Document:

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CONFIDENTIAL TREATMENT REQUESTED                                   EXHIBIT 10.11

                                    AGREEMENT

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

                              PRELIMINARY STATEMENT

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

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

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

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

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

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

                                    ARTICLE I

1.       DEFINITIONS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                   ARTICLE II

2.       DEVELOPMENT

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

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

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

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

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

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

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

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

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

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

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

                                       -5-

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2.9      OWNERSHIP/LICENSE GRANT.

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

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

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

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

                                   ARTICLE III

3.       PAYMENT.

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

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

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

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

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

                                   ARTICLE IV

4.       COVENANTS AND CONDITIONS

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

                                       -7-

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

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

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

                                    ARTICLE V

5.       CONFIDENTIALITY

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

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

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

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

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

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

                                   ARTICLE VI

6.       WARRANTIES AND LIMITATIONS

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

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

                                       -9-

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

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

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

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

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

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

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

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

                                      -10-

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

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

                                   ARTICLE VII

7.       INDEMNIFICATION

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

                                  ARTICLE VIII

8.       TERMINATION AND RIGHTS UPON TERMINATION

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

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

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

                                      -11-

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

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

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

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

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

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

8.4      In the event of a termination of this Agreement pursuant to Section 8.1
         or 8.3(a), the amount due to Lexicon pursuant to this Agreement shall
         be calculated as follows: ***** (the "Total Payment"). If Lexicon has
         received more than the Total Payment from MGRI, it shall return the
         balance within ***** after the Termination Date to MGRI. If Lexicon has
         received less than the Total Payment, MGRI shall pay Lexicon the
         difference between the amount already paid to Lexicon and the Total
         Payment within ***** of the Termination Date.

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

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

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

                                   ARTICLE IX

9.       MISCELLANEOUS

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

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

                                      -13-

<PAGE>   14

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

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

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

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

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

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

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

                                      -14-

<PAGE>   15

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

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

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

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

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

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

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

                                      -15-

<PAGE>   16

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

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

                                       LEXICON GENETICS, INC.

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

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

                                       MERCK GENOME RESEARCH INSTITUTE

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

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

                                      -16-

<PAGE>   17
                                    EXHIBIT A
                               (PAYMENT SCHEDULE)

<TABLE>
<CAPTION>
        Payment Due Date                                                                  Amount
<S>     <C>                                                                               <C>
1.      Within ***** of signing this Agreement                                            $4,000,000
2.      Within ***** of NFP's acceptance of the ***** of Mutant Mice                      $1,000,000
        delivered by Lexicon
3.      Within ***** of NFP's acceptance of the ***** of Mutant Mice                      $1,000,000
        delivered by Lexicon
4.      Within ***** of NFP's acceptance of the ***** of Mutant Mice                      $1,000,000
        delivered by Lexicon
5.      Within ***** of NFP's acceptance of the ***** of Mutant Mice                      $1,000,000
        delivered by Lexicon
</TABLE><PAGE>   1
                                                                   EXHIBIT 10.13

                                 LEASE AGREEMENT

                           4000 RESEARCH FOREST DRIVE
                     THE WOODLANDS, MONTGOMERY COUNTY, TEXAS

THE STATE OF TEXAS

COUNTY OF MONTGOMERY

         THIS LEASE AGREEMENT (the "Lease") is made and entered into on this the
22nd day of September, 1995, between THE WOODLANDS CORPORATION, a Delaware
corporation, whose address for purposes hereof is 2201 Timberloch Place, The
Woodlands, Texas 77380 ("Lessor"), and LEXICON GENETICS INCORPORATED, a Delaware
corporation, whose address, for the purposes hereof, is 4000 Research Forest
Drive, The Woodlands, Texas 77381 ("Lessee").

                                   WITNESSETH:

         1. Leased Premises. Lessor hereby leases to Lessee and Lessee hereby
takes from Lessor approximately 13,068 net rentable square feet of floor space,
together with all appurtenances thereto, as shown outlined in blue on a drawing
identified by the parties and attached hereto as Exhibit "A" (the "Premises"),
in a building known and referred to as 4000 Research Forest Building (the
"Building"), located at 4000 Research Forest Drive, The Woodlands, Montgomery
County, Texas, and which contains a total of approximately 35,065 net rentable
square feet of floor space. The Building is located on that certain 6.1797 acre
tract of land ("Land") in Montgomery County, Texas, which is Restricted Reserve
"A" of the Baylor Center for Biotechnology according to the map or plat thereof
recorded in Cabinet E, Sheet 193A of the Map Records of Montgomery County,
Texas, and made a part hereof for all purposes. Lessor reserves the right to
change the name of the Building whenever it desires without any liability or
consent of Lessee.

         2. Parking. In addition to the Premises, Lessee and its invitees are
hereby granted the non-exclusive right to use the loading dock affixed to the
Premises. Additionally, Lessor shall provide and keep in good condition through
the term of this Lease, parking areas for and vehicular access ways to the
Premises, which shall be available for the non-exclusive use of Lessee, its
employees and invitees. The use of such parking and access areas shall at all
times be subject to such reasonable rules and regulations as Lessor may
promulgate.

         3. Term. The term of this Lease (the "Term") shall commence on the
earlier of December 15, 1995, or the day upon which Lessee takes full possession
of the Premises (other than pursuant to Exhibit "E" attached hereto) after
substantial completion of the work to be performed by Lessor as hereinafter
described, and expire on the last day of the eighty-fourth (84th) full calendar
month following the commencement of the Term, subject to earlier

                                       1
<PAGE>   2

termination as hereinafter provided. If Lessor is delayed in delivering
possession of the Premises to Lessee on or before December 15, 1995, the Term
shall begin on the date when Lessor tenders to Lessee possession of the Premises
with all work to be performed by Lessor pursuant to the Tenant Improvement
Addendum attached hereto as Exhibit "B" ("Tenant Improvement Addendum")
substantially completed. Lessor shall not be liable or responsible for any
claims, damages or liabilities of any nature whatsoever in connection with or by
reason of any delayed possession, except that in the event Lessor has not
tendered to Lessee possession of the Premises with all Lessor's work described
in the Tenant Improvement Addendum, substantially completed on or before
December 15, 1995, said date to be extended one (1) day for each day of Lessee
default or delay described in Exhibit "B" (a) Lessor shall credit one-half (1/2)
of all Base Rentals paid by Lessee pursuant to Exhibit "E" hereto to the next
Base Rent payment(s) due under the Lease (as liquidated damages and not as a
penalty, it is being agreed by the parties that Lessee's actual damages would be
uncertain and difficult of ascertainment), and (b) from December 15, 1995, until
the Commencement Date the Base Rent payable for the Early Occupancy Space(s)
shall be reduced by one-half (1/2). Lessee agrees to execute a recordable
memorandum setting forth the commencement date ("Commencement Date") and the
date of expiration of the Term of this Lease on or prior to the commencement of
the Term.

         4. Use. Lessee shall use the Premises solely for office, laboratory,
research, marketing, sales, storage, experimentation and production of
laboratory animals, and for no other use.

         5. Acceptance of the Premises. Upon taking possession of all or any
portion of the Premises (except as described in Exhibit "E" of this Lease),
Lessee shall be deemed to have accepted the Premises, to have acknowledged that
the same are in the condition called for hereunder and to have agreed that the
obligations of the Lessor imposed by Exhibit "B" attached hereto have been fully
performed. Lessee hereby waives any implied warranty of Lessor that the Premises
are suitable for their intended commercial purpose and acknowledges and agrees
that all of Lessee's obligations hereunder (including without limitation, the
obligation to pay rent) are independent of any such implied warranty and agrees
to perform all such obligations and pay rent notwithstanding any breach or
allegation of breach by Lessor of any such implied warranty (which implied
warranty as aforesaid is hereby waived by Lessee).

         6. Security Deposit. Lessee contemporaneously with the execution of
this Lease has deposited with Lessor the sum of $23,413.50, receipt of which is
hereby acknowledged by Lessor, said deposit being given to secure the faithful
performance by Lessee of all of the terms, covenants and conditions of this
Lease to be kept and performed by Lessee. If Lessee shall fail to pay the rent
herein required promptly when due or if Lessee violates any of the other terms,
covenants or conditions of this Lease, said deposit may, at the option of
Lessor, be applied to any rent due and unpaid or to any damages suffered by
Lessor as a result of Lessee's default. Nothing contained in this Article shall
in any way diminish or be construed as waiving any of Lessor's other remedies as
provided elsewhere in this Lease, or at law or in equity. Should the entire
security deposit or any portion thereof be applied by Lessor for the payment of
sums due and payable to Lessor hereunder, Lessee shall, on the written demand of
Lessor, remit to Lessor a sufficient amount in cash to restore said security
deposit to its original amount. Should Lessee comply with all of the terms,
covenants and conditions of this Lease and promptly pay all of the

                                       2
<PAGE>   3

rental herein provided for as it falls due (including any additional rental due
at the end of the fiscal year during which the Term expires or terminates) and
all other sums payable by Lessee to Lessor hereunder, said security deposit
shall be returned in full to Lessee upon the expiration of the term of this
Lease. Lessor shall have the right to commingle the security deposit with other
funds of Lessor, and any interest earned shall be the property of Lessor. Lessor
may deliver the security deposit to any purchaser of Lessor's interest in the
Premises, and thereupon be discharged from further liability with respect to
such deposit.

         7. Base Rent. The Base Rent, which Lessee hereby agrees to pay to
Lessor monthly, in advance at Lessor's address stated above, shall be the sum
set forth below, due and payable on the first day of each calendar month during
the Term hereof, without offset or deduction, with a pro rata portion being due
and payable in advance for any partial month occurring at the beginning of the
Term:

    Lease Years               Monthly Base Rent - 1/12th of

       1-4                    $20.50 times the number of net rentable square
                              feet in the Premises

       5-7                    $21.50 times the number of net rentable square
                              feet in the Premises

         8. Additional Rent. Lessor agrees to pay all Operating Expenses (as
defined in Section 10. below) up to a maximum amount of $5.00 per year for each
square foot of rentable floor area in the Building (the "Operating Cost
Allowance"). In the event the Operating Expenses shall, in any fiscal year
(ending January 31) exceed the Operating Cost Allowance (prorated for any
partial fiscal year at the beginning or end of the Term), Lessee agrees to pay
to Lessor, as Additional Rent, Lessee's pro rata share of any such excess (the
"Excess Operating Expenses"). Lessee's pro rata share shall be determined by
multiplying the Excess Operating Expenses by a fraction, the numerator of which
shall be the number of rentable square feet in the Premises, and the denominator
of which shall be the rentable square footage in the Building (as set out in
Section I above). Within ninety (90) days following the completion of each
fiscal year, Lessor will provide to Lessee a statement showing in reasonable
detail the Operating Expenses for the preceding fiscal year, the Additional Rent
due with regard to Lessee's portion of the Excess Operating Expenses, and
Lessor's reasonable estimate of Excess Operating Expenses for the then current
fiscal year. Lessee shall, on or before thirty (30) days following receipt of
said statement, pay to Lessor the amount of Additional Rent due as provided
herein, less the amount of Additional Rent paid in advance (if any) during the
preceding fiscal year. Any overpayment will be credited by Lessor to the next
rental payment(s) due (or, if no further rentals are or will become due, same
shall be refunded to Lessee). Lessee agrees to pay Additional Rent each month
thereafter, in addition to Base Rent, in an amount necessary to amortize the
estimated Excess Operating Expenses for the then current fiscal year over a
period equal to the lesser of (i) the number of months remaining in the lease
Term or (ii) the number of months remaining in the current fiscal year.
Notwithstanding that the lease Term has expired or been terminated, Lessee shall
remain liable for and agrees to pay to Lessor within 30 days following receipt
of an invoice therefor, its pro-rata portion of Excess Operating Expenses for
the fiscal year (or portion

                                       3
<PAGE>   4

thereof) during which the Term of this lease expired or was terminated. Lessee
shall have the right, at its expense and at a reasonable time, within one year
after receipt of Lessor's statement to audit Lessor's books relevant to the
Additional Rent due under this Section. If Lessee has been overbilled as to its
pro rata share of Excess Operating Expenses by more than 5%, Lessor shall pay
Lessee's reasonable costs of the audit not to exceed $1,000.00.

         9. Payment of Rentals. Lessee covenants to promptly pay all rentals
when due and payable. A late charge of ten (10%) per cent shall be added to any
payment of rental or additional rental which is more than 10 days past due in
order to compensate Lessor for the extra administrative expenses incurred. If
Lessor shall pay any monies or incur any expenses in correction of violations of
the covenants herein set forth, the amounts so paid or incurred shall, on notice
to Lessee, be considered additional rentals payable by Lessee with the first
installment of rental thereafter to become due and payable, and may be collected
or enforced as by law provided in respect of rentals.

         10. Operating Expenses. The term "Operating Expenses", as used in this
Lease, means all of Lessor's reasonable costs to operate and maintain the Land
and the Building from time to time, as determined in accordance with Lessor's
accounting practices. Operating Expenses shall include (to the extent and only
to the extent same are Lessor's obligation to pay or furnish under the other
provisions of this Lease), but not be limited to, all sums expended by Lessor,
or in the case of major repairs or improvements having a life expectancy in
excess of one year, an amortized portion of such sums, whether or not such
repair or improvement is properly chargeable to capital expenses or capital
improvements under generally accepted accounting principles, in connection with
the Building, and the parking and common areas and other improvements on the
Land, for general maintenance and repairs, maintenance and repair of the
deionized water system and the diesel-powered emergency electrical generator,
resurfacing, exterior painting, restriping, sweeping, porter services, any
personnel or services deemed necessary by Lessor, trash removal (if Lessor
elects to furnish this service to Lessee), planting, landscaping, lighting,
water and other utilities paid for by Lessor and directional signs and other
markers, bumpers, and personnel to implement such services. Operating Expenses
shall also include all ad valorem taxes or assessments and Annual Assessments of
The Woodlands Community Association, Inc., or The Woodlands Trade Center
Association, whichever is applicable, which accrue against the Building or the
Land during the Term, together with all insurance premiums, if any, which Lessor
is required to pay or deems necessary to pay, with respect to the Building or
the Land, and a building management fee ("Fee") equal to five percent (5%) of
the Base Rent (except that this Fee shall not be prorated between Lessee and the
other tenants in the Building as are the other Operating Expenses).

         Notwithstanding anything contained herein to the contrary, if at the
end of the fiscal year, the Land, with the Building thereon, has not yet been
placed on the tax rolls, the fiscal year ad valorem taxes and assessment shall
be adapted and increased as if it had been.

         Further, notwithstanding any other provision herein to the contrary, it
is agreed that in the event not more than ninety-five percent (95%) of the
rentable area in the Building is occupied during any fiscal year or in the event
not more than ninety-five (95%) of the rentable area in the Building is provided
with building standard services during any fiscal year, an adjustment shall

                                       4
<PAGE>   5

be made in computing the Operating Expenses for such year so that the Operating
Expenses shall be computed for such year as though the Building had been
ninety-five percent (95%) occupied during such year and as though ninety-five
percent (95%) of the Building had been provided with building standard services
during such year. Operating Expenses to be adjusted pursuant to this paragraph
shall only include operating expenses which are variable with the level of
occupancy of the Building, and no other.

         Further, notwithstanding anything contained herein to the contrary,
Operating Expenses shall not include those items set forth in Exhibit "D"
attached hereto.

         11. Utilities. Except as provided herein, Lessor shall provide to the
Premises natural gas, electricity, water and sewer services, and including a
centralized deionized water system. Lessor and Lessee agree that Lessee shall
pay all costs directly related to submetered consumption of HVAC System and
submetered natural gas usage for the boiler, in each case only to the extent
same are serving the Premises. Lessee agrees that submeter installation shall be
the responsibility of Lessee and shall be included in costs of work necessary to
construct the leasehold improvements as shown on Exhibit "B" attached hereto
(except to the extent paid for or provided by the utility company). Lessor
agrees to pay all costs and expenses for utilities net of submeter direct cost,
and such net costs and expenses are included within Operating Expenses as
defined in Section 10 hereof. Lessor shall under no circumstances be liable to
Lessee in damage or otherwise for any interruption in service of water,
electricity, heating, air conditioning or other utilities or services caused by
governmental regulation, emergencies, Acts of God, by the making of any
necessary repairs or improvements, or by any cause beyond Lessor's reasonable
control. Lessor shall use reasonable efforts to give at least 24 hours notice to
Lessee when any necessary interruption in service will be made by Lessor.

         12. Peaceful Enjoyment. Lessee shall and may peacefully have, hold and
enjoy the Premises, provided that Lessee pays the rentals and other sums herein
recited and performs all of its covenants and agreements herein contained. It is
understood and agreed that this covenant and any and all other covenants of
Lessor contained in this Lease shall be binding upon Lessor and its successors
and assigns, but only with respect to breaches occurring during its and their
respective ownership of Lessor's interest hereunder.

         13. Tenant Alterations, Additions and Improvements. Lessee shall not
make or allow to be made any alterations or physical additions in or to the
Premises without first obtaining the written consent of Lessor, which consent
shall not be unreasonably withheld. Any and all alterations, additions or
improvements, other than that portion of the initial tenant improvements which
are to be provided by Lessor pursuant to the terms of Exhibit "B" hereto, shall
be made at Lessee's sole expense. All such alterations, additions or
improvements shall, upon completion, become the property of Lessor and shall be
surrendered to Lessor upon the termination of this Lease by lapse of time or
otherwise provided, however, this clause shall not apply to removable equipment
or furniture owned by Lessee and which can be removed without damage to the
Building or the Premises. It is understood and agreed by Lessee that all
equipment, improvements and fixtures that exist in the Premises prior to
occupancy of the Premises (other than the Autoclave, described in Rider No. 1,
9, and any other property purchased by Lessee from Lessor, and any property
owned by or installed by Lessee) are the property of Lessor and

                                       5
<PAGE>   6

may not be removed by Lessee, but Lessee shall have the full and exclusive use
thereof during the Term. Notwithstanding anything contained herein to the
contrary, Lessee may remove the Autoclave and any other equipment Lessee owns
which may be removed on the terms of the Lease only on the condition that Lessee
shall pay the cost of repairing any damage to the Premises caused by Lessee's
removal of this equipment.

         14. Repairs by Lessor. Lessor will keep the exterior of the Building,
including, but not limited to, the foundation, exterior walls and roof, and any
doors, windows, or glass, together with common areas on the Land and the
deionized water system in the Premises and the diesel-powered emergency
electrical generator in good condition and repair, provided Lessee shall give
Lessor written notice of the necessity for any such repairs, and provided that
the damage thereto shall not have been caused by the negligence of Lessee, its
agents, employees, licensees or invitees, in which event Lessee shall be
responsible therefore for the cost (except as otherwise provided elsewhere in
this Lease). Lessor shall be under no liability for repair, maintenance,
alteration or any other action with reference to any plumbing, electrical or
other mechanical installation within or serving the Premises or any part
thereof, except for the service lines leading to the Premises and except as
otherwise provided elsewhere in this Lease. Lessor shall also maintain a service
contract, substantially in accordance with the proposal attached hereto as
Exhibit "F", on the deionized water system in the Premises providing for
inspections, testing, and maintenance of specified water standards.

         15. Operation by Lessee. Except to the extent to which any of the
following obligations are imposed upon Lessor elsewhere in this Lease (including
without limitation, Section 14 of this Lease and Lessor's one (1) year warranty
as to the leasehold improvements and HVAC system under Exhibit "B" to the Lease)
Lessee, at Lessee's sole expense, agrees to (a) keep, maintain and repair the
interior of the Premises and all improvements therein, in good and sanitary
order and condition, including, without limitation, the maintenance and repair
of the doors, windows, window casements, glazing, heating and air conditioning
system, plumbing pipes, electrical wiring, and conduits (but excluding any
improvements, systems, equipment or other items which Lessor has agreed to
maintain or repair pursuant to this Lease); (b) replace promptly, at its
expense, any cracked or broken window glass inside the Premises with glass of
like kind and quality; (c) keep any garbage, trash, rubbish or refuse in
rat-proof containers within the interior of the Premises until removed from the
area; (d) have such garbage, trash, rubbish and refuse removed at its expense
(except for so long as Lessor shall cause such removal to be performed) on a
regular basis from location points and at such times as designated by Lessor if
the trash removal services are not provided by Lessor; (e) keep all mechanical
apparatus free of vibration, noise or pollution which may be transmitted beyond
the Premises; (f) comply with all laws, ordinances, rules and regulations of the
Fire Underwriters Rating Bureau now or hereafter in affect; and (g) conduct its
business in a manner which will not create a nuisance to other lessees in the
Building. Lessee shall also be responsible, at its sole cost and expense, for
providing any security services it may desire for the Premises and all
janitorial services for the Premises. Lessee also will provide for trash
removal, if said service is not provided by Lessor. Upon execution of this
Lease, Lessee, at its sole cost and expense, will enter into a scheduled
preventive maintenance/service contract for servicing the HVAC system with
Lessor (for the first year of the Term) and with Lessor or a maintenance
contractor approved by Lessor for the remainder of the Term.

                                       6
<PAGE>   7

         In addition, Lessee shall not (a) place or maintain any merchandise or
other articles in any vestibule or entry of the Premises, on the footwalks
adjacent thereto or elsewhere on the exterior of the Premises or Building
without the written consent of Lessor; (b) permit undue accumulation of garbage,
trash, rubbish or other refuse within or without the Premises; (c) cause or
permit objectionable odors to emanate or be dispelled from the Premises; (d)
cause or permit the parking of vehicles so as to interfere with the use of any
driveway, walk, parking area, dock or other common facility in the area; (e)
occupy, use or permit the use or occupancy of any portion of the Premises for
any business or purpose which is immoral, disreputable or in violation of any
legal direction of any public officer; or (f) occupy, use or permit the use or
occupancy of any portion of the Premises for any business or purpose which, in
the reasonable opinion of Lessor, constitutes a public or private nuisance or
unduly disturbs the business of other tenants in the Building.

         Lessor shall have the right, upon written notice to Lessee, to provide
for rubbish and refuse removal services as required of Lessee above, and Lessee
agrees to reimburse Lessor for the cost incurred in providing such service
within thirty (30) days after receipt of a statement setting forth the cost of
such service.

         Lessee agrees to discharge all waste materials from the Premises in
compliance with the rules and regulations as set forth in The Woodlands Metro
Center Municipal Utility District Policy Manual - Industrial Waste Discharges -
Permits and Charges - No. R&S-50, issued July 12, 1979, with an effective date
of July 12, 1979, as it may be amended from time to time. Lessee shall haul away
for disposal at its own expense, any waste material not meeting the standards
for discharge set forth in the above-referenced manual.

         Lessee shall promptly comply, at its own expense, with all other
present and future laws, ordinances, order, rules and regulations of all state,
federal, municipal and other agencies or bodies having jurisdiction over the
Premises and Lessee's use or manner of use of the Premises or improvements,
including, but not limited to, all environmental laws and the Americans with
Disabilities Act. In the event of a release of hazardous substances by Lessee
which Lessee is responsible to clean up, Lessee shall conduct a "Standard 1"
cleanup so that there is a total and complete removal of all contaminants from
the Premises. No such cleanup shall be subject to risk reduction standard and no
deed recordation notice shall be recorded by Lessee against the Premises in
connection with said cleanup. Lessee will comply with the Rules and Regulations
of the Building, a copy of which are attached hereto as Exhibit "C". Lessor may
amend said rules, from time to time, if reasonably necessary for the safety,
care or cleanliness of the Building, provided that no amendment shall alter any
covenant or provision contained in this Lease. Lessee agrees to comply with any
amendment which is made to said Rules and Regulations in compliance with the
terms of this paragraph.

         16. Interior Repairs. Lessee will keep the interior of the Premises,
together with all electrical, plumbing and other mechanical installations
therein, all heating and air conditioning equipment, and all interior windows or
doors serving the Premises, in good order and repair, and will make all
replacements thereto as its expense. Lessee will surrender the Premises at the
expiration or earlier termination of this Lease, in as good condition as when
received, excepting

                                       7
<PAGE>   8
ordinary wear and tear. Lessee will not overload the electrical wiring serving
the Premises or within the Premises, and will install at its expense, but only
after obtaining Lessor's written approval, any additional electrical service
which may be required in connection with Lessee's use or occupancy.
Notwithstanding anything herein to the contrary, Lessor, and not Lessee, shall
be liable for any and all interior repairs which may result from any structural
failure of the Building, unless caused by Lessee, its agents, employees or
invitees. Lessee will repair promptly, at its expense, any damage to the
Premises caused by bringing into the Premises any property for Lessee's use, or
by the install or removal of such property, regardless of fault or by whom such
damage was caused, unless caused by Lessor, its agents, employees or
contractors. If Lessee fails to make such repairs, Lessor may make same, and
Lessee agrees to pay, as additional rent, the cost thereof to Lessor promptly
upon Landlord's demand therefore.

         17. Roof and Walls. Lessor or its designee shall have the exclusive
right (a) to use all or any part of the roof of the Building for any purpose
including to erect additional stories or other structures over all or any part
of the Premises, and to erect in connection with the construction thereof
temporary scaffolds and other aids to construction on the exterior of the
Premises, provided that access to the Premises shall not be denied; and (b) to
install, maintain, use, repair and replace within the Premises, pipes, ducts,
conduits, wires and all other mechanical equipment serving other parts of the
Building, the same to be in locations within the Premises as will not materially
interfere with Lessee's use thereof Lessee shall have no right to penetrate or
erect improvements on the roof without the prior written consent of Lessor.
Lessee shall be liable in damages to Lessor for any breach of this provision,
including damages for loss of any and all warranties.

         18. Signs and Advertising. Lessee will not place or suffer to be placed
or maintained on or displaced to the exterior of the Premises, any sign,
advertising matter or other thing of any kind, and will not place or maintain
any decoration, lettering or advertising matter on the glass of any window or
door of the Premises without first obtaining the written approval of Lessor.
Lessee will maintain any approved sign, decoration, lettering, advertising
matter or other thing in good condition and repair at all times.

         19. Entry by Lessor. Lessee shall permit Lessor and any current or
prospective mortgagee or purchaser, and their agents or representatives, upon
twenty-four (24) hours advance notice, except in an emergency situation when no
notice is required, to enter into and upon any part of the Premises at all
reasonable hours to inspect the Premises, or clean, make repairs, alterations or
additions thereto as Lessor may deem necessary or desirable, and Lessee shall
not be entitled to any abatement or reduction of rent by reason thereof. Lessor
agrees upon entry not to unreasonably interfere with Lessee's business and use
of the Premises.

         20. Liens. In the event that any mechanic's, materialmen's, or other
lien shall at any time be filed against the Premises, the Building or the Land
purporting to be for work, labor, services or materials performed for or
furnished to Lessee or anyone holding the Premises through or under Lessee, or
arising out of any alleged act or omission of Lessee Lessee shall forthwith
cause the same to be properly bonded or released. If Lessee shall fail to cause
such lien to be bonded or released within 15 days after being notified of the
filing thereof, then, in addition to any other right or remedy of Lessor, Lessor
may, but shall not be obligated to,

                                       8
<PAGE>   9

discharge the same by posting a bond or paying the amount claimed to be due, and
the amount so paid by Lessor, and all costs and expenses incurred by Lessor in
procuring the discharge of such lien, including reasonable attorney's fees,
shall be due and payable by Lessee to Lessor as Additional Rent on the first day
of the next succeeding month. Notice is hereby given that Lessor shall not be
liable for any labor or materials furnished to Lessee upon credit, and that no
mechanics', materialmen's or other liens for any such labor or materials shall
attach to or affect the estate or interest of Lessor in and to the Land or
Building.

         21. Subordination. Lessee agrees that this Lease is and shall be
subordinate to any mortgage or deed of trust which may now or hereafter encumber
the Building or the Land, and to all renewals, modifications, consolidations,
replacements and extensions thereof, provided, however, that the holder of any
such mortgage or deed of trust shall agree that Lessee shall not be disturbed in
its possession of the Premises or its rights hereunder terminated or amended by
the mortgagee, any purchaser at or in lieu of foreclosure or other party so long
as Lessee is not in default under this Lease. In confirmation of such
subordination, Lessee shall at Lessor's request execute promptly any appropriate
certificate or instrument that Lessor may reasonably request. In the event of
the enforcement by the trustee or the beneficiary under a mortgage or deed of
trust of the remedies provided for by law or by such mortgage or deed of trust,
Lessee will, upon request of any person or party succeeding to the interest of
Lessor as a result of such enforcement, automatically become the lessee of such
successor in interest without change in the terms or other provisions of this
Lease; provided, however, that such successor in interest shall not be bound by
(i) any payment of rent for more than one month in advance except prepayments in
the nature of security for the performance by Lessee of its obligations under
this Lease, including, without limitation, the return of Lessee's security
deposit; (ii) any amendment or modifications under this Lease made without the
written consent of such trustee, beneficiary or successor in interest; (iii) any
default by the prior owner or landlord in the observance or performance of any
of its covenants or obligations hereunder; or (iv) any right of offset which
Lessee may have had against the prior owner or landlord. Upon request by any
successor in interest, Lessee shall execute and deliver an instrument or
instruments confirming the attornment herein provided for.

         Within fifteen days after Lessor's request, Lessee agrees to execute an
estoppel certificate or other agreement certifying to Lessor and/or any current
or prospective mortgagee or purchaser of the Building such facts and agreeing to
such reasonable notice provisions and other matters as such mortgagee or
purchaser may request in connection with Lessor's sale or financing, subject,
however, to the non-disturbance rights of Lessee above described. In addition,
Lessee hereby irrevocably appoints Lessor its attorney in fact to execute in its
place and stead any such estoppel certificate or other instrument required under
this section.

         Lessor hereby represents and warrants that as of the date of this Lease
there are no liens, mortgages or security interests covering and affecting the
Land, the Building, or the Premises.

         22. Condemnation. If the whole or any part of the Premises shall be
taken under the power of eminent domain, this Lease shall terminate as to the
part so taken on the date Lessee is required to yield possession thereof to the
condemning authority. Lessor shall, with reasonable diligence, make such repairs
and alterations as may be necessary in order to restore the part not

                                       9
<PAGE>   10

taken to a useful condition, and the Base Rent and Additional Rent payable
hereunder shall be reduced proportionately to the portion of the Premises so
taken. If the amount of the Premises so taken substantially impairs the
usefulness of the Premises for the purposes set forth in Section 4 either party
may terminate this Lease within 30 days after Lessee is dispossessed, effective
as of the date when Lessee is required to yield possession. All compensation
awarded for any taking shall belong to and be the property of Lessor.

         23. Fire and Casualty. In the event of a fire or other casualty in the
Premises, Lessee shall immediately give notice thereof to Lessor. If the
Premises, through no fault or neglect of Lessee, its agents, employees,
invitees, licensees or visitors, shall be destroyed by fire or other casualty so
as to render the Premises untenantable, the rental herein shall cease thereafter
until such time as the Premises are made tenantable by Lessor. If from such
cause the same shall be so damaged that Lessor shall decide not to rebuild, then
all rent and other sums owed hereunder up to the time of such destruction or
casualty shall be paid by Lessee, and thenceforth this Lease shall cease and
come to an end.

         24. Casualty Insurance. Lessor shall, at all times during the term of
this Lease, maintain a policy or policies of insurance with the premiums thereon
fully paid in advance, issued by and binding upon some solvent insurance
company, licensed to do business in the State of Texas, insuring Lessor's
interest in the Building against loss or damage by fire and other hazards within
the coverage of a Texas standard form of fire and extended coverage policy, for
the full replacement value thereof, with payments for losses thereunder payable
solely to Lessor or its designee. Lessee shall maintain in force a like policy
insuring Lessee's interest in any furniture, equipment, machinery, goods or
supplies which Lessee may bring or obtain upon the Premises, or any improvements
which Lessee may construct thereon.

         25. Liability Insurance. Lessee shall maintain, at its expense, at all
times during the Term, a policy or policies of commercial general liability
insurance, with the premiums thereon fully paid in advance, issued by (i) an
insurance company or companies rated "A-" or higher under the most current
edition of A.M. Best's Key Rating Guide, (ii) a Lloyds of London underwriter, or
(iii) an insurance company agreed to by Lessor. All insurers must be licensed to
do business in the State of Texas. The insurance shall afford protection of not
less than $1,000,000 combined single limit bodily injury and property damage per
occurrence. The policy or policies shall name Lessor as an additional insured.
As to any injury or damage occurring in or on the Premises, Lessee's insurance
shall be primary. As to any injury or damage occurring outside of the Premises,
to the extent that Lessee and Lessor have overlapping insurance coverage, the
allocation of coverage between the policies shall be based upon the percentage
of legal responsibility of the named insured under each policy. Lessee's policy
shall contain an agreement by the insurer that such policy, or policies may not
be cancelled or materially modified without 30 days' prior notice to Lessor.
Lessee shall provide Lessor a copy of the required policy or policies, or a
certificate evidencing the required coverage, before beginning any work in the
Premises or taking occupancy of same. Additionally, Lessee shall provide Lessor
evidence of the renewal of each policy at least 30 days before the expiration of
the policy.

         26. Waiver of Subrogation. Anything in this Lease to the contrary
notwithstanding, Lessor and Lessee each waive any and all right of recovery,
claim, action or cause of action

                                       10
<PAGE>   11

against the other and its partners (if any, and the agents, officers or
employees of the other party or its partners, for any loss or damage that may
occur to such persons or the Premises or any improvements thereto, the Building
or any improvements thereto, or any personal property of any party therein, by
reason of fire, the elements or any other cause which could have been insured
against under the terms of a Texas standard form of fire and extended coverage
insurance policy, regardless of cause or origin, including sole or concurrent
negligence of the other party hereto or its partners, or the agents, officers or
employees of the other party or its partners. Lessor and Lessee covenant that no
insurer shall hold any right of subrogation against the other party for losses
which must be insured against by the terms of this Lease. This waiver of
subrogation provision shall be effective to the full extent, but only to the
extent that, it does not impair the effectiveness of insurance policies of
Lessor and Lessee. Lessor and Lessee each agree to obtain any endorsement to
their respective insurance policies, which may be necessary to effectuate the
waiver of subrogation contained herein.

         27. Hold Harmless. Subject to the provisions of Section 26 above,
Lessee hereby releases and agrees to defend, indemnify and hold Lessor harmless
from and against all claims or causes of action for damage or injury to persons
or property arising out of this Lease or Lessee's use or occupancy of the
Premises, including attorney's fees and court costs, to the extent caused by the
negligence or willful act or omission of Lessee. Subject to the provisions of
Section 26 above, Lessor hereby releases and agrees to defend, indemnify and
hold Lessee harmless from and against all claims or causes of action for damage
or injury to persons or property arising out of this Lease or use or occupancy
of the Premises, the Building or the Land, or Lessor's ownership, use or
operation of the Building or the Land, including without limitation attorney's
fees and court costs, to the extent caused by the negligence or willful act or
omission of Lessor.

         28. Holding Over. In the event of holding over by Lessee after the
expiration or termination of the Term and without the written consent of Lessor,
Lessee shall pay monthly rent equal to double the amount of all Base Rent, and
Additional Rents payable during the last month of the Term. Further, Lessee
shall indemnify Lessor against all claims for damages by any other lessee to
whom Lessor may have leased all or any part of the Premises. No holding over by
Lessee, either with or without the consent and acquiescence of Lessor, shall
operate to extend the Lease for a longer period than one (1) month. Any holding
over with the consent of Lessor in writing shall thereafter constitute this
Lease a lease from month to month.

         29. Default by Lessee. If (a) default shall be made in the timely
payment of any sum to be paid by Lessee under this Lease, which remains unpaid
for more than three (3) business days after written notice is delivered to
Lessee or deposited in the United States mail, registered or certified,
addressed to Lessee's address above (except that Lessor shall have no obligation
to deliver said notice under this subsection (a) more than three (3) times
during the Term), or (b) default shall be made in the performance of any of the
other covenants or conditions which Lessee is required to observe and to perform
and such default shall continue for twenty (20) days after written notice is
delivered to Lessee or deposited in the U. S. Mail, registered or certified,
addressed to Lessee's address above, provided that in the event of any default
by Lessee of a nonmonetary nature which is not reasonably capable of being cured
within twenty (20) days due to its nature, Lessee shall be entitled to such
longer period as may be reasonably necessary to cure such default with the
exercise of due diligence, or (c) the interest of Lessee under this Lease

                                       11
<PAGE>   12

shall be levied on under execution or other legal process, or any petition shall
be filed by or against Lessee to declare Lessee a bankrupt or to delay, reduce
or modify Lessee's debts or obligations, or any petition under the Bankruptcy
Code shall be filed or other action taken to reorganize or modify Lessee's
capital structure, or Lessee be declared insolvent according to law, or any
general assignment of Lessee's property shall be made for the benefit of
creditors, or a receiver or trustee is appointed for Lessee or its property, and
provided that Lessee fails to vigorously contest any such levy, execution, legal
process or petition filed against Lessee and to cause same to be removed,
dismissed or vacated within thirty (30) days from the date of its entry or
filing, or (d) Lessee shall vacate or abandon the Premises, or (e) if Lessee
shall be a corporation and Lessee shall thereafter cease to exist as a
corporation in good standing in the State of Texas, or (f) if Lessee shall be a
partnership or other entity and Lessee shall be dissolved or otherwise
liquidated, then Lessor may treat the occurrence of any one or more of the
foregoing events as a breach of this Lease and thereupon, at Lessor's option,
Lessor may have any one or more of the following described remedies, in addition
to all other rights and remedies provided at law or in equity:

                  A. Lessor may terminate this Lease and forthwith repossess the
         Premises and be entitled to recover (i) the cost of recovering the
         Premises, including the cost of the removal and storage of any of
         Lessee's possessions left within the Premises, (ii) the unpaid rent
         earned at the time of termination, plus interest thereon at the highest
         lawful rate from the due date, (iii) the balance of the rent for the
         remainder of the Term less the present fair market net rental value of
         the Premises for said period and (iv) any other sum of money and
         damages owed by Lessee to Lessor.

                  B. Lessor may terminate Lessee's right of possession, and
         repossess the Premises by forcible entry and detainer suit without
         demand or notice of any kind to Lessee and without terminating this
         Lease, in which event Lessor may, but shall have no obligation to,
         relet the same for the account of Lessee, for such rent and upon such
         terms as shall be satisfactory to Lessor. For the purpose of such
         reletting, Lessor is authorized to make any repairs, changes,
         alterations or additions in or to the Premises that may be reasonably
         necessary for uses substantially the same as the permitted uses set
         forth in Section 4 hereof if (i) Lessor shall fail to relet the
         Premises, or (ii) the same are relet and a sufficient sum shall not be
         realized from such reletting to pay the due and unpaid Base Rent and
         Additional Rent, the accrued interest thereon, the cost of recovering
         the costs and expenses of all such repairs, changes, alterations and
         additions reasonably necessary in Lessor's opinion and the expense of
         such reletting and of the collection of the rent accruing therefrom,
         then Lessee shall pay to Lessor as damages a sum equal to the amount of
         the rent provided for in this Lease for such period or periods, or if
         the Premises have been relet, the Lessee shall satisfy and pay any such
         deficiency upon demand therefor from time to time. Lessee agrees that
         Lessor may file one or more suits to recover any sums falling due under
         the terms of this section from time to time. No such reletting shall be
         construed as an election on the part of Lessor to terminate this Lease
         unless a written notice of such intention is given to Lessee by Lessor.
         Notwithstanding any such reletting without termination, Lessor may at
         any time thereafter elect to terminate this Lease for such previous
         breach.

                                       12
<PAGE>   13

               C. Lessor may change the locks on the Premises and not return the
         new key to Lessee unless the Lessee cures the default; and the new key
         will only be provided during the Lessor's regular business hours.

         30. Waiver. Failure of Lessor to declare any default immediately upon
occurrence thereof, or delay in taking any action in connection therewith, shall
not waive such default, but Lessor shall have the right to declare any such
default at any time and take such action as might be lawful or authorized
hereunder, either in law or at equity.

         31. Lien for Rent. Lessee hereby grants to Lessor a lien on all
property of Lessee now or hereafter placed in or upon the Premises, including
but not limited to all goods, wares, fixtures, machinery, equipment,
furnishings, and other articles of personal property, and all proceeds from the
sale or lease thereof (except such part of any property as may be exchanged,
replaced or sold from time to time in the ordinary course of business, operation
or trade), and such property shall be and remain subject to such lien of Lessor
for payment of all rent and other sums agreed to be paid by Lessee herein. This
Lease shall constitute a security agreement under the Uniform Commercial Code so
that Lessor shall have and may enforce a security interest in all property of
Lessee now or hereafter placed in or on the Premises, including but not limited
to all goods, wares, fixtures, machinery, equipment, furnishings and other
articles of personal property now or hereafter placed in or upon the Premises by
Lessee, and all proceeds from the sale or lease thereof Lessee agrees to execute
as debtor such financing statement or statements as Lessor may now or hereafter
reasonably request in order that such security interest or interests may be
perfected pursuant to said Code. Lessor may at its election at any time file a
copy of this Lease as a financing statement. Lessor, as secured party, shall be
entitled to all of the rights and remedies afforded a secured party under said
Uniform Commercial Code, which rights and remedies shall be in addition to and
cumulative of the landlord's liens and rights provided by law or by the other
terms and provisions of this Lease. Provided there is no default by Lessee in
any of the terms and conditions of the Lease, Lessor agrees to subordinate its
lien to bona fide loan to Lessee for purchase of inventory and equipment to be
utilized by Lessee at the Premises.

         32. Assignment by Lessor. Lessor shall have the right to sell, transfer
or assign, in whole or in part, all of its rights and obligations hereunder and
in the Building and the Land. In such event and upon the assumption by such
transferee of Lessor's obligations hereunder, no further liability or obligation
shall thereafter accrue against Lessor hereunder.

         33. Assignment by Lessee. Lessee shall not assign this Lease or any
interest therein, nor sublet the Premises or any part thereof or any right or
privilege appurtenant thereto, nor permit any other person, firm or entity to
occupy or use the Premises or any portion thereof without first obtaining the
written consent of Lessor. Lessor shall have the right, at its option, to either
terminate this Lease as to any portion of the Premises covered by a proposed
assignment or sublease, or to approve any such assignment or sublease only upon
the condition that (a) fifty percent (50%) of all rentals paid by the sublessee
in excess of the rentals due from Lessee hereunder, shall be paid directly to
Lessor (after deducting therefrom all Lessee's reasonable costs associated with
such subletting or assignment, including, without limitation, brokerage
commissions and leasehold remodeling costs); (b) the proposed sublessee or
assignee is financially capable of assuming Lessee's obligations hereunder, in
the sole reasonable judgment

                                       13
<PAGE>   14

of Lessor, and (c) the proposed sublessee or assignee agrees to use the Premises
only for the uses permitted of Lessee under this Lease, and to comply with all
of the other terms and conditions of this Lease. Otherwise, Lessor's consent to
any proposed sublease or assignment shall not be unreasonably withheld. In the
event Lessor fails to advise Lessee of its approval or disapproval of a proposed
sublease or assignment within twenty (20) days after Lessee requests Lessor's
approval thereof, so long as Lessee has provided Lessor with all financial
information about the proposed sublessee or assignee requested by Lessor, Lessor
shall be deemed to have approved same. Consent by Lessor to one assignment,
subletting, occupation or use by another person shall not be deemed to be a
consent to any subsequent assignment, subletting, occupation or use by the same
or another person. Consent to an assignment or sublease shall not release Lessee
from liability for the continued performance of the terms and provisions to be
kept and performed by Lessee hereunder, unless Lessor expressly and in writing
releases Lessee from said liability. Any assignment or subletting by operation
of law or otherwise (other than a transfer of controlling interest in Lessee to
any other person, firm or entity which shall be governed by the terms of Section
35. below), without the prior written approval by Lessor as to the financial
capability of the proposed assignee to assume Lessee's obligations hereunder, in
the reasonable judgment of Lessor, shall be void and shall, at the option of
Lessor, terminate this Lease. Lessee covenants and agrees that when the prior
written consent of Lessor is obtained, and in the event the subletting or
assignment is to be arranged through public advertisement or listing of any
kind, Lessee will treat all applications for sublease or assignment in a uniform
manner and will award leases according to objective standards. No decision on
any application shall be made on the ground of the applicant's race, color,
religion, sex or national origin. Notwithstanding any other provision hereof,
Lessor acknowledges and agrees that Lessee intends to use all or portions of the
Premises to house, store, tend, treat, and otherwise deal with laboratory
animals owned by others and to allow others to do the same with respect to their
own animals, and Lessor agrees that the foregoing and any related activities
shall not constitute subletting or require Lessor's consent.

         34. Binding Effect. This Lease shall be binding upon and inure to the
benefit of the heirs, successors or assigns of Lessor and Lessee, subject to the
limitation on subleasing and assignment herein contained.

         35. Transfer of Control. If Lessee is a corporation, and if at any time
during the term of this Lease, corporate shares of Lessee shall be transferred
by sale, assignment, bequest, inheritance, operation of law or other disposition
so as to result in a change in the present control of said corporation by the
person or persons now owning a majority of said corporate shares, without the
prior written approval of Lessor, as to the financial capability of assignee to
assume Lessee's obligations hereunder, in the reasonable judgment of Lessor
(such approval to be granted by Lessor if the assignee or sublessee has a
minimum net worth of $3,000,000.00), Lessee shall be in default of this Lease
and Lessor may exercise its rights in respect of default hereunder.

         36. Entire Agreement. This Lease shall constitute the sole and only
agreement of Lessor and Lessee with regard to the Lease of the Premises, and
shall supercede any prior or contemporaneous oral or written agreements. This
Lease may not be altered, changed or amended, except by an instrument in
writing, signed by both parties hereto.

                                       14
<PAGE>   15

         37. Pronouns. Pronouns which refer to either Lessor or Lessee shall be
construed to mean the appropriate number and gender intended.

         38. Joint and Several Tenancy. If more than one person executes this
Lease as Lessee, their obligations hereunder are joint and several, and any act
or notice of or to, or refund to, or the signature of, any one or more of them,
in relation to the renewal or termination of this Lease, or under or with
respect to any of the terms hereof shall be fully binding on each and all of the
persons executing this Lease as a Lessee.

         39. Force Majeure. If either party shall be delayed or prevented from
the performance of any act required hereunder by reason of acts of God, strikes,
lockouts, labor troubles, inability to procure materials, restrictive
governmental laws or regulations or other cause without fault and beyond the
control of the party obligated (financial inability excepted), performance of
such act shall be excused for the period of the delay, and the period for the
performance of any such act shall be extended by a period equal to the period of
such delay; provided, however, nothing in this Article shall excuse Lessee from
the prompt payment of any rental or other charge required of Lessee hereunder,
except as may be expressly provided elsewhere in this Lease.

         40. General. Time is of the essence of this Lease. All rights and
remedies of Lessor and Lessee under this Lease shall be cumulative and none
shall exclude any other rights or remedies allowed by law. This Lease shall be
declared to be a Texas lease, and all of the terms hereof shall be construed
according to the laws of the State of Texas. Said Lease shall be performable
only in Montgomery County, Texas, and venue for any action hereunder shall lie
exclusively in Montgomery County, Texas or in the Southern District of Texas,
Houston Division, as appropriate. Lessor and Lessee warrant to each other that
this Lease has been duly authorized and executed on behalf of such party, and
that same is valid and binding upon such party. The section headings and numbers
herein and the grouping of the provisions of this Lease into separate articles,
sections and paragraphs, are for the purpose of convenience only and shall not
be considered in construing the meaning of any provision in this Lease.

         41. Notices. Any notice required or permitted to be given pursuant to
the terms of this Lease shall be sent by certified or registered U.S. mail to
Lessor at 2201 Timberloch Place, The Woodlands, Texas 77380, Attn: Property
Management, and to Lessee at 4000 Research Forest Drive, The Woodlands, Texas
77380, Attention: President. The place to which such notices shall be sent may
be changed by either party giving notice of such change to the other party in
the manner hereinabove provided.

         42. Severability. If any of the provisions of this Lease shall
contravene or be invalid under the laws of the particular state, county, or
jurisdiction where applied, such contravention or invalidity shall not
invalidate the Lease or any other portions thereof and the remainder of this
Lease or the application thereof to other persons or circumstances shall not be
affected thereby.

         43. Corporate Authority. If Lessor or Lessee signs as a corporation,
each of the persons executing this Lease on behalf of Lessor or Lessee
represents and warrants that such

                                       15
<PAGE>   16

party is a duly organized and existing corporation, that such party has and is
qualified to do business in Texas, that such party has full right and authority
to enter into this Lease, and that all persons signing on behalf of such party
were authorized to do so by appropriate corporate actions.

         44. Not an Offer. The submission of this Lease to Lessee shall not be
construed as an offer, nor shall Lessee have any rights with respect thereto
unless Lessor executes a copy of this Lease and delivers the same to Lessee.

         45. Exhibits, Riders and Addenda. This lease also includes and
incorporates herein for all purposes all attached Exhibits, Riders, and Addenda,
if any.

         46. Use of Woodlands Country Club Membership.

                  A. During the Term, provided there has been no default by
         Lessee in any of the terms and conditions of the Lease, Lessee may
         utilize, without payment of Initiation Fees, one (1) Executive Golf
         Membership ("Membership") in the Woodlands Country Club. Lessee may
         designate one (1) employee as member ("Designee"), and the Designee
         will have full use and privileges afforded by the Membership. Lessee
         understands and agrees that it will be responsible for payment of
         monthly dues and all use fees and club charges.

                  B. At any time during the term of the Lease, or any extension
         thereof, Lessee may substitute another employee as Designee, by payment
         of the then current Transfer Fee established by the Woodlands Country
         Club.

                  C. At the expiration or termination of the Lease, Lessee's
         right to utilize the Membership shall expire and thereafter be of no
         further force or effect.

                                       16
<PAGE>   17

         IN TESTIMONY WHEREOF, the parties hereto have executed this Lease in
duplicate counterparts, each of which shall constitute an original but
collectively shall constitute only one document, such execution to be effective
on the date first above written.

                                                LESSOR

Date:  9/22/95                                  THE WOODLANDS CORPORATION

                                                By: /s/  Eric Wojner
                                                    ----------------------------
                                                Name:    Eric Wojner
                                                Title:   V.P. Inv. Properties

                                                LESSEE

Date:  9/22/95                                  LEXICON GENETICS INCORPORATED

                                                By: /s/ Arthur T. Sands
                                                    ----------------------------
                                                Name:   Arthur T. Sands
                                                Title:  President CEO

                                       17
<PAGE>   18

                                    EXHIBIT B

                           TENANT IMPROVEMENT ADDENDUM

Lexicon Genetics Incorporated

Re:  Leasehold improvements for 13,068 rentable square feet of space in a
     building known as 4000 Research Forest Building, in The Woodlands, Texas.

Gentlemen:

         Lessor is pleased to quote for your approval the cost of work necessary
to construct the proposed leasehold improvements in the above-referenced space.

   The cost of the work is based upon the Plans hereinafter described as
follows:

                  Total Cost of Work                 $ 65,300.00

                  Lessor Allowance                  ($ 65,300.00)

                  Total Amount Due from Lessee       $        -0-

         Lessor will construct the proposed leasehold improvements in the
above-referenced space in accordance with the design, architectural and
mechanical plans and specifications ("Plans") dated July 19, 1995, which have
been prepared by Turnbow Design Services at Lessor's expense and initialled by
both Lessor and Lessee. The Plans show all work which will be required for
commencement of the Lease and use by Lessee for purposes set out in Section 4 of
the Lease.

         As used herein, "substantial completion" shall occur when the Lessor
has completed the leasehold improvements in accordance with the Plans, subject
to minor punchlist items which do not adversely affect Lessee's use or occupancy
of the Premises in any material respect, and a permanent certificate of
occupancy has been issued by the applicable governmental authority. Lessor will
deliver the Premises to Lessee in broom clean condition. Lessor will deliver at
least thirty (30) days advance written notice of the date Lessor anticipates
that substantial completion will occur.

         Lessor will also notify Lessee when Lessor believes that substantial
completion has occurred. Within five (5) days thereafter, Lessee will jointly
inspect the Premises with Lessor. Unless Lessee disputes that substantial
completion has occurred, the parties will on the date of inspection agree upon
the punchlist items which Lessor agrees to use best efforts to complete within
thirty (30) days thereafter. The Commencement Date for the Lease will be on the
date of the parties' agreement on the punchlist items.

         Lessor guarantees the leasehold improvements and HVAC System against
all defective workmanship and materials for a period of one (1) year after the
improvements have been fully

                                Exhibit B, Page 1
<PAGE>   19

completed and Lessor agrees, at its sole cost and expense, to promptly repair or
replace any defective workmanship or materials which appear and of which Lessee
gives Lessor written notice thereof during said one year period. Upon the
expiration of such one-year warranty period, Lessor shall assign and transfer to
Lessee all warranties and guaranties, if any, granted or made to or for the
benefit of Lessor by contractors, suppliers, or manufacturers which supplied
labor, material or equipment for the construction of the improvements or for the
HVAC system and all rights, titles and interests (including, without limitation,
causes of action) of Lessor under each contract for work involving the
construction of the improvements. From and after the expiration of the
guaranties of Lessor set forth in this paragraph, Lessor agrees to cooperate
with Lessee in the enforcement by Lessee, at Lessee's sole cost and expense, of
any express or implied warranties or guaranties of workmanship or materials
granted or made by, and all rights, titles, interests and causes of action
against, contractors, subcontractors or materialmen that provided work, labor,
materials or equipment (or any or all of them) to Lessor in connection with the
construction of the leasehold improvements, or in connection with the HVAC
system. Lessor further agrees to cooperate with Lessee in the enforcement by
Lessee, at Lessee's sole cost and expense, of any service contracts that provide
service, repair or maintenance to any item incorporated in the Premises for a
period of time in excess of such construction guaranty periods.

         Lessor will permit Lessee and its agents and contractors access to the
Premises during normal working hours prior to occupancy pursuant to Exhibit "E"
or the Commencement Date for the limited purposes of performing construction
work, decorations and cleanup to prepare portions of the Premises for occupancy
provided that (a) Lessee and its contractors will not interfere with the work
being performed by Lessor and its contractors, (b) Lessee gives Lessor prior
notice of its desire to enter the Premises, and (c) Lessee understands and
assumes all risks of its entry onto the Premises and carries the insurance
required by the Lease. Lessee's access and use of utilities at the Premises, in
connection with Lessee's construction work and other preparations for occupancy
shall be without charge to Lessee.

         If Lessor further agrees to perform, at your request, any additional or
non-standard work over and above that specified on the attached plans, such work
shall be performed by Lessor, at your sole expense, as a tenant extra. Prior to
commencing any such work requested by you, Lessor will submit to you written
estimates of the cost of any such work. Within one (1) week from the date of
submission thereof by Lessor, you shall either provide written approval of the
estimate for construction, submit to Lessor revisions in the plans and
specifications, or notify Lessor that the work is no longer requested. You agree
to pay Lessor promptly upon being billed therefore, the cost of all such work,
together with fifteen percent (15%) of the cost for Lessor's overhead. You agree
that in the event of default in payment thereof, Lessor shall (in addition to
all other remedies) have the same rights as in the event of default of payment
of rent under the Agreement.

         It is agreed that, notwithstanding the date provided in the Lease for
the commencement of the Term, and notwithstanding Lessee's partial occupation of
the Premises prior to Lessor's substantial completion of the leasehold
improvements, your obligation for the payment of full Base Rent and other sums
thereunder shall not commence until Lessor has substantially completed all work
to be performed by Lessor pursuant to this Tenant Improvement

                                Exhibit B, Page 2
<PAGE>   20

Addendum, except as and to the extent specifically otherwise provided for in
Exhibit "E" to the Lease; provided, however, that if Lessor shall be delayed in
substantially completing the work by December 15, 1995, as a result of:

         (a)      Your failure to timely furnish the information and approval
                  as and when required;

         (b)      Your request for materials, finishes or installations other
                  than specified on plans attached;

         (c)      Your changes in approved plans or specifications; or

         (d)      The performance of work by a person, firm or corporation
                  employed by you and the completion of said work by said
                  person, firm or corporation,

         The commencement of the Term and the payment of Base Rent and other
sums (other than the Base Rent provided for in Exhibit "E") thereunder shall be
accelerated by the number of days of such delay. Lessor and Lessee agree that
the number of days of acceleration shall be reduced by the number of days of
delay caused by Lessor, its agents or contractors. Lessor and Lessee will notify
each other of delays which it believes the other has caused.

         All monies due from you for leasehold improvements must be paid to
Lessor prior to your occupancy of the space.

   /s/  Arthur T. Sands        9/22/95                 By: /s/ Gerald D. Irons
   ----------------------   -------------                  ---------------------
   Arthur T. Sands              Date                           Sales Director
   Tenant Acceptance

                                                       /s/ Greg Swan
                                                       -------------------------
                                                       Director of
                                                       Tenant Improvements

                                Exhibit B, Page 3
<PAGE>   21

                                    EXHIBIT C

                               TO LEASE AGREEMENT

                              RULES AND REGULATIONS

PASSAGE WAY OBSTRUCTION

The sidewalks, entries, passages, courts, corridors and stairways shall not be
obstructed by any Lessee, its employees or agents, or used by them for purposes
other than for ingress and egress to and from their respective Premises.

SIGNAGE

No sign, advertisement, display, notice or other lettering shall be exhibited,
inscribed, painted or affixed on any part of the outside of the Premises or
inside, if visible from the outside, of the Building of which they form a part
without Lessor's prior written approval. All signs, and notices of Lessee, so
approved by Lessor, shall be maintained by Lessee in good and attractive
condition at Lessee's expense and risk. Lessor shall have the right to remove
all signs erected in violation of this rule without notice to Lessee, at the
expense of Lessee. Signage must comply with sign standards of The Woodlands
Development Standards Committee.

NOISE AND DISTURBANCE

No loud speakers, television sets, phonographs, radios, security systems, or
other devices shall be used in a manner so as to be heard or seen outside of the
Premises without the prior written consent of Lessor.

Lessee shall not make or permit any noise or odor which Lessor deems
objectionable or unpleasant to emanate from the Premises.

ANTENNAE AND AERIALS

No aerial or antenna, including satellite dish, shall be erected on the roof or
exterior walls of the Premises or Building in which the Premises is a part, in
each instance, without the prior written consent of Lessor. Any aerial or
antenna so installed without such written consent shall be subject to removal by
Lessor without notice at any time.

USE OF PREMISES

No portion of the Premises shall be used for a purpose other than as permitted
under the terms of their Lease.

No portion of the Premises shall be used for the purpose of lodging rooms, or
for any immoral or unlawful purposes.

                                Exhibit C, Page 1

<PAGE>   22
FIRE PROTECTION

Lessee shall not do or permit anything to be done in the Premises, or in the
common areas of the Building, or bring or keep anything therein, which will in
any way increase the rate of fire insurance on the Building or property kept
therein, or obstruct or interfere with the rights of other Lessees, or in any
way injure or annoy them, or conflict with the laws relating to fire, or with
any regulations of the fire department, or with any insurance policy upon the
Building or any part thereof, or conflict with any of the rules or ordinances of
any county, state or federal authority. Should Lessee utilize flammable or
combustible liquids, all such flammables and combustibles will be stored and
maintained in OSHA approved cabinets.

PARKING

Lessee and Lessee's employees shall park their cars only in those portions of
the parking area designated for that purpose by Lessor.

All vehicles will be parked within striped lanes. Parking across the stripes or
in unmarked areas, blocking of walkways, loading area, entrances or driveways
will not be permitted. Should such a situation exist, Lessor, at its option,
shall have the right to tow such vehicle away at the owner's expense.

MAINTENANCE OF PREMISES

Lessee shall keep the Premises at a temperature sufficiently high to prevent
freezing of water in pipes and fixtures.

No awning or other projections shall be attached to the outside walls of the
Premises or the Building of which they form a part without, in each instance,
the prior written consent of Lessor.

DELIVERIES AND MOVES

All loading and unloading of goods shall be done only at such times, in the
areas and through the entrances designated for such purpose by Lessor.

TRASH REMOVAL

All garbage, refuse and waste shall be kept in the kind of container specified
by Lessor, and shall be placed outside of the Premises, prepared for collection
in the manner and at the times and places specified by Lessor. In no event shall
Lessee dispose of garbage, refuse and waste in public areas of the Building. If
Lessor shall provide or designate a service for picking up refuse, garbage, and
waste, Lessee shall use the same at Lessee's cost, provided such cost shall be
competitive to any similar service available to Lessee.

                                Exhibit C, Page 2
<PAGE>   23

PEST CONTROL

Lessee shall use at Lessee's cost such pest extermination contractors as Lessor
may direct and at such intervals as Lessor may require, provided the cost
thereof is competitive to any similar service available to Lessee.

ELECTRICAL AND TELEPHONE SERVICE

If Lessee desires telegraphic, telephonic or other electric connections Lessor
or its agents will direct the electricians as to where and how the wires may be
introduced, and without such direction no boring or cutting for wires will be
permitted. Access to any mechanical, electrical or telephone rooms must be
approved by Lessor.

EXCESS TRASH DISPOSAL

In the event Lessee must dispose of crates, boxes, etc., which will not fit into
a standard exterior trash container, it will be the responsibility of Lessee to
dispose of same. In no event will Lessee set such items in the common areas of
the Building. Lessor may provide a common trash receptacle for Lessee's use.

WATER USAGE

The water closets and other water fixtures shall not be used for any purpose
other than those for which they were intended, and any damage resulting to them
from misuse, or the defacing or injury of any part of the Building shall be
borne by the person who shall occasion it. No person shall waste water by
interfering with the faucets or otherwise.

ALTERATIONS AND CONTRACTOR APPROVAL

All contractors and/or technicians performing any alterations for Lessee within
the Premises must be referred to Lessor for approval and shall, prior to
commencement, execute proper lien waivers.

 LESSOR'S RIGHT OF ENTRY

Lessor or its agents shall have the right to enter the Premises to examine the
same or to make such repairs, alterations or additions as Lessor shall deem
necessary for the safety, preservation or improvement of the Building. Lessor or
its agents may show said Premises and place on the windows or doors thereof, or
upon the bulletin board, a notice "To Rent" for one month prior to the
expiration of the Term of the Lease.

 LOCKS AND KEYS

Lessor agrees to furnish Lessee two keys for the doors entering the Building,
Lessee's suite and each entry door therein. Any additional keys will be
furnished at a charge by Lessor equal to its cost plus 15% overhead. No
additional locks shall be placed upon any doors without the written

                                Exhibit C, Page 3
<PAGE>   24

consent of Lessor, nor shall any duplicate keys be made. All necessary keys
shall be furnished by Lessor, and the same shall be surrendered upon the
termination of this Lease, and Lessee shall then give to Lessor or its agents
explanation of the combination of all locks upon the doors or vaults.

UPKEEP OF PREMISES

All glass, locks and trimmings in or about the doors and windows, and all
electric globes and shades belonging to the Building shall be kept whole, and
whenever broken by the Lessee or its agents or invitees, shall be immediately
replaced or repaired and put in order by Lessee under the direction and to the
satisfaction of Lessor and on vacating Premises shall be left whole and in good
repair.

SKYLIGHTS AND WINDOWS

No floors, skylights or windows that reflect or admit light into the corridors
or passage-ways, or to any other place in the Building, shall be covered or
obstructed by any Lessee. If Lessee desires blinds or window coverings, they
must be of such shade, color, material and make as shall be prescribed by Lessor
(and any awning proposed may be prohibited by Lessor).

ADDITIONAL RULES AND REGULATIONS

Lessor reserves the right to make such other and further reasonable rules and
regulations as in its judgment may from time to time be necessary for the
safety, care and cleanliness of the Building and its occupants and for the
preservation of good order therein.

                                         /s/  Arthur T. Sands
                                         ---------------------------------------
                                         Arthur T. Sands
                                         LESSEE

                                         /s/  F. Earl Higgins, Jr.
                                         ---------------------------------------
                                         F. Earl Higgins, Jr.
                                         Vice President, Property
                                         Management

                                Exhibit C, Page 4
<PAGE>   25

                                   EXHIBIT "D"

Lessor and Lessee agree that the following items shall be excluded from
Operating Expenses:

A.       Capital expenditures in accordance with generally accepted accounting
         principles except that, unless excluded from Operating Expenses
         pursuant to any other provision, Operating Expenses shall include the
         costs (amortized over such reasonable period as Landlord shall
         determine, together with interest thereon at the Prime Rate adjusted
         daily on the unamortized balance thereof) of any capital improvement:

          1)      which acts in any manner to reduce Operating Expenses;

          2)      which is required under any governmental law, code or
                  regulation passed or enacted on or after the effective date
                  of this Lease;

          3)      which is a necessary replacement (as opposed to additions or
                  new improvements) of items located in the common areas
                  adjacent to the Building, the parking area and other
                  facilities used in connection with the Building, or involving
                  the exterior of the Building, including, but not limited to
                  the roof and structural elements.

         Prime Rate, as used herein, shall mean the varying per annum rate of
interest which shall from day to day be equal to the per annum rate of interest
then most recently established and announced by Chase Bank of Texas, N.A., as
its prime lending rate of interest, with each such change in such per annum rate
of interest to become effective on the effective date of each such change.

B.       Costs of correcting defects in the Building, the common areas adjacent
         thereto and the parking area and other facilities used in connection
         therewith, or the equipment used therein and the replacement of
         defective equipment to the extent such costs of replacing defective
         equipment are covered by warranties of manufacturers, suppliers, or
         contractors, or are otherwise borne by parties other than Lessor,
         except that conditions resulting from ordinary wear and tear will not
         be deemed defects for the purpose of this category.

C.       Costs of bringing the Building, the common areas adjacent thereto and
         the parking area and other facilities used in connection therewith into
         compliance with building codes, laws, rules, regulations, ordinances,
         or any other governmental rules or requirements, including, without
         limitation, the Americans With Disabilities Act of 1990, which
         compliance was required prior to the effective date of this Lease.

D.       Costs of repairs or other work occasioned by fire, windstorm, or other
         casualty of an insurable nature, whether or not Lessor carries such
         insurance, and costs reimbursable to Lessor by governmental authorities
         in eminent domain or condemnation proceedings, except that the amount
         of any insurance deductible up to the amount of $25,000.00 shall be
         included in Operating Expenses.

                                Exhibit D, Page 1
<PAGE>   26

E.       Any expenses or costs that, under generally accepted accounting
         principles, are attributable to losses due to uncollected rent or fees
         or reserves for bad debts.

F.       Any expenses that are or should be separately metered or billed
         directly to or separately paid by another lessee or other third party.

G.       Costs of preparation of space, including buildout, renovating, or
         otherwise improving, changing, decorating, or redecorating space, for
         new lessees, prospective lessees, or other occupants in the Building,
         or vacant space in the Building except for routine, periodic repair,
         and replacement not considered to be capital items under generally
         accepted accounting principles.

H.       Costs incurred in removing the property or improvements of former
         lessees or other occupants of the Building.

I.       Architectural fees, leasing commissions, attorneys' fees, costs and
         disbursements, and other expenses incurred in connection with
         negotiations or disputes with lessees, prospective lessees, or other
         occupants of the Building and any such expenses incurred in connection
         with this Lease.

J.       All utility costs for which Lessee directly contracts with local
         utility companies.

K.       Costs incurred due to acts of Lessor, any other lessee, or other
         occupant of the Building causing an increase in the rate of insurance
         on the Building or its contents.

L.       Costs, fines, interest penalties, attorneys' fees, and costs of
         litigation incurred due to late payment of taxes (except for penalties
         associated with Lessor's good faith contest of real estate taxes),
         utility bills, ground rentals, or mortgage debt, and other such costs
         incurred by Lessor's failure to make such payments when due.

M.       Penalties, fines, and other costs incurred due to violations or alleged
         violations by Lessor, any other lessee, or any third party of any laws,
         rules, regulations, codes, or ordinances. It is understood and agreed
         that Operating Expenses shall include costs to comply with laws, rules,
         regulations passed or enacted by the governmental authority on or after
         the effective date of this Lease, unless excluded pursuant to any other
         provision.

N.       Costs incurred due to violations or alleged violations by Lessor, any
         other lessee, or other occupant of the Building of the terms and
         conditions of any lease or other rental arrangement covering space in
         the Building.

O.       Ground rentals, payment of principal and interest on debt (and other
         debt costs), amortization payments on any mortgage or mortgages
         executed by Lessor covering the Building or the Land (or any portion
         thereof) (except to the extent that any of the foregoing may include
         payments or prepayments of insurance premiums or taxes that would be
         included in Operating Expenses if paid directly by Lessor), rental
         concessions, and negative cash flow guarantees.

                                Exhibit D, Page 2
<PAGE>   27

P.       Costs incurred in connection with the sale, refinancing, mortgaging, or
         selling, or change of ownership of the Building or the Land, including,
         without limitation, brokerage commissions, attorneys' and accountants'
         fees, loan brokerage fees, closing costs, interest charges and property
         transfer taxes.

Q.       State, local, federal, personal, and corporate income taxes measured by
         the income of Lessor from all sources or from sources other than rent
         alone; estate and inheritance taxes; franchise, succession and transfer
         taxes.

R.       All costs incurred by Lessor in connection with any dispute relating
         to the Lessor's title to or ownership of the Building or the Land.

S.       Contributions to charitable organizations.

T.       Expenses and costs relating in any way whatsoever to the
         identification, testing, monitoring and control, encapsulation,
         removal, replacement, repair, or abatement of any hazardous materials
         within the Building or the Land (a) which material was classified as
         "hazardous" prior to the effective date of this Lease and (b) was
         required to be removed, replaced, repaired or abated prior to the
         effective date of this Lease.

U.       Costs and expenses in excess of $10,000.00 in the aggregate for
         owning, leasing, and maintaining sculpture, painting, and other works
         of art installed in and/or on the Building or the Land.

V.       Advertising and promotional expenditures.

W.       Lessor's general corporate overhead, if any.

X.       Wages, salaries or other compensation of any kind or nature paid to
         any employees above the grade of Director of Property Management.

Y.       Costs of Lessor's compliance with warranties given to Lessee by Lessor.

Z.       Management fees, except for the fee of five percent (5%) of the Base
         Rent under this Lease.

AA.      Submetered utility service costs paid by Lessee to Lessor directly, or
         any utility service costs paid by Lessee directly to the service
         provider.

                                Exhibit D, Page 3
<PAGE>   28

                                   EXHIBIT "E"

Notwithstanding anything contained in the Lease to the contrary, Lessor agrees
that Lessee may take occupancy of portions of the Premises prior to the
Commencement Date on the following terms and conditions:

1)       Lessee may take possession of portions of the Premises ("Early
         Occupancy Space(s)") designated from time-to-time prior to the
         Commencement Date on a month-to-month basis.

2)       Monthly Base Rent on the Early Occupancy Space(s) shall be calculated
         as follows: $20.50 times the number of rentable square feet in the
         Early Occupancy Space(s) divided by twelve (12). All Base Rent and
         other sums shall be prorated in the case of a partial month.

3)       Base Rent shall be payable in advance on the first day of each month,
         with a prorated portion being due and payable in advance for any
         partial month.

4)       "Additional Rent", "utilities expense", "Excess Operating Expenses",
         and other similar sums will not be charged with respect to the Early
         Occupancy Space(s) (until the Commencement Date of the Lease), except
         that Lessee agrees to pay to Lessor, together with the Base Rent paid
         for the Early Occupancy Space(s), a monthly Utility Fee of $.17 times
         the number of rentable square feet in the Early Occupancy Space(s),
         which Utility Fee shall be prorated for any partial month.

5)       Lessor agrees that Lessee, at Lessee's sole expense, may provide
         electrical service to the Early Occupancy Space(s) through the use of
         "pig tails".

6)       All terms and conditions of the Lease shall apply to Lessee's occupancy
         of the Early Occupancy Space(s), except as provided herein. Lessee will
         deliver to Lessor the required insurance certificates prior to
         occupancy of the Early Occupancy Space(s).

                                Exhibit E, Page 1
<PAGE>   29

                                   Rider No. 1

           to Lease Agreement Dated September 22, 1995, by and between

                    THE WOODLANDS CORPORATION, as Lessor, and
                    LEXICON GENETICS INCORPORATED, as Lessee

I.        INTERRUPTION OF UTILITIES. Lessor has been advised by Lessee that the
          capacity of the utilities used by the former occupant of the Building,
          Baylor College of Medicine, is adequate to meet its normal use needs
          and Lessor agrees that said capacity shall be maintained during the
          Term and Lessor has no knowledge of any restrictions which would
          adversely affect Lessee's operations permitted under the Lease.
          Notwithstanding anything to the contrary contained in this Lease, if
          (i) there shall occur interruption or discontinuance of utilities or
          services to be provided or made available by Lessor as described in
          this Lease of such nature that Lessee is unable to, or does not, make
          normal use of the Premises, (ii) such interruption or discontinuance
          has not been caused in whole or substantial part, directly or
          indirectly, by the negligence or willful misconduct of Lessee, or
          Lessee's agents, employees, contractors, subcontractors, subtenants or
          assignees, (iii) Lessee shall have given written notice respecting
          such interruption or discontinuance to Lessor and Lessor shall have
          failed to cure such interruption or discontinuance for four (4)
          consecutive days after Lessor receives said notice, and (iv) the cause
          of such interruption or discontinuance of a utility is outside the
          Premises, then all rents payable herein shall automatically abate from
          the fifth (5th) business day until such time as the services or
          utilities are restored or Lessee begins normal use of the Premises
          again, whichever occurs first. For purposes of determining whether
          there is an interruption or discontinuance of utilities or services,
          an outage or series of outages totalling four (4) hours or more on any
          day shall constitute an interruption or discontinuance of services or
          utilities for such day, but outages that in the aggregate are of
          shorter duration, shall not be considered. If (i) there shall occur
          interruption or discontinuance of utilities or services to be provided
          or made available by Lessor as described in this Lease of such nature
          that Lessee is unable to, or does not, make normal use of the
          Premises, (ii) such interruption or discontinuance has not been caused
          in whole or substantial part, directly or indirectly, by the
          negligence or willful misconduct of Lessee, or Lessee's agents,
          employees, contractors, subcontractors, subtenants or assignees, (iii)
          Lessee shall have given written notice respecting such interruption or
          discontinuance to Lessor and Lessor shall have failed to cure such
          interruption or discontinuance for ninety (90) consecutive days after
          receiving said notice, and (iv) the cause of such interruption or
          discontinuance of a utility is outside the Premises, then Lessee may
          terminate the Lease.

2.        ATTORNEYS' FEES. In the event that at any time during the Term either
          Lessor or Lessee shall institute any action or proceeding against the
          other relating to the provisions of this Lease, or any default
          hereunder, the unsuccessful party in such action or proceeding agrees
          to reimburse the successful party for the reasonable expenses of
          attorneys' fees and paralegal fees and disbursements incurred therein
          by the successful party. Such reimbursement shall include all legal
          expenses incurred prior to trial, at trial

                              Rider No. 1, Page 1
<PAGE>   30

          and at all levels of appeal and post-judgment proceedings. If Lessor
          employs in-house counsel, then the court shall make a determination of
          the reasonable legal expenses which would have been incurred had
          Lessor employed outside counsel.

3.        USE BY LESSOR. Lessor shall not use or permit the use of any part of
          the Premises or the Building in any way that is unlawful or
          disreputable in Lessee's reasonable opinion and will use its best
          efforts not to permit or create any nuisance, noise or odor, or
          otherwise interfere with, annoy or disturb Lessee in its normal
          business operations.

4.        BROKER COMMISSIONS. Lessee and Lessor each warrant to the other that
          in connection with the negotiation of this Lease, it has not dealt
          with any broker or agent. Lessee and Lessor shall each indemnify the
          other against all costs, expenses, attorneys' fees, and other
          liability for commissions or compensation claimed by any broker or
          agent claiming by, through, or under the indemnifying party.

5.        REPRESENTATIONS BY LESSOR. Lessor does hereby warrant to represent to
          Lessee that, as of the date the Premises are tendered to the Lessee,
          the Premises, the Building and other improvements erected or to be
          erected by Lessor on or about the Premises shall be and are in
          compliance with applicable government and private rules, regulations,
          restrictions and ordinances, and in good working order in accordance
          with their intended use, including all equipment, fixtures, heating,
          air-conditioning, electrical, plumbing and sewer systems. Taking
          possession of the Premises by Lessee shall not be deemed to be
          acceptance of any defects or matters of which Lessee provides to
          Lessor notice within thirty (30) business days after the Commencement
          Date and, in no event, shall be deemed acceptance of latent defects.

6.        MAINTENANCE OF THE BUILDING AND LAND. Except with respect to those
          items to be maintained by Lessee, the Building and the Land shall at
          all times be maintained by Lessor in a commercially reasonable manner
          consistent with the manner in which projects in the development known
          as The Woodlands of a similar type and character are maintained. In
          addition to those items described in the Lease, Lessor shall provide
          and maintain the common areas, access, paving, parking areas,
          downspouts, exterior paint, exterior electrical and alleys in good
          condition and repair. Lessee shall not be required to pay any cost
          attributable to the actions of any other tenant or occupant of the
          building. Any material, service, management, or maintenance charges
          allocated to Lessee shall not exceed commercially reasonable rates,
          including an overhead charge, for buildings of a similar size, age,
          character and location. Lessor shall not be entitled to reimbursements
          for any expenses related to faulty workmanship or for structural
          items. Subject to the terms of the Lease, Lessee shall have access to
          the Premises seven (7) days a week, twenty-four (24) hours a day.

7.        RENEWAL OPTION. Lessee, upon payment of the rent herein reserved and
          performance of the covenants contained herein, shall have the option
          to extend the Lease one (1) period of five (5) years ("Extension
          Term"). Such Extension Term shall be subject to the same terms and
          conditions as are set forth herein, except that (a) the Base Rent and
          the Operating Cost Allowance shall be at the then market rate for
          comparable

                              Rider No. 1, Page 2
<PAGE>   31

          office space in The Woodlands Development, at the time the Extension
          Term commences, but in no event less than the Base Rent and Operating
          Cost Allowance that apply during the last month of the primary Term,
          (b) Lessee shall have no option to renew the Lease beyond the
          Extension Term, (c) a one (1) year warranty as to leasehold
          improvements and HVAC system shall not apply, and (d) the "Term" as
          defined in the Lease shall include the Extension Term if duly
          exercised by Lessee. Lessee shall notify Lessor in writing at lease
          nine (9) months prior to the expiration of the primary Term of
          Lessee's election to exercise the option to extend. Lessor, shall
          within fifteen (15) days of such notice, notify Lessee of the Base
          Rent and Operating Cost Allowance to be in effect during the Extension
          Term. Lessee will have fifteen (15) days thereafter to notify Lessor
          in writing of its exercise of the option to extend at the stated
          rental (provided Lessor has provided a reasonably accurate estimate of
          market rent) or cancellation of its election to exercise the option to
          extend. If Lessee elects not to extend or fails to timely exercise its
          option, the option to extend shall terminate and be of no further
          force and effect. In the event of a dispute as to market rate, Lessor
          and Lessee shall in good faith attempt to resolve any dispute promptly
          in order to avoid any delay in finalizing the rental for the Extension
          Term. The term "market rate" shall mean the rental rates then being
          charged in the development known as The Woodlands for space comparable
          to the Premises, taking into consideration use, location, floor level,
          quality, age and location of the Building, tenant improvements, rent
          concessions and tenant inducements, and other relevant factors.

8.        FIRE AND CASUALTY. If the Premises are damaged in part or whole from
          any cause and the Premises can be substantially repaired and restored
          within one hundred and eighty (180) days from the date of the damage
          using standard working methods and procedures, Lessor shall at its
          expense promptly and diligently repair and restore the Premises to
          substantially the same condition as existed before the damage. This
          repair and restoration shall be made within one hundred and eighty
          (180) days from the date of the damage. If the Premises cannot be
          repaired and restored within the one hundred and eighty(180) day
          period, then either party may, within thirty (30) days after the date
          of damage, cancel the Lease by giving notice to the other party.
          Nevertheless, if the Premises are not repaired and restored within one
          hundred and eighty (180) days from the date of the damage, then Lessee
          may cancel the Lease at any time after the one hundred eightieth
          (180th) day and before the two hundred tenth (210th) day following the
          date of damage. Unless the damage is caused by Lessee's willful
          misconduct, the Base Rent, Additional Rent and any other rental shall
          abate in proportion to that part of the Premises that is unfit for use
          in Lessee's business. The abatement shall consider the nature and
          extent of interference to Lessee's ability to conduct business in the
          Premises and the need for access and essential services. The abatement
          shall continue until the earlier of the date Lessor completes the
          repairs and restoration to the Premises or the part rendered unusable
          and notice to Lessee that the repairs and restoration are completed,
          or until Lessee again uses the Premises or the part rendered unusable,
          whichever is first. The provisions of this paragraph 8 shall prevail
          over the provisions of paragraph 23 of the Lease to the extent of any
          conflict.

                              Rider No. 1, Page 3
<PAGE>   32

9.       PURCHASE OF AUTOCLAVE. On or before the earlier of (a) the date Lessee
         occupies any portion of the Premises or (b) December 15, 1995, Lessee
         shall purchase from Lessor the AMSCO 2023 Autoclave Vacamatic
         ("Autoclave"), located in the Premises for $15,000.00. Lessee has
         inspected the Autoclave and agrees to purchase it "As Is" and "With All
         Faults." Lessee understands that Lessor makes no express or implied
         warranties with respect to the Autoclave and makes no warranties of
         merchantability or fitness of the Autoclave for any purpose.

                              Rider No. 1, Page 4
<PAGE>   33

                     MODIFICATION AND RATIFICATION OF LEASE

between THE WOODLANDS CORPORATION ("Lessor") and LEXICON GENETICS INCORPORATED
("Lessee" ).

         This Modification and Ratification of Lease is made and entered into,
effective the 26th day of September, 1995, for and in consideration of One
Dollar ($1.00), and other good and valuable consideration.

                                   WITNESSETH:

         1. Lessor and Lessee hereby confirm and ratify (as modified below) all
of the terms, conditions and covenants in that certain Lease Agreement ("Lease")
between the parties dated September 22, 1995, under which Lessee has leased from
Lessor 13,068 square feet of net rentable area in the building located at 4000
Research Forest Drive, The Woodlands, Montgomery County, Texas ("Premises").

         2. In accordance with the terms of Exhibit "E" of the Lease, effective
September 26, 1995, Lessee will take possession of that certain 220 rentable
square foot portion of the Premises shown on Annex "T" attached hereto ("Early
Occupancy Space 1").

         3. Lessee agrees to pay to Lessor Base Rent of $375.83 per month for
the Early Occupancy Space 1, together with a Utility Fee of $37.40 per month.

         EXECUTED this 25th of October, 1995.

                                       LESSOR:

                                       THE WOODLANDS CORPORATION
                                       By:  /s/  Eric H. Wojner
                                            ------------------------------------
                                       Name:  Eric H. Wojner
                                       Title: VP - Investment Properties

                                       LESSEE:

                                       LEXICON GENETICS INCORPORATED
                                       By:  /s/  Ray B. Webb
                                            ------------------------------------
                                       Name:  Ray B. Webb
                                       Title: Director - Administration

                                       1
<PAGE>   34

                              MODIFICATION OF LEASE

                  This Modification and Ratification of Lease is made and
entered into, effective the 18th day January 1996, between THE WOODLANDS
CORPORATION ("Lessor") and LEXICON GENETICS INCORPORATED ("Lessee") for and in
consideration of One Dollar ($1.00), and other good and valuable consideration.

                              W I T N E S S E T H :

         1. Lessor and Lessee hereby confirm and ratify (as modified below) all
of the terms, conditions and covenants in that certain written Lease Agreement
("Lease") between the parties dated September 22, 1995 and modified by
Modification and Ratification of Lease dated October 25, 1995, under which
Lessee has leased from Lessor 13,068 square feet of net rentable area in that
building located at 4000 Research Forest Drive, The Woodlands, Montgomery
County, Texas ("Premises").

         2. In accordance with the terms of Exhibit "E" of the Lease, effective
November 13, 1995, Lessee has taken possession of that certain 2,229 rentable
square foot portion of the Premises shown on Annex "II" attached hereto ("Early
Occupancy Space 2").

         3. Effective November 13, 1995, Lessee agrees to pay to Lessor an
increase in Base Rent of $3,807.88 per month for the Early Occupancy Space 2, so
that the total Base Rent shall be $4,183.71 per month, together with a Utility
Fee of $378.93 per month.

Signed this the 21st day of December, 1995, at The Woodlands, Texas.

LESSEE                                       LESSOR

LEXICON GENETICS INCORPORATED                THE WOODLANDS CORPORATION

BY:  /s/ Ray Webb                            BY:  /s/  Eric H. Wojner
     ----------------------                       ------------------------------
NAME:    Ray Webb                            NAME:     Eric H. Wojner
TITLE:   Director-Administration             TITLE:    Vice-President/Investment
                                                       Properties

                                       1
<PAGE>   35

                EXPANSION, MODIFICATION AND RATIFICATION OF LEASE

         This Expansion, Modification and Ratification of Lease is made and
entered into, effective the 4th day of November, 1996, between THE WOODLANDS
CORPORATION ("Lessor") and LEXICON GENETICS INCORPORATED, A DELAWARE CORPORATION
("Lessee") for and in consideration of One Dollar ($1.00), and other good and
valuable consideration.

                                   WITNESSETH:

1.        Lessor and Lessee hereby confirm and ratify (as modified below) all of
          the terms, conditions and covenants in that certain written Lease
          ("Lease") between the parties dated September 22 1995, modified by
          Modification of Lease dated October 25, 1995, and Modification of
          Lease dated January 18, 1996, under which Lessee has leased from
          Lessor approximately 13,068 square feet of net rentable area in that
          building located at 4000 Research Forest Drive, The Woodlands,
          Montgomery County, Texas.

2.        Lessor and Lessee agree that the Term of the Lease shall be defined as
          seventy-four (74) months commencing November 1, 1996 ("Expansion Area
          Effective Date"), expiring on December 31, 2002.

3.        Lessor and Lessee agree that effective on the Expansion Area Effective
          Date, the area of the Premises shall be increased by 2,572 square feet
          of net rentable area ("Expansion Area") which Expansion Area is
          outlined on attached Exhibit "A", changing the size of the Premises to
          15,640 square feet of net rentable area.

4.        Lessor and Lessee agree that, effective on the Expansion Area
          Effective Date, the Base Rent, as set out in Section 4 of the Lease
          Agreement, shall be increased by Four thousand, three hundred
          ninety-three and 83/100 Dollars ($4,393.83) per month commencing
          November 1, 1996 and Four thousand six hundred eight and 17/100
          Dollars ($4,608.17) per month commencing January 1, 2000.

5.        Lessor agrees to make alterations and improvements ("Improvements") to
          the Premises, upon the terms set forth in Exhibit "B" attached hereto.

 Signed this the 4th day of November, 1996, at The Woodlands, Texas.

 LESSEE                                       LESSOR

 LEXICON GENETICS INCORPORATED                THE WOODLANDS CORPORATION

 BY:  /s/ Arthur T. Sands                     BY:  /s/ Eric H. Wojner
      ----------------------------                 -----------------------------
 NAME:    Arthur T. Sands                     NAME:    Eric H. Wojner
 TITLE:   President/CEO                       TITLE:   Vice President/Investment
                                                       Properties

                                       1
<PAGE>   36

                                    EXHIBIT B

                          LEXICON GENETICS INCORPORATED

  Re:    Leasehold improvements for 2,572 rentable square feet (2,572 usable
         square feet) of space in a building known as 4000 Research Forest Drive
         in The Woodlands, Texas.

Gentlemen:

         Lessor is pleased to quote for your approval the cost of work necessary
to construct the proposed leasehold improvements in the above referenced space.

The cost of work is based upon the attached drawings dated TBD

         Total Cost of Work                          $ 12,860.00
         Lessor Allowance                           ($ 12,860.00)

         Total Amount Due from Lessee                $   -0-

         If Lessor further agrees to perform, at your request, any additional or
non-standard work over and above that specified on the attached plans, such work
shall be performed by Lessor, at your sole expense, as a tenant extra. Prior to
commencing any such work requested by you, Lessor will submit to you written
estimates of the cost of any such work. Within one (1) week from the date of
submission thereof by Lessor, you shall either provide written approval of the
estimate for construction, submit to Lessor revisions in the plans and
specifications, or notify Lessor that the work is no longer requested. You agree
to pay Lessor promptly upon being billed therefore, the cost of all such work,
together with fifteen percent (15%) of the cost for Lessor's overhead. You agree
that in the event of default in payment thereof, Lessor shall (in addition to
all other remedies) have the same rights as in the event of default of payment
of rent under the Lease.

         It is agreed that, notwithstanding the date provided in the Lease for
the commencement of the lease Term, your obligation for the payment of rental
thereunder shall not commence until Lessor has substantially completed all work
to be performed by Lessor pursuant to this agreement; provided, however, that if
Lessor shall be delayed in substantially completing the work as required
hereunder as a result of:

           (a)      Your failure to timely furnish the information and approval
                    as and when required;

           (b)      Your request for materials, finishes or installations other
                    than specified on plans attached;

           (c)      Your changes in approved plans or specifications; or

                                       2
<PAGE>   37

           (d)      The performance by a person, firm or corporation employed by
                    you and the completion of said work by said person, firm or
                    corporation,

then the commencement of the term of the Lease and the payment of rent
thereunder shall be accelerated by the number of days of such delay.

         All monies due from you for leasehold improvements must be paid to
Lessor prior to your occupancy of your space.

         Upon your approval as indicated below, Lessor will begin construction
of your leasehold improvements and estimate construction completion within 3*
months of commencement of construction.

                                             Sincerely,

/s/Arthur Sands                11/4/96       /s/  Damon Palermo
----------------------         -------       -----------------------------------
Arthur Sands                     Date        Damon Palermo
Tenant Acceptance                            Sales Director

                                             /s/  Leon Lee
                                             -----------------------------------
                                             Leon Lee
                                             Director Of Tenant Improvements

*        If the Total Cost of Work should exceed the Lessor Allowance of
         $12,860.00, Lessee agrees to pay Lessor the overage amount in cash at
         move-in or reduce the scope of work.

                                       3
<PAGE>   38

                            THE WOODLANDS CORPORATION
                                    AGREEMENT

         This Agreement (the "Agreement") is made and entered into by and
between THE WOODLANDS CORPORATION, a Delaware corporation, with offices and its
principal place of business in The Woodlands, Montgomery County, Texas
(hereinafter "TWC"), and LEXICON GENETICS INCORPORATED (hereinafter the
"Occupant").

                                   WITNESSETH

         WHEREAS, Occupant desires to use the suites at 4000 Research Forest
Drive for the purpose of storage;

         WHEREAS, Suites A110/A120 (Suites) is the property of TWC; and

         NOW, THEREFORE, for and in consideration of the mutual covenants and
obligations herein contained, the sufficiency of which is hereby acknowledged,
TWC and Occupant agree as follows:

         1.         TWC hereby grants Occupant the nonexclusive use of the
                    Suites at 4000 Research Forest Drive, for the period of time
                    from November 1, 1996 to April 30,1997 for the exclusive
                    purpose of storage and for such other uses as are incident
                    thereto.

         2.         Occupant shall be solely responsible for the use of the
                    Suites during the term of this Agreement. Occupant shall, in
                    its use of the Suites, comply with any and all rules and
                    regulations imposed by TWC. Occupant agrees to operate the
                    Suites in such a manner so as not to unreasonably interfere
                    with the activities of TWC tenants who are located adjacent
                    to the Suites. All repairs and maintenance costs associated
                    with Occupant's occupancy shall be borne by Occupant.

         3.         Occupant agrees to indemnify and hold TWC and its affiliated
                    companies, their agents, officers, directors, servants and
                    employees (herein "Indemnitee") harmless from and against
                    and to reimburse Indemnitee with respect to, any and all
                    claims, demands, causes of action, loss, damage,
                    liabilities, costs and expenses (including attorney's fees
                    and court costs) of any and every kind or character, known
                    or unknown, fixed or contingent, asserted against or
                    incurred by Indemnitee at any time and from time to time by
                    reason of, or arising, either directly or indirectly, out of
                    Occupant's, its members', its agents', subcontractors',
                    representatives' or invitees, use and/or misuse of the
                    Suites.

         4.         Occupant shall maintain, during the term of this Agreement,
                    a policy or policies of comprehensive general liability
                    insurance issued by and binding upon some solvent insurance
                    company licensed to do business in the State of Texas, such
                    insurance to afford protection of not less than $500,000.00
                    combined single limit bodily injury and property damage per
                    occurrence. Said policy or policies shall name TWC as an
                    additional named insured and include a waiver of subrogation
                    in

                                     Page 1
<PAGE>   39

                    favor of TWC. The Occupant shall provide TWC a copy of the
                    required policy or a certificate evidencing the required
                    coverage upon execution of this Agreement.

          5.        The Occupant for itself, its members, their representatives,
                    heirs, executors, administrators, and next of kin (herein
                    "Releasor") does hereby release, waive, discharge and
                    covenant not to sue TWC, any affiliated company, its
                    employees, agents and officers from any and every claim,
                    demand, action or right of action of every kind or nature,
                    either in law or in equity, arising from Releasor's use of
                    the Suites at 4000 Research Forest Drive.

         6.         This agreement may be terminated by either party with five
                    (5) days written notice. Upon termination of this Agreement
                    the Occupant shall return the Suites in the same condition
                    as it was in when this Agreement commenced.

         7.         This agreement is not assignable by the Occupant.

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
         be executed this 1st day of November, 1996.

                                       THE WOODLANDS CORPORATION

                                       By:  /s/  Ross Foldetta
                                            ------------------------------------
                                       Name:     Ross Foldetta
                                       Title:    Director of Property Management

                                       LEXICON GENETICS INCORPORATED

                                       By:  /s/  Arthur T. Sands
                                            ------------------------------------
                                       Name:     Arthur T. Sands
                                       Title:    President/CEO

                                     Page 2
<PAGE>   40

                            THE WOODLANDS CORPORATION
                                    AGREEMENT

         This Agreement (the "Agreement") is made and entered into by and
between THE WOODLANDS CORPORATION, a Delaware corporation, with offices and its
principal place of business in The Woodlands, Montgomery County, Texas
(hereinafter "TWC"), and LEXICON GENETICS, INC. (hereinafter the "Tenant").

                                   WITNESSETH

         WHEREAS, the Tenant desires to use the suite at 4000 Research Forest
#B109, The Woodlands, TX 77381 for the purpose of storage;

         WHEREAS, the suite at 4000 Research Forest #B109 is the property of
TWC; and

         WHEREAS, TWC has agreed to allow the Tenant to use the suite for
storage;

         NOW, THEREFORE, for and in consideration of the mutual covenants and
obligations herein contained, the sufficiency of which is hereby acknowledged,
TWC and Tenant agree as follows:

         1. TWC hereby grants the Tenant the nonexclusive use of the suite at
4000 Research Forest #B109, The Woodlands, TX 77381, for the period of
month-to-month beginning July 22, 1996 to use for storage and for such other
uses as are incident thereto.

         2. The Tenant shall be solely responsible for the use of the suite at
4000 Research Forest #B109, during the term of this Agreement. The Tenant shall,
in its use of the suite, comply with any and all rules and regulations imposed
by TWC. The Tenant agrees to operate the storage area in such a manner so as not
to unreasonably interfere with the activities of TWC tenants who are located
adjacent to the suite at 4000 Research Forest #B109. All expenses and costs
necessary to operate the storage area shall be borne by the Tenant.

         3. The Tenant agrees to indemnify and hold TWC and its affiliated
companies, their agents, officers, directors, servants and employees (herein
"Indemnitee") harmless from and against and to reimburse Indemnitee with respect
to, any and all claims, demands, causes of action, loss, damage, liabilities,
costs and expenses (including attorney's fees and court costs) of any and every
kind or character, known or unknown, fixed or contingent, asserted against or
incurred by Indemnitee at any time and from time to time by reason of, or
arising, either directly or indirectly, out of Tenant's, its members', its
agents', subcontractors', representatives' or invitees' use and/or misuse of the
suite at 4000 Research Forest #B109, The Woodlands, TX 77381.

         4. The Tenant shall maintain, during the term of this Agreement, a
policy or policies of comprehensive general liability insurance issued by and
binding upon some

                                     Page 1

<PAGE>   41

solvent insurance company licensed to do business in the State of Texas, such
insurance to afford protection of not less than $500,000.00 combined single
limit bodily injury and property damage per occurrence. Said policy or policies
shall name TWC as an additional named insured and include a waiver of
subrogation in favor of TWC. The Tenant shall provide TWC a copy of the required
policy or a certificate evidencing the required coverage upon execution of this
Agreement.

         5. The Tenant for itself, its members, their representatives, heirs,
executors, administrators, and next of kin (herein "Releasor") does hereby
release, waive, discharge and covenant not to sue TWC, any affiliated company,
its employees, agents and officers from any and every claim, demand, action or
right of action of every kind or nature, either in law or in equity, arising
from Releasor's use of the suite at 4000 Research Forest #B109, The Woodlands,
TX 77381.

         6. This agreement may be terminated by either party with five (5) days
written notice. Upon termination of this Agreement the Tenant shall return the
suite at 4000 Research Forest #B109 in the same condition as it was in when this
Agreement commenced.

         7. This agreement is not assignable by the Tenant.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
this 19th day of July 1996.

                                 THE WOODLANDS CORPORATION

                                 By:  /s/ Ross Foldetta
                                      -----------------------
                                 Name: Ross Foldetta
                                 Title: Director of Property Management

                                 LEXICON GENETICS, INC.

                                 By:  /s/  Arthur Sands
                                      -----------------------
                                 Name: Arthur Sands
                                 Title: President

                                     Page 2
<PAGE>   42
                EXPANSION, MODIFICATION AND RATIFICATION OF LEASE

         This Expansion, Modification and Ratification of Lease is made and
entered into, effective the 2nd day of January, 1997 between THE WOODLANDS
CORPORATION (Lessor") and LEXICON GENETICS INCORPORATED, a Delaware corporation
("Lessee"), for and in consideration of One Dollar ($1.00), and other good and
valuable consideration.

                                   WITNESSETH:

1.        Lessor and Lessee hereby confirm and ratify (as modified below) all of
          the terms, conditions and covenants in that certain written Lease
          ("Lease") between the parties dated September 22 1995, modified by
          modification of Lease dated October 25, 1995, Modification of Lease
          dated January 18, 1996, and Expansion, Modification and Ratification
          of Lease dated November 4, 1996, under which Lessee has leased from
          Lessor approximately 15,640 square feet of net rentable area in that
          building located at 4000 Research Forest Drive, The Woodlands,
          Montgomery County, Texas.

2.        Lessor and Lessee agree that the Term of this expansion be defined as
          seventy-two (72) months commencing January 1, 1997 ("Expansion Area
          Effective Date"), expiring on December 31, 2002.

3.        Lessor and Lessee agree that effective on the Expansion Area Effective
          Date, the area of the Premises shall be increased by 80 square feet of
          net rentable area ("Expansion Area") which Expansion Area is outlined
          on attached Exhibit "A", changing the size of the Premises to 15,720
          square feet of net rentable area.

4.        Lessor and Lessee agree that, effective on the Expansion Area
          Effective Date, the Base Rent, as set out in Section 4 of the Lease
          Agreement, shall be increased by one hundred thirty-six and 67/100
          Dollars ($136.67) per month commencing January 1, 1997 and one hundred
          forty-three and 33/100 Dollars ($143.33) per month commencing January
          1, 2000.

5.        Lessor agrees to make alterations and improvements ("Improvements") to
          the Premises, upon the terms set forth in Exhibit "B" attached hereto.

LESSEE                                           LESSOR

LEXICON GENETICS INCORPORATED                    THE WOODLANDS CORPORATION
CORPORATION
a Delaware corporation                           a Delaware corporation

BY: /s/  Ray B. Webb                             BY: /s/ Eric H. Wojner
    --------------------                             ---------------------------
NAME:    Ray B. Webb                             NAME:   Eric H. Wojner
TITLE:   Director-Finance                        TITLE:  Vice President
                                                         Investment Properties

                                     Page 1
<PAGE>   43

                                    EXHIBIT B

Lexicon Genetics Incorporated

Re:     Leasehold improvements for 80 rentable square feet (80 usable square
        feet) of space in a building known as 4000 Research Forest Drive in The
        Woodlands, Texas.

Gentlemen:

        Lessor is pleased to quote for your approval the cost of work necessary
to construct the proposed leasehold improvements in the above referenced space.

        The cost of work is based upon the attached drawings dated To be
        determined

          Total Cost of Work                     $ To be determined*
          Lessor Allowance                       ($ 400.00)

          Total Amount Due from Lessee           $ To be determined

        If Lessor further agrees to perform, at your request, any additional or
non-standard work over and above that specified on the attached plans, such work
shall be performed by Lessor, at your sole expense, as a tenant extra. Prior to
commencing any such work requested by you, Lessor will submit to you written
estimates of the cost of any such work. Within one (1) week from the date of
submission thereof by Lessor, you shall either provide written approval of the
estimate for construction, submit to Lessor revisions in the plans and
specifications, or notify Lessor that the work is no longer requested. You agree
to pay Lessor promptly upon being billed therefore, the cost of all such work,
together with fifteen percent (15%) of the cost for Lessor's overhead. You agree
that in the event of default in payment thereof, Lessor shall (in addition to
all other remedies) have the same rights as in the event of default of payment
of rent under the Lease.

        It is agreed that, notwithstanding the date provided in the Lease for
the commencement of the lease Term, your obligation for the payment of rental
thereunder shall not commence until Lessor has substantially completed all work
to be performed by Lessor pursuant to this agreement; provided, however, that if
Lessor shall be delayed in substantially completing the work as required
hereunder as a result of:

          (a)  Your failure to timely furnish the information and approval as
               and when required;

          (b)  Your request for materials, finishes or installations other than
               specified on plans attached;

          (c)  Your changes in approved plans or specifications; or

                                     Page 1
<PAGE>   44

          (d)  The performance by a person, firm or corporation employed by you
               and the completion of said work by said person, firm or
               corporation,

then the commencement of the term of the Lease and the payment of rent
thereunder shall be accelerated by the number of days of such delay.

         All monies due from you for leasehold improvements must be paid to
Lessor prior to your occupancy of your space.

         Upon your approval as indicated below, Lessor will begin construction
of your leasehold improvements and estimate construction completion within TBD
weeks of commencement of construction.

                                                      Sincerely,

/s/  Ray B. Webb                    12/20/96          /s/  Damon Palermo
---------------------               --------          --------------------------
Ray  B. Webb                          Date            Damon Palermo
Tenant Acceptance                                     Sales Director

                                                      /s/  Scott Lewis
                                                      --------------------------
                                                      Scott Lewis
                                                      Director of
                                                      Tenant Improvements

*        If the Total Cost of Work should exceed the Lessor Allowance of
         $400.00, Lessee agrees to pay in cash to Lessor the overage amount at
         move-in or reduce the scope of work.

                                     Page 2
<PAGE>   45

                            THE WOODLANDS CORPORATION

                                    AGREEMENT

         This Agreement (the "Agreement") is made and entered into by and
between THE WOODLANDS CORPORATION, a Delaware corporation, with offices and its
principal place of business in The Woodlands, Montgomery County, Texas
(hereinafter "TWC"), and LEXICON GENETICS, INC. (hereinafter the "Tenant").

                                   WITNESSETH

         WHEREAS, the Tenant desires to use the suites at 4000 Research Forest
#A203 and #A224, The Woodlands, TX 77381 for the purpose storage;

         WHEREAS, the suites at 4000 Research Forest #A203 and #A224 is the
property of TWC; and

         WHEREAS, TWC has agreed to allow the Tenant to use the suites for
storage;

         NOW, THEREFORE, for and in consideration of the mutual covenants and
obligations herein contained, the sufficiency of which is hereby acknowledged,
TWC and Tenant agree as follows:

               1. TWC hereby grants the Tenant the nonexclusive use of the
         suites at 4000 Research Forest #A203 and #A224, The Woodlands, TX
         77381, for the period of month-to-month beginning March 26, 1997 to use
         for storage and for such other uses as are incident thereto.

               2. The Tenant shall be solely responsible for the use of the
         suites at 4000 Research Forest #A203 and #A224 during the term of this
         Agreement. The Tenant shall, in its use of the suites, comply with any
         and all rules and regulations imposed by TWC. The Tenant agrees to
         operate the storage area in such a manner so as not to unreasonably
         interfere with the activities of TWC tenants who are located adjacent
         to the suites at 4000 Research Forest #A203 and #A224. All expenses and
         costs necessary to operate the storage area shall be borne by the
         Tenant.

               3. The Tenant agrees to indemnify and hold TWC and its affiliated
         companies, their agents, officers, directors, servants and employees
         (herein "Indemnitee") harmless from and against and to reimburse
         Indemnitee with respect to, any and all claims, demands, causes of
         action, loss, damage, liabilities, costs and expenses (including
         attorney's fees and court costs) of any and every kind or character,
         known or unknown, fixed or contingent, asserted against or incurred by
         Indemnitee at any time and from time to time by reason of, or arising,
         either directly or indirectly, out of Organization's, its members', its
         agents', subcontractors', representatives' or invitees' use and/or
         misuse of the suites at 4000 Research Forest #A203 and #A224, The
         Woodlands, TX 77381.

                                     Page 1
<PAGE>   46

               4. The Base Rent, which Lessee hereby agrees to pay to Lessor
          monthly, in advance, at Lessor's address, shall be the sum of Forty
          and 00/100 Dollars ($40.00) per month, due and payable on the first
          day of each calendar month during the Term hereof, without offset or
          deduction, with a pro-rata portion being due and payable in advance
          for any partial month occurring at the beginning of the Term.

               5. The Tenant shall maintain, during the term of this Agreement,
          a policy or policies of comprehensive general liability insurance
          issued by and binding upon some solvent insurance company licensed to
          do business in the State of Texas, such insurance to afford protection
          of not less than $500,000.00 combined single limit bodily injury and
          property damage per occurrence. Said policy or policies shall name TWC
          as an additional named insured and include a waiver of subrogation in
          favor of TWC. The Tenant shall provide TWC a copy of the required
          policy or a certificate evidencing the required coverage upon
          execution of this Agreement.

               6. The Tenant for itself, its members, their representatives,
          heirs, executors, administrators, and next to kin (herein "Releasor")
          does hereby release, waive, discharge and covenant not to sue TWC, and
          affiliated company, its employees, agents and officers from any and
          every claim, demand, action or right of action of every kind or
          nature, either in law or in equity, arising from Releasor's use of the
          suites at 4000 Research Forest #A203 and #A224, The Woodlands, TX
          77381.

               7. This agreement may be terminated by either party with five (5)
          days' written notice. Upon termination of this Agreement the Tenant
          shall return the suites at 4000 Research Forest, #A203 and #A224, in
          the same condition as it was in when this Agreement commenced.

               8. This agreement is not assignable by the Tenant.

                                     Page 2
<PAGE>   47

         IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed this 27th day of March 1997.

                                         THE  WOODLANDS CORPORATION

                                         By:      /s/  Damon Palermo
                                                  ------------------------------
                                         Name:    Damon Palermo
                                         Title:   Assistant  Asset Manager

                                         LEXICON GENETICS, INC.

                                         By:      /s/  Ray B. Webb
                                                  ------------------------------
                                         Name:    Ray B. Webb
                                         Title:   President

                                     Page 3
<PAGE>   48

                EXTENSION, MODIFICATION AND RATIFICATION OF LEASE

         This Extension, Modification and Ratification of Lease ("Modification")
 is made and entered into, effective the 9th day of September, 1997, between THE
 WOODLANDS COMMERCIAL PROPERTIES COMPANY, L.P., a Texas limited partnership
 ("Lessor"), and LEXICON GENETICS INCORPORATED, a Delaware corporation
 ("Lessee") for and in consideration of One Dollar ($1.00), and other good and
 valuable consideration.

                              W I T N E S S E T H:

         1. Lessor and Lessee hereby confirm and ratify (as modified below) all
of the terms, conditions and covenants in that certain Lease Agreement between
the parties dated September 22, 1995, as modified by Modification of Lease,
dated October 25, 1995, Modification of Lease, dated January 18, 1996,
Expansion, Modification, and Ratification of Lease, dated November 4, 1996, and
Expansion, Modification and Ratification of Lease, dated January 2, 1997, under
which Lessee has leased from Lessor approximately 15,720 square feet of net
rentable area in that Building located at 4000 Research Forest Drive, The
Woodlands, Montgomery County, Texas.

         2. Lessor and Lessee agree that beginning January 1, 1998, the area of
the Premises shall be increased by 11,937 square feet of net rentable area
("Expansion Area"), which Expansion Area is outlined on attached Exhibit "A,"
changing the size of the Premises to 27,657 square feet of net rentable area.

         3. Lessor and Lessee agree that, beginning January 1, 1998, the Base
Rent, as set out in Section 7 of the Lease Agreement, shall be $35,559.88; on
February 1, 1998, the Base Rent shall be $47,247.38 per month ($20.50/SF/YR);
and beginning November 1, 1999 through the end of the Term, the Base Rent shall
be $49,552.13 per month ($21.50/SF/YR).

         4. Lessor agrees to make alterations and improvements ("Improvements")
to the Premises upon the terms set forth in Exhibit "B" attached hereto.

         5. Lessee, contemporaneously with the execution of this Modification,
has deposited with Lessor the sum of $26,586.50 as additional Security Deposit
(for a total as of the date of this Lease of $50,000.00), to be held by Lessor
subject to the terms of Section 6 of the Lease.

                                     Page 1
<PAGE>   49

         Signed this the 9th day of September 1997, at The Woodlands, Texas.

                      LESSOR:

                      THE WOODLANDS COMMERCIAL
                      PROPERTIES COMPANY, L.P.
                      a Texas limited partnership

                      By: The Woodlands Operating Company, L.P.
                              a Texas limited partnership Its Authorized Agent

                      By:     /s/  Eric H. Wojner
                              ---------------------------
                      Name:   Eric H. Wojner
                      Title:  V.P., Investment Properties

                      LESSEE:

                      LEXICON GENETICS INCORPORATED

                      By      /s/  Ray B. Webb
                              ---------------------------
                      Name:   Ray B. Webb
                      Title:  Vice President - Finance

                                     Page 2
<PAGE>   50

                                    EXHIBIT B

LEXICON GENETICS INCORPORATED

Re:      Leasehold improvements for 11,937 rentable square feet (11,937 usable
         square feet) of space in a building known as 2204 Timberloch Place in
         The Woodlands, Texas.

Gentlemen:

         Lessor is pleased to quote for your approval the cost of work necessary
to construct the proposed leasehold improvements in the above referenced space.

The cost of work is based upon the attached drawings dated July 14, 1997.

          Total Cost of Work                            $ To be determined
          Lessor Allowance                             ($ 72,545.00)

          Total Amount Due from Lessee                  $ To be determined

         The Lessor Allowance of $72,545.00 includes the sum of $12,860.00 which
Lessor owed Lessee pursuant to the Expansion, Modification, and Ratification of
Lease dated November 4, 1996. The Total Cost of the Work includes a construction
management fee of $7,500.00.

         Lessor shall enter into a construction contract for the leasehold
improvements. Lessee shall pay for all of the costs of the leasehold
improvements. On the date of this Modification, Lessee has paid to Lessor the
amount of $100,000.00 to fund a portion of the construction costs. Lessee shall
pay to Lessor an additional $100,000.00 on September 22, 1997 to fund another
portion of the construction costs. On October 22, 1997, Lessee shall pay Lessor
for all work performed through October 1, 1997 and the construction management
fee of $7,500.00, after application of the Lessor Allowance; Lessor is
responsible for paying the Lessor Allowance to the general contractor.
Thereafter, Lessee shall pay Lessor for any portion of the Total Cost of the
Work which Lessor has not incurred by October 1, 1997 when invoiced by Lessor
following Lessee's acceptance of the Leasehold Improvements.

         If Lessor further agrees to perform, at Lessee's request, any
additional or non-standard work over and above that specified on the attached
plans, such work shall be performed by Lessor, at Lessee's sole expense, as a
tenant extra. Prior to commencing any such work requested by Lessee, Lessor will
submit to Lessee written estimates of the cost of any such work. Within one (1)
week from the date of submission thereof by Lessor, Lessee shall either provide
written approval of the estimate for construction, submit to Lessor revisions in
the plans and specifications, or notify Lessor that the work is no longer
requested. Lessee shall pay Lessor promptly upon being billed therefore, the
cost of all such work, together with fifteen percent (15%) of the cost for
Lessor's overhead. In the event of default in payment thereof, Lessor shall (in
addition to all other remedies) have the same rights as in the event of default
of payment of rent under the Lease.

                                     Page 3
<PAGE>   51

         All monies due from Lessee for leasehold improvements must be paid to
Lessor prior to Lessee's occupancy of the Expansion Area.

         Upon Lessee's approval as indicated below, Lessor will begin
construction of Lessee's leasehold improvements and estimate construction
completion within 120 days of commencement of construction.

                                             Sincerely,

 /s/  Ray B. Webb               9/3/97       By:   /s/  Gerald D. Irons
 ------------------------       ------             --------------------
 Ray B. Webb                     Date              Gerald D. Irons
 Tenant Acceptance                                 Sales Director

                                             By:   /s/  Greg Swan
                                                   --------------------
                                                   Greg Swan
                                                   Director of
                                                   Tenant Improvements

                                     Page 4
<PAGE>   52

The Woodlands Operating Company, L.P.

2201 Timberloch Place      (281) 719-6100
The Woodlands, Texas 77380-1181
Mailing:
P.O. Box 5050
The Woodlands, Texas 77387-5050

                                  July 6, 1998

Dr. Arthur Sands
Lexicon Genetics Incorporated
4000 Research Forest Drive
The Woodlands, Texas 77380

Dear Dr. Sands:

         In consideration of the Option Fees hereinafter described, during the
period commencing on the date hereof and ending on December 31, 2000 ("Period"),
The Woodlands Commercial Properties Company, L.P. ("Woodlands Commercial")
grants to Lexicon Genetics Incorporated ("Lexicon") the option ("Option") to
utilize the 5.59 acre tract of land shown on Exhibit "A"attached hereto ("Option
Tract") for expansion. The Option shall be exercised by Lexicon, and effective
upon Lexicon delivering written notice to Lessor, within the Period, of its
desire to exercise the Option by either:

         (a)  entering into a lease agreement with Woodlands Commercial agreeing
         (i) to build a new project or (ii) to expand the existing buildings on
         the tract of land adjoining the Option Tract, which lease agreement
         covers all of the Option Tract; or

         (b)  entering into a long term ground lease with Woodlands Commercial
         covering the Option Tract.

         With respect to either (a) or (b) above, the land costs ("Land Costs")
to be used in the calculation of the rental to be paid shall be as follows:
$6.00 per square foot of land in the Option Tract if the Option is exercised in
calendar year 1998, $6.25 per square foot of land in the Option Tract if the
Option is exercised in calendar year 1999, and $6.75 per square foot of land in
the Option Tract if the Option is exercised in calendar year 2000.

         The term "Option Fee" as used herein shall mean 4% of the Land Costs
hereinabove specified for the Option Tract each year. Said Option Fees shall be
payable monthly, in advance, on or before the 1st day of each month. If Lexicon
exercises the Option, the Option Fees paid to date shall be applied to the Land
Costs utilized in the calculation of the Project Costs in the event of a) (i) or
(ii) above or rental for the Option Tract in the event of (b) above. "Project
Costs" as used herein means Woodlands Commercial's costs to build a new project
or expand the premises on the Option Tract, whichever is applicable. If Lexicon
fails to pay the monthly Option Fees as

                                     Page 1
<PAGE>   53

required herein, and said failure continues for more than 3 days after written
notice from Woodlands Commercial, the Option shall terminate and be of no
further force or effect and Woodlands Commercial shall retain the Option Fees
paid to date.

         If Lessee fails to properly and timely exercise the Option within the
Period, Lexicon's rights under the Option will terminate and be of no further
force and effect and Woodlands Commercial shall retain the Options Fees. Time is
of the essence with respect to this paragraph.

         It is understood and agreed, however, that Lexicon's option rights in
accordance with this agreement will be preserved in the event of a sale or lease
of the Option Tract by Woodlands Commercial for financing purposes such as a
sale/leaseback, or sale or lease to a partnership in which Woodlands Commercial
participates or a sale or lease to an Affiliate, or a foreclosure of a deed of
trust or mortgage lien. "Affiliate", as used herein, shall mean an entity which
controls, is controlled by or is under common control with Woodlands Commercial,
or The Woodlands Land Development Company, L.P.

         In further consideration of this agreement, Lexicon agrees to grant
Woodlands Commercial $625,000.00 in warrants at $7.50/share in order to purchase
Lexicon stock. The warrants shall be delivered to Woodlands Commercial on or
before 10 days after you date and return this letter agreement. The warrants do
not constitute Option Fees. The warrants will have an expiration date no earlier
than April 15, 2003.

         If this letter accurately sets forth our agreement please sign both
copies of this letter in the space provided below and return both copies to me.
I will return an executed copy to you for your file.

                               THE  WOODLANDS  COMMERCIAL  PROPERTIES
                               COMPANY,   L.P.,  a  Texas limited partnership

                               By: The Woodlands Operating Company, L.P.
                                   Its Authorized Agent

                               By:  /s/  R. Stephen McPhetridge
                                    ---------------------------------
                               Name: R. Stephen McPhetridge
                               Title: Vice President

         AGREED TO AND ACCEPTED ON July 22, 1998, by Dr. Arthur T. Sands,
President & CEO of Lexicon Genetics Incorporated.

                               LEXICON GENETICS INCORPORATED

                               By:  /s/  Arthur T. Sands
                                    ---------------------------------
                               Name:  Arthur T. Sands
                               Title:  President & CEO

                                     Page 2
<PAGE>   54

                EXTENSION, MODIFICATION AND RATIFICATION OF LEASE

          This Extension, Modification and Ratification of Lease
("Modification") is made and entered into, effective the 12th day of August,
1998, between THE WOODLANDS COMMERCIAL PROPERTIES COMPANY, L.P., a Texas limited
partnership ("Lessor"), and LEXICON GENETICS INCORPORATED, a Delaware
corporation ("Lessee"), for and in consideration of One Dollar ($ 1.00), and
other good and valuable consideration.

                                   WITNESSETH:

          1. Lessor and Lessee hereby confirm and ratify (as modified below) all
of the terms, conditions and covenants in that certain Lease Agreement between
the parties dated September 22, 1995, as modified by Modification of Lease,
dated October 25, 1995; Modification of Lease, dated January 18, 1996;
Expansion, Modification, and Ratification of Lease, dated November 4, 1996;
Expansion, Modification and Ratification of Lease, dated January 2, 1997; and
Extension, Modification and Ratification of Lease dated September 9, 1997, under
which Lessee has leased from Lessor 27,657 square feet of net rentable area
("Base Lease Space") in that Building located at 4000 Research Forest Drive, The
Woodlands, Montgomery County, Texas.

          2. Lessor and Lessee agree that the Term of the Lease shall be
extended ("Extension Period") so that the Lease Agreement will terminate 180
full calendar months from the Expansion Area I Commencement Date hereinafter
described in paragraph 4 below, rather than on December 31,2002.

          3. During the Extension Period, the monthly Base Rent, as set out in
Section 7 of the Lease Agreement, for the Base Lease Space shall be calculated
as follows: Base Rent Rate times 27,657 (square feet of net rentable area in the
Base Lease Space) divided by 12. The "Base Rent Rate" shall be as follows:

         Period                             Base Rent         Base Rent Rate

         1/1/2003 -12/31/2006               $53,009.25              $23.00
         l/l/2007 -12/31/2010               $57,618.75              $25.00
         I/l/2011 -12/31/2012               $62,228.25              $27.00
         I/l/2013 -180 months following     $64,533.00              $28.00
         Expansion Area I
         Commencement Date

          4. Lessor and Lessee agree that on the Expansion Area I Commencement
Date Lessor will have expanded the Building and the area of the Premises will be
increased by 28,865 square feet of net rentable area ("Expansion Area I"), which
Expansion Area I is outlined on attached Exhibit "A". The Land will be as
described in Exhibit "B" attached hereto. The Expansion Area I Commencement Date
shall be the earlier of (a) February 1, 1999, or (b) the day upon which Lessee
takes occupancy of the Expansion Area 1. If Lessor has not tendered to Lessee
possession of the Expansion Area 1 with all work to be performed by Lessor
pursuant to

                                     Page 1
<PAGE>   55

the Improvement Construction Agreement attached hereto as Exhibit
"C" ("Improvement Construction Agreement") substantially completed by the date
set forth in (a) above, the Expansion Area I Commencement Date shall be the date
Lessor has tendered to Lessee possession of the Expansion Area I with all work
to be performed by Lessor pursuant to the Improvement Construction Agreement
substantially completed. Lessor shall not be liable or responsible for any
claims, damages or liabilities of any nature whatsoever in connection with or by
reason of any delayed occupancy. The term "substantial completion" is described
in the Improvement Construction Agreement.

         5. Lessor and Lessee agree that effective on the Expansion Area I
Commencement Date, the monthly Base Rent, as set out in Section 7 of the Lease
Agreement, shall be adjusted by adding the amounts specified as follows:

         Full Months From the                         Additional
         Expansion Area I Commencement Date           Base Rent

         1 - 12                                       $50,166.67
         13-48                                        $53,666.67
         49-96                                        $57,166.67
         97-144                                       $61,833.33
         145- 180                                     $66,500.00

A pro rata portion shall be due and payable in advance for any partial month.

          6. Lessor agrees to expand the Building and make alterations and
 improvements to the Expansion Area I ("Expansion Work") upon the terms set
 forth in Exhibit "C" attached hereto.

         7. Lessor and Lessee agree that anytime during the Term, beginning 90
days after Lessor gives written notice to Lessee that the Space Utilization
Agreement dated effective December 15, 1995, amended by letter agreement dated
September 11, 1997, by and between The Woodlands Corporation and The University
of Texas M. D. Anderson Cancer Center ("M.D. Anderson"), covering 7,403 square
feet of net rentable area, is terminated and M. D. Anderson has vacated such
area, then the area of the Premises shall be increased by 7,403 square feet of
net rentable area ("Expansion Area 11"), which Expansion Area 11 is outlined on
attached Exhibit "D".

         8. Subject to the next sentence, Lessor agrees to provide to Lessee,
upon written request from Lessee, with an allowance of $37,015.00 for
alterations and improvements to the Expansion Area 11, said alterations and
improvements to be made by Lessor. If Lessee fails to request this allowance
within 6 months after the date of the notice from Lessor specified in Section 7,
then Lessor shall not be obligated to provide such allowance or make any
alterations or improvements to this area.

         9. Lessor and Lessee agree that beginning on the Expansion Area 11
Commencement Date, the Base Rent, as set out in Section 7 of the Lease
Agreement, shall be

                                     Page 2
<PAGE>   56

adjusted by adding the amounts calculated as follows: Base Rent Rate times 7,403
(square feet of net rentable area) divided by 12. The "Base Rent Rate" shall be
as follows:

                                           Additional
                Period                     Base Rent         Base Rent Rate

      Date hereof - 12/31/99               $12,646.79              $20.50
      l/l/2000 - 12/31/2002                $13,263.71              $21.50
      1/l/2003 - 12/31/2006                $14,189.08              $23.00
      l/l/2007 - 12/31/2010                $15,422.92              $25.00
      1/1/2011 - 12/31/2012                $16,656.75              $27.00
      1/1/2013 -180 Months Following       $17,273.67              $28.00
                    Expansion Area I
                    Commencement Date

The Base Rent Rate for the Expansion Area 11 space is the same as the Base Rent
Rate for the Base Lease Space.

                                     Page 3
<PAGE>   57

Effective on the first date written above.

                                  LESSOR:

                                  THE WOODLANDS COMMERCIAL PROPERTIES
                                  COMPANY, L.P., a Texas limited partnership

                                  By:  The Woodlands Operating Company, L.P., a
                                       Texas limited partnership, Its Authorized
                                       Agent

                                       By: /s/  Michael H. Richmond
                                           --------------------------
                                       Name: Michael H. Richmond
                                       Title:  President & CEO

                                  LESSEE:

                                  LEXICON GENETICS INCORPORATED

                                  By: /s/ Arthur Sands
                                      -------------------------------
                                  Name:  Arthur Sands
                                  Title: President & CEO

                                     Page 4
<PAGE>   58

                                    EXHIBIT C

                       IMPROVEMENT CONSTRUCTION AGREEMENT

LEXICON GENETICS INCORPORATED

 Re:      Improvement Construction Agreement for the 28,865 square feet of net
          rentable area expansion ("Expansion Area I") of the Premises in the
          building located at 4000 Research Forest Drive, in The Woodlands,
          Texas.

Gentlemen:

         Lexicon Genetics Incorporated ("Lessee") and The Woodlands Commercial
Properties Company, L.P. ("Lessor") are executing, simultaneously with this
agreement ("Improvement Construction Agreement") an Extension, Modification and
Ratification of Lease ("Modification") wherein Lessee agrees that the Premises
covered by its existing Lease with Lessor will be expanded to cover an
additional 28,865 square feet of net rentable area in the building located at
4000 Research Forest Drive, The Woodlands, Texas.

The cost of the expansion work ("Expansion Work") is based upon the attached
drawings dated (N/A) prepared by Budd Beets Harden Kolflat Architecture
("architect"). Lessor agrees to cause the Expansion Work to be constructed. The
contractor is Fretz Construction.

         Lessee shall bear all costs of the Expansion Work that exceed the
Lessor Allowance of $2,500,000.00 ("Lessor Allowance"). It is understood and
agreed that the cost of the Expansion Work will include a 3% administrative fee
for construction management, including, but not limited to, review of the plans,
drawings, and specifications for the leasehold improvements, including, the
mechanical systems and construction inspections. If the total cost of the
Expansion Work exceeds the Lessor Allowance and there are excess costs ("Excess
Costs"), Lessee agrees to pay to Lessor monthly, within 15 days after receipt of
an invoice from Lessor, the estimated Excess Costs divided by the estimated
number of months to complete the Expansion Work. Lessee agrees to pay to Lessor
any additional portion of the Excess Costs which Lessor had not been reimbursed
for prior to Lessee taking occupancy of the Expansion Area I within 30 days
after receipt of an invoice from Lessor.

         The Expansion Area I shall be deemed substantially complete when Lessor
has procured and delivered to Lessee a certificate signed by Lessor and the
architect, certifying that the Expansion Area I is substantially complete in
accordance with the contract documents and permitting the occupancy of the
Expansion Area 1. For the purposes of the Modification and this Improvement
Construction Agreement, the Expansion Work to be done by Lessor shall be deemed
substantially complete even though minor details or adjustment which shall not
materially interfere with Lessee's use of the Expansion Area I may not have been
completed, but which work Lessor agrees to complete as soon as reasonably
practicable.

         If Lessor further agrees to perform, at your request, any additional or
non-standard work over and above that specified on the attached plans, such work
shall be performed by Lessor, at

                                     Page 5
<PAGE>   59

your sole expense, as a tenant extra. Prior to commencing any such work
requested by you, Lessor will submit to you written estimates of the cost of any
such work. Within one (1) week from the date of submission thereof by Lessor,
you shall either provide written approval of the estimate for construction,
submit to Lessor revisions in the plans and specifications, or notify Lessor
that the work is no longer requested. You agree to pay Lessor promptly upon
being billed therefore, the cost of all such work. You agree that in the event
of default in payment thereof, Lessor shall (in addition to all other remedies)
have the same rights as in the event of default of payment of rent under the
Lease.

         It is agreed that, notwithstanding the date provided in the
Modification for the Expansion Area I Commencement Date, your obligation for the
payment of increased rental thereunder shall not commence until Lessor has
substantially completed all work to be performed by Lessor pursuant to this
agreement; provided, however, that if Lessor shall be delayed in substantially
completing the work as required hereunder as a result of:

          (a)  Your failure to timely furnish the information and approval as
          and when required;

          (b)  Your request for materials, finishes or installations other than
          specified on plans attached;

          (c)  Your changes in approved plans or specifications; or

          (d)  The performance by a person, firm or corporation employed by you
          and the completion of said work by said person, firm or corporation,

then the commencement of the term of the Lease and the payment of rent
thereunder shall be accelerated by the number of days of such delay.

         Upon your approval as indicated below, Lessor will begin construction
of your leasehold improvements and estimate construction completion on or before
February 1, 1999.

                                                 Sincerely,

/s/Arthur Sands               4/27/98            /s/  R. Stephen McPhetridge
--------------------          -------            ----------------------------
Arthur Sands                    Date             R. Stephen McPhetridge
Tenant Acceptance                                Sales Director

                                                 /s/  Leon Lee
                                                 ----------------------------
                                                 Leon Lee
                                                 Director Of Tenant Improvements

                                     Page 6
<PAGE>   60

                     MODIFICATION AND RATIFICATION OF LEASE

         This Modification and Ratification of Lease ("Modification"). is made
and entered into, effective the 25th day of November, 1998, between THE
WOODLANDS COMMERCIAL PROPERTIES COMPANY, L.P., a Texas limited partnership
("Lessor"), and LEXICON GENETICS INCORPORATED, a Delaware corporation
("Lessee"), for and in consideration of One Dollar ($1.00), and other good and
valuable consideration.

                                   WITNESSETH:

         1. Lessor and Lessee hereby confirm and ratify (as modified below) all
of the terms, conditions and covenants in that certain Lease Agreement ("Lease")
between the parties dated September 22, 1995, as modified by Modification of
Lease, dated October 25, 1995; Modification of Lease, dated January 18, 1996;
Expansion, Modification, and Ratification of Lease, dated November 4, 1996;
Expansion, Modification and Ratification of Lease, dated January 2, 1997;
Extension, Modification and Ratification of Lease dated September 9, 1997; and
Extension, Modification and Ratification of Lease dated August 12, 1998 ("Last
Modification"), under which Lessee has leased from Lessor 35,060 square feet of
net rentable area ("Base Lease Space") in that Building located at 4000 Research
Forest Drive, The Woodlands, Montgomery County, Texas. Lessor and Lessee
acknowledge that the Expansion Area 11 (7,403 square feet of net rentable area)
described in the Last Modification has been incorporated into the Base Lease
Space.

         2. Lessor and Lessee agree that beginning January 1, 1999, the monthly
Base Rent, as set out in Section 7 of the Lease for the Base Lease Space shall
be calculated as follows: Base Rent Rate times 35,060 (square feet of net
rentable area in the Base Lease Space) divided by 12. The "Base Rent Rate" shall
be as follows:

                Period                      Base Rent          Base Rent Rate
--------------------------------------------------------------------------------
         1/1/1999 - 12/31/1999              $45,285.83             $15.50

         l/l/2000 - 12/31/2002              $48,207.50             $16.50

         l/l/2003 - 12/31/2006              $52,590.00             $18.00

         1/l/2007 - 12/31/2010              $58,433.33             $20.00

         1/1/2011 - 12/31/2012              $64,276.67             $22.00

    1/1/2013 - 180 months following         $67,198.33             $23.00

           Expansion Area I

           Commencement Date

The "Expansion Area I Commencement Date" is defined in the Last Modification.

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<PAGE>   61

         3. Lessor and Lessee agree that effective January 1, 1999, Lessee shall
be responsible for the costs of all Operating Expenses and Section 8 of the
Lease shall be deleted in its entirety and the following Section 8 shall be
inserted in its stead:

                   "8. Additional Rent. Lessee agrees to pay, as Additional
         Rent, all Operating Expenses (as defined in Section 10 below) for the
         Premises. Within 10 days after execution of this Modification, Lessor
         will provide Lessee a statement showing Lessor's reasonable estimate of
         the Operating Expenses for the then current Fiscal Year. Within 90 days
         following the completion of each Fiscal Year thereafter, Lessor will
         provide to Lessee a statement showing in reasonable detail the actual
         Operating Expenses for the preceding Fiscal Year, any Additional Rent
         due, and Lessor's reasonable estimate of Operating Expenses for the
         then current Fiscal Year. Lessee shall, on or before 30 days following
         receipt of said statement, pay to Lessor the amount of Additional Rent
         due as provided herein, less the amount of Additional Rent paid in
         advance (if any) during the preceding Fiscal Year. Any overpayment will
         be paid to Lessee within 30 days of the determination of such
         overpayment. Lessee agrees to pay Additional Rent each month
         thereafter, in addition to Base Rent, in an amount necessary to
         amortize the estimated Operating Expenses for the then current Fiscal
         Year over a period equal to the lesser of (i) the number of months
         remaining in the Term or (ii) the number of months remaining in the
         current Fiscal Year. Notwithstanding that the Term has expired or been
         terminated, Lessee shall remain liable for and agrees to pay to Lessor
         within 30 days following receipt of an invoice therefor, Additional
         Rent for the Fiscal Year during which the Term expired or was
         terminated but only for those months prior to expiration of the Term.
         The term "Fiscal Year", as used herein, shall mean Lessor's fiscal year
         for accounting purposes which currently is the 12-month period
         beginning January I and ending December 31. Lessor shall have the right
         to change the Fiscal Year, from time to time, and, in such event,
         Lessor shall notify Lessee in writing of such change. Lessee shall have
         the right, at its expense and at a reasonable time within I year after
         the date the statement is provided to Lessee, to audit Lessor's books
         relevant to the Additional Rent due under this Section. If Lessee has
         been overbilled by more than 5%, Lessor shall pay Lessee's reasonable
         costs of the audit, not to exceed $1,000.00."

         4. Lessor and Lessee agree that effective January 1, 1999, Section 10
of the Lease shall be deleted in its entirety and the following Section 10.
shall be inserted in its stead:

                  "10. Operating Expenses. The term "Operating Expenses" means
         all of Lessor's costs, expenses and disbursements (but not acquisition
         of capital investment items, except as hereinafter expressly provided
         or specific costs billed to specific lessees) to operate and maintain
         the Land, the Building, and all improvements on the Land from time to
         time (to the extent and only to the extent same are Lessor's obligation
         to pay or furnish under the other provisions of this Lease), including,
         but not limited to, Lessor's costs of providing porter services and
         supplies; refuse removal (if Lessor elects to furnish this service);
         landscaping, including irrigation; and general maintenance and repairs,
         including, but not limited to, repairs to roof surface and preventive
         maintenance, parking area restriping, exterior painting and other
         activities. Operating Expenses shall also include a reasonable charge
         for amortization of all capital items Lessor installs (a) to

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         reduce Operating Expenses, or (b) to promote safety, or (c) which
         Lessor is required to install on or for the benefit of the Building by
         any governmental law, code or regulation passed or enacted on or after
         the Commencement Date, or (d) which is a replacement (as opposed to
         additions or new improvements) of items located in the common areas
         adjacent to the Building, the parking area and other facilities used
         in connection with the Building, or involving the exterior of the
         Building, including, but not limited to, the roof and structural
         elements. Additionally, Operating Expenses shall include all ad
         valorem taxes or assessments, and Annual Assessments of The Woodlands
         Community Association, Inc. and The Woodlands Commercial Owners
         Association, whichever is applicable, which accrue against the
         Building or the Land during the Term, together with all insurance
         premiums which Lessor is required to pay or deems necessary to pay
         with respect to the Building or the Land, including, but not limited
         to, casualty insurance and liability insurance, and a management fee
         ("Management Fee") of 5% of Lessee's annual Base Rent."

         5. Lessor and Lessee agree that effective January 1, 1999, Section II
shall be deleted in its entirety and the following Section 11 shall be inserted
in its stead:

                    11. Utilities. Lessor shall make available to the Building
         gas, electricity, water and sewer facilities. Lessee agrees to assume
         all costs and expenses for water and sewer, gas, electricity,
         telephone, and any other service needed for its use at the Premises,
         including any license or deposit required to establish or maintain such
         services, and the costs of installation, hook-up and metering. Lessee
         shall promptly pay for all utility services furnished to the Premises
         during the term of this Lease. Lessor shall under no circumstances be
         liable to Lessee in damage or otherwise for any interruption in service
         of water, electricity, heating, air conditioning or other utilities or
         services caused by governmental regulation, emergencies, Acts of God,
         by the making of any necessary repairs or improvements, or by any cause
         beyond Lessor's reasonable control. Lessor shall endeavor in good faith
         to give at least 24 hours notice to Lessee when any necessary
         interruption in service will be made by Lessor."

         6. Lessor and Lessee agree that effective January 1, 1999, Section 14
shall be deleted in its entirety and the following Section 14 shall be inserted
in its stead:

                    14. Exterior Repairs. Lessor will keep the exterior of the
         Building, including any doors, windows, or glass, in repair, provided
         Lessee shall give Lessor written notice of the necessity for such
         repairs, and provided that the damage thereto shall not have been
         caused by the negligence of Lessee, its agents, employees, licensees or
         invitees, in which event Lessee shall be responsible therefor for the
         cost. Lessor shall be under no liability for repair, maintenance,
         alteration or any other action with reference to any plumbing,
         electrical or other mechanical installation within or serving the
         Premises or any part thereof, except for the service lines leading to
         the Premises."

         7. Lessor and Lessee agree that effective January 1, 1999, Section 15,
of the Lease shall be deleted in its entirety and the following Section 15 shall
be inserted in its stead:

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                   15. Operation by Lessee. Lessee agrees to (a) keep the inside
         of all glass in the doors and windows of the Premises clean; (b) keep
         all interior surfaces of the Premises clean; (c) replace promptly, at
         its expense, any cracked or broken window glass inside the Premises
         with glass of like kind and quality; (d) maintain the Premises in a
         clean, orderly and sanitary condition and free of insects, rodents,
         vermin and other pests; (e) keep any garbage, trash, rubbish or refuse
         in rat-proof containers within the interior of the Premises until
         removed from the area; (f) have such garbage, trash, rubbish and refuse
         removed at its expense on a regular basis from location points and at
         such times as designated by Lessor, if said service is not provided by
         Lessor; (g) keep all mechanical apparatus free of vibration, noise or
         pollution which may be transmitted beyond the Premises; (h) comply with
         all laws, ordinances, rules and regulations of the Fire Underwriters
         Rating Bureau now or hereafter in affect; and (i) conduct its business
         in all respects in a dignified manner in accordance with high standards
         of business operation.

                   In addition, Lessee shall not (a) place or maintain any
         merchandise or other articles in any vestibule or entry of the
         Premises, on the footwalks adjacent thereto or elsewhere on the
         exterior of the Premises or Building without the written consent of
         Lessor; (b) permit undue accumulation of garbage, trash, rubbish or
         other refuse within or without the Premises; (c) cause or permit
         objectionable odors to emanate or be dispelled from the Premises; (d)
         cause or permit the parking of vehicles so as to interfere with the use
         of any driveway, walk, parking area, dock or other common facility in
         the area; (e) occupy, use or permit the use or occupancy of any portion
         of the Premises for any business or purpose is immoral, disreputable or
         in violation of any legal direction of any public officer; or (f)
         occupy, use or pen-nit the use or occupancy of any portion of the
         Premises for any business or purpose which, in the reasonable opinion
         of Lessor constitutes a public or private nuisance or unduly disturbs
         the business of other tenants in the Building.

                   Lessor shall have the right, upon written notice to Lessee,
         to provide for rubbish and refuse removal services as required of
         Lessee above, and Lessee agrees to reimburse Lessor for the cost
         incurred in providing such service within 30 days after receipt of a
         statement setting forth the cost of such service.

                   Lessee agrees to discharge all waste materials from the
         Premises in compliance with the rules and regulations as set forth in
         The Woodlands Metro Center Municipal Utility District Policy Manual -
         Industrial Waste Discharges Permits and Charges - No. R&S-50, issued
         July 12, 1979, with an effective date of July 12, 1979, as it may be
         amended from time to time. Lessee shall haul away for disposal at its
         own expense, any waste material not meeting the standards for discharge
         set forth in the above-referenced manual.

                  Lessee shall comply, at Lessee's cost and expense, with all
         private restrictions encumbering the Land and all present and future
         laws, ordinances, orders, rules, regulations and requirements of all
         federal, state, and municipal governments, including all municipal and
         road utility districts and municipal utility districts, and all
         departments, commissions, boards and officers thereof, and any other
         body exercising similar

                                     Page 4
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         functions, which now or hereafter may be applicable to the Premises,
         the improvements in the Premises, or to the use or manner of use of
         the Premises or the improvements, including but not limited to, all
         environmental laws and the Americans With Disabilities Act. In the
         event of a release of hazardous substances by Lessee which Lessee is
         responsible to cleanup, Lessee shall conduct a Standard I cleanup so
         that there is a total and complete removal of all contaminates from
         the Premises. Lessee agrees that no such cleanup shall be subject to a
         risk reduction standard and no deed recordation notice shall be
         recorded against the Premises.

                   Lessee also agrees to comply with the Rules and Regulations
         of the Building, a copy of which is attached hereto as Exhibit "C".
         Lessor may amend said Rules and Regulations, from time to time, if
         reasonably necessary for the safety, care, or cleanliness of the
         Building, provided that no amendment shall alter any covenant or
         provision contained in this Lease. Lessee agrees to comply with any
         amendment which is made to said rules and Regulations in compliance
         with the terms of this subsection.

                   Lessee shall promptly pay directly to the taxing authority
         all sales and/or ad valorem taxes now or hereafter levied by separate
         bill on Lessee's personal property and leasehold improvements. Lessee
         waives all rights under applicable law to protest appraised values or
         receive notice of reappraisal regarding the Land and Building
         (including Lessor's personalty), irrespective of whether Lessor
         contests same. To the extent such waiver is prohibited, Lessee appoints
         Lessor as Lessee's attorney-in-fact, coupled with an interest, to
         appear and take all actions which Lessee would otherwise be entitled to
         take under applicable law."

         8. Lessor and Lessee agree that effective January 1, 1999, Section 16
of the Lease shall be deleted in its entirety and the following Section 16 shall
be inserted in its stead:

                   "16. Interior Repairs and Maintenance. Lessee will, at
         Lessee's cost and expense, keep the interior of the Premises, together
         with all electrical, plumbing and other mechanical installations
         therein, all heating and air conditioning equipment, and all interior
         windows or doors serving the Premises, in good order and repair, and
         will make all replacements thereto as its expense. Lessee will
         surrender the Premises at the expiration or earlier termination of this
         Lease, in as good condition as when received, excepting depreciation
         caused by ordinary wear and tear. Lessee will not overload the
         electrical wiring serving the Premises or within the Premises, and will
         install at its expense, but only after obtaining Lessor's written
         approval, any additional electrical service which may be required in
         connection with Lessee's use or occupancy. Notwithstanding anything
         herein to the contrary, Lessor, and not Lessee, shall be liable for any
         and all interior repairs which may result from any structural failure
         of the Building, unless caused by Lessee, its agents, employees or
         invitees. Lessee will repair promptly, at its expense, any damage to
         the Premises caused by bringing into the Premises any property for
         Lessee's use, or by the installation or removal of such property,
         regardless of fault or by whom such damage was caused, unless caused by
         Lessor, its agents, employees or contracts. Upon execution of this
         Lease, Lessee, at its own cost and expense, shall enter into a
         regularly scheduled preventative maintenance/service contract with
         Lessor, or a maintenance contractor

                                     Page 5
<PAGE>   65
         approved by Lessor, for servicing all hot water, heating, and
         airconditioning systems and equipment within the Premises. If Lessee
         fails to make such repairs and/or to perform the maintenance and
         repairs to the Premises which are Lessee's obligation under this
         Lease, Lessor may make same, and Lessee agrees to pay, as additional
         rent, the cost thereof to Lessor promptly upon Lessor's demand
         therefor."

         9. Lessor and Lessee agree that effective on the Expansion Area I
Commencement Date the monthly Base Rent, as set out in Section 7 of the Lease,
shall be adjusted by adding the amounts specified as follows, rather than the
amounts set forth in the Last Modification:

                     Full Months From the               Additional
         Expansion Area I Commencement Date             Base Rent
                             1-12                       $38,149.91
                             13-48                      $41,637.76
                             49-96                      $45,149.67
                            97-144                      $49,816.18
                            145-180                     $54,482.69

A pro rata portion shall be due and payable in advance for any partial month.

         10. Lessor and Lessee agree that notwithstanding anything contained in
numbered paragraph 9. of the Last Modification to the contrary, no Base Rent
shall be payable on the Expansion Area 11 until January 1, 1999. The Expansion
Area 11 has been incorporated into the Base Lease Space and the Base Rent
payable effective January 1, 1999, set forth in numbered paragraph 2. of this
Modification, includes the Base Rent payable for the Expansion Area 11.

         Effective on the first date written above.

                             LESSOR:

                             THE WOODLANDS COMMERCIAL PROPERTIES
                             COMPANY, L.P., a Texas limited partnership

                             By:      The Woodlands Operating Company, L.P., a
                                      Texas limited partnership, Its Authorized
                                      Agent

                                      By:  /s/  Eric H. Wojner
                                           --------------------------
                                      Name:  Eric H. Wojner
                                      Title:  Vice President/
                                      Investment Properties

                             LESSEE:

                             LEXICON GENETICS INCORPORATED

                             By:   /s/  Arthur T. Sands
                                   -----------------------------
                             Name: Arthur T. Sands
                             Title: President & CEO

                                     Page 6

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