts there is no object code. "*" designates
that the source code is unavailable.

    [ * ]

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      B-2.

<PAGE>   30

                                  SCHEDULE 3.3

                                      FTEs

[ * ]

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      B-3.<PAGE>   1
                                                                  EXHIBIT 10.121

                         EXECUTIVE EMPLOYMENT AGREEMENT

        This Executive Employment Agreement ("Agreement") is entered into as of
the 14th day of December, 1999 (the "Effective Date"), by and between William J.
Newell ("Executive") and Axys Pharmaceuticals, Inc. (the "Company").

        WHEREAS, the Company desires to continue to employ Executive to provide
personal services to the Company, and wishes to provide Executive with certain
compensation and benefits in return for Executive's services; and

        WHEREAS, Executive wishes to continue to be employed by the Company and
provide personal services to the Company in return for certain compensation and
benefits;

        NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:

                                    ARTICLE I
                                   DEFINITIONS

        For purposes of the Agreement, the following terms are defined as
follows:

1.1         "BOARD" means the Board of Directors of the Company.

1.2         "CAUSE" means:

            (a) Executive's intentional action or intentional failure to act
that was performed in bad faith and to the material detriment of the business of
the Company;

            (b) Executive's intentional refusal or intentional failure to act in
accordance with any lawful and proper direction or order of the Board or the
appropriate individual to whom Executive reports;

            (c) Executive's willful and habitual neglect of Executive's duties
of employment;

            (d) Executive's violation of any noncompetition or noninterference
agreement that Executive has entered into with the Company; or

            (e) Executive's conviction of a felony crime involving moral
turpitude;

provided, however, that if any of the foregoing events under clauses (a), (b),
(c) or (d) above is capable of being cured, the Company shall provide written
notice to Executive describing the nature of such event and Executive shall
thereafter have ten (10) business days to cure such event.

                                       1.
<PAGE>   2

1.3         "CHANGE IN CONTROL" means the occurrence of any of the following
events:

            (a) a dissolution, liquidation or sale of all or substantially all
of the assets of the Company;

            (b) a merger or consolidation in which the Company is not the
surviving corporation;

            (c) a reverse merger in which the Company is the surviving
corporation but shares outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise; or

            (d) the acquisition by any person, entity or group within the
meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors.

1.4         "COMPANY" means Axys Pharmaceuticals, Inc. or, following a Change in
Control, the surviving entity resulting from such transaction.

1.5         "COVERED TERMINATION" means (i) an Involuntary Termination Without
Cause that occurs at any time, without regard to a Change in Control, or (ii) a
voluntary termination for Good Reason that occurs on or after the effective date
of a Change in Control.

1.6         "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

1.7         "GOOD REASON" means that any of the following are undertaken without
Executive's express written consent:

            (a) the assignment to Executive of any duties or responsibilities
that results in any diminution or adverse change of Executive's position,
status, circumstances of employment or scope of responsibilities;

            (b) a reduction by the Company in Executive's annual base salary as
in effect on the effective date of the Change in Control;

            (c) the taking of any action by the Company that would adversely
affect Executive's participation in, or reduce Executive's benefits under, the
Company's benefit plans (including equity benefits) as of the effective date of
the Change in Control, except to the extent the benefits of all other executives
of the Company are similarly reduced;

            (d) a relocation of Executive's principal office to a location more
than forty (40) miles from the location at which Executive was performing
Executive's duties as

                                       2.
<PAGE>   3

of the effective date of the Change in Control, except for required travel by
Executive on the Company's business;

            (e) any material breach by the Company of any provision of this
Agreement; or

            (f) any failure by the Company to obtain the assumption of this
Agreement by any successor or assign of the Company.

1.8         "INVOLUNTARY TERMINATION WITHOUT CAUSE" means Executive's dismissal
or discharge other than for Cause. The termination of Executive's employment as
a result of Executive's death or disability will not be deemed to be an
Involuntary Termination Without Cause.

                                   ARTICLE II
                            EMPLOYMENT BY THE COMPANY

2.1 POSITION AND DUTIES. Subject to terms set forth herein, the Company agrees
to continue to employ Executive in the position of Senior Vice President,
Corporate and Business Development and General Counsel and Executive hereby
accepts such continued employment. Executive shall serve in an executive
capacity and shall perform such duties as are customarily associated with the
position of Senior Vice President, Corporate and Business Development and
General Counsel and such other duties as are assigned to Executive by the
Company's Chief Executive Officer. Executive will report to the Chief Executive
Officer. During the term of Executive's employment with the Company, Executive
will devote Executive's best efforts and substantially all of Executive's
business time and attention (except for vacation periods as set forth herein and
reasonable periods of illness or other incapacities permitted by the Company's
general employment policies or as otherwise set forth in this Agreement) to the
business of the Company.

2.2 EMPLOYMENT AT WILL. Both the Company and Executive shall have the right to
terminate Executive's employment with the Company at any time, with or without
Cause, and without prior notice. If Executive's employment with the Company is
terminated, Executive will be eligible to receive severance benefits to the
extent provided in this Agreement.

2.3 EMPLOYMENT POLICIES. The employment relationship between the parties shall
also be governed by the general employment policies and practices of the
Company, including those relating to protection of confidential information and
assignment of inventions, except that when the terms of this Agreement differ
from or are in conflict with the Company's general employment policies or
practices, this Agreement shall control.

                                       3.
<PAGE>   4

                                   ARTICLE III
                                  COMPENSATION

3.1 BASE SALARY. Executive shall receive for services to be rendered hereunder
an annual base salary of $243,000.00, payable on the regular payroll dates of
the Company, subject to increase in the sole discretion of the Board of
Directors.

3.2 BONUS. Executive shall be eligible for a discretionary bonus, in an amount
to be determined solely by the Company, in its discretion.

3.3 STANDARD COMPANY BENEFITS. Executive shall be entitled to all rights and
benefits for which Executive is eligible under the terms and conditions of the
standard Company benefits and compensation practices that may be in effect from
time to time and are provided by the Company to its executive employees
generally.

3.4 COMPENSATORY STOCK AWARD. At the Board's meeting on the date hereof, the
Board granted Executive an option to acquire seventy-five thousand (75,000)
shares of the common stock of the Company (the "Option"). The Option has been
granted pursuant to the Company's 1997 Equity Incentive Plan. The Option is an
incentive stock option for purposes of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), to the extent permitted under the Code. The
exercise price per share of the Option will be equal to one hundred percent
(100%) of the fair market value of the Company's common stock, as determined
pursuant to the Company's 1997 Equity Incentive Plan, on the date of grant.
Subject to Executive's continued employment by the Company, the Option vests as
to one-forty-eighth (1/48) of the shares of common stock subject to the Option
each calendar month for forty-eight (48) months, counted from the Option's date
of grant. In all other respects, the Option is to be governed by the terms of
the Plan, including the option agreement and grant notice thereunder.

                                   ARTICLE IV
                    SEVERANCE AND CHANGE IN CONTROL BENEFITS

4.1 SEVERANCE BENEFITS. If Executive's employment terminates due to a Covered
Termination after the date of execution of this Agreement, Executive shall
receive any annual base salary and bonus compensation that has accrued but is
unpaid as of the date of such Covered Termination. Within thirty (30) days
following the date on which the Release described in Section 4.4 below becomes
effective in accordance with its terms, Executive shall also receive a lump sum
payment equal to one hundred percent (100%) of Executive's annual base salary as
in effect during the last regularly scheduled payroll period immediately
preceding the Covered Termination, all of the foregoing subject to applicable
tax withholding. In addition, following a Covered Termination, Executive and
Executive's covered dependents shall be eligible to continue their health care
benefit coverage as permitted by COBRA (Internal Revenue Code Section 4980B) at
the same cost to Executive as in effect immediately prior to the Covered
Termination for the one (l)-year period following the Covered Termination.
Executive shall be entitled to maintain

                                       4.
<PAGE>   5

coverage for Executive and Executive's eligible dependents at Executive's own
expense for the balance of the period that Executive is entitled to coverage
under COBRA.

4.2 ACCELERATION OF VESTING OF OUTSTANDING OPTIONS.

            (a) If Executive's employment with the Company terminates due to a
Covered Termination within thirteen (13) months following the effective date of
a Change in Control, then the Option to purchase the Company's common stock
granted to Executive pursuant to Section 3.3 above shall become immediately
fully vested and exercisable as of the date of such Covered Termination.

            (b) Notwithstanding (a) above, if Executive's employment terminates
in connection with a Change in Control that is a transaction that is accounted
for as a pooling of interests for financial accounting purposes, then no portion
of Executive's Option shall accelerate unless the Company receives reasonable
assurances from its independent public accountants (and from the acquiring
party's independent public accountants) that in their good faith judgment such
acceleration will not affect the pooling of interests accounting treatment of
such Change in Control transaction.

        4.3 PARACHUTE PAYMENTS. If any payment or benefit Executive would
receive in connection with a Change in Control from the Company or otherwise
("Payment") would (i) constitute a "parachute payment" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and
(ii) but for this sentence, be subject to the excise tax imposed by Section 4999
of the Code (the "Excise Tax"), then such Payment shall be reduced to the
Reduced Amount. The "Reduced Amount" shall be either (x) the largest portion of
the Payment that would result in no portion of the Payment being subject to the
Excise Tax or (y) the largest portion, up to and including the total, of the
Payment, whichever amount, after taking into account all applicable federal,
state and local employment taxes, income taxes, and the Excise Tax (all computed
at the highest applicable marginal rate), results in Executive's receipt, on an
after-tax basis, of the greater amount of the Payment notwithstanding that all
or some portion of the Payment may be subject to the Excise Tax. If a reduction
in payments or benefits constituting "parachute payments" is necessary so that
the Payment equals the Reduced Amount, reduction shall occur in the following
order unless Executive elects in writing a different order (provided, however,
that such election shall be subject to Company approval if made on or after the
effective date of the Change in Control): reduction of cash payments;
cancellation of accelerated vesting of stock awards; reduction of employee
benefits. In the event that acceleration of vesting of stock award compensation
is to be reduced, such acceleration of vesting shall be cancelled in the reverse
order of the date of grant of Executive's stock awards unless Executive elects
in writing a different order for cancellation.

        The accounting firm engaged by the Company for general audit purposes as
of the day prior to the effective date of the Change in Control shall perform
the foregoing calculations. If the accounting firm so engaged by the Company is
serving as accountant or auditor for the individual, entity or group effecting
the Change in Control, the Company shall appoint a nationally recognized
accounting firm to make the determinations required

                                       5.
<PAGE>   6

hereunder. The Company shall bear all expenses with respect to the
determinations by such accounting firm required to be made hereunder.

        The accounting firm engaged to make the determinations hereunder shall
provide its calculations, together with detailed supporting documentation, to
the Company and Executive within fifteen (15) calendar days after the date on
which Executive's right to a Payment is triggered (if requested at that time by
the Company or Executive) or such other time as requested by the Company or
Executive. If the accounting firm determines that no Excise Tax is payable with
respect to a Payment, either before or after the application of the Reduced
Amount, it shall furnish the Company and Executive with an opinion reasonably
acceptable to Executive that no Excise Tax will be imposed with respect to such
Payment. Any good faith determinations of the accounting firm made hereunder
shall be final, binding and conclusive upon the Company and Executive.

4.4 RELEASE. Upon the occurrence of a Covered Termination, and prior to the
receipt of any benefits under Section 4.1 (except pursuant to the first sentence
thereof) and Section 4.2 on account of the occurrence of such Covered
Termination, Executive shall execute a Release (the "Release") in the form
attached hereto as Exhibit A or Exhibit B, as appropriate. Such Release shall
specifically relate to all of Executive's rights and claims in existence at the
time of such execution and shall confirm Executive's obligations under the
Company's standard form of proprietary information agreement. It is understood
that Executive has a certain period to consider whether to execute such Release,
and Executive may revoke such Release within seven (7) business days after
execution. In the event Executive does not execute such Release within the
applicable period, or if Executive revokes such Release within the subsequent
seven (7) business day period, none of the aforesaid benefits shall be payable
under this Agreement and this Agreement shall be null and void.

4.5 MITIGATION. Executive shall not be required to mitigate damages or the
amount of any payment provided under this Agreement by seeking other employment
or otherwise, nor shall the amount of any payment provided for under this
Agreement be reduced by any compensation earned by Executive as a result of
employment by another employer or by any retirement benefits received by
Executive after the date of the Covered Termination, or otherwise.

                                    ARTICLE V
                       PROPRIETARY INFORMATION OBLIGATIONS

5.1 AGREEMENT. Executive agrees to execute and abide by the Proprietary
Information and Inventions Agreement attached hereto as Exhibit C.

5.2 REMEDIES. Executive's duties under the Proprietary Information and
Inventions Agreement shall survive termination of Executive's employment with
the Company and the termination of this Agreement. Executive acknowledges that a
remedy at law for any breach or threatened breach by Executive of the provisions
of the Proprietary Information and Inventions Agreement would be inadequate, and
Executive therefore agrees that the

                                       6.
<PAGE>   7

Company shall be entitled to injunctive relief in case of any such breach or
threatened breach.

                                   ARTICLE VI
                               OUTSIDE ACTIVITIES

6.1 Except with the prior written consent of the Board, Executive shall not
during the term of this Agreement undertake or engage in any other employment,
occupation or business enterprise, other than ones in which Executive is a
passive investor. Executive may engage in civic and not-for-profit activities so
long as such activities do not materially interfere with the performance of
Executive's duties hereunder.

6.2 During the term of Executive's employment by the Company, except on behalf
of the Company, Executive shall not directly or indirectly, whether as an
officer, director, stockholder, partner, proprietor, associate, representative,
consultant, or in any capacity whatsoever engage in, become financially
interested in, be employed by or have any business connection with any other
person, corporation, firm, partnership or other entity whatsoever which were
known by Executive to compete directly with the Company, throughout the world,
in any line of business engaged in (or planned to be engaged in) by the Company;
provided, however, that anything above to the contrary notwithstanding,
Executive may own, as a passive investor, securities of any competitor
corporation, so long as Executive's direct holdings in any one such corporation
shall not in the aggregate constitute more than 1% of the voting stock of such
corporation.

                                   ARTICLE VII
                                 NONINTERFERENCE

    While employed by the Company, and for one (1) year immediately following
the date on which Executive terminates employment or otherwise ceases providing
services to the Company, Executive agrees not to interfere with the business of
the Company by soliciting or attempting to solicit any employee of the Company
to terminate such employee's employment in order to become an employee,
consultant or independent contractor to or for any competitor of the Company.
Executive's duties under this Article 7 shall survive termination of Executive's
employment with the Company and the termination of this Agreement.

                                  ARTICLE VIII
                               GENERAL PROVISIONS

8.1 NOTICES. Any notices provided hereunder must be in writing and shall be
deemed effective upon the earlier of personal delivery (including personal
delivery by telex) or the third day after mailing by first class mail, to the
Company at its primary office location and to Executive at Executive's address
as listed on the Company payroll.

                                       7.
<PAGE>   8

8.2 SEVERABILITY. Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.

8.3 WAIVER. If either party should waive any breach of any provisions of this
Agreement, they shall not thereby be deemed to have waived any preceding or
succeeding breach of the same or any other provision of this Agreement.

8.4 COMPLETE AGREEMENT. This Agreement and its Exhibit A, Exhibit B and Exhibit
C constitute the entire agreement between Executive and the Company and are the
complete, final, and exclusive embodiment of their agreement with regard to this
subject matter; provided, however, that this Agreement shall not supersede the
letter agreement entered into between Executive and the Company on June 11,
1998, and in the event of any inconsistency between the terms of this Agreement
and those of said side letter agreement, the terms of the latter shall control.
They are entered into without reliance on any promise or representation other
than those expressly contained herein or therein, and they cannot be modified or
amended except in a writing signed by an officer of the Company.

8.5 COUNTERPARTS. This Agreement may be executed in separate counterparts, any
one of which need not contain signatures of more than one party, but all of
which taken together will constitute one and the same Agreement.

8.6 HEADINGS. The headings of the sections hereof are inserted for convenience
only and shall not be deemed to constitute a part hereof nor to affect the
meaning thereof.

8.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and inure to the
benefit of and be enforceable by Executive and the Company, and their respective
successors, assigns, heirs, executors and administrators, except that Executive
may not assign any of Executive's duties hereunder and Executive may not assign
any of Executive's rights hereunder, without the written consent of the Company,
which shall not be withheld unreasonably.

8.8 ARBITRATION. Unless otherwise prohibited by law or specified below, all
disputes, claims and causes of action, in law or equity, arising from or
relating to this Agreement or its enforcement, performance, breach, or
interpretation shall be resolved solely and exclusively by final and binding
arbitration held in San Francisco County, California through Judicial
Arbitration & Mediation Services/Endispute ("JAMS") under the then existing JAMS
arbitration rules. However, nothing in this section is intended to prevent
either party from obtaining injunctive relief in court to prevent irreparable
harm pending the conclusion of any such arbitration. Each party in any such
arbitration shall be responsible for its own attorneys' fees, costs and
necessary disbursement; provided, however, that if one party refuses to
arbitrate and the other party seeks to compel arbitration by court order, if
such other party prevails, it shall be entitled to recover

                                       8.
<PAGE>   9

reasonable attorneys' fees, costs and necessary disbursements. Pursuant to
California Civil Code Section 1717, each party warrants that it was represented
by counsel in the negotiation and execution of this Agreement, including the
attorneys' fees provision herein.

8.9 ATTORNEYS' FEES. If either party hereto brings any action to enforce rights
hereunder, each party in any such action shall be responsible for its own
attorneys' fees and costs incurred in connection with such action.

8.10 CHOICE OF LAW. All questions concerning the construction, validity and
interpretation of this Agreement will be governed by the law of the State of
California.

        IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.

                                             AXYS PHARMACEUTICALS, INC.

                                             By: /s/ John P. Walker
                                                --------------------------------
                                             Date: 12/14/99
                                                  ------------------------------

Accepted and agreed this
14th day of December, 1999

 /s/ William J. Newell
----------------------------
WILLIAM J. NEWELL

Exhibit A:  Release (Individual Termination)
Exhibit B:  Release (Group Termination)
Exhibit C:  Proprietary Information and Inventions Agreement

                                       9.
<PAGE>   10

                                    EXHIBIT A

                                     RELEASE
                            (INDIVIDUAL TERMINATION)

        Certain capitalized terms used in this Release are defined in the
Executive Employment Agreement (the "Agreement") which I have executed and of
which this Release is a part.

        I hereby confirm my obligations under the Company's proprietary
information and inventions agreement.

        I acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A GENERAL RELEASE DOES NOT EXTEND
TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR." I hereby expressly waive and
relinquish all rights and benefits under that section and any law of any
jurisdiction of similar effect with respect to my release of any claims I may
have against the Company.

        Except as otherwise set forth in this Release, in consideration of
benefits I will receive under the Agreement, I hereby release, acquit and
forever discharge the Company, its parents and subsidiaries, and their officers,
directors, agents, servants, employees, shareholders, successors, assigns and
affiliates, of and from any and all claims, liabilities, demands, causes of
action, costs, expenses, attorneys' fees, damages, indemnities and obligations
of every kind and nature, in law, equity, or otherwise, known and unknown,
suspected and unsuspected, disclosed and undisclosed (other than any claim for
indemnification I may have as a result of any third party action against me
based on my employment with the Company), arising out of or in any way related
to agreements, events, acts or conduct at any time prior to and including the
date I execute this Release, including, but not limited to: all such claims and
demands directly or indirectly arising out of or in any way connected with my
employment with the Company or the termination of that employment, including but
not limited to, claims of intentional and negligent infliction of emotional
distress, any and all tort claims for personal injury, claims or demands related
to salary, bonuses, commissions, stock, stock options, or any other ownership
interests in the Company, vacation pay, fringe benefits, expense reimbursements,
severance pay, or any other form of compensation; claims pursuant to any
federal, state or local law or cause of action including, but not limited to,
the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination
in Employment Act of 1967, as amended ("ADEA"); the federal Employee Retirement
Income Security Act of 1974, as amended; the federal Americans with Disabilities
Act of 1990; the California Fair Employment and Housing Act, as amended; tort
law; contract law; statutory law; common law; wrongful discharge;
discrimination; fraud; defamation; emotional distress; and breach of the implied
covenant of good faith and fair dealing; provided, however, that nothing in this
paragraph shall be construed in any way to release the Company from its
obligation to indemnify me pursuant to the Company's indemnification obligation
pursuant to agreement or applicable law.

        I acknowledge that I am knowingly and voluntarily waiving and releasing
any rights I may have under ADEA. I also acknowledge that the consideration
given under the Agreement

                                       1.
<PAGE>   11

for the waiver and release in the preceding paragraph hereof is in addition to
anything of value to which I was already entitled. I further acknowledge that I
have been advised by this writing, as required by the ADEA, that: (A) my waiver
and release do not apply to any rights or claims that may arise on or after the
date I execute this Release; (B) I have the right to consult with an attorney
prior to executing this Release; (C) I have twenty-one (21) days to consider
this Release (although I may choose to voluntarily execute this Release
earlier); (D) I have seven (7) days following the execution of this Release by
the parties to revoke the Release; and (E) this Release shall not be effective
until the date upon which the revocation period has expired, which shall be the
eighth (8th) day after this Release is executed by me.

                                           WILLIAM J. NEWELL

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

                                       2.
<PAGE>   12

                                    EXHIBIT B

                                     RELEASE
                               (GROUP TERMINATION)

        Certain capitalized terms used in this Release are defined in the
Executive Employment Agreement (the "Agreement") which I have executed and of
which this Release is a part.

        I hereby confirm my obligations under the Company's proprietary
information and inventions agreement.

        I acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A GENERAL RELEASE DOES NOT EXTEND
TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR." I hereby expressly waive and
relinquish all rights and benefits under that section and any law of any
jurisdiction of similar effect with respect to my release of any claims I may
have against the Company.

        Except as otherwise set forth in this Release, in consideration of
benefits I will receive under the Agreement, I hereby release, acquit and
forever discharge the Company, its parents and subsidiaries, and their officers,
directors, agents, servants, employees, shareholders, successors, assigns and
affiliates, of and from any and all claims, liabilities, demands, causes of
action, costs, expenses, attorneys' fees, damages, indemnities and obligations
of every kind and nature, in law, equity, or otherwise, known and unknown,
suspected and unsuspected, disclosed and undisclosed (other than any claim for
indemnification I may have as a result of any third party action against me
based on my employment with the Company), arising out of or in any way related
to agreements, events, acts or conduct at any time prior to and including the
date I execute this Release, including, but not limited to: all such claims and
demands directly or indirectly arising out of or in any way connected with my
employment with the Company or the termination of that employment, including but
not limited to, claims of intentional and negligent infliction of emotional
distress, any and all tort claims for personal injury, claims or demands related
to salary, bonuses, commissions, stock, stock options, or any other ownership
interests in the Company, vacation pay, fringe benefits, expense reimbursements,
severance pay, or any other form of compensation; claims pursuant to any
federal, state or local law or cause of action including, but not limited to,
the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination
in Employment Act of 1967, as amended ("ADEA"); the federal Employee Retirement
Income Security Act of 1974, as amended; the federal Americans with Disabilities
Act of 1990; the California Fair Employment and Housing Act, as amended; tort
law; contract law; statutory law; common law; wrongful discharge;
discrimination; fraud; defamation; emotional distress; and breach of the implied
covenant of good faith and fair dealing; provided, however, that nothing in this
paragraph shall be construed in any way to release the Company from its
obligation to indemnify me pursuant to the Company's indemnification obligation
pursuant to agreement or applicable law.

        I acknowledge that I am knowingly and voluntarily waiving and releasing
any rights I may have under ADEA. I also acknowledge that the consideration
given under the Agreement

                                       1.
<PAGE>   13

for the waiver and release in the preceding paragraph hereof is in addition to
anything of value to which I was already entitled. I further acknowledge that I
have been advised by this writing, as required by the ADEA, that: (A) my waiver
and release do not apply to any rights or claims that may arise on or after the
date I execute this Release; (B) I have the right to consult with an attorney
prior to executing this Release; (C) I have forty-five (45) days to consider
this Release (although I may choose to voluntarily execute this Release
earlier); (D) I have seven (7) days following the execution of this Release by
the parties to revoke the Release; (E) this Release shall not be effective until
the date upon which the revocation period has expired, which shall be the eighth
day (8th) after this Release is executed by me; and (F) I have received with
this Release a detailed list of the job titles and ages of all employees who
were terminated in this group termination and the ages of all employees of the
Company in the same job classification or organizational unit who were not
terminated.

                                           WILLIAM J. NEWELL

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

                                       2.

<PAGE>   14

                                    EXHIBIT C

                PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT

<PAGE>   15

                        ARRIS PHARMACEUTICAL CORPORATION

                    EMPLOYMENT, CONFIDENTIAL INFORMATION AND
                         INVENTION ASSIGNMENT AGREEMENT

        As a condition of my employment with ARRIS Pharmaceutical Corporation
("ARRIS"), and in consideration of my employment with ARRIS and my receipt of
the compensation now and hereafter paid to me by ARRIS, I agree to the
following:

        1. AT-WILL EMPLOYMENT. I understand and acknowledge that my employment
with ARRIS is for an unspecified duration and constitutes "at-will" employment.
I acknowledge that this employment relationship may be terminated at any time,
with or without cause, at the option of either ARRIS or myself, with or without
notice.

        2. CONFIDENTIAL INFORMATION.

            (a) ARRIS AND THIRD PARTY INFORMATION. I agree at all times during
the term of my employment and thereafter, to hold in strictest confidence, and
not to use, except for the benefit of ARRIS, or to disclose to any person, firm
or corporation without written authorization of an officer of ARRIS, any
Confidential Information of ARRIS. I understand that "Confidential Information"
means any ARRIS proprietary information, technical data, trade secrets or
know-how, including, but not limited to, research and product plans, products,
services, customer lists and customers (including, but not limited to, customers
of ARRIS on whom I called or with whom I became acquainted during the term of my
employment), markets, developments, inventions, processes, formulas, technology,
marketing, finances or other business information disclosed to me by ARRIS
either directly or indirectly in writing, orally or otherwise. I recognize that
ARRIS has received and in the future will receive from third parties their
confidential or proprietary information subject to a duty on ARRIS's part to
maintain the confidentiality of such information and to use it only for certain
limited purposes, and I understand that such information is also Confidential
Information. I further understand that Confidential Information does not include
any of the foregoing items that has become publicly known and made generally
available through no wrongful act of mine or of others who were under
confidentiality obligations as to the item or items involved.

            (b) FORMER EMPLOYER INFORMATION. I agree that I will not, during my
employment with ARRIS, improperly use or disclose any proprietary information or
trade secrets of any former or concurrent employer or other person or entity and
that I will not bring onto the premises of ARRIS any unpublished document or
proprietary information belonging to any such employer, person or entity unless
consented to in writing by such employer, person or entity.

                                       1.
<PAGE>   16

        3. INVENTIONS.

            (a) INVENTIONS RETAINED AND LICENSED. I have attached hereto, as
Exhibit A, a list describing all inventions, original works of authorship,
developments, improvements, and trade secrets that were made by me prior to my
employment with ARRIS (collectively referred to as "Prior Inventions"), that
belong to me, that relate to ARRIS's proposed business, products or research and
development, and that are not assigned to ARRIS hereunder; or, if no such list
is attached, I represent that there are no such Prior Inventions. If in the
course of my employment with ARRIS, I incorporate into a ARRIS product, process
or machine a Prior Invention owned by me or in which I have an interest, ARRIS
is hereby granted and will have a non-exclusive, royalty-free, irrevocable,
perpetual, worldwide license, with the right to grant sublicenses, to make, have
made, modify, use, and sell such Prior Invention as part of or in connection
with such product, process or machine.

            (b) ASSIGNMENT OF INVENTIONS. I agree that I will promptly make full
written disclosure to ARRIS, and will hold in trust for the sole right and
benefit of ARRIS, and hereby assign to ARRIS, or its designee, all my right,
title, and interest in and to any and all inventions, original works of
authorship, developments, concepts, improvements or trade secrets, whether or
not patentable or registrable under patent, copyright or similar laws, that I
may solely or jointly conceive or develop or reduce to practice, or cause to be
conceived or developed or reduced to practice, during the period of time I am in
the employ of ARRIS (collectively referred to as "Inventions"), except as
provided in Section 3(e) below. I further acknowledge that all original works of
authorship that are made by me (solely or jointly with others) within the scope
of and during the period of my employment with ARRIS and that are protectable by
copyright are works made for hire," as that term is defined in the United States
Copyright Act.

            (c) MAINTENANCE OF RECORDS. I agree to keep and maintain adequate
and current written records of all inventions made by me (solely or jointly with
others) during the term of my employment with ARRIS. The records will be in the
form of notes, sketches, drawings, and any other format that may be specified by
ARRIS. The records will be available to and remain the sole property of ARRIS at
all times.

            (d) PATENT AND COPYRIGHT REGISTRATIONS. I agree to assist ARRIS's,
or its designee, at ARRIS's expense, in every way to secure ARRIS' rights in the
Inventions and any copyrights, patents, mask work rights or other intellectual
property rights relating thereto in any and all countries, including disclosing
to ARRIS all pertinent information and data with respect thereto, and executing
all applications, specifications, oaths, assignments and all other instruments
that ARRIS shall deem necessary in order to apply for and obtain such rights and
in order to assign and convey to ARRIS, its successors, assigns and nominees the
sole and exclusive rights, title and interest in and to such Inventions, and any
copyrights, patents, mask work rights or other intellectual property rights
relating thereto. I further agree that my obligation to execute or cause to be
executed, when it is in my power to do so, any such instrument or papers will
continue after the termination of this Agreement. If ARRIS is unable because of
my

                                       2
<PAGE>   17

mental of physical incapacity or for any other reason to secure my signature to
apply for or to pursue any application for any United States or foreign patents
or copyright registrations covering Inventions or original works of authorship
assigned to ARRIS as above, then I hereby irrevocably designate and appoint
ARRIS and its duly authorized officers and agents as my agent and attorney in
fact, to act for and in my behalf and stead to execute and file any such
applications and to do all other lawfully permitted acts to further the
prosecution and issuance of letters patent or copyright registrations thereon
with the same legal force and effect as if executed by me.

            (e) EXCEPTION TO ASSIGNMENTS. I understand that the provisions of
this Agreement requiring assignment of Inventions to ARRIS do not apply to any
invention that qualifies fully under the provisions of California Labor Code
Section 2870 (attached hereto as Exhibit B). I will advise ARRIS promptly in
writing of any inventions that I believe meet the criteria in California Labor
Code Section 2870 and that are not otherwise disclosed in Exhibit A.

        4. CONFLICTING EMPLOYMENT. I agree that, during the term of my
employment with ARRIS, I will not engage in any other employment, occupation,
consulting or other business activity directly related to the business in which
ARRIS is now involved or becomes involved during the term of my employment, nor
will I engage in any other activities that conflict with my obligations to
ARRIS.

        5. RETURNING ARRIS DOCUMENTS. I agree that, at the time of leaving the
employ of ARRIS, I will deliver to ARRIS (and will not keep in my possession,
recreate or deliver to anyone else) any and all documents or property, or
reproductions of any such documents or property, developed by me pursuant to my
employment with ARRIS or otherwise belonging to ARRIS, its successors or
assigns.

        6. SOLICITATION OF EMPLOYEES. I agree that for a period of twelve (12)
months immediately following the termination of my relationship with ARRIS for
any reason, whether with or without cause, I will not either directly or
indirectly solicit, induce, recruit or encourage any of ARRIS's employees to
leave their employment, or take away such employees, or attempt to solicit,
induce, recruit, encourage or take away employees of the ARRIS, either for
myself or for any other person or entity.

        7. REPRESENTATIONS. I agree to execute any proper oath or verify any
proper document requested by ARRIS to carry out the terms of this Agreement. I
represent that my performance of all the terms of this Agreement will not breach
any agreement to keep in confidence proprietary information acquired by me in
confidence or in trust prior to my employment by ARRIS. I have not entered into,
and I agree I will not enter into, any oral or written agreement in conflict
with the terms of this Agreement.

                                       3
<PAGE>   18

        8. ARBITRATION AND EQUITABLE RELIEF.

            (a) ARBITRATION. Except as provided in Section 8(b) below, I agree
that any dispute or controversy arising out of or relating to any
interpretation, construction, performance or breach of this Agreement, will be
settled by arbitration to be held in San Mateo County, California, in accordance
with the rules then in effect of the American Arbitration Association. The
arbitrator may grant injunctions or other relief in such dispute or controversy.
The decision of the arbitrator will be final, conclusive and binding on the
parties to the arbitration. Judgment may be entered on the arbitrator's decision
in any court having jurisdiction. ARRIS and I will each pay one-half of the
costs and expenses of such arbitration, and each of us will separately pay our
counsel fees and expenses.

            (b) EQUITABLE REMEDIES. I agree that it would be impossible or
inadequate to measure and calculate ARRIS's damages for any breach of the
covenants set forth in Sections 2,3, and 5 herein. Accordingly, I agree that if
I breach my obligations under any of such Sections, ARRIS will have, in addition
to any other right or remedy available, the right to obtain injunction from a
court of competent jurisdiction restraining such breach or threatened breach and
to specific performance of any such provision of this Agreement. I further agree
that no bond or other security will be required in obtaining such equitable
relief and I hereby consent to the issuance of such injunction and to the
ordering of specific performance. I hereby further consent to the personal
jurisdiction of the state and federal courts located in California for any
lawsuit filed there against me by ARRIS arising from or relating to this
Agreement.

        9. GENERAL PROVISIONS

            (a) GOVERNING LAW. This agreement will be governed by the laws of
the State of California without reference to conflicts of laws principles.

            (b) ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding between ARRIS and me relating to the subject matter hereof and
merges all prior discussions between us. No modification of or amendment to this
Agreement, or any waiver of any rights under this Agreement, will be effective
unless in writing signed by the party to be charged. Any subsequent change or
changes in my duties, salary or compensation will not affect the validity or
scope of this Agreement.

                                       4
<PAGE>   19

            (c) SEVERABILITY. If one or more of the provisions in this Agreement
are deemed void by law, then the remaining provisions will continue in full
force and effect.

            (d) SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my
heirs, executors, administrators and other legal representatives and will be for
the benefit of ARRIS, its successors, and its assigns.

     Date:     7/20/98                       Signature: /s/ William J. Newell
           ----------------------------                -------------------------
                                              William J. Newell
                                             -----------------------------------
                                             Name of Employee (typed or printed)

     ARRIS Pharmaceuticals, Inc.

     Name: /s/ Linda Ballenger
          -----------------------------------
     Print Name: Linda Ballenger
                -----------------------------
     Title: Comp. & Benefits Manager
           ----------------------------------

                                       5
<PAGE>   20

                                    EXHIBIT A
                            LIST OF PRIOR INVENTIONS
                        AND ORIGINAL WORKS OF AUTHORSHIP

                                                           IDENTIFYING # OR
Title __________________________________ Date _______________ Brief Description

 X  No inventions or improvements
---
_____ Additional sheets attached

Signature of Employee /s/ William J. Newell
                     -----------------------
Print Name of Employee William J. Newell
Date 7/20/98

Signature of Supervisor /s/ John P. Walker
                       ---------------------
Print Name of Supervisor John P. Walker

Date 7/20/98

                                       6
<PAGE>   21

                                    EXHIBIT B
                       CALIFORNIA LABOR CODE SECTION 2870
                   EMPLOYMENT AGREEMENTS; ASSIGNMENT OF RIGHTS

        " (a) ANY PROVISION IN AN EMPLOYMENT AGREEMENT WHICH PROVIDES THAT AN
EMPLOYEE SHALL ASSIGN, OR OFFER TO ASSIGN, ANY OF HIS OR HER RIGHTS IN AN
INVENTION TO HIS OR HER EMPLOYER SHALL NOT APPLY TO AN INVENTION THAT THE
EMPLOYEE DEVELOPED ENTIRELY ON HIS OR HER OWN TIME WITHOUT USING THE EMPLOYER'S
EQUIPMENT, SUPPLIES, FACILITIES, OR TRADE SECRET INFORMATION EXCEPT FOR THOSE
INVENTIONS THAT EITHER:

                (1) RELATE AT THE TIME OF CONCEPTION OR REDUCTION TO PRACTICE OF
            THE INVENTION TO THE EMPLOYER'S BUSINESS, OR ACTUAL OR DEMONSTRABLY
            ANTICIPATED RESEARCH OR DEVELOPMENT OF THE EMPLOYER.

                (2) RESULT FROM ANY WORK PERFORMED BY THE EMPLOYEE FOR THE
            EMPLOYER.

                (3) TO THE EXTENT A PROVISION IN AN EMPLOYEE AGREEMENT PURPORTS
            TO REQUIRE AN EMPLOYEE TO ASSIGN AN INVENTION OTHERWISE EXCLUDED
            FROM BEING REQUIRED TO BE ASSIGNED UNDER SUBDIVISION (a), THE
            PROVISION IS AGAINST THE PUBLIC POLICY OF THIS STATE AND IS
            UNENFORCEABLE."

                                       7

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