Document:

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                                                                   EXHIBIT 10.39

                              SHAREHOLDER AGREEMENT

        This Shareholder Agreement ("Agreement") is made and entered into as of
October 1, 1999, by and among FIRSTCITY HOLDINGS CORPORATION, a Texas
corporation (the "Corporation"), and FIRSTCITY COMMERCIAL CORPORATION, a Texas
corporation ("FirstCity Commercial"), TERRY R. DEWITT, G. STEPHEN FILLIP, AND
JAMES C. HOLMES (each of the foregoing shareholders being referred to
individually as a "Shareholder" and collectively as the "Shareholders") with
respect to all of the now or hereafter issued and outstanding shares of common
or preferred stock or other issued and outstanding securities of the Corporation
(including options, warrants and convertible instruments), presently or
hereafter owned by each of the Shareholders (the "Stock"). Any reference to
Stock owned by a Shareholder shall mean all of the Stock registered in that
Shareholder's name and including, but not limited to, any community property
interest of the Shareholder's spouse in such Stock.

                                    RECITALS

        WHEREAS, the Shareholders are presently the holders of record of all of
the issued and outstanding shares of the Stock of the Corporation; and

        WHEREAS, the Shareholders believe that it would be in the best interest
of the Shareholders and the Corporation to place certain restrictions upon the
right of any Owner of Stock to transfer any Stock owned by such Owner; and

        WHEREAS, the directors of the Corporation, having considered the
provisions of this Agreement, have resolved that in their opinions the
restrictions upon the transfer of the Stock of the Corporation and the
provisions for the purchase of the Stock, all as hereinafter set forth, are in
the best interest of the Corporation.

        NOW, THEREFORE, the parties hereto hereby agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

        SECTION 1.01. DEFINITIONS OF CERTAIN AGREEMENT TERMS. For purposes of
this Agreement, the terms hereinafter set forth shall have the following
definitions unless otherwise specifically stated.

        "BUSINESS DAYS" shall mean days that are not Saturdays, Sundays, or
legal holidays in the United States or the State of Texas.

FIRSTCITY HOLDINGS CORPORATION
SHAREHOLDER AGREEMENT                                                     PAGE 1
<PAGE>   2

        "MINORITY SHAREHOLDER" shall mean any Shareholder other than FirstCity
Commercial.

        "OWNED" shall mean Stock referred to as being "owned" by any persons
shall include all Stock owned (whether acquired before or after this date) as
the separate property of such person, all Stock owned as the community property
of such person and his or her spouse that is registered in the name of such
person, all Stock acquired by gift, partition or other transfer of community
property Stock, and any shares into which any such Stock, or any portion
thereof, may be converted. A person who owns Stock is sometimes referred to as
an "Owner." While a spouse of a Shareholder may own an interest in Stock that is
deemed to be "owned" by such Shareholder under this definition, the term
"Shareholder" as used in this Agreement does not apply to the spouse of any such
named party to this Agreement unless such spouse also owns Stock.

        "SHAREHOLDER" shall include all of the persons who own Stock in the
Corporation who are parties to this Agreement, and any persons who subsequently
shall become parties to this Agreement.

        "STOCK" shall have the meaning set forth in the introductory paragraph
of this Agreement.

        "TRANSFER" shall mean the sale, exchange, assignment, pledge, gift,
hypothecation, transfer or other disposition (whether voluntary or involuntary)
by a Minority Shareholder of his or her Stock, either directly or indirectly, to
any third party or any offer or attempt to accomplish any of the foregoing.

                                   ARTICLE II
             RESTRICTIONS AGAINST TRANSFER BY MINORITY SHAREHOLDERS

        SECTION 2.01. TRANSFER OF STOCK RESTRICTED BY MINORITY SHAREHOLDERS.
Each of the Minority Shareholders agrees that he or she will not in any way
Transfer any of his or her Stock, or any right or interest therein, without the
prior written consent of the Corporation and the other Shareholders, except for
a Transfer that meets the requirements of this Agreement. Any purported Transfer
in violation of any provisions of this Agreement will be void and will not
operate to transfer any right, title, or interest in the Stock to the purported
Transferee.

                                   ARTICLE III
                              PUT AND CALL OPTIONS

        SECTION 3.01. TERMINATION OF EMPLOYMENT OF MINORITY SHAREHOLDER. Upon
the termination of employment of any Minority Shareholder by the Corporation or
any affiliate of the Corporation, such Minority Shareholder shall have the right
to sell (the Termination Put") "100% of the Stock Owned by the Minority
Shareholder to FirstCity Commercial for an amount equal to the Termination
Purchase Price (as herein defined). Upon the termination of employment of any

FIRSTCITY HOLDINGS CORPORATION
SHAREHOLDER AGREEMENT                                                     PAGE 2
<PAGE>   3

Minority Shareholder by the Corporation or any affiliate of the Corporation,
FirstCity Commercial shall have the right to purchase (the "Termination Call")
100% of the Stock Owned by the Minority Shareholder for an amount equal to the
Termination Purchase Price.

        "Termination Purchase Price" means an amount equal to: (a) if the date
of termination of employment of the Minority Shareholder (the "Employment
Termination Date") is on or before December 31, 2000, the lesser of (i) the book
value of the Stock Owned by the Minority Shareholder or (ii) the amount of the
capital actually contributed by the Minority Shareholder to the Corporation; (b)
if the Employment Termination Date is after December 31, 2000 but on or before
December 31, 2004, the book value of the Stock Owned by the Minority
Shareholder; and (iii) if the Employment Termination Date is after December 31,
2004, the Fair Market Value of the Stock Owned by the Minority Shareholder.

        "Fair Market Value of the Stock Owned by Minority Shareholder" means:
(i) the fair market value of the Stock Owned by the Minority Shareholder
mutually agreed upon by FirstCity Commercial and the Minority Shareholder; or
(ii) in the event FirstCity Commercial and the Minority Shareholder cannot agree
within thirty (30) days after the Employment Termination Date on the fair market
value of the Stock Owned by the Minority Shareholder, the fair market value of
the Stock Owned by the Minority Shareholder determined by the following
appraisal process:

               The Minority Shareholder shall appoint an appraiser and FirstCity
        Commercial shall appoint an appraiser. Any person/entity appointed as an
        appraiser must meet the following qualifications: (a) be a certified
        public accountant employed by a nationally recognized public accounting
        firm, or an employee of a nationally recognized investment banking firm;
        and (b) not be related to an officer or director of the FirstCity
        Financial Corporation or any of its affiliates, or to the Minority
        Shareholder within the third degree of consanguinity. If either
        FirstCity Commercial or the Minority Shareholder fails to name an
        appraiser with the specified time, the other party may select the second
        appraiser.

               The joint determination of the fair market value by the two
        appraisers shall be final and binding on all parties. If the two
        appraisers selected are unable to agree on the fair market value, the
        two appraisers shall select a third appraiser, whose determination as to
        the fair market value shall be averaged with the appraisals of the other
        two appraisers. The average of the three appraisals shall be conclusive
        evidence as to the fair market value and shall be final and binding on
        all parties. The appraisers shall deliver a written report of their
        appraisal to all parties to this Agreement.

        For purposes of Section 3.01 the book value and fair market value of the
Stock Owned by a Minority Shareholder shall be determined as of the end of the
previous fiscal quarter.

FIRSTCITY HOLDINGS CORPORATION
SHAREHOLDER AGREEMENT                                                     PAGE 3
<PAGE>   4

        The Termination Put and Termination Call shall be in writing and shall
be exercised within 60 days after the Employment Termination Date. The
Termination Purchase Price shall be payable 20% in cash and 80% in an unsecured
promissory note payable by FirstCity Commercial, with an annual interest rate
equal to the prime rate and payable in four (4) equal annual installments. The
closing of the Termination Put or Termination Call shall be within 90 days after
the Employment Termination Date.

        SECTION 3.02. PUT OPTION OF MINORITY SHAREHOLDERS. At any time after
December 31, 2004, any Minority Shareholder shall have the right to sell (the
"Put") 100% of the Stock Owned by the Minority Shareholder to FirstCity
Commercial for an amount equal to the Fair Market Value of the Stock Owned by
the Minority Shareholder as defined in Section 3.01 (the "Put Price"). The Put
shall be in writing and the date the Put is made shall be referred to as the
"Put Date." The Put Price shall be payable 20% in cash and 80% in an unsecured
promissory note payable by FirstCity Commercial, with an annual interest rate
equal to the prime rate and payable in four (4) equal annual installments. The
closing of the Put shall be within 90 days after the Put Date.

                              ARTICLE IV [RESERVED]

                                    ARTICLE V
                                     NOTICES

        SECTION 5.01. NOTICE PROCEDURE. All notices required to be given
hereunder will be deemed to be duly given on the date of delivery if delivered
in person or three (3) Business Days after the date of mailing if mailed by
registered or certified mail, postage prepaid, return receipt requested, to the
Secretary of the Corporation at the Corporation's principal office and to the
Shareholders at the addresses indicated on the signature page of this Agreement.
The address of any Shareholder may be changed only by giving written notice of
such change of address to all of the other parties hereto in the manner provided
herein for giving notices.

                                   ARTICLE VI
                                  STOCK LEGEND

        SECTION 6.01. LEGEND REQUIRED BY THIS AGREEMENT. The Corporation and
each Shareholder hereby agrees that all certificates representing shares of
Stock of the Corporation that at any time are subject to the provisions of this
Agreement will have endorsed upon them, in addition to any legend required by
the Corporation's Bylaws, in boldface type a legend in substantially the
following form:

                     THE SHARES OF STOCK REPRESENTED BY THIS
              CERTIFICATE ARE SUBJECT TO A SHAREHOLDERS' AGREEMENT

FIRSTCITY HOLDINGS CORPORATION
SHAREHOLDER AGREEMENT                                                     PAGE 4
<PAGE>   5

        ("AGREEMENT"), DATED OCTOBER 1, 1999, AMONG THE, A COPY OF WHICH IS ON
        FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION, AND SAID SHARES MAY NOT
        BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED, OR OTHERWISE
        DISPOSED OF EXCEPT IN STRICT ACCORDANCE WITH THE TERMS OF THE AGREEMENT.
        A COPY OF THE AGREEMENT WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER
        OF THIS CERTIFICATE UPON RECEIPT BY THE CORPORATION AT ITS PRINCIPAL
        PLACE OF BUSINESS OR REGISTERED OFFICE OF A WRITTEN REQUEST FROM THE
        HOLDER REQUESTING SUCH A COPY.

        SECTION 6.02. EXECUTION OF AGREEMENT BY TRANSFEREE. Under no
circumstances will any sale or other Transfer of any shares of Stock subject to
this Agreement be valid until the proposed transferee has executed and become a
party to an Agreement substantially similar to this Agreement and thereby
becomes subject to all of its provisions, unless this requirement is waived by
written consent of the parties; notwithstanding any other provisions of this
Agreement, no such sale or other Transfer of any kind will in any event result
in the nonapplicability of the provisions of this Agreement at any time to any
of the shares of Stock subject to this Agreement.

                                   ARTICLE VII
                                      TERM

        SECTION 7.01. TERMINATION OF AGREEMENT. This Agreement will terminate
upon the earlier of: (a) the agreement of all parties hereto to terminate this
Agreement, (b) the purchase by the Corporation of all the shares of Stock of all
but one Shareholder, (c) the purchase by any one Shareholder of all of the
issued and outstanding shares of Stock of the Corporation, or (d) upon the
dissolution of the Corporation, or upon the filing of a voluntary or involuntary
petition by or against the Corporation under Chapter 7 or Chapter 11 of the
Bankruptcy Code upon the appointment of a receiver for the Corporation.

        SECTION 7.02. TERMINATION AS TO SPECIFIC SHAREHOLDER. This Agreement
shall terminate as to any specific Shareholder upon the date such Shareholder
ceases to own any Stock. Such Shareholder also shall cease to be a party to this
Agreement as of the date that he ceases to own, directly or beneficially, any
Stock.

FIRSTCITY HOLDINGS CORPORATION
SHAREHOLDER AGREEMENT                                                     PAGE 5
<PAGE>   6
                                  ARTICLE VIII
                                  MISCELLANEOUS

        SECTION 8.01. FURTHER ASSURANCES. Each party to this Agreement agrees to
perform all further acts and to execute and deliver all further documents which
may be reasonably necessary to carry out the provisions of this Agreement.

        SECTION 8.02. SEVERABILITY. In the event that any of the provisions, or
portions thereof, of this Agreement are held to be unenforceable or invalid by
any court of competent jurisdiction, the validity and enforceability of the
remaining provisions, or portions thereof, will not be affected, and in lieu of
such unenforceable provision there shall be added automatically as part of this
Agreement a provision as similar in terms as may be valid and enforceable.

        SECTION 8.03. CONSTRUCTION. Whenever used in this Agreement, the
singular number will include the plural, and the plural number will include the
singular; pronouns in the masculine, feminine, or neuter gender will include
each other gender.

        SECTION 8.04. GOVERNING LAW. THIS AGREEMENT HAS BEEN EXECUTED IN AND
WILL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS.

        SECTION 8.05. SUCCESSORS. Subject to the restrictions against Transfer
or assignment as contained in this Agreement, the provisions of this Agreement
will benefit and will be binding on the assigns, successors in interest,
personal representatives, estates, heirs and legatees of each of the parties
hereto. Each of the Minority Shareholders agrees that he or she will not create
or permit to exist any lien, claim or encumbrance at any time on any of his or
her shares of stock subject to this Agreement.

        SECTION 8.06.  AMENDMENT.  This Agreement may only be amended by the
written consent of all of the parties to this Agreement at the time of such
amendment.

        SECTION 8.07.  HEADINGS.  The section headings contained in this
Agreement are for convenience only and shall in no manner by construed as part
of this Agreement.

        SECTION 8.08. ENTIRE AGREEMENT; COUNTERPARTS. This Agreement contains
the entire understanding between the parties concerning the subject matter
contained in this Agreement. There are no representations, agreements,
arrangements or understandings, oral or written, between or among the parties
hereto, relating to the subject matter of this Agreement, which are not fully
expressed herein. This Agreement may be signed in one or more counterparts, all
of which shall be considered one and the same agreement.

FIRSTCITY HOLDINGS CORPORATION
SHAREHOLDER AGREEMENT                                                     PAGE 6
<PAGE>   7

        SECTION 8.09. WAIVER. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by any party.

        SECTION 8.10. SPECIFIC PERFORMANCE. The right to own and vote Stock and
to restrict the transfer of the Stock is hereby declared by the parties hereto
to be a unique right, the loss of which is not readily susceptible to monetary
quantification. Consequently, the parties hereto agree that an action for
specific performance of the purchase and sale obligations created by this
Agreement or an action brought to enjoin the unauthorized transfer of Stock are
remedies for the breach of the provisions of this Agreement. If the parties to
this Agreement are forced to institute legal proceedings to enforce their rights
in accordance with the provisions of this Agreement, they shall be entitled to
recover their reasonable attorneys' fees and court costs incurred in enforcing
such rights.

                   [END OF PAGE - SIGNATURE PAGE(S) TO FOLLOW]

FIRSTCITY HOLDINGS CORPORATION
SHAREHOLDER AGREEMENT                                                     PAGE 7

<PAGE>   8
        IN WITNESS WHEREOF, the parties hereto have entered into this Agreement
to be effective as of the date first written above.

                                            FIRSTCITY HOLDINGS CORPORATION

                                            By:  /s/ Terry R. DeWitt
                                               ---------------------------------
                                                 Terry R. DeWitt, Co-President

                                            Address:      P.O. Box 8216
                                                          Waco, Texas 76714-8216

                                              /s/ Terry R. DeWitt
                                            ------------------------------------
                                            TERRY R. DEWITT

                                            Owner of 70 Shares
                                            Address:
                                                      --------------------------

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

                                              /s/ G. Stephen Fillip
                                            ------------------------------------
                                            G. STEPHEN FILLIP

                                            Owner of 70 Shares
                                            Address:
                                                      --------------------------

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

                                              /s/ James C. Holmes
                                            ------------------------------------
                                            JAMES C. HOLMES

                                            Owner of 60 Shares
                                            Address:
                                                      --------------------------

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

FIRSTCITY HOLDINGS CORPORATION
SHAREHOLDER AGREEMENT                                             SIGNATURE PAGE
<PAGE>   9

                                            FIRSTCITY COMMERCIAL CORPORATION

                                            By:
                                               ---------------------------------
                                                  James T. Sartain,
                                                  Chairman of the Board

                                            Owner of 800 Shares
                                            Address:      P.O. Box 8216
                                                          Waco, Texas 76714-8216

FIRSTCITY HOLDINGS CORPORATION
SHAREHOLDER AGREEMENT                                             SIGNATURE PAGE<PAGE>   1
CONFIDENTIAL TREATMENT REQUESTED                                   EXHIBIT 10.11

                                    AGREEMENT

         This Agreement (the "AGREEMENT") is made as of March 21, 1997 (the
"EFFECTIVE DATE"), by and among Lexicon Genetics, Inc., a Delaware corporation
having its principal offices at 4000 Research Forest Drive, The Woodlands, Texas
77381 ("LEXICON") and Merck Genome Research Institute, a Delaware not-for-profit
corporation having its principal offices at 770 Sumneytown Pike, West Point,
Pennsylvania 19486 ("MGRI").

                              PRELIMINARY STATEMENT

         WHEREAS, MGRI is a non-profit corporation dedicated to the support of
research regarding the genome, and in furtherance of such research provides
support to various nonprofit research organizations which are doing research
with regard to the genome; and

         WHEREAS, Lexicon is conducting research to develop a proprietary
library of embryonic stem cell clones containing mutations in genes designed to
accelerate genomic research which it calls "OmniBankTM "; and

         WHEREAS, Lexicon owns or has rights to, and expertise in, certain
methods of producing "Mutant Mice", as defined herein, derived from OmniBankTM;
and

         WHEREAS, MGRI intends to distribute or contribute the Mutant Mice to
one or more not-for-profit organizations ("NFP") which will distribute the
Mutant Mice for "Research" as defined herein; and

         WHEREAS, MGRI is willing to pay Lexicon to produce Mutant Mice for such
distribution and Lexicon is willing to produce such Mutant Mice;

         NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained in this Agreement, the parties agree as follows:

                                    ARTICLE I

1.       DEFINITIONS

         Capitalized terms used in this Agreement, both in the singular and the
plural, which are not otherwise defined herein shall have the following
respective meanings:

--------------------
***** denotes confidential information with respect to which a separate
      confidential treatment request has been filed with the Securities and
      Exchange Commission.

<PAGE>   2

1.1      "CLAIM" means any pending or threatened claim, demand, investigation,
         cause of action, suit, default, assessment, litigation, third party
         action, arbitration proceeding or proceeding by or before any
         governmental authority or any other Person.

1.2      "CONFIDENTIAL INFORMATION" shall mean any information which either
         party or a member ("Member") of the Mutation Selection Committee has
         treated as confidential, including but not limited to information
         relating to OmniBankTM , which information is disclosed by either party
         or a Member to MGRI and/or Lexicon, as necessary or useful to the
         parties under this Agreement and which has been designated in writing
         by the disclosing party as Confidential Information at the time of such
         disclosure. Confidential Information shall specifically include any
         information disclosed by or among the parties or their agents during
         the negotiations for this Agreement. Confidential Information does not
         include, however, any information which (i) was rightfully in the
         possession of the receiving party prior to the date of disclosure to
         it, (ii) was in the public domain prior to the date of disclosure,
         (iii) becomes part of the public domain by publication or by other
         means, except through an unauthorized act or omission on the part of
         the receiving party or any other Person, (iv) is supplied to the
         receiving party without restriction by a Third Party who is under no
         obligation to the disclosing party to maintain such information in
         confidence or (v) any information developed independently by or for the
         receiving party, provided, however, that it is conclusively established
         that such information was independently developed.

1.3.     "LEXICON INTELLECTUAL PROPERTY" shall mean all trade secrets, know-how,
         patents, patent applications, trademarks, copyrights and other
         intellectual property of any type owned or controlled by Lexicon as of
         the Effective Date or in the future, including, without limitation,
         Confidential Information, which is necessary or useful to the parties
         in performing the work required or permitted under this Agreement.

1.4      "LIABILITY" means, with respect to any Person, any indebtedness,
         obligation and other liability of such Person, whether absolute,
         accrued, contingent, fixed or otherwise, or whether due or to become
         due.

1.5      "LOSSES" means any and all damages (including consequential, punitive
         and exemplary), fines, penalties, judgments, deficiencies, losses,
         costs and expenses, including court costs, reasonable fees of
         attorneys, accountants and other experts and other reasonable expenses
         associated with any Claim.

1.6      "MUTANT MICE" shall mean a line of mice heterozygous for a Standard
         Mutation, chosen by the Mutation Selection Committee, wherein such mice
         transmit the Standard Mutation, in the form of a mutant allele, through
         the germ line.

                                       -2-

<PAGE>   3

1.7      "MUTATION SELECTION COMMITTEE" and "COMMITTEE" shall mean *****.

1.8      "OMNIBANK(TM)" shall mean Lexicon's proprietary library of embryonic
         stem cell clones containing mutations in particular genes, which genes
         are identified by DNA sequence.

1.9      "RESEARCH" shall mean research which does not relate to the sale,
         lease, license or other transfer of the Mutant Mice or to the sale of
         services involving the use of the Mutant Mice.

1.10     "PERSON" means any individual, firm, corporation, trust, association,
         company, limited liability company, joint stock company, partnership,
         joint venture, governmental authority or other entity or enterprise.

1.11     "SET" shall mean up to ***** of Mutant Mice which are heterozygous for
         one selected Standard Mutation.

1.12     "STANDARD MUTATION" shall mean a gene trap insertion generated as part
         of Lexicon's OmniBankTM program for a specific gene.

1.13     "THIRD PARTY" shall mean any Person other than Lexicon, MGRI or NFP.

                                   ARTICLE II

2.       DEVELOPMENT

2.1      DEVELOPMENT. Lexicon hereby agrees to generate and develop 150
         different Sets of Mutant Mice (i.e., each Set shall have a different
         Standard Mutation) pursuant to the terms herein.

2.2      GENERATION OF STANDARD MUTATIONS. Upon the Effective Date, Lexicon will
         commence the generation of Standard Mutations in embryonic stem cells
         for the production of the Mutant Mice from OmniBankTM. Lexicon will
         generate Standard Mutations for the production of Mutant Mice no later
         than the date of the first meeting of the Mutation Selection Committee.
         Lexicon will continue to generate Standard Mutations for no less than
         two years after the first annual anniversary of the Effective Date
         unless such work is completed earlier.

                                       -3-

<PAGE>   4

2.3      SELECTION OF THE STANDARD MUTATIONS. The Mutation Selection Committee
         shall meet to select the Standard Mutations to be included in each
         group of Mutant Mice to be produced by Lexicon hereunder. Such meetings
         shall be coordinated by Lexicon and called and administered by MGRI.
         The first meeting shall be held no sooner than ***** after the
         Effective Date, and subsequent meetings shall be held no more
         frequently than every ***** thereafter unless otherwise agreed to by
         the parties hereto. Sufficiently in advance of each such meeting to
         enable Committee review and preparation, Lexicon shall provide the
         Committee with all information, including Confidential Information,
         necessary or useful to the Committee in performing its selections of
         Standard Mutations and concerning the Standard Mutations that have been
         generated by Lexicon up to that time. MGRI shall designate a
         Chairperson of the Committee. At each meeting Lexicon shall report to
         the Committee all of the Standard Mutations that have been generated up
         to that time; provided, however, Lexicon shall not be required to
         include in such report Standard Mutations for which Lexicon has, at
         such time, entered into an agreement with a Third Party for the
         production of Mutant Mice with such Standard Mutations. The Committee
         shall discuss the Standard Mutations listed in the report and choose
         from that list those Standard Mutations to be included in the next
         group of Mutant Mice to be produced by Lexicon as provided in Section
         2.4; provided, however, that the Committee shall not knowingly select a
         Standard Mutation which has already been the subject of published data
         from Third Parties including, without limitation, patents, published
         patent applications, or presented or published research. Subject in all
         cases to the confidentiality provisions herein, the Committee may, in
         its discretion, solicit advice from Third Parties regarding the
         appropriate fields of research and Standard Mutations to consider for
         selection.

         2.3.1    At each meeting, the Mutation Selection Committee shall choose
                  that number of Standard Mutations equal to ***** in accordance
                  with Section 2.4. The Committee shall determine the process by
                  which it selects the Standard Mutations to be incorporated in
                  the Mutant Mice. In addition to the selected Standard
                  Mutations, the Committee shall provide Lexicon with a list of
                  not fewer than ***** alternate Standard Mutations. If Lexicon
                  is unable to produce a Mutuant Mouse with a given selected
                  Standard Mutation due to third party rights, as provided in
                  Section 4.4 or nonviability of the heterozygous Mutant Mice,
                  as provided in Section 2.4, the next listed alternate Standard
                  Mutation shall become a selected Standard Mutation in lieu of
                  the original selected Standard Mutation.

         2.3.2    The Committee shall immediately notify Lexicon in writing of
                  its selections. A Committee selection may not be withdrawn or
                  modified if Lexicon has begun working on such selection,
                  except with the written consent of Lexicon, which may be
                  withheld in its sole reasonable discretion.

                                       -4-

<PAGE>   5

         2.3.3    If for any reason the Committee fails to meet and notify
                  Lexicon of its selections within the time provided above, the
                  delivery date for the corresponding group of Mutant Mice shall
                  be delayed an equivalent amount of time.

2.4      PRODUCTION OF MUTANT MICE. Lexicon will commence production of each
         group of Mutant Mice within ***** of receiving notification of the
         Mutation Selection Committee's decisions. Lexicon will complete the
         production of ***** selected by the Mutation Selection Committee, no
         later than ***** anniversary of the Effective Date, an additional group
         of ***** no later than the ***** anniversary of the Effective Date and
         ***** no later than each of ***** anniversaries of the Effective Date.
         If the nature of any of the Standard Mutations chosen prevents the
         production of a living Mutant Mouse heterozygous for such Standard
         Mutation, the parties hereto shall evaluate such conclusion and shall
         agree that either an alternate Standard Mutation shall be substituted
         for such selected Standard Mutation or Lexicon shall be deemed to have
         met its obligations hereunder by production and delivery of an
         embryonic stem cell with the original Standard Mutation.

2.5      SELECTION OF NFP. MGRI will select, after consultation with Lexicon,
         one or more not-for-profit organizations to act as the NFP. Such
         selection shall be made no later than the first anniversary of the
         Effective Date.

2.6      DELIVERY OF MUTANT MICE. Upon the birth of the first generation of any
         type of Mutant Mouse hereunder and provided such litter contains at
         least ***** Mutant Mice, Lexicon shall deliver one-half of such litter,
         dividing the males and females as evenly as possible, to MGRI or NFP.
         Delivery shall be in accordance with MGRI's, NFP's and Lexicon's mouse
         transfer policies. Lexicon shall certify to MGRI and NFP that each
         Mutant Mouse is heterozygous for the identified Standard Mutation. If
         the first generation litter does not include ***** Lexicon shall
         deliver breeding pairs from the second generation. Lexicon shall not be
         obligated to deliver a full Set for any Standard Mutation unless NFP or
         MGRI requests such a delivery. Normal packing and shipping costs for
         delivery by public carrier to MGRI and NFP shall be at Lexicon's
         expense. MGRI or NFP may elect, at its sole expense, to provide for an
         alternative delivery method.

2.7      BACK-UP COLONY. Lexicon shall maintain a back-up colony of ***** for
         each Standard Mutation for a minimum of *****.

2.8      PROJECT MANAGERS. Each party shall identify an employee who is the
         Project Manager for the work contemplated by this Agreement. The
         Project Managers shall be responsible for the coordination of his or
         her employer's efforts hereunder with the other parties and resolving,
         if possible, any issues or problems which arise. A party may replace
         its Project Manager at any time in its sole discretion.

                                       -5-

<PAGE>   6

2.9      OWNERSHIP/LICENSE GRANT.

         2.9.1    Subject to the license granted below, Lexicon shall own and
                  retain all rights to the Mutant Mice, including, but not
                  limited to, the rights to produce, breed, sell or license the
                  Mutant Mice and Lexicon Intellectual Property, as well as all
                  inventions or discoveries made solely by its employees in the
                  course of producing the Mutant Mice.

         2.9.2    Lexicon hereby grants to MGRI a worldwide exclusive license
                  under the Lexicon Intellectual Property, sublicensable by it
                  consistent with its not-for-profit status, to use and breed,
                  have bred, and to distribute the Mutant Mice for Research.
                  MGRI and/or NFP shall notify all recipients of the Mutant Mice
                  in writing of the restrictions on use of the Mutant Mice under
                  Section 4.2 and shall upon delivering any Mutant Mice to a
                  Third Party provide Lexicon with the name and address of such
                  party and the type of Mutant Mouse delivered. Notwithstanding
                  the foregoing license grant, Lexicon reserves to itself and
                  its "Collaborators", as hereinafter defined, a personal,
                  nontransferable right to breed, have bred and use (but not
                  distribute) Mutant Mice for Research. "Collaborator" shall
                  mean any Third Party with whom Lexicon enters into an
                  agreement to perform cooperative Research. Collaborators shall
                  agree to use the Mutant Mice only in performing the
                  collaborative Research with Lexicon and shall acknowledge in
                  writing the limitations of Section 4.2(i) and 4.2(ii). Lexicon
                  shall not enter into any cooperative Research agreement for a
                  particular Mutant Mouse with a Collaborator prior to the date
                  on which MGRI or NFP makes such Mutant Mouse publicly
                  available.

         2.9.3    Except for the license granted in this Section 2.9, Lexicon
                  does not grant to MGRI or NFP any license under the Lexicon
                  Intellectual Property.

2.10     DISTRIBUTION. MGRI shall use, and agrees to require NFP to use,
         reasonable efforts to ensure wide spread availability and distribution
         of the Mutant Mice for Research.

                                   ARTICLE III

3.       PAYMENT.

3.1      PAYMENT TO LEXICON. Subject to the terms and conditions set forth in
         this Agreement, in consideration of the development, production and
         delivery to MGRI and/or NFP of the Mutant Mice as provided herein, MGRI
         agrees to pay Lexicon a total of Eight Million Dollars in accordance
         with the schedule set forth in Exhibit A.

                                       -6-

<PAGE>   7

         3.1.1    All payments which are required to be made to Lexicon upon
                  delivery of Mutant Mice to MGRI or NFP shall occur only after
                  receipt of certification from Lexicon that each delivered Set
                  of Mutant Mice is heterozygous for the selected Standard
                  Mutation and, in the event of delivery to NFP, after NFP
                  certifies in writing to MGRI that it has received the Mutant
                  Mice and Lexicon's certification. NFP shall send its
                  certification to MGRI as promptly as possible after receipt of
                  the Mutant Mice, with a copy to Lexicon, but in no event later
                  than ***** after NFP has physically received the Mutant Mice.

         3.1.2    All payments may be made by check delivered to Lexicon at its
                  principal offices at The Woodlands, Texas, or by wire transfer
                  to an account identified in writing sufficiently in advance by
                  Lexicon.

3.2      COSTS INCURRED BY COMMITTEE. MGRI shall reimburse all reasonable
         costs incurred by the Mutation Selection Committee in performing its
         duties hereunder, including, without limitation, Members' reasonable
         travel costs and other reasonable Committee meeting expenses. In
         determining whether costs are reasonable, MGRI shall apply the same
         standards that it applies to consultants and employees working for MGRI
         who travel at MGRI's request. To avoid misunderstandings, the
         Chairperson of the Mutation Selection Committee shall advise MGRI in
         writing of any expenses that the Committee anticipates incurring in
         connection with a meeting other than travel, hotel and meals at least
         30 days prior to the meeting.

3.3      LATE PAYMENT. If any payment due hereunder is not made when due,
         Lexicon shall notify MGRI and NFP by letter, advising them that, at
         Lexicon's option, upon the expiration of ***** from the date of such
         letter, Lexicon may cease work on the production of Mutant Mice and/or
         cease delivery of Mutant Mice until such late payment has been made by
         MGRI.

                                   ARTICLE IV

4.       COVENANTS AND CONDITIONS

4.1      BEST COMMERCIALLY REASONABLE EFFORTS. Lexicon shall use its best
         commercially reasonable efforts to produce and deliver the Mutant Mice
         in accordance with the terms of this Agreement. MGRI recognizes that
         the production of the Mutant Mice involves a number of technologically
         complex steps and that technical obstacles from time to time on
         occasion may prevent Lexicon from producing some of the Mutant Mice on
         the schedule provided for herein. Lexicon shall immediately notify the
         Committee, MGRI and NFP of any such technical obstacle encountered and
         its analysis of whether the obstacle can be overcome and the time
         required to do so. If, after consultation with NFP and MGRI, Lexicon
         determines that production of such Mutant Mice within the time periods
         provided

                                       -7-

<PAGE>   8

         for herein is not feasible using its best commercially reasonable
         efforts, Lexicon may notify MGRI and NFP in writing that it is
         extending the relevant delivery date to a date that can be accomplished
         using its best commercially reasonable efforts. Such amended delivery
         date shall then be substituted for the original date currently provided
         in Section 2.2, provided however that under no circumstances shall any
         date be extended for more than one year from its original date
         currently provided in Section 2.2.

4.2      RESTRICTIONS ON USE OF MUTANT MICE. MGRI agrees to use the Mutant Mice
         only for Research and otherwise only as is consistent with MGRI's
         not-for-profit status. NFP and MGRI may provide any of the Mutant Mice
         that NFP receives to Third Party researchers for use in Research,
         provided that each such Third Party acknowledges in writing that (i) no
         right is granted to further sell, lease, license or otherwise transfer
         the Mutant Mice provided or any of their progeny, however produced; and
         (ii) the Mutant Mice are provided for Research purposes only. NFP
         and/or MGRI shall require each recipient of Mutant Mice to agree to
         indemnify, defend and hold harmless all the parties hereto from and
         against any and all claims, losses, liabilities and damages arising
         from or related to the recipient's use of the Mutant Mice.

4.3      NO INFRINGEMENT OF THIRD PARTY RIGHTS. Lexicon shall not be obligated
         to generate any Standard Mutation or produce or deliver any Mutant
         Mouse or embryonic stem cell if Lexicon reasonably believes, with the
         advice of its patent counsel and after consultation with NFP and the
         Committee, such action would infringe upon the intellectual property
         rights of a Third Party. In such event, Lexicon shall consult with NFP
         and the Committee to achieve an acceptable solution including but not
         limited to the generation of a non-infringing Standard Mutation and the
         production of non-infringing Mutant Mice. If no acceptable solution is
         reasonably available, MGRI may exercise its right to terminate this
         Agreement pursuant to Section 8.3.

                                    ARTICLE V

5.       CONFIDENTIALITY

5.1      In the course of producing and delivering the Mutant Mice, the parties
         hereto and the Members of the Committee may disclose Confidential
         Information to a party, NFP and/or to the Members of the Committee as
         necessary and useful to the performance of the parties' obligations and
         to enable the parties to realize their respective benefits under this
         Agreement. The parties receiving Confidential Information shall not
         disclose any of the Confidential Information to any Third Party or use
         any of the Confidential Information for their own benefit or any Third
         Party's benefit except as expressly permitted hereunder. Members shall
         not further disclose Confidential Information; provided however that
         Members who are also employees of NFP may disclose such Confidential
         Information to other employees and

                                       -8-

<PAGE>   9

         consultants who have a need to know such Confidential Information in
         order to perform this Agreement, provided that such other NFP employees
         and consultants agree in writing to maintain such Confidential
         Information in confidence in accordance with the terms of this
         Agreement.

5.2      NFP and Members shall sign a Confidentiality Agreement in a form
         satisfactory to Lexicon and MGRI.

5.3      Except as otherwise provided or permitted herein, upon expiration or
         termination of this Agreement, NFP, the Members and any party receiving
         Confidential Information shall destroy or deliver to the disclosing
         party any and all documents (including all copies) containing
         Confidential Information which are then in their possession (if any),
         and, at the disclosing party's request, shall certify that all such
         documents have been destroyed or delivered to the disclosing party and
         that they do not retain any such documents or any copies thereof;
         provided, however, that Lexicon, NFP and MGRI may retain one copy of
         each such document for record purposes only. The confidentiality
         obligations set forth in this Section will remain in effect for ten
         (10) years.

5.4      Lexicon may require any Third Party receiving a Mutant Mouse to agree
         in writing to similar confidentiality provisions prior to being given
         any Confidential Information.

5.5      The terms of this Agreement shall be treated as Confidential
         Information and shall not be disclosed to anyone (except for the
         parties' respective employees, consultants, agents and attorneys
         assisting in the review and negotiation of this Agreement who have a
         need to know the terms of this Agreement) without the written
         permission of MGRI and Lexicon. Notwithstanding the foregoing, the
         parties intend to jointly announce the execution of this Agreement and
         the results of other activities pursuant to this Agreement. Such
         announcements shall first be agreed upon by the parties in writing and
         may include disclosure of the amounts paid or to be paid to Lexicon
         hereunder and the number of Mutant Mice to be produced hereunder. If
         either party desires to release a separate announcement relating to
         this Agreement, it shall first allow the other party to approve in
         writing such proposed announcement; such approval shall not be
         unreasonably delayed or denied.

                                   ARTICLE VI

6.       WARRANTIES AND LIMITATIONS

6.1      Lexicon represents and warrants to MGRI that as of the Effective Date:

         6.1.1    to the best of Lexicon's knowledge, Lexicon Intellectual
                  Property existing as of the Effective Date is subsisting and
                  are not invalid or unenforceable, in whole or in part;

                                       -9-

<PAGE>   10

         6.1.2    it has the full right, power and authority to enter into this
                  Agreement;

         6.1.3    to the best of Lexicon's knowledge, Lexicon Intellectual
                  Property practiced as anticipated herein for the creation of
                  Mutant Mice does not infringe on any intellectual property
                  rights owned by any Third Party, and does not result from a
                  misappropriation by Lexicon of any property owned by any Third
                  Party;

         6.1.4    to the best of Lexicon's knowledge, there are no claims,
                  liabilities, losses, judgments or settlements by or against
                  Lexicon relating to OmniBank or affecting the Lexicon
                  Intellectual Property or that would operate to prevent Lexicon
                  from fulfilling its obligations in whole or in part under this
                  Agreement;

         6.1.5    to the best of Lexicon's knowledge, the information Lexicon
                  has provided to MGRI during the negotiation of this Agreement
                  is true and correct as of the Effective Date;

         6.1.6    during the course of producing the Standard Mutations and
                  Mutant Mice, Lexicon will not knowingly infringe any valid
                  patents; provided, however, Lexicon shall not be obligated to
                  undertake any review or investigation to confirm that no such
                  infringement exists;

         6.1.7    each Mutant Mouse delivered to NFP shall be heterozygous for
                  one of the selected Standard Mutations and, subject to the
                  terms and conditions of this Agreement, it shall deliver a Set
                  of the Mutant Mice for each selected Standard Mutation.

6.2.     MGRI represents and warrants to Lexicon that as of the Effective Date
         it has the full right, power and authority to enter into this
         Agreement.

6.3      EXCEPT FOR THOSE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS
         SECTION 6, LEXICON MAKES NO REPRESENTATIONS OR WARRANTIES WHATSOEVER,
         EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED
         WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE,
         REGARDING THE MUTANT MICE. NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO
         THE CONTRARY, LEXICON MAKES NO REPRESENTATION OR WARRANTY THAT ALL
         PATENT RIGHTS OF THIRD PARTIES WHICH MAY BE REQUIRED TO MAKE OR USE
         MUTANT MICE, IF ANY, HAVE BEEN SECURED. NOTWITHSTANDING THE ABOVE,
         LEXICON AGREES TO DISCLOSE TO NFP AND MGRI ANY THIRD PARTY RIGHTS,
         INCLUDING WITHOUT LIMITATION INTELLECTUAL PROPERTY RIGHTS, WHICH BECOME
         KNOWN TO LEXICON WHICH MAY BE REQUIRED TO AVOID CONFLICT WITH THE TERMS
         OF THIS AGREEMENT OR WHICH WOULD OBSTRUCT OR PREVENT

                                      -10-

<PAGE>   11

         USE OF THE MUTANT MICE BY NFP, MGRI OR THIRD PARTIES. LEXICON SHALL NOT
         BE LIABLE FOR, OR RESPONSIBLE FOR, OBTAINING OR PAYING THE COSTS OF ANY
         LICENSE FROM ANY THIRD PARTY WHICH MAY BE REQUIRED TO PRODUCE OR USE
         ANY OF THE MUTANT MICE. IF LEXICON DETERMINES SUCH A LICENSE IS
         REQUIRED, IT MAY TERMINATE PRODUCTION OF SUCH MUTANT MOUSE WITHOUT
         PENALTY UNLESS NFP OR MGRI OBTAINS THE REQUIRED LICENSE AT ITS SOLE
         EXPENSE.

6.4      NONE OF THE PARTIES HERETO SHALL HAVE ANY LIABILITY WITH REGARD TO ANY
         CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT EXCEPT FOR A CLAIM
         OF A MATERIAL BREACH OF ITS OBLIGATIONS HEREUNDER.

                                   ARTICLE VII

7.       INDEMNIFICATION

         Each party (the "Indemnifying Party") agrees to indemnify, defend and
         hold harmless, to the fullest extent permitted by law, the other party,
         their affiliates, directors, officers, shareholders, employees, agents,
         attorneys and each of the Members (collectively, the "Indemnified
         Persons"), from and against any and all Claims, Liabilities and Losses
         which may be imposed on, incurred by or asserted against any
         Indemnified Person arising out of or resulting from, directly or
         indirectly any material breach of this Agreement by the Indemnifying
         Party; provided, however, that an Indemnifying Party shall not be
         liable for any portion of any Claims, Liabilities or Losses resulting
         from a material breach by the Indemnified Person of its obligations
         under this Agreement or from the gross negligence, fraud or intentional
         misconduct of the Indemnified Person or related Indemnified Persons.

                                  ARTICLE VIII

8.       TERMINATION AND RIGHTS UPON TERMINATION

8.1      MGRI shall have the right to terminate this Agreement on 60 days
         written notice in the event that:

         8.1.1    Lexicon fails or is unable to provide the Committee with at
                  least 500 Standard Mutations to consider for selection at
                  the first Committee Meeting, and 1,000 Standard Mutations to
                  consider for selection at each subsequent meeting of the
                  Committee;

         8.1.2    Lexicon fails or is unable to deliver at least 40 sets of
                  Mutant Mice with the selected Standard Mutations acceptable to
                  NFP in accordance with this Agreement within three years of
                  the Effective Date;

                                      -11-

<PAGE>   12

         8.1.3    Lexicon has failed or has been unable to deliver 150 sets of
                  Mutant Mice acceptable to NFP in accordance with this
                  Agreement by the sixth annual anniversary of the Effective
                  Date;

         8.1.4    Lexicon's delivery of Mutant Mice fail to comply with the
                  delivery procedures, to be agreed upon by Lexicon, NFP and
                  MGRI, on more than three occasions; or

         8.1.5    Lexicon materially breaches this Agreement and fails to cure
                  such breach within thirty (30) days or, if such breach cannot
                  reasonably be cured within thirty (30) days commences to cure
                  such breach within thirty (30) days and diligently completes
                  such cure.

         Termination pursuant to this provision shall be effective on the
         sixtieth day after notice to Lexicon ("Termination Date").

8.2      Lexicon may terminate this Agreement effective thirty (30) days after
         notice has been given to each of NFP and MGRI in the event that Lexicon
         has performed all of its obligations under this Agreement and MGRI
         fails to make the payments required in accordance with the terms of
         this Agreement.

8.3      MGRI shall have the right to terminate this Agreement on thirty (30)
         days notice if either (a) MGRI and the Committee determine that they
         cannot identify, from the list of Standard Mutations reported by
         Lexicon, any Standard Mutations of scientific interest to use in the
         production of Mutant Mice, or (b) MGRI determines, in its sole
         discretion and after consultation with Lexicon and NFP, that
         performance of the Agreement by any party infringes on the intellectual
         property rights of a third party and MGRI also determines, in its sole
         discretion and after consultation with Lexicon and NFP, that a license
         to such rights is not available on economically reasonable terms.

8.4      In the event of a termination of this Agreement pursuant to Section 8.1
         or 8.3(a), the amount due to Lexicon pursuant to this Agreement shall
         be calculated as follows: ((number of Sets and partial Sets accepted
         under Section 2.6 delivered to and accepted by NFP) divided by 120) x
         ($8,000,000) (the "Total Payment"). If Lexicon has received more than
         the Total Payment from MGRI, it shall return the balance within 30 days
         after the Termination Date to MGRI. If Lexicon has received less than
         the Total Payment, MGRI shall pay Lexicon the difference between the
         amount already paid to Lexicon and the Total Payment within 30 days of
         the Termination Date.

8.5      In the event of termination of this Agreement pursuant to Section
         8.3(b) the parties shall review the status of the work hereunder at the
         time of termination and the costs expended and negotiate in good faith
         the amounts to be paid or re-paid, as the case may be, by one party to
         the other.

                                      -12-

<PAGE>   13

8.6      In the event of termination of this Agreement pursuant to Section 9.7,
         Lexicon shall provide MGRI with a written accounting of funds expended
         pursuant to this Agreement (the "Total Costs"). If Lexicon has received
         payments hereunder in excess of the Total Costs Lexicon shall with such
         written accounting refund to MGRI the amount of such excess.

8.7      The rights and obligations under Sections 2.7, 4.3, Article 5, Sections
         6.3, 6.4, Article 7, Sections 8.4, 8.5, 8.6, 9.6 and 9.11 shall survive
         termination of this Agreement by any party for any reason, delivery and
         payment for all of the Mutant Mice to be delivered hereunder and any
         expiration of this Agreement.

                                   ARTICLE IX

9.       MISCELLANEOUS

9.1      COMPLIANCE WITH LAWS. Lexicon acknowledges, and NFP shall acknowledge,
         that it is subject to and agrees to abide by all laws (including the
         Export Administration Act of 1979 and Arms Export Control Act)
         controlling the export of technical data, computer software, laboratory
         prototypes, biological material and other commodities. The transfer
         and/or export of any of such items may require a license from
         Governmental Authorities or written assurances by NFP, Lexicon or a
         Third Party requesting a Mutant Mouse that it shall not export such
         items to certain foreign countries without prior approval of such
         Governmental Authorities. MGRI acknowledges and agrees that Lexicon is
         not making any representation or warranty herein as to the existence or
         absence of any such requirement or that, if any such requirement
         exists, that it will be issued.

9.2      NOTICES. Any and all notices, requests or other communications
         hereunder shall be given in writing and delivered by (a) regular,
         overnight or registered or certified mail (return receipt requested),
         with first class postage prepaid, (b) hand delivery, (c) facsimile
         transmission or (d) overnight courier service, to the parties at the
         addresses or facsimile numbers provided on the signature page hereto,
         or at such other addresses or numbers as shall be designated by any
         party in a notice to the other parties given in accordance with this
         Section 9.2. Except as otherwise provided in this Agreement, all such
         communications shall be deemed to have been duly given, (A) in the case
         of a notice sent by regular mail, on the date actually received by the
         addressee, (B) in the case of a notice sent by registered or certified
         mail, on the date received (or refused) as shown on the return receipt,
         (C) in the case of a notice delivered by hand, when personally
         delivered, (D) in the case of a notice sent by facsimile, upon
         transmission subject to telephone confirmation of receipt, and (E) in
         the case of a notice sent by overnight mail or overnight courier
         service, the date delivered at the designated address, in each case
         given or addressed as aforesaid.

                                      -13-

<PAGE>   14

9.3      BENEFIT AND BURDEN. This Agreement shall inure to the benefit of, and
         shall be binding upon, the parties and their respective successors and
         any permitted assigns.

9.4      NO THIRD PARTY RIGHTS. Nothing in this Agreement shall be deemed to
         create any right in any creditor or other Person other than the
         Indemnified Parties pursuant to Article VII, and this Agreement shall
         not be construed in any respect to be a contract in whole or in part
         for the benefit of any third party (other than the Indemnified
         Parties).

9.5      AMENDMENTS AND WAIVER. No amendment, modification, restatement or
         supplement of this Agreement shall be valid unless the same is in
         writing and signed by the parties hereto. No waiver of any provision of
         this Agreement shall be valid unless in writing and signed by the party
         against whom that waiver is sought to be enforced. No failure or delay
         on the part of any party in exercising any right, power or privilege
         hereunder and no course of dealing between or among any of the parties
         shall operate as a waiver of any right, power or privilege hereunder.
         No single or partial exercise of any right, power or privilege
         hereunder shall preclude any other or further exercise thereof or the
         exercise of any other right, power or privilege hereunder. No notice to
         or demand on any party in any case shall entitle such party to any
         other or further notice or demand in similar or other circumstances or
         constitute a waiver of the rights of any party to any other or further
         action in any circumstances without notice or demand.

9.6      ASSIGNMENTS. Neither this Agreement nor any right, interest or
         obligation hereunder may be assigned by either of the parties without
         the prior written consent of all parties hereto and any attempt to do
         so shall be null and void.

9.7      FORCE MAJEURE. A non-performing party shall not be liable in damages
         for any delay or default in its performance, if such delay or default
         is caused by conditions beyond its control, including acts of God, war
         or insurrection, strikes, fire, or floods; provided, however, that any
         party shall have the right to terminate this Agreement upon thirty (30)
         days prior written notice if the other party is unable to fulfill its
         obligations under this Agreement due to any of the above-mentioned
         causes and such inability continues for a period of six (6) months.

9.8      COUNTERPARTS. This Agreement may be executed in counterparts and by the
         different parties in separate counterparts, each of which when so
         executed shall be deemed an original and all of which taken together
         shall constitute one and the same agreement.

9.9      SEVERABILITY. Should any clause, sentence, paragraph, subsection,
         Section or Article of this Agreement be judicially declared to be
         invalid, unenforceable or void, such decision will not have the effect
         of invalidating or voiding the remainder of this Agreement, and the
         part or parts of this Agreement so held to be invalid, unenforceable or
         void will be deemed to have been stricken herefrom by the parties, and
         the remainder will have the same force and

                                      -14-

<PAGE>   15

         effectiveness as if such stricken part or parts had never been included
         herein, provided however that in lieu of such invalid, unenforceable or
         void clause, sentence, paragraph, subsection, Section or Article, the
         parties working together in good faith are able to include as a
         negotiated part of this Agreement a valid and enforceable provision as
         similar in terms as may be possible which preserves the economic
         benefits to the parties.

9.10     APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
         PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
         THE LAWS OF THE STATE OF NEW JERSEY, WITHOUT GIVING EFFECT TO THE
         CONFLICT OF LAW PRINCIPLES THEREOF.

9.11     ARBITRATION. All disputes and disagreements between or among any or all
         of the parties hereto (each, a "Dispute") arising in connection with or
         related to this Agreement shall be resolved by binding arbitration
         administered by the American Arbitration Association (the "AAA") in New
         Jersey in accordance with, and in the following order of priority, (i)
         the terms of these arbitration provisions, (ii) the Commercial
         Arbitration Rules of the AAA, (iii) the Federal Arbitration Act (Title
         9 of the United States Code) and (iv) to the extent the foregoing are
         inapplicable, unenforceable or invalid, the laws of the State of New
         Jersey. The validity and enforceability of these arbitration provisions
         shall be determined in accordance with this same order of priority. In
         the event of any inconsistency between these arbitration provisions and
         such rules and statutes, these arbitration provisions shall control.
         Each of the parties may bring any action in any court of competent
         jurisdiction to (A) compel arbitration of any Dispute, (B) obtain
         interim measures of protection pending arbitration of any Dispute
         and/or (C) enforce any decision of the arbitrators, including the final
         award. If either of the parties fails or refuses to submit to binding
         arbitration following a lawful demand by the other, the party so
         failing or refusing shall bear all costs and expenses incurred by the
         other in compelling arbitration of such Dispute.

9.12     EXPENSES. Each of the parties shall pay its own legal and accounting
         expenses incident to the negotiation and administration and performance
         of this Agreement and the transactions contemplated hereby.

9.13     CAPTIONS. The captions and headings contained in this Agreement shall
         not be considered or given any effect in construing the provisions
         hereof if any question of intent should arise.

9.14     CONSTRUCTION. No provision of this Agreement shall be interpreted or
         construed against any of the parties solely because that party or its
         legal representative drafted such provision.

9.15     ENTIRE AGREEMENT. This Agreement sets forth all of the promises,
         agreements, conditions, understandings, warranties and representations
         among the parties with respect to the transactions contemplated hereby,
         and supersedes all prior agreements, arrangements and

                                      -15-

<PAGE>   16

         understandings among the parties, whether written, oral or otherwise.
         There are no promises, agreements, conditions, understandings,
         warranties or representations, oral or written, express or implied,
         among the parties concerning the subject matter hereof except as set
         forth herein.

         IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed as of the Effective Date.

                                       LEXICON GENETICS, INC.

                                       By: /s/ Arthur T. Sands
                                           -------------------------------------
                                           Arthur T. Sands, M.D., Ph.D.
                                           President

                                       Address:  4000 Research Forest Drive
                                                 The Woodlands, Texas 77381
                                                 Attention: President
                                                 Facsimile No: 281-364-0155
                                                 Telephone No: 281-364-0100

                                       MERCK GENOME RESEARCH INSTITUTE

                                       By:  /s/ C. Thomas Caskey
                                            ------------------------------------
                                            C. Thomas Caskey, M.D., F.A.C.P.
                                            President

                                       Address:  700 Sumneytown Pike
                                                 P.O. Box 4, WP26-207
                                                 West Point, Pennsylvania 19486
                                                 Attention:  President
                                                 Facsimile No: 215-652-4538
                                                 Telephone No: 215-652-7399

                                      -16-

<PAGE>   17
                                    EXHIBIT A
                               (PAYMENT SCHEDULE)

<TABLE>
<CAPTION>
        Payment Due Date                                                                  Amount
<S>     <C>                                                                               <C>
1.      Within ***** of signing this Agreement                                            $4,000,000
2.      Within ***** of NFP's acceptance of the ***** of Mutant Mice                      $1,000,000
        delivered by Lexicon
3.      Within ***** of NFP's acceptance of the ***** of Mutant Mice                      $1,000,000
        delivered by Lexicon
4.      Within ***** of NFP's acceptance of the ***** of Mutant Mice                      $1,000,000
        delivered by Lexicon
5.      Within ***** of NFP's acceptance of the ***** of Mutant Mice                      $1,000,000
        delivered by Lexicon
</TABLE>

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