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                                                                    EXHIBIT 10.1

                              EMPLOYMENT AGREEMENT

         THIS EMPLOYMENT AGREEMENT, made and entered into as of October 15, 1999
(the "EFFECTIVE DATE"), by and between Lexicon Genetics Incorporated, a Delaware
corporation (hereafter "COMPANY"), and Arthur T. Sands, M.D., Ph.D. (hereafter
"EXECUTIVE"), an individual and resident of Montgomery County, Texas.

                              W I T N E S S E T H:

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

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

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

         1.       EMPLOYMENT. During the Employment Period (as defined in
Section 4 hereof), the Company shall employ Executive, and Executive shall
serve, as President and Chief Executive Officer and as a member of the Company's
Board of Directors ("BOARD"). Executive's principal place of employment shall be
at the Company's principal corporate offices in The Woodlands, Texas, or at such
other location for the Company's principal corporate offices during the
Employment Period.

         2.       DUTIES AND RESPONSIBILITIES OF EXECUTIVE.

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

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         Competing Business (as defined in Section 11) unless approved by the
         Board), (3) deliver lectures, fulfill teaching or speaking engagements,
         or (4) manage personal investments; provided, however, any such
         activities must not materially interfere with performance of
         Executive's responsibilities under this Agreement.

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

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

         3.       COMPENSATION.

                  (a)      During the Employment Period, the Company shall pay
         to Executive an annual base salary of $200,000, in consideration for
         his services under this Agreement, payable on a pro rata basis in not
         less than monthly installments, in conformity with the Company's
         customary payroll practices for executive salaries. Executive's base
         salary shall be subject to review at least annually, and such salary
         may be adjusted, depending upon the performance of the Company and
         Executive, upon the recommendation of the Compensation Committee of the
         Board (the "COMPENSATION COMMITTEE"). All salary, bonus and other
         compensation payments hereunder shall be subject to all applicable
         payroll and other taxes.

                  (b)      As promptly as practicable after the end of each
         Bonus Year during the Employment Period, the Compensation Committee
         shall determine whether Executive is entitled to a bonus based on the
         attainment of performance goals during the Bonus Year then ended. The
         term "Bonus Year" refers to the 12-month period beginning on October 1
         and ending on September 30, with the first Bonus Year beginning on
         October 1, 1998 and ending on September 30, 1999. Effective for the
         Bonus Year beginning October 1, 1998, and for each Bonus Year
         thereafter during the Employment Period, the Compensation Committee
         shall establish certain performance goals for the Company and the
         Executive and a targeted annual bonus amount (which annual target bonus
         shall not exceed $50,000 unless otherwise determined by the
         Compensation Committee in its discretion). The target bonus shall be
         paid to Executive within 30 days after completion of the Company's
         financial statements for the applicable Bonus Year (but in no event
         later than 120 days after the end of such Bonus Year unless otherwise
         agreed by Executive) based on the extent to which the performance goals
         and objectives, in the judgment of the Compensation Committee, for the
         Bonus Year

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         have been achieved. The full amount of the target bonus shall be paid
         if substantially all of the designated performance goals and objectives
         have been achieved for the Bonus Year; if not, the Compensation
         Committee, in its discretion exercised in good faith, may award a
         target bonus to Executive in an amount less than the full target bonus
         for that Bonus Year. The Compensation Committee may also award
         additional bonuses or other compensation to Executive at any time in
         its complete discretion.

         4.       TERM OF EMPLOYMENT. Executive's initial term of employment
with the Company under this Agreement shall be for the four-year period
beginning on the Effective Date and ending at midnight (CST) on December 31,
2002, unless Notice of Termination pursuant to Section 7 is given by either the
Company or Executive to the other party. The Company and Executive shall each
have the right to give Notice of Termination at will, with or without cause, at
any time, subject to the terms and conditions of this Agreement regarding the
rights and duties of the parties upon termination of employment. The term of
employment hereunder ending on December 31, 2002, shall be referred to herein as
the "INITIAL TERM OF EMPLOYMENT." On December 31, 2002 and on December 31st of
each succeeding year (each such date being referred to as a "RENEWAL DATE"),
this Agreement shall automatically renew and extend for a period of one (1)
additional year (the "RENEWAL TERM") unless written notice of nonrenewal is
delivered from one party to the other at least ninety (90) days prior to the
relevant Renewal Date or, alternatively, the parties may mutually agree to
voluntarily enter into a new employment agreement at any time. The period from
the Effective Date through the date of Executive's termination of employment at
any time for whatever reason shall be referred to herein as the "EMPLOYMENT
PERIOD."

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

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

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

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

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

                  (c)      SPLIT DOLLAR LIFE INSURANCE. Within sixty (60) days
         of the Effective Date, the Company agrees to enter into a split dollar
         life insurance agreement with Executive, upon terms acceptable to the
         parties, with any established and reputable insurance company
         reasonably acceptable to the Executive, for a whole or universal life
         insurance policy on the life of Executive with a policy death benefit
         of at least $1,000,000. Executive's rights under the policy shall be
         determined in accordance with the terms of the split dollar life
         insurance agreement.

                  (d)      PAID VACATION. Executive shall be entitled to a paid
         annual vacation of four (4) weeks. Vacation time may be accumulated and
         carried over by Executive into any subsequent year(s); provided,
         however, Executive shall not be permitted to accumulate more than eight
         weeks of accrued and unused vacation. In addition, the Executive shall
         be allowed up to ten (10) days each year to attend professional
         continuing education meetings or seminars; provided, that attendance at
         such meetings or seminars shall be planned for minimum interference
         with the Company's business.

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

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

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

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

                  (b)      SEVERANCE PAYMENT.

                           (1)      At any time prior to a Change in Control (as
                  defined below), in the event that:

                                    (A)      Executive's employment hereunder is
                                    terminated by the Company at any time for
                                    any reason except (i) for Cause (as defined
                                    below) or (ii) due to Executive's death or
                                    Disability (as defined below);

                                    (B)      Executive terminates his own
                                    employment hereunder for Good Reason (as
                                    defined below); or

                                    (C)      Company terminates Executive's
                                    employment through notice of nonrenewal as
                                    of the end of the Initial Term of Employment
                                    (pursuant to Section 4) or any one-year
                                    Renewal Term,

                  then, in any such event, Executive shall be entitled to
                  receive, and the Company shall be obligated to pay,
                  Executive's base salary under Section 3(a) (without regard to
                  any bonuses or extraordinary compensation) then being paid to
                  him on the Termination Date as salary continuation (pursuant
                  to the Company's normal payroll procedures) for a period of
                  twelve (12) consecutive months following the Termination Date.
                  In the event of Executive's death during such salary
                  continuation period, the Company shall pay, within 60 days of
                  Executive's death, a lump sum equal to the present value of
                  all remaining payments (using a 5% interest discount rate) to
                  the Executive's surviving spouse, if any, or if there is no
                  surviving spouse, to Executive's estate.

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                           (2)      At any time after a Change in Control (as
                  defined below), in the event that:

                                    (A)      Executive's employment hereunder is
                                    terminated by the Company at any time for
                                    any reason except (i) for Cause (as defined
                                    below) or (ii) due to Executive's death or
                                    Disability (as defined below);

                                    (B)      Executive terminates his own
                                    employment hereunder for Good Reason (as
                                    defined below in this Section 6(c); or

                                    (C)      the Company terminates Executive's
                                    employment through notice of nonrenewal as
                                    of the end of the Initial Term of Employment
                                    (pursuant to Section 4) or any one-year
                                    Renewal Term,

                  then, in any such event, Executive shall be entitled to
                  receive, and the Company shall be obligated to pay,
                  Executive's base salary under Section 3(a) (without regard to
                  any bonuses or extraordinary compensation except as provided
                  below in this paragraph) then being paid to him on the
                  Termination Date as salary continuation (pursuant to the
                  Company's normal payroll procedures) for a period of twelve
                  (12) consecutive months following the Termination Date, plus
                  an additional single sum payment equal to Executive's full
                  target bonus (pursuant to Section 3(b)) for the Bonus Year in
                  which the termination occurred which shall be payable within
                  30 days from the Termination Date. In the event of Executive's
                  death during such salary continuation period, the Company,
                  within 60 days of Executive's death, shall pay a lump sum
                  equal to the present value of all remaining payments (using a
                  5% interest discount rate) to the Executive's surviving
                  spouse, if any, or if there is no surviving spouse, to
                  Executive' estate.

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

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

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

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

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

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

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

                                    (A)      Before a Change in Control (as
                           defined in Section 6(b)(4)), a five percent (5%) or
                           greater reduction in Executive's annual base salary
                           unless any such greater reduction is (i) applied
                           across the board to the other senior officers of the
                           Company or (ii) specifically agreed to in writing by
                           Executive or, after a Change in Control, any
                           reduction in Executive's base salary unless agreed to
                           in writing by Executive, provided that in either
                           event Executive specifically terminates his
                           employment for Good Reason

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                           hereunder within 120 days from the date that he has
                           actual notice of such reduction; or

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

                                    (C)      Before or after a Change in
                           Control, for any reason except on account of
                           Executive's Disability (as defined above), a
                           substantial and adverse change in the Executive's
                           duties, control, authority, status or position, or
                           the assignment to the Executive of any duties or
                           responsibilities which are materially inconsistent
                           with such status or position, or a material reduction
                           in the duties and responsibilities exercised by
                           Executive, or a loss of title, loss of office, loss
                           of significant authority, power or control, or any
                           removal of Executive from, or any failure to
                           reappoint or reelect him to, his CEO or Board
                           membership positions stated in Section 1; provided
                           that Executive specifically terminates his employment
                           for Good Reason hereunder within 120 days from the
                           date that he has actual notice of such action; or

                                    (D)      Only after a Change in Control (as
                           defined in Section 6(b)), any of the following events
                           will constitute Good Reason, provided that Executive
                           specifically terminates his employment for Good
                           Reason hereunder within six (6) months following his
                           receipt of actual notice of an event listed below:

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

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

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                                    prior to the Change in Control unless the
                                    Company or its successor provides a
                                    replacement plan or program with
                                    substantially similar benefits.

                  Notwithstanding the preceding provisions of this Section
         6(b)(8), if Executive desires to terminate his employment for Good
         Reason, he shall first give written notice of the facts and
         circumstances providing the basis for Good Reason to the Board or the
         Compensation Committee, and allow the Company thirty (30) days from the
         date of such notice to remedy, cure or rectify the situation giving
         rise to Good Reason to the reasonable satisfaction of Executive.

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

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

         9.       CONFLICTS OF INTEREST.

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

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

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

                           (1)      Ownership by the Executive and his immediate
                  family members of more than a two percent (2%) interest, on an
                  aggregated basis, in any lender, supplier, contractor,
                  customer or other entity with which Company or any of its
                  Affiliates does business;

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

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

         10.      CONFIDENTIAL INFORMATION.

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

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

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         limited to, the following types of information and other information of
         a similar nature (whether or not reduced to writing or designated as
         confidential):

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

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

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

                           (4)      Business acquisition and other business
                  opportunities.

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

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

                           (1)      At any time during the Employment Period and
                  within ten (10) years after the Employment Period, Executive
                  shall not disclose Confidential Information to any person or
                  entity, either inside or outside of Company, other than as
                  necessary in carrying out duties on behalf of Company, without
                  obtaining Company's prior written consent (unless such
                  disclosure is compelled pursuant to court order or subpoena,
                  and at which time Executive gives notice of such proceedings
                  to Company), and Executive will take all reasonable
                  precautions to prevent inadvertent

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                  disclosure of such Confidential Information. This prohibition
                  against Executive's disclosure of Confidential Information
                  includes, but is not limited to, disclosing the fact that any
                  similarity exists between the Confidential Information and
                  information independently developed by another person or
                  entity, and Executive understands that such similarity does
                  not excuse Executive from abiding by his covenants or other
                  obligations under this Agreement.

                           (2)      At any time during or after the Employment
                  Period, Executive shall not use, copy or transfer Confidential
                  Information other than as necessary in carrying out his duties
                  on behalf of Company, without first obtaining Company's prior
                  written consent, and will take all reasonable precautions to
                  prevent inadvertent use, copying or transfer of such
                  Confidential Information. This prohibition against Executive's
                  use, copying, or transfer of Confidential Information
                  includes, but is not limited to, selling, licensing or
                  otherwise exploiting, directly or indirectly, any products or
                  services (including databases, written documents and software
                  in any form) which embody or are derived from Confidential
                  Information, or exercising judgment in performing analyses
                  based upon knowledge of Confidential Information.

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

                  (f)      INVENTIONS. Any and all inventions, products,
         discoveries, improvements, copyrightable or patentable works or
         products, trademarks, service marks, ideas, processes, formulae,
         methods, designs, techniques and trade secrets (collectively
         hereinafter referred to as "INVENTIONS") made, developed, conceived or
         resulting from work performed by Executive (alone or in conjunction
         with others, during regular hours of work or otherwise) while he is
         employed by Company and which may be directly or indirectly useful in,
         or related to, the business of Company (including, without limitation,
         research and development activities of Company), or which are made
         using any equipment, facilities, Confidential Information, materials,
         labor, money, time or other resources of Company, shall be promptly

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         disclosed by Executive to the person or persons designated by the
         Board, shall be deemed Confidential Information for purposes of this
         Agreement, and shall be Company's exclusive property. Executive shall,
         upon Company's reasonable request during or after the Employment
         Period, execute any documents and perform all such acts and things
         which are necessary or advisable in the opinion of Company to cause
         issuance of patents to, or otherwise obtain recorded protection of
         right to intellectual property for, Company with respect to Inventions
         that are to be Company's exclusive property under this Section 10, or
         to transfer to and vest in Company full and exclusive right, title and
         interest in and to such Inventions; provided, however, that the expense
         of securing any such protection of right to Inventions shall be borne
         by Company. In addition, during or after the Employment Period,
         Executive shall, at Company's expense, reasonably assist the Company in
         any reasonable and proper manner in enforcing any Inventions which are
         to be or become Company's exclusive property hereunder against
         infringement by others. Executive shall keep confidential and will hold
         for Company's sole use and benefit any Invention that is to be
         Company's exclusive property under this Section 10 for which full
         recorded protection of right has not been or cannot be obtained.

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

                  If during the Employment Period, Executive creates any
         original work of authorship or other property fixed in any tangible
         medium of expression which (1) is the subject matter of copyright
         (including computer programs) and (2) relates to, or is useful in,
         Company's present or planned business, products, or services, whether
         such property is created solely by Executive or jointly with others,
         such property shall be deemed a work for hire, with the copyright
         vesting in the Company unless the Company otherwise consents to the
         copyright vesting in another person or entity; provided, however, the
         parties agree that, notwithstanding anything herein to the contrary,
         (A) Executive shall retain all copyright and other property rights in
         Executive's personal memoirs (or any fictional or non-fictional
         derivative thereof) which address topics including the founding of the
         Company and the development of the functional genomics field and (B)
         such memoirs (or any fictional or non-fictional derivative thereof) may
         be published and released in any medium of expression

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         at any time subject to the foregoing provisions of this Section 10
         regarding Confidential Information and Inventions.

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

                  (h)      EMPLOYEE PROPRIETARY INFORMATION AGREEMENT. The
         provisions of this Section 10 shall not supersede the Employee
         Proprietary Information Agreement (the "Proprietary Agreement") between
         Employee and the Company (or any other agreement of similar intent)
         which shall remain in full force and effect and, moreover, this
         Agreement, the Proprietary Agreement and any such other similar
         agreement between the parties shall be construed and applied as being
         mutually consistent to the full extent possible. Notwithstanding the
         immediately preceding sentence, the second paragraph of Section 10(g)
         hereof, but only such provisions which address Executive's personal
         memoirs (or any fictional or non-fictional derivative thereof), shall
         control in the event of any conflict or inconsistency between such
         provisions in Section 10(g) and the Proprietary Agreement or any other
         agreement of similar intent.

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

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

                  (a)      PROHIBITED EXECUTIVE ACTIVITIES. Executive agrees
         that except in the ordinary course and scope of his employment
         hereunder during the Employment Period, Executive shall not while
         employed by Company and for a period of (i) six (6) months following
         his Termination Date within the continental United States and (ii)
         twelve (12) months following his Termination Date only within the State
         of Texas:

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

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

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

                           "COMPETING BUSINESS" means any individual, business,
                  firm, company, partnership joint venture, organization, or
                  other entity whose products or services compete, in whole or
                  in part, at any time during the Employment Period with the
                  products or services (or planned products and services) of
                  Company including, without limitation, genomics research,
                  development and products including, without limitation,
                  OmniBank(TM), homologous recombination, DNA sequencing,
                  phenotypic analysis, drug validation and drug discovery.

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

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

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

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

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

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

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

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

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

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

                  (d)      JUDICIAL MODIFICATION. Executive agrees that if an
         arbitrator (pursuant to Section 21) or a court of competent
         jurisdiction determines that the length of time or any other
         restriction, or portion thereof, set forth in this Section 11 is overly
         restrictive and unenforceable, the arbitrator or court shall reduce or
         modify such restrictions to those which it deems reasonable and
         enforceable under the circumstances, and as so reduced or modified,

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         the parties hereto agree that the restrictions of this Section 11 shall
         remain in full force and effect. Executive further agrees that if an
         arbitrator or court of competent jurisdiction determines that any
         provision of this Section 11 is invalid or against public policy, the
         remaining provisions of this Section 11 and the remainder of this
         Agreement shall not be affected thereby, and shall remain in full force
         and effect.

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

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

         14.      DETERMINATIONS BY THE COMPENSATION COMMITTEE.

                  (a)      TERMINATION OF EMPLOYMENT. Prior to a Change in
         Control (as defined in Section 6(b)), any question as to whether and
         when there has been a termination of

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         Executive's employment, the cause of such termination, and the
         Termination Date, shall be determined by the Compensation Committee in
         its discretion exercised in good faith.

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

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

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

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

         18.      SEVERABILITY. It is the desire of the parties hereto that this
Agreement be enforced to the maximum extent permitted by law, and should any
provision contained herein be held unenforceable by a court of competent
jurisdiction or arbitrator (pursuant to Section 21), the parties hereby agree
and consent that such provision shall be reformed to create a valid and
enforceable provision to the maximum extent permitted by law; provided, however,
if such provision cannot be reformed, it shall be deemed ineffective and deleted
herefrom without affecting any other provision of this Agreement.

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

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

         21.      ARBITRATION.

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

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

                  (c)      ARBITRATION PROCEDURES. The arbitrator shall set the
         date, time and place for each hearing, and shall give the parties
         advance written notice in accordance with the Rules.

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

                  (d)      COMPLIANCE WITH AWARD.

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

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

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

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

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

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

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

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

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

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

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

                  (1)      If to Company, addressed to:

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

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

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

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

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

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

              [Intentionally left blank -- signature page follows]

                                                              Initials:
                                                                       ---------

                                                              Initials:
                                                                       ---------

                                       23
<PAGE>   24

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

                                 EXECUTIVE:

                                Signature:  /s/ Arthur T. Sands
                                             -----------------------------------
                                Date:  October 21, 1999
                                     -------------------------------------------

                                Address for Notices: 4000 Research Forest Drive
                                                     ---------------------------
                                                     The Woodlands, Texas 77381
                                             -----------------------------------
                                                     (fax) 281-364-0155
                                             -----------------------------------

                               LEXICON GENETICS INCORPORATED

                               By:  /s/ Dr. Paul Haycock
                                    --------------------------------------------

                                Name:  Dr. Paul Haycock
                                     -------------------------------------------

                                Title: Chairman of Compensation Committee
                                      ------------------------------------------

                                Date:  October 27, 1999
                                     -------------------------------------------

                                       24<PAGE>   1
                                                                    EXHIBIT 10.2

                              EMPLOYMENT AGREEMENT

         THIS EMPLOYMENT AGREEMENT, made and entered into as of January 17, 2000
(the "EFFECTIVE DATE"), by and between Lexicon Genetics Incorporated, a Delaware
corporation (hereafter "COMPANY"), and James R. Piggott, Ph.D. (hereafter
"EXECUTIVE"), an individual and resident of King County, Washington.

                              W I T N E S S E T H:
                               -------------------

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

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

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

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

         2.  DUTIES AND RESPONSIBILITIES OF EXECUTIVE.

                  (a) During the Employment Period, Executive shall devote his
         services full time to the business of the Company and its Affiliates
         (as defined below), and perform the duties and responsibilities
         assigned to him by the Chief Executive Officer ("CEO") or Board of
         Directors (the "BOARD") of the Company to the best of his ability and
         with reasonable diligence. Executive agrees to cooperate fully with the
         Board, CEO and other executive officers of the Company, and not to
         engage in any activity which conflicts with or interferes with the
         performance of his duties hereunder. During the Employment Period,
         Executive shall devote his best efforts and skills to the business and
         interests of Company, do his utmost to further enhance and develop
         Company's best interests and welfare, and endeavor to improve his
         ability and knowledge of Company's business, in an effort to increase
         the value of his services for the mutual benefit of the parties hereto.
         During the Employment Period, it shall not be a violation of this
         Agreement for Executive to (1) serve on corporate, civic, or charitable
         boards or committees (except for boards or committees of a Competing
         Business (as defined in Section 11)), (2) deliver lectures, fulfill
         teaching or speaking engagements, or (3) manage personal investments;
         provided that such activities do not materially interfere with
         performance of Executive's responsibilities under this Agreement.

                                       1
<PAGE>   2

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

                  (b) Executive has provided to Company copies of (i) the
         noncompetition provisions of the Employment Agreement between Executive
         and ZymoGenetics, Inc. and (ii) a Confidentiality Agreement between
         Executive and ZymoGenetics, Inc. Executive and Company have each
         reviewed such agreements and determined that Executive's employment by
         Company pursuant to this Agreement will not violate the terms of either
         such agreement. Executive and Company further agree that Company will
         not ask or request Executive to perform, and that Executive will not
         perform, any activity on behalf of Company that would violate either
         such agreement. Subject to the preceding disclosures in this Section
         2(b), Executive represents and covenants to Company that he is not
         subject or a party to any employment agreement, noncompetition
         covenant, nondisclosure agreement, or any similar agreement, covenant,
         understanding, or restriction that would prohibit Executive from
         executing this Agreement and fully performing his duties and
         responsibilities hereunder, or would in any manner, directly or
         indirectly, limit or affect the duties and responsibilities that may
         now or in the future be assigned to Executive hereunder.

         3.       COMPENSATION.

                  (a) During the Employment Period, the Company shall pay to
         Executive an annual base salary of not less than $200,000 in
         consideration for his services under this Agreement, payable on a pro
         rata basis in not less than monthly installments, in conformity with
         the Company's customary payroll practices for executive salaries.
         Executive's base salary shall be subject to review at least annually,
         and such salary may be adjusted, depending upon the performance of the
         Company and Executive, upon the recommendation of the Compensation
         Committee of the Board (the "COMPENSATION COMMITTEE"). All salary,
         bonus and other compensation payments hereunder shall be subject to all
         applicable payroll and other taxes.

                  (b) As promptly as practicable after the end of each calendar
         year during the Employment Period, the Compensation Committee shall
         determine whether Executive is entitled to a bonus based on the
         attainment of performance goals during the calendar year then ended
         (the "BONUS YEAR"). For each Bonus Year during the Employment Period
         (including the Bonus Year commencing on the Effective Date and ending
         on December 31, 2000), the Compensation Committee shall establish
         certain performance goals for the Company and the Executive and a
         targeted annual bonus amount (the amount of which annual target bonus
         shall be within the sole discretion of the Compensation Committee). The
         target bonus shall be paid to Executive within 60 days after the end of
         the applicable Bonus Year based on the extent to which the performance
         goals and objectives for the Bonus Year have been achieved. The full
         amount of the target bonus shall be paid if substantially all of the
         designated performance goals and objectives have been achieved for the
         Bonus Year; if not, the Compensation Committee, in its discretion
         exercised in good faith, may award a target bonus to Executive in an
         amount less than the full target bonus for that Bonus Year.

                                       2

<PAGE>   3

         The Compensation Committee may also award additional bonuses or other
         compensation to Executive at any time in its complete discretion.

         4.       TERM OF EMPLOYMENT. Executive's initial term of employment
with the Company under this Agreement shall be for the period beginning on the
Effective Date and ending at midnight (CST) on December 31, 2001, unless Notice
of Termination pursuant to Section 7 is given by either the Company or Executive
to the other party. The Company and Executive shall each have the right to give
Notice of Termination at will, with or without cause, at any time, subject to
the terms and conditions of this Agreement regarding the rights and duties of
the parties upon termination of employment. The term of employment hereunder
ending on December 31, 2001, shall be referred to herein as the "INITIAL TERM OF
EMPLOYMENT." On December 31, 2001 and on December 31st of each succeeding year
(each such date being referred to as a "RENEWAL DATE"), this Agreement shall
automatically renew and extend for a period of one (1) additional year (a
"RENEWAL TERM") unless written notice of non-renewal is delivered from one party
to the other at least sixty (60) days prior to the relevant Renewal Date or,
alternatively, the parties may mutually agree to voluntarily enter into a new
employment agreement at any time. The period from the Effective Date through the
date of Executive's termination of employment at any time for whatever reason
shall be referred to herein as the "EMPLOYMENT PERIOD."

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

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

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

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

                                       3
<PAGE>   4

         LTD policy which covers employees generally does not provide sufficient
         coverage to Executive, as described in the previous sentence, Company
         agrees to purchase a supplemental LTD policy for Executive from a
         reputable insurer and to pay the premiums on Executive's behalf during
         the Employment Period.

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

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

                  (d) RELOCATION AND INTERIM HOUSING AND TRAVEL EXPENSES. The
         Company shall pay or reimburse Executive all reasonable expenses paid
         or incurred by Executive for the relocation of Executive's household
         belongings from Executive's home in Bothell, Washington to a home in
         The Woodlands, Texas area. In addition, the Company shall pay or
         reimburse Executive all reasonable expenses paid or incurred by
         Executive pending such relocation for a period of up to six (6) months
         from the Effective Date for (1) temporary living accommodations in The
         Woodlands, Texas area and (2) reasonable airfare for two roundtrip
         flights per month from Houston, Texas to Seattle, Washington. Executive
         shall provide substantiating documentation for expense reimbursement
         requests as reasonably required by the Company. During the first year
         of employment, the Executive will also be entitled to an additional
         fifteen (15) days of non-paid leave for personal use.

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

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

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

                                       4
<PAGE>   5

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

                  (b)      SEVERANCE PAYMENTS.

                           (1) At any time prior to a Change in Control (as
                  defined below), in the event that (A) Executive's employment
                  hereunder is terminated by the Company at any time for any
                  reason except (i) for Cause (as defined below) or (ii) due to
                  Executive's death or Disability (as defined below), or (B)
                  Executive terminates his own employment hereunder for Good
                  Reason (as defined below), then, in either such event,
                  Executive shall be entitled to receive, and the Company shall
                  be obligated to pay, Executive's base salary under Section
                  3(a) (without regard to any bonuses or extraordinary
                  compensation) then being paid to him on the Termination Date
                  as salary continuation (pursuant to the Company's normal
                  payroll procedures) for a period equal to six (6) consecutive
                  months following the Termination Date. In the event of
                  Executive's death during such salary continuation period, the
                  Company shall pay the sum of the present value of all
                  remaining payments (using a 5% discount rate) in a single
                  payment to Executive's surviving spouse, if any, or if there
                  is no surviving spouse, to Executive's estate within 60 days
                  of his death. Such severance payments shall be subject to
                  Sections 10 and 11 hereof.

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

                           (2) At any time after a Change in Control (as defined
                  below), in the event that (A) Executive's employment hereunder
                  is terminated by the Company at any time for any reason except
                  (i) for Cause (as defined below) or (ii) due to Executive's
                  death or Disability (as defined below), or (B) Executive
                  terminates his own employment hereunder for Good Reason (as
                  defined below in this Section 6(c)), then, in either such
                  event, Executive shall be entitled to receive, and the Company
                  shall be obligated to pay, Executive's base salary under
                  Section 3(a) (without regard to any bonuses or extraordinary
                  compensation except as provided below in this paragraph) then
                  being paid to him on the Termination Date as salary
                  continuation (pursuant to the Company's normal payroll
                  procedures) for a period equal to twelve (12)

                                       5
<PAGE>   6

                  consecutive months following the Termination Date, plus an
                  additional single sum payment equal to one-half of Executive's
                  target bonus (pursuant to Section 3(b)) for the Bonus Year in
                  which the termination occurred, which bonus shall be payable
                  within 30 days from the Termination Date. In the event of
                  Executive's death during such salary continuation period, the
                  Company shall pay the sum of the present value of all
                  remaining payments in a single payment (using a 5% discount
                  rate) to Executive's surviving spouse, if any, or if there is
                  no surviving spouse, to Executive's estate within 60 days of
                  his death.

                           After a Change in Control, in the event that the
                  Company terminates Executive's employment through notice of
                  nonrenewal as of the end of the Initial Term of Employment
                  (pursuant to Section 4) or any one-year Renewal Term,
                  Executive shall be entitled to receive, and the Company shall
                  be obligated to pay, Executive's base salary under Section
                  3(a) (without regard to any bonuses or extraordinary
                  compensation) then being paid to him on the Termination Date
                  as salary continuation (pursuant to the Company's normal
                  payroll procedures) for a period of six (6) consecutive months
                  following the Termination Date.

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

                           (4) A "CHANGE IN CONTROL" of the Company shall be
                  deemed to have occurred if any of the following shall have
                  taken place: (A) any "person" (as such term is used in
                  Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
                  1934 (the "Exchange Act")) other than Gordon Cain and his
                  Affiliates (defined below), taken together, is or becomes the
                  "beneficial owner" (as defined in Rule 13d-3 under the
                  Exchange Act, or any successor provisions thereto), directly
                  or indirectly, of securities of the Company representing
                  thirty-five percent (35%) or more of the combined voting power
                  of the Company's then-outstanding voting securities; (B) the
                  approval by the stockholders of the Company of a
                  reorganization, merger, or consolidation, in each case with
                  respect to which persons who were stockholders of the Company
                  immediately prior to such reorganization, merger, or
                  consolidation do not, immediately thereafter, own or control
                  more than fifty percent (50%) of the combined voting power
                  entitled to vote generally in the election of directors of the
                  reorganized, merged or consolidated Company's then outstanding
                  securities in

                                       6
<PAGE>   7

                  substantially the same proportion as their ownership of the
                  Company's outstanding voting securities prior to such
                  reorganization, merger or consolidation; (C) a liquidation or
                  dissolution of the Company or the sale of all or substantially
                  all of the Company's assets; (D) in the event any person is
                  elected by the stockholders of the Company to the Board who
                  has not been nominated for election by a majority of the Board
                  or any duly appointed committee thereof; or (E) following the
                  election or removal of directors, a majority of the Board
                  consists of individuals who were not members of the Board two
                  (2) years before such election or removal, unless the election
                  of each director who is not a director at the beginning of
                  such two-year period has been approved in advance by directors
                  representing at least a majority of the directors then in
                  office who were directors at the beginning of the two-year
                  period. The Board, in its discretion, may deem any other
                  corporate event affecting the Company to be a "Change in
                  Control" hereunder.

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

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

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

                           (7) "CAUSE" means a termination of employment
                  directly resulting from (1) the Executive having engaged in
                  intentional misconduct causing a material

                                       7
<PAGE>   8

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

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

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

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

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

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

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

                                       8
<PAGE>   9

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

                           Notwithstanding the preceding provisions of this
                  Section 6(b)(8), if Executive desires to terminate his
                  employment for Good Reason, he shall first give written notice
                  of the facts and circumstances providing the basis for Good
                  Reason to the Board or the Compensation Committee, and allow
                  the Company thirty (30) days from the date of such notice to
                  remedy, cure or rectify the situation giving rise to Good
                  Reason to the reasonable satisfaction of Executive.

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

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

         9.       CONFLICTS OF INTEREST.

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

                  (b) Executive and Company recognize and acknowledge that it is
         not possible to provide an exhaustive list of actions or interests
         which may constitute a "conflict of interest." Moreover, Company and
         Executive recognize there are many borderline situations. In some
         instances, full disclosure of facts by the Executive to the Board may
         be all that is necessary to enable Company to protect its interests. In
         others, if no improper motivation appears to exist and Company's
         interests have not demonstrably suffered, prompt elimination of the
         outside interest may suffice. In other serious instances, it may be
         necessary for the Company

                                       9
<PAGE>   10

         to terminate Executive's employment for Cause (as defined in Section
         6(b)). The Board reserves the right to take such action as, in its good
         faith judgment, will resolve the conflict of interest.

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

                           (1) Ownership by the Executive and his immediate
                  family members of more than a two percent (2%) interest, on an
                  aggregated basis, in any lender, supplier, contractor,
                  customer or other entity with which Company or any of its
                  Affiliates does business;

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

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

         10.      CONFIDENTIAL INFORMATION.

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

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

                                       10
<PAGE>   11

         known by non-Company personnel. Such Confidential Information includes,
         but is not limited to, the following types of information and other
         information of a similar nature (whether or not reduced to writing or
         designated as confidential):

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

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

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

                           (4) Business acquisition and other business
                  opportunities.

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

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

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

                                       11
<PAGE>   12

                  independently developed by another person or entity, and
                  Executive understands that such similarity does not excuse
                  Executive from abiding by his covenants or other obligations
                  under this Agreement.

                           (2) At any time during or after the Employment
                  Period, Executive shall not use, copy or transfer Confidential
                  Information other than as necessary in carrying out his duties
                  on behalf of Company, without first obtaining Company's prior
                  written consent, and will take all reasonable precautions to
                  prevent inadvertent use, copying or transfer of such
                  Confidential Information. This prohibition against Executive's
                  use, copying, or transfer of Confidential Information
                  includes, but is not limited to, selling, licensing or
                  otherwise exploiting, directly or indirectly, any products or
                  services (including databases, written documents and software
                  in any form) which embody or are derived from Confidential
                  Information, or exercising judgment in performing analyses
                  based upon knowledge of Confidential Information.

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

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

                                       12
<PAGE>   13

         respect to Inventions that are to be Company's exclusive property under
         this Section 10, or to transfer to and vest in Company full and
         exclusive right, title and interest in and to such Inventions;
         provided, however, that the expense of securing any such protection of
         right to Inventions shall be borne by Company. In addition, during or
         after the Employment Period, Executive shall, at Company's expense,
         reasonably assist the Company in any reasonable and proper manner in
         enforcing any Inventions which are to be or become Company's exclusive
         property hereunder against infringement by others. Executive shall keep
         confidential and will hold for Company's sole use and benefit any
         Invention that is to be Company's exclusive property under this Section
         10 for which full recorded protection of right has not been or cannot
         be obtained.

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

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

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

                  (h) EMPLOYEE PROPRIETARY INFORMATION AGREEMENT. The provisions
         of this Section 10 shall not supersede the Employee Proprietary
         Information Agreement (the

                                       13
<PAGE>   14

         "Proprietary Agreement") between Employee and the Company (or any other
         agreement of similar intent) which shall remain in full force and
         effect and, moreover, this Agreement, the Proprietary Agreement and any
         such other similar agreement between the parties shall be construed and
         applied as being mutually consistent to the full extent possible.

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

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

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

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

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

                           (3) Directly or indirectly, either as principal,
                  agent, independent contractor, consultant, director, officer,
                  employee, advisor (whether paid or unpaid), stockholder,
                  partner or in any other individual or representative capacity
                  whatsoever, either for his own benefit or for the benefit of
                  any other person or entity, either

                                       14
<PAGE>   15

                  (A) hire, attempt to hire, contact or solicit with respect to
                  hiring any employee of Company, (B) induce or otherwise
                  counsel, advise or encourage any employee of Company to leave
                  the employment of Company, or (C) induce any distributor,
                  representative or agent of Company to terminate or modify its
                  relationship with Company.

                           "COMPETING BUSINESS" means any individual, business,
                  firm, company, partnership, joint venture, organization, or
                  other entity whose products or services compete in whole or in
                  part, at any time during the Employment Period with the
                  products or services (or planned products and services) of
                  Company including, without limitation, genomics research,
                  development and products including, without limitation, the
                  Human Gene Trap(TM) database, OmniBank(R), homologous
                  recombination, DNA sequencing, phenotypic analysis, drug
                  target validation and drug discovery.

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

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

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

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

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

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

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

                                       15
<PAGE>   16

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

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

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

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

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

                                       16
<PAGE>   17

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

         14.      DETERMINATIONS BY THE COMPENSATION COMMITTEE.

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

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

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

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

         17.      INCOMPETENT OR MINOR PAYEES. Should the Board determine that
any person to whom any payment is payable under this Agreement has been
determined to be legally incompetent or is a minor, any payment due hereunder
may, notwithstanding any other provision of this Agreement to the contrary, be
made in any one or more of the following ways: (a) directly to such minor or
person; (b) to the legal guardian or other duly appointed personal
representative of the

                                       17
<PAGE>   18

person or estate of such minor or person; or (c) to such adult or adults as
have, in the good faith knowledge of the Board, assumed custody and support of
such minor or person; and any payment so made shall constitute full and complete
discharge of any liability under this Agreement in respect to the amount paid.

         18.      SEVERABILITY. It is the desire of the parties hereto that this
Agreement be enforced to the maximum extent permitted by law, and should any
provision contained herein be held unenforceable by a court of competent
jurisdiction or arbitrator (pursuant to Section 21), the parties hereby agree
and consent that such provision shall be reformed to create a valid and
enforceable provision to the maximum extent permitted by law; provided, however,
if such provision cannot be reformed, it shall be deemed ineffective and deleted
herefrom without affecting any other provision of this Agreement.

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

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

         21.      ARBITRATION.

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

                                       18
<PAGE>   19

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

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

                  (j)      COMPLIANCE WITH AWARD.

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

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

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

         22.      BINDING EFFECT; THIRD PARTY BENEFICIARIES. This Agreement
shall be binding upon and inure to the benefit of the parties hereto, and to
their respective heirs, executors, personal

                                       19
<PAGE>   20

representatives, successors and permitted assigns hereunder, but otherwise this
Agreement shall not be for the benefit of any third parties.

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

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

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

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

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

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

                                       20
<PAGE>   21

                  (1)      If to Company, addressed to:

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

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

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

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

         29.      EXECUTIVE ACKNOWLEDGMENT; NO STRICT CONSTRUCTION. The
Executive represents to Company that he is knowledgeable and sophisticated as to
business matters, including the subject matter of this Agreement, that he has
read the Agreement and that he understands its terms and conditions. The parties
hereto agree that the language used in this Agreement shall be deemed to be the
language chosen by them to express their mutual intent, and no rule of strict
construction shall be applied against either party hereto. Consistent with and
subject to the disclosures referenced in Section 2(b) of this Agreement,
Executive also represents that he is free to enter into this Agreement
including, without limitation, that he is not subject to any undisclosed
contract of employment or covenant not to compete that would conflict in any way
with his duties under this Agreement. Executive acknowledges that he has had the
opportunity to consult with counsel of his choice, independent of Employer's
counsel, regarding the terms and conditions of this Agreement and has done so to
the extent that he, in his unfettered discretion, deemed to be appropriate.

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

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

                                       21
<PAGE>   22
                                     EXECUTIVE:

                                     Signature:  /s/ James R. Piggott
                                                 -------------------------------
                                                 James R. Piggott, Ph.D.

                                     Date:  January 25, 2000
                                            ------------------------------------

                                     Address for Notices:

                                     23827 Second Avenue West
                                     Bothell, Washington  98021

                                     LEXICON GENETICS INCORPORATED

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

                                     Date:  January 24, 2000
                                            ------------------------------------

                                       22

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